Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

L-28896 February 17, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ALGUE, INC., and THE COURT OF TAX APPEALS, respondents. CRUZ, J.: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law. We deal first with the procedural question. The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally 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. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals. 6 The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. Now for the substantive question. The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was 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. Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact, as the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has been established that the Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals. 16 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. 17 The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved. 18 The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction. We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, 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. 20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation. We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. 21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the

Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code: SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions (a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; ... 22 and Revenue Regulations No. 2, Section 70 (1), reading as follows: SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows: Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders. 23 The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is said that 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. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it 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. For all the

awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner. ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without costs. SO ORDERED. Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Footnotes 1 Rollo, pp. 28-29. 2 Ibid., pp. 29; 42. 3 Id., p. 29. 4 Respondent's Brief, p. 11. 5 Id., p. 29. 6 Id, 7 Sec. 11. 8 Phil. Planters Investment Co. Inc. v. Comm. of Internal Revenue, CTA Case No. 1266, Nov. 11, 1962; Rollo, p. 30. 9 Vicente Hilado v. Comm. of Internal Revenue, CTA Case No. 1266, Oct. 22,1962; Rollo, p. 30. 10 Ibid. 11 Penned by Associate Judge Estanislao R. Alvarez, concurred by Presiding Judge Ramon M. Umali and Associate Judge Ramon L. Avancea. 12 Rollo, p. 33. 13 Ibid., pp. 7-8; Petition, pp. 2-3. 11 Id., p. 37. 15 Id. 16 Id.

17 Id. 18 Id. 19 Respondents Brief, pp. 25-32. 20 Ibid., pp. 30-32. 21 Rollo, p. 37. 22 Now Sec. 30, (a)(1)-(A.), National Internal Revenue Code. 23 Respondent's Brief, p. 35.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-67649 June 28, 1988 ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.: The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name. The antecedent facts are as follows: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.

Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering: (a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho Fernandez over the parcel of land including the improvements thereon, subject to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled. (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal) The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review. Francia prefaced his arguments with the following assignments of grave errors of law: I RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER. II RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00. III RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE

PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo) We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due process of law. A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss it. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; xxx xxx xxx (3) that the two debts be due. xxx xxx xxx This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is wellsettled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..." We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy.

This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction sale without reading it. Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied) We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that: xxx xxx xxx ... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. (emphasis supplied) There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that: [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity of the auction sale can not be assailed ... . We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question shall be sold at public auction to the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this letter? A. I just signed it because I was not able to read the same. It was just sent by mail carrier. Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did not read the contents of it? A. Yes, sir, as I was in a hurry. Q. After you received that original where did you place it? A. I placed it in the usual place where I place my mails. Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force. Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held: ... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale." The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290): If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555): Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve, but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those who have invited it by their own neglect. We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to deny the petition. And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed. SO ORDERED. Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents. Office of the Solicitor General and Atty. G. H. Mantolino for petitioner. Benedicto and Martinez for respondents. LABRADOR, J.: This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this

Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows: Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960) The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960) The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus: . . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.1wph1.t Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after

hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case. The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy. The petition is, therefore, dismissed, without costs. Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Bengzon, C.J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. Nos. L-49839-46 April 26, 1991 JOSE B. L. REYES and EDMUNDO A. REYES, petitioners, vs. PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE ROO, in their capacities as appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as appointed and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL in his capacity as City Assessor of Manila, respondents. Barcelona, Perlas, Joven & Academia Law Offices for petitioners.

PARAS, J.:p This is a petition for review on certiorari to reverse the June 10, 1977 decision of the Central Board of Assessment Appeals 1 in CBAA Cases Nos. 72-79 entitled "J.B.L. Reyes, Edmundo Reyes, et al. v. Board of Assessment Appeals of Manila and City Assessor of Manila" which affirmed the March 29, 1976 decision of the Board of Tax Assessment Appeals 2 in BTAA Cases Nos. 614, 614-A-J, 615, 615-A, B, E, "Jose Reyes, et al. v. City Assessor of Manila" and "Edmundo Reyes and Milagros Reyes v. City Assessor of Manila" upholding the classification and assessments made by the City Assessor of Manila. The facts of the case are as follows: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in monthly rentals of dwelling units or of lands on which another's dwelling is located, where such rentals do not exceed three hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter. The said Act also suspended paragraph (1) of Article 1673 of the Civil Code for two years from its effectivity thereby disallowing the ejectment of lessees upon the expiration of the usual legal period of lease. On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to increase monthly rentals below P300.00 and by indefinitely suspending the aforementioned provision of the Civil Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were precluded from raising the rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila re-classified and reassessed the value of the subject properties based on the schedule of market values duly reviewed by the Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that the income approach should have been used in determining the land values instead of the comparable sales approach which the City Assessor adopted (Rollo, pp. 9-10-A). The Board of Tax Assessment Appeals, however, considered the assessments valid, holding thus: WHEREFORE, and considering that the appellants have failed to submit concrete evidence which could overcome the presumptive regularity of the classification and assessments appear to be in accordance with the base schedule of market values and of the base schedule of building unit values, as approved by the Secretary of Finance, the cases should be, as they are hereby, upheld. SO ORDERED. (Decision of the Board of Tax Assessment Appeals, Rollo, p. 22). The Reyeses appealed to the Central Board of Assessment Appeals. They submitted, among others, the summary of the yearly rentals to show the income derived from the properties. Respondent City Assessor, on the other hand, submitted three (3) deeds of sale showing the different market values of the real property situated in the same vicinity where the subject properties of petitioners are located. To better appreciate the locational and physical features of the land, the Board of Hearing Commissioners conducted an ocular inspection with the presence of two representatives of the City Assessor prior to the healing of the case. Neither the owners nor their authorized representatives were present during the said ocular inspection despite proper notices served them. It was found that certain parcels of land were below street level and were affected by the tides (Rollo, pp. 24-25).

On June 10, 1977, the Central Board of Assessment Appeals rendered its decision, the dispositive portion of which reads: WHEREFORE, the appealed decision insofar as the valuation and assessment of the lots covered by Tax Declaration Nos. (5835) PD-5847, (5839), (5831) PD-5844 and PD-3824 is affirmed. For the lots covered by Tax Declaration Nos. (1430) PD-1432, PD-1509, 146 and (1) PD266, the appealed Decision is modified by allowing a 20% reduction in their respective market values and applying therein the assessment level of 30% to arrive at the corresponding assessed value. SO ORDERED. (Decision of the Central Board of Assessment Appeals, Rollo, p. 27) Petitioner's subsequent motion for reconsideration was denied, hence, this petition. The Reyeses assigned the following error: THE HONORABLE BOARD ERRED IN ADOPTING THE "COMPARABLE SALES APPROACH" METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS' PROPERTIES. The petition is impressed with merit. The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners maintain that the "Income Approach" method would have been more realistic for in disregarding the effect of the restrictions imposed by P.D. 20 on the market value of the properties affected, respondent Assessor of the City of Manila unlawfully and unjustifiably set increased new assessed values at levels so high and successive that the resulting annual real estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by the dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the values assigned to their properties as revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable, confiscatory and unconstitutional (Rollo, p. 10-A). On the other hand, while respondent Board of Tax Assessment Appeals admits in its decision that the income approach is used in determining land values in some vicinities, it maintains that when income is affected by some sort of price control, the same is rejected in the consideration and study of land values as in the case of properties affected by the Rent Control Law for they do not project the true market value in the open market (Rollo, p. 21). Thus, respondents opted instead for the "Comparable Sales Approach" on the ground that the value estimate of the properties predicated upon prices paid in actual, market transactions would be a uniform and a more credible standards to use especially in case of mass appraisal of properties (Ibid.). Otherwise stated, public respondents would have this Court completely ignore the effects of the restrictions of P.D. No. 20 on the market value of properties within its coverage. In any event, it is unquestionable that both the "Comparable Sales Approach" and the "Income Approach" are generally acceptable methods of appraisal for taxation purposes (The Law on Transfer and Business Taxation by Hector S. De Leon, 1988 Edition). However, it is conceded that the propriety of one as against the other would of course depend on several factors. Hence, as early as 1923 in the case of Army & Navy Club, Manila v. Wenceslao Trinidad, G.R. No. 19297 (44 Phil. 383), it has been stressed that the assessors, in finding the value of the property, have to consider all the circumstances and elements of value and must exercise a prudent discretion in reaching conclusions. Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but must also be equitable and progressive.

Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]). Notably in the 1935 Constitution, there was no mention of the equitable or progressive aspects of taxation required in the 1973 Charter (Fernando "The Constitution of the Philippines", p. 221, Second Edition). Thus, the need to examine closely and determine the specific mandate of the Constitution. Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its rate goes up depending on the resources of the person affected (Ibid.). The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government. But for all its plenitude the power to tax is not unconfined as there are restrictions. Adversely effecting as it does property rights, both the due process and equal protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." The web or unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to destroy while this Court sits. So it is in the Philippines " (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 439 [1985]). In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to confiscation of property. That would be a clear abuse of power (Sison v. Ancheta, supra). The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different both in the privileges conferred and the liabilities imposed (Ibid., p. 662). Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental Principle to guide the appraisal and assessment of real property for taxation purposes is that the property must be "appraised at its current and fair market value." By no strength of the imagination can the market value of properties covered by P.D. No. 20 be equated with the market value of properties not so covered. The former has naturally a much lesser market value in view of the rental restrictions. Ironically, in the case at bar, not even the factors determinant of the assessed value of subject properties under the "comparable sales approach" were presented by the public respondents, namely: (1) that the sale must represent a bonafide arm's length transaction between a willing seller and a willing buyer and (2) the property must be comparable property (Rollo, p. 27). Nothing can justify or support their view as it is of judicial notice that for properties covered by P.D. 20 especially during the time in question, there were hardly any willing buyers. As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these properties were comparable with other residential properties not burdened by P.D. 20. Neither can the given circumstances be nonchalantly dismissed by public respondents as imposed under distressed conditions clearly implying that the same were merely temporary in character. At this point in time, the falsity of such premises cannot be more convincingly demonstrated by the fact that the law has existed for around twenty (20) years with no end to it in sight. Verily, taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which is the

promotion of the common good, may be achieved (Commissioner of Internal Revenue v. Algue Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be penalized by the same government by the imposition of excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties. By the public respondents' own computation the assessment by income approach would amount to only P10.00 per sq. meter at the time in question. PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public respondents are REVERSED and SET ASIDE; and (e) the respondent Board of Assessment Appeals of Manila and the City Assessor of Manila are ordered to make a new assessment by the income approach method to guarantee a fairer and more realistic basis of computation (Rollo, p. 71). SO ORDERED. Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Grio-Aquino, Medialdea, Regalado and Davide, Jr., JJ., concur.

Footnotes 1 Penned by former Chairman and Acting Minister Pedro Almanzor and concurred in by the then Minister of Justice Vicente Abad Santos and Minister of Local Government and Community Development Jose Rono. 2 Rendered by then Acting Register of Deeds of Manila Teresita H. Noblejas and concurred in by former City Engineer of Manila Romulo M. del Rosario and OIC of the Office of the City of Auditor Raul C. Flores. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L- 41383 August 15, 1988 PHILIPPINE AIRLINES, INC., plaintiff-appellant, vs. ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his capacity as National Treasurer, defendants-appellants. Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.: What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a reexamination of the latest decision on this issue. This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of registration fees paid under protest. The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code. The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The pertinent provision of the franchise provides as follows: Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the National Government during the life of this franchise a tax of two per cent of the gross revenue or gross earning derived by the grantee from its operations under this franchise. Such tax shall be due and payable quarterly and shall be in lieu of all taxes of any kind, nature or description, levied, established or collected by any municipal, provincial or national automobiles, Provided, that if, after the audit of the accounts of the grantee by the Commissioner of Internal Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable within the ten days from the receipt of the assessment. The grantee shall pay the tax on its real property in conformity with existing law. On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not been paying motor vehicle registration fees. Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees. Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862. Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue or earnings, it does not exempt

the plaintiff from paying regulatory fees, such as motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on the merits. On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals which certified the case to us. Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar. Resolving the issue in the Philippine Rabbit case, this Court held: "The registration fee which defendant-appellee had to pay was imposed by Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of "registration fees." The term is repeated four times in the body thereof. Equally so, mention is made of the "fee for registration." (Ibid., Subsection G) A subsection starts with a categorical statement "No fees shall be charged." (lbid., Subsection H) The conclusion is difficult to resist therefore that the Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police power. Hence the incipient, of the section relied upon by defendant-appellee under the Back Pay Law, It is not held liable for a tax but for a registration fee. It therefore cannot make use of a backpay certificate to meet such an obligation. Any vestige of any doubt as to the correctness of the above conclusion should be dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of additional tax on privately-owned passenger automobiles, motorcycles and scooters was amended by Republic Act No. 5470 which is (sic) approved on May 30, 1969.) A special science fund was thereby created and its title expressly sets forth that a tax on privatelyowned passenger automobiles, motorcycles and scooters was imposed. The rates thereof were provided for in its Section 3 which clearly specifies the" Philippine tax."(Cooley to be paid as distinguished from the registration fee under the Motor Vehicle Act. There cannot be any clearer expression therefore of the legislative will, even on the assumption that the earlier legislation could by subdivision the point be susceptible of the interpretation that a tax rather than a fee was levied. What is thus most apparent is that where the legislative body relies on its authority to tax it expressly so states, and where it is enacting a regulatory measure, it is equally exploded (at p. 22,1969 In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held: The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles are in section 8 of that law called "fees". But the appellation is no impediment to their being considered taxes if taxes they really are. For not the name but the object of the charge determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue, whereas fees are exceptional. for purposes of regulation and inspection and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. Hence, a charge fixed by statute for the service to be person,-When by an officer, where the charge has no relation to the value of the services performed and where the amount collected eventually finds its way into the treasury of the branch of the government whose officer or officers collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.) From the data submitted in the court below, it appears that the expenditures of the Motor Vehicle Office are but a small portionabout 5 per centumof the total collections from motor vehicle registration fees. And as proof that the money collected is not intended for

the expenditures of that office, the law itself provides that all such money shall accrue to the funds for the construction and maintenance of public roads, streets and bridges. It is thus obvious that the fees are not collected for regulatory purposes, that is to say, as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, for their express object is to provide revenue with which the Government is to discharge one of its principal functionsthe construction and maintenance of public highways for everybody's use. They are veritable taxes, not merely fees. As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it provides that "no other taxes or fees than those prescribed in this Act shall be imposed," thus implying that the charges therein imposedthough called feesare of the category of taxes. The provision is contained in section 70, of subsection (b), of the law, as amended by section 17 of Republic Act 587, which reads: Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be imposed for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur, by any municipal corporation, the provisions of any city charter to the contrary notwithstanding: Provided, however, That any provincial board, city or municipal council or board, or other competent authority may exact and collect such reasonable and equitable toll fees for the use of such bridges and ferries, within their respective jurisdiction, as may be authorized and approved by the Secretary of Public Works and Communications, and also for the use of such public roads, as may be authorized by the President of the Philippines upon the recommendation of the Secretary of Public Works and Communications, but in none of these cases, shall any toll fee." be charged or collected until and unless the approved schedule of tolls shall have been posted levied, in a conspicuous place at such toll station. (at pp. 213-214) Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621. Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398). Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by Rep. Act Nos. 587 and 1603) states: Section 73. Disposal of moneys collected.Twenty per centum of the money collected under the provisions of this Act shall accrue to the road and bridge funds of the different provinces and chartered cities in proportion to the centum shall during the next previous year and the remaining eighty per centum shall be deposited in the Philippine Treasury to create a special fund for the construction and maintenance of national and provincial roads and bridges. as well as the streets and bridges in the chartered cities to be alloted by the Secretary of Public Works and Communications for projects recommended by the Director of Public Works in the different provinces and chartered cities. .... Presently, Sec. 61 of the Land Transportation and Traffic Code provides: Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of this Act shall be deposited in a special trust account in the National Treasury to constitute the

Highway Special Fund, which shall be apportioned and expended in accordance with the provisions of the" Philippine Highway Act of 1935. "Provided, however, That the amount necessary to maintain and equip the Land Transportation Commission but not to exceed twenty per cent of the total collection during one year, shall be set aside for the purpose. (As amended by RA 64-67, approved August 6, 1971). It appears clear from the above provisions that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from the use of the term "fees," which appears to have been favored by the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep. Act 4136 which reads: Sec. 13. Payment of taxes upon registration.No original registration of motor vehicles subject to payment of taxes, customs s duties or other charges shall be accepted unless proof of payment of the taxes due thereon has been presented to the Commission. referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec. 59, b, Rep. Act 4136, as amended). Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked to as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license fees. Isabela such case, the fees may properly be regarded as taxes even though they also serve as an instrument of regulation. 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. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on tobacco and alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd Edition, 591-593). Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148). If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears as Section 591-593). in the Land Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like

the motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided for in the last proviso of see. 61, aforequoted. It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes." In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program. May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL? The answer is NO. The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this case. In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11, 1985), this Court ruled: Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio Communications of the Philippines, Inc., was subject to both the franchise tax and income tax. In 1964, however, petitioner's franchise was amended by Republic Act No. 41-42). to the effect that its franchise tax of one and one-half percentum (1-1/2%) of all gross receipts was provided as "in lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national from which taxes the grantee is hereby expressly exempted." The issue raised to this Court now is the validity of the respondent court's decision which ruled that the exemption under Republic Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448 dated June 27, 1968 which reads: "(d) The provisions of existing special or general laws to the contrary notwithstanding, all corporate taxpayers not specifically exempt under Sections 24 (c) (1) of this Code shall pay the rates provided in this section. All corporations, agencies, or instrumentalities owned or controlled by the government, including the Government Service Insurance System and the Social Security System but excluding educational institutions, shall pay such rate of tax upon their taxable net income as are imposed by this section upon associations or corporations engaged in a similar business or industry. " An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all corporate taxpayers to pay income tax as provided by the statute. There can be no doubt as to the power of Congress to repeal the earlier exemption it granted. Article XIV, Section 8 of the 1935 Constitution and Article XIV, Section 5 of the Constitution as amended in 1973 expressly provide that no franchise shall be granted to

any individual, firm, or corporation except under the condition that it shall be subject to amendment, alteration, or repeal by the legislature when the public interest so requires. There is no question as to the public interest involved. The country needs increased revenues. The repealing clause is clear and unambiguous. There is a listing of entities entitled to tax exemption. The petitioner is not covered by the provision. Considering the foregoing, the Court Resolved to DENY the petition for lack of merit. The decision of the respondent court is affirmed. Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax exemption in the franchise of PAL was repealed during the period. However, an amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides: In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the lifetime of this franchise whichever of subsections (a) and (b) hereunder will result in a lower taxes.) (a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the Internal Revenue Code; or (b) A franchise tax of two per cent (2%) of the gross revenues. derived by the grantees from all specific. without distinction as to transport or nontransport corporations; provided that with respect to international airtransport service, only the gross passengers, mail, and freight revenues. from its outgoing flights shall be subject to this law. The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or description imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government, agency, now or in the future, including but not limited to the following: xxx xxx xxx (5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of airtransport equipment, motor vehicles, and all other personal or real property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979). PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted. WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree No. 1590. SO ORDERED. Fernan, C.J., Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes, Grio Aquino and Medialdea, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-75697 June 18, 1987 VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner, vs. VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents. Nelson Y. Ng for petitioner. The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.: This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette. On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax. On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment in Intervention. The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows: 1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million in taxes each year; 3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters; 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environment conducive to growth and development of all business industries, including the movie industry which has an accumulated investment of about P3 Billion; 5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms; 6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral character and promote their physical, intellectual, and social well-being; 7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which have flaunted our censorship and copyright laws; 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied). Petitioner's attack on the constitutionality of the DECREE rests on the following grounds: 1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER and the same is not germane to the subject matter thereof; 2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the Constitution; 3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by Amendment No. 6; 4. There is undue delegation of power and authority; 5. The Decree is an ex-post facto law; and 6. There is over regulation of the video industry as if it were a nuisance, which it is not. We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An act having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given practical rather than technical construction.
5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without merit. That section reads, inter alia: Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. xxx xxx xxx The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board 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 6 it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the DECREE. 7 2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10 The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. 11 It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power. 13 At bottom, the rate of tax is a matter better addressed to the taxing legislature. 3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall form part of the law of the land." In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently summarizes the justification in that grave emergencies corroding the moral values of the people and betraying the national economic recovery program necessitated bold emergency measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve resolution of the question raised at the proper time. 4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." 14 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 BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law. 5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in providing that: All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the videogram business and to register with the BOARD all their inventories of videograms, including videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or

otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such videogram be for private showing and/or public exhibition. raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any videogram cannot be presented and thus partakes of the nature of an ex post facto law. The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15 ... it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption of innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proof provided there be a rational connection between the facts proved and the ultimate facts presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because of lack of connection between the two in common experience". 16 Applied to the challenged provision, there is no question that there is a rational connection between the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches only after a fortyfive-day period counted from its effectivity and is, therefore, neither retrospective in character. 6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17 The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed. In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern. Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar

as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18 In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void. WHEREFORE, the instant Petition is hereby dismissed. No costs. SO ORDERED. Teehankee, (C.J.), Yap, Fernan, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur.

Footnotes 1 Section 19[1], Article VIII, 1973 Constitution; Section 26[l] Article VI, 1987 Constitution. 2 Sumulong vs. COMELEC, No. 48609, October 10, 1941, 73 Phil. 288; Cordero vs. Hon. Jose Cabatuando, et al., L-14542, Oct. 31, 1962,6 SCRA 418. 3 Public Service Co., Recktenwald, 290 III. 314, 8 ALR 466, 470. 4 Government vs. Hongkong & Shanghai Banking Corporation, No. 44257, November 22, 1938, 66 Phil. 483; Cordero vs. Cabatuando, et al., supra. 5 Sumulong vs. Commission on Elections, supra. 6 United States vs. Sanchez, 340 U.S. 42, 44, 1950, cited in Bernas, Philippines Constitutional Law, p. 594. 7 People vs. Carlos, L-239, June 30, 1947, 78 Phil. 535. 8 U.S. vs. Sanchez, supra. 9 II Cooley, A Treatise on the Constitutional Limitations, p. 986. 10 ibid., p. 987. 11 Magnano Co. vs. Hamilton, 292, U.S. 40. 12 Lutz vs. Araneta, L-7859, December 22, 1955, 98 Phil. 148, citing Carmichael vs. Southern Coal and Coke Co., 301 U.S. 495, 81 L. Ed. 1245. 13 ibid., citing Great Atl. and Pacific Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat, 316,4 L. Ed. 579.

14 Cincinnati, W & Z.R. Co. vs. Clinton County Comrs (1852) 1 Ohio St. 88. 15 G. R. No. L-40195, May 29, 1987. 16 ibid., citing People vs. Mingoa, supra, See also U.S. vs. Luling No. 11162, August 12, 1916,34 Phil. 725. 17 Solicitor General's Comments, p. 102, Rollo. 18 Morfe vs. Mutuc, L-20387, January 31, 1968, 22 SCRA 424, 450-451. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY, defendants-appellants. Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-Fernando for defendants-appellants. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio Torres and Solicitor Ceferino Padua, for plaintiff-appellee. REGALA, J.: This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one controlling ownership and management, from a decision of the Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632. Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short, a semi-public corporation created for the following purposes and objectives: (a) To conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of production, increase and improve the industrialization of the by-products of sugar cane, and achieve greater efficiency in the industry; (b) To improve existing methods of raising sugar cane and of sugar manufacturing; (c) To insure a permanent, sufficient and balanced production of sugar and its by-products for local consumption and exportation; (d) To establish and maintain such balanced relation between production and consumption of sugar and its by-products, and such marketing conditions therefor, as well insure stabilized prices at a level sufficient to cover the cost of production plus a reasonable profit;

(e) To promote the effective merchandising of sugar and its by-products in the domestic and foreign markets so that those engaged in the sugar industry will be placed on a basis of economic security; and (f) To improve the living and economic conditions of laborers engaged in the sugar industry by the gradual and effective correction of the inequalities existing in the industry. (Section 2, Rep. Act 632) To realize and achieve these ends, Sections 15 and 16 of the aforementioned law provide: Sec. 15. Capitalization. To raise the necessary funds to carry out the provisions of this Act and the purposes of the corporation, there shall be levied on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of sugar to be collected for a period of five (5) years beginning the crop year 1951-1952. The amount shall be borne by the sugar cane planters and the sugar centrals in the proportion of their corresponding milling share, and said levy shall constitute a lien on their sugar quedans and/or warehouse receipts. Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside to constitute a special fund to be known as the "Sugar Research and Stabilization Fund," which shall be available exclusively for the use of the corporation. All the income and receipts derived from the special fund herein created shall accrue to, and form part of the said fund to be available solely for the use of the corporation. The specific and general powers of the Philsugin are set forth in Section 8 of the same law, to wit: Sec. 3. Specific and General Powers. For carrying out the purposes mentioned in the preceding section, the PHILSUGIN shall have the following powers: (a) To establish, keep, maintain and operate, or help establish, keep, maintain, and operate one central experiment station and such number of regional experiment stations in any part of the Philippines as may be necessary to undertake extensive research in sugar cane culture and manufacture, including studies as to the feasibility of merchandising sugar cane farms, the control and eradication of pests, the selected and propagation of high-yielding varieties of sugar cane suited to Philippine climatic conditions, and such other pertinent studies as will be useful in adjusting the sugar industry to a position independent of existing trade preference in the American market; (b) To purchase such machinery, materials, equipment and supplies as may be necessary to prosecute successfully such researches and experimental work; (c) To explore and expand the domestic and foreign markets for sugar and its by-products to assure mutual benefits to consumers and producers, and to promote and maintain a sufficient general production of sugar and its by-products by an efficient coordination of the component elements of the sugar industry of the country; (d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws, machineries, equipment, materials, merchant vessels, rails, railroad lines, and any other means of transportation, warehouses, buildings, and any other equipment and material to the production, manufacture, handling, transportation and warehousing of sugar and its by-products; (e) To grant loans, on reasonable terms, to planters when it deems such loans advisable;

(f) To enter, make and execute contracts of any kind as may be necessary or incidental to the attainment of its purposes with any person, firm, or public or private corporation, with the Government of the Philippines or of the United States, or any state, territory, or persons therefor, or with any foreign government and, in general, to do everything directly or indirectly necessary or incidental to, or in furtherance of, the purposes of the corporation; (g) To do all such other things, transact all such business and perform such functions directly or indirectly necessary, incidental or conducive to the attainment of the purposes of the corporation; and (h) Generally, to exercise all the powers of a Corporation under the Corporation Law insofar as they are not inconsistent with the provisions of this Act. The facts of this case bearing relevance to the issue under consideration, as recited by the lower court and accepted by the appellants, are the following: x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-1953, 1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44 but left unpaid balance of P235,800.20; defendant Talisay-Silay Milling Company has paid P251,812.43 but left unpaid balance of P208,193.74; and defendant Central Azucarera del Danao made a payment of P49,897.78 but left unpaid balance of P48,059.77. There is no question regarding the correctness of the amounts paid and the amounts that remain unpaid. From the evidence presented, on which there is no controversy, it was disclosed that on September 3, 1951, the Philippine Sugar Institute, known as the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total consideration of P3,070,909.60 payable, in accordance with the deed of sale Exhibit A, in 3 installments from the process of the sugar tax to be collected, under Republic Act 632. The evidence further discloses that the operation of the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous in the sense that PHILSUGIN incurred tremendous losses as shown by an examination of the statements of income and expenses marked Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting general manager of PHILSUGIN and at present technical consultant of said entity, presented by the defendants as witnesses, it has been shown that the operation of the Insular Sugar Refinery has consumed 70% of the thinking time and effort of the PHILSUGIN management. x x x . Contending that the purchase of the Insular Sugar Refinery with money from the Philsugin Fund was not authorized by Republic Act 632 and that the continued operation of the said refinery was inimical to their interests, the appellants refused to continue with their contributions to the said fund. They maintained that their obligation to contribute or pay to the said Fund subsists only to the limit and extent that they are benefited by such contributions since Republic Act 632 is not a revenue measure but an Act which establishes a "Special assessments." Adverting to the finding of the lower court that proceeds of the said Fund had been used or applied to absorb the "tremendous losses" incurred by Philsugin in its "disastrous operation" of the said refinery, the appellants herein argue that they should not only be released from their obligation to pay the said assessment but be refunded, besides, of all that they might have previously paid thereunder. The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the property

owners paying the assessment, or that the proceeds from the said assessment are being misapplied to the prejudice of those against whom it has been levied, then the authority to insist on the payment of the said assessment ceases. On the other hand, the lower court adjudged the appellants herein liable under the aforementioned law, Republic Act 632, upon the following considerations: First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and operate machineries, equipment, merchant vessels, etc., and any other equipment and material for the production, manufacture, handling, transportation and warehousing of sugar and its by-products. It was, therefore, authorized to purchase and operate a sugar refinery. Secondly, the corporate powers of the Philsugin are vested in and exercised by a board of directors composed of 5 members, 3 of whom shall be appointed upon recommendation of the National Federation of Sugar Cane Planters and 2 upon recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has not been shown that this particular provision was not observed in this case. Therefore, the appellants herein may not rightly claim that there had been a misapplication of the Philsugin funds when the same was used to procure the Insular Sugar Refinery because the decision to purchase the said refinery was made by a board in which the applicants were fully and duly represented, the appellants being members of the Philippine Sugar Association. Thirdly, all financial transactions of the Philsugin are audited by the General Auditing Office, which must be presumed to have passed upon the legality and prudence of the disbursements of the Fund. Additionally, other offices of the Government review such transactions as reflected in the annual report obliged of the Philsugin to prepare. Among those offices are the Office of the President of the Philippines, the Administrator of Economic Coordination and the Presiding Officers of the two chambers of Congress. With all these safeguards against any imprudent or unauthorized expenditure of Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its legality and propriety. Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein to continue with their contribution to the Fund for that conduct is no different "from the case of an ordinary taxpayer who refuses to pay his taxes on the ground that the money is being misappropriated by Government officials." This is taking the law into their own hands. Against the above ruling of the trial court, the appellants contend: First. It is fallacious to argue that no mismanagement or abuse of corporate power could have been committed by Philsugin solely because its charter incorporates so many devices or safeguards to preclude such abuse. This reasoning of the lower court does not reconcile with that actually happened in this case. Besides, the appellants contend that the issue on hand is not whether Philsugin abused or not its powers when it purchased the Insular Sugar Refinery. The issue, rather, is whether Philsugin had any power or authority at all to acquire the said refinery. The appellants deny that Philsugin is possessed of any such authority because what it is empowered to purchase is not a "sugar refinery but a central experiment station or perhaps at the most a sugar central to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the appellants cite the case of Collector vs. Ledesma, G.R. No. L-12158, May 27, 1959, in which this Court ruled that We are of the opinion that a "sugar central," as that term is used in Section 189, applies to "a large mill that makes sugar out of the cane brought from a wide surrounding territory," or a sugar mill which manufactures sugar for a number of plantations. The term "sugar central" could not have been intended by Congress to refer to all sugar mills or sugar factories as contended by respondent. If respondent's interpretation is to be followed, even sugar mills run by animal power

(trapiche) would be considered sugar central. We do not think Congress ever intended to place owners of (trapiches) in the same category as operators of sugar centrals. That sugar mills are not the same as sugar centrals may also be gleaned from Commonwealth Act No. 470 (Assessment Law). In prescribing the principle governing valuation and assessment of real property. Section 4 of said Act provides "Machinery permanently used or in stalled in sugar centrals, mills, or refineries shall be assessed." This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or "sugar refineries." Second. The appellants' refusal to continue paying the assessment under Republic Act 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment. Third. Upon a host of decisions of the United States Supreme Court, the imposition or collection of a special assessment upon property owners who receive no benefit from such assessment amounts to a denial of due process. Thus, in the case of Norwood vs. Baer, 172 US 269, the ruling was laid down that As already indicated, the principle underlying special assessments to meet the cost of public improvements is that the property upon which they are imposed is peculiarly benefited, and therefore, the panels do not, in fact, pay anything in excess of what they received by reason of such improvement. unless a corresponding benefit is realized by the property owner, the exaction of a special assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and "palpably arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite Co., 240 U.S. 57). In other words, the assessment is violative of the due process guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241). We find for the appellee. The nature of a "special assessment" similar to the case at bar has already been discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a 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. (Sec. 3). Under Section 6 of the said law, Commonwealth Act 567, all collections made thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law." It then proceeds to enumerate the said purposes, among which

are "to place the sugar industry in a position to maintain itself; ... to readjust the benefits derived from the sugar industry ... so that all might continue profitably to engage therein; to limit the production of sugar to areas more economically suited to the production thereof; and to afford laborers employed in the industry a living wage and to improve their living and working conditions. The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or special assessment was unconstitutional because it was being "levied for the aid and support of the sugar industry exclusively," and therefore, not for a public purpose. In rejecting the theory advanced by the said plaintiff, this Court said: The basic defect in the plaintiff's position in his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly Section 6, will show that the 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 an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one, of the important sources to 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 should 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 (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121) As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry in Florida "The protection of a large industry constituting one of the great source of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign." (128 So. 857). Once it is conceded, as it must that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in Section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist.

Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct research work for the sugar industry in all its phases, either agricultural or industrial, for the purpose of introducing into the sugar industry such practices or processes that will reduce the cost of production, ..., and achieve greater efficiency in the industry." This provision, first of all, more than justifies the acquisition of the refinery in question. The case dispute that the operation of a sugar refinery is a phase of sugar production and that from such operation may be learned methods of reducing the cost of sugar manufactured no less than it may afford the opportunity to discover the more effective means of achieving progress in the industry. Philsugin's experience alone of running a refinery is a gain to the entire industry. That the operation resulted in a financial loss is by no means an index that the industry did not profit therefrom, as other farms of a different nature may have been realized. Thus, from its financially unsuccessful venture, the Philsugin could very well have advanced in its appreciation of the problems of management faced by sugar centrals. It could have understood more clearly the difficulties of marketing sugar products. It could have known with better intimacy the precise area of the industry in need of the more help from the government. The view of the appellants herein, therefore, that they were not benefited by the unsuccessful operation of the refinery in question is not entirely accurate. Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult to carry out save through the actual operation of a refinery. Quite obviously, the most practical or realistic approach to the problem of what "practices or processes" might most effectively cut the cost of production is to experiment on production itself. And yet, how can such an experiment be carried out without the tools, which is all that a refinery is? In view of all the foregoing, the decision appealed from is hereby affirmed, with costs. Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur. Makalintal, J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-7859 December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiff-appellant, vs. J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee. Ernesto J. Gonzaga for appellant. Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act. Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-

McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes." In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a 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. According to section 6 of the law SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world; Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might continue profitably to engage therein;lawphi1.net Third, to limit the production of sugar to areas more economically suited to the production thereof; and Fourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies. Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging 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 constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17). The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the 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 an exercise of the police power. This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources 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 should be stabilized in turn; and in the wide field of its police power, the lawmaking 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 (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121). As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857). Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579). That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251). From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it

might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893). Even from the standpoint that the Act is a pure tax measure, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of byproducts and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400). The decision appealed from is affirmed, with costs against appellant. So ordered. Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-77194 March 15, 1988 VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners, vs. REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.: Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before the Court although the subject matter of the present controversy is of common interest to all sugar producers, whether parties in this action or not. Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with the function of regulating and supervising the sugar industry until it was superseded by its corespondent Sugar Regulatory Administration (SRA, for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its existence as a juridical entity was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits by or against it and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets." Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation.

Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having interposed no objection to their intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to intervene, which the Court allowed on February 16,1988. Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents: TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388. Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares of stock. Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by laches. The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom the fees were collected or levied. P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection of a Stabilization Fund as follows: SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund. There is hereby established a fund for the commission for the purpose of financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market to be administered in trust by the Commission and deposited in the Philippine National Bank derived in the manner herein below cited from the following sources: a. Stabilization fund shall be collected as provided for in the various provisions of this Decree. b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every picul produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for every picul produced and milled every year thereafter.

Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under Section 4(c) of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees for the purpose of accomplishing and employees for the purpose of accomplishing the efficient performance of the duties of the Commission. Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and shall be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission. (paragraphing and bold supplied). Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission." However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of the statute itself. The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established (89 C.J.S. 947). No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself (Batchelder v. Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]). Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on the proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name only out of convenience and necessity and that they are the true and beneficial owners thereof. In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being made for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in behalf of the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however, did not get off the ground because it failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself. The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the Commission on Audit that the aforementioned Agreement is of doubtful validity." From the legal standpoint, we find basis for the opinion of the Commission on Audit reading: That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular, owns and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees are charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ... The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz vs. Araneta, supra.). The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra). The stabilization fees in question are levied by the State upon sugar millers, planters and producers for a special purpose that of "financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market the fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose (Lawrence vs. American Surety Co., 263 Mich 586, 249 ALR 535, cited in 42 Am. Jur. Sec. 2, p. 718). Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust' for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance, if any, is to be transferred to the general funds of the Government. That is the essence of the trust intended (See 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(l]). 2 The character of the Stabilization Fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law (1987) Constitution, Article VI, Sec. 29[1],1973 Constitution, Article VIII, Sec. 18[l]). That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers, planters and millers.

To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest. WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs. This Decision is immediately executory. SO ORDERED. Teehankee, C.J., Yap, Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur. Fernan, J., took no part.

Footnotes 1 Sec. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law. xxx xxx xxx 2 (5) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government." (1987 Constitution, Art. VI, Sec. 28[3]). Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 81311 June 30, 1988 KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C. VILLANUEVA, petitioners, vs. HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent. G.R. No. 81820 June 30, 1988 KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor federations and alliances, petitioners, vs.

THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF BUDGET, respondents. G.R. No. 81921 June 30, 1988 INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and JESUS B. BANAL, petitioners, vs. The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent. G.R. No. 82152 June 30, 1988 RICARDO C. VALMONTE, petitioner, vs. THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF BUDGET, respondent. Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311. Jaime C. Opinion for individual petitioners in G.R. No. 81311. Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners in G.R. No 81820. Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners in G.R. No 81820. Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

PADILLA, J.: These four (4) petitions, which have been consolidated because of the similarity of the main issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not alledgedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show justification for the exercise of its judicial powers, viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial, of the party raising the constitutional questions; (3) the constitutional question should be raised at the earliest opportunity; and (4) the question of constitutionality is directly and necessarily involved in a justiciable controversy and its resolution is essential to the protection of the rights of the parties. According to the Solicitor General, only the third requisite that the constitutional question should be raised at the earliest opportunity has been complied with. He also questions the legal standing of the petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution. Objections to taxpayers' suit for lack of sufficient personality standing, or interest are, however, in the main procedural matters. Considering the importance to the public of the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine wether or not the other branches of

government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of these petitions. But, before resolving the issues raised, a brief look into the tax law in question is in order. The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts realized from the sale of services. The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and make the tax system more equitable, to enable the country to attain economic recovery. The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was essentially a single stage value added tax system computed under the "cost subtraction method" or "cost deduction method" and was imposed only on original sale, barter or exchange of articles by manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt. Petitioners first contend that EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273 on 25 July 1987. The contention is without merit. It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states: Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powers. On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides: Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a new Constitution is convened. The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate. Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is synonymous with "the date when the elected members of Congress assumed office."

The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual members of Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly created under the 1973 Constitution, which had not been "convened" but some members of the body, more particularly the delegates to the 1971 Constitutional Convention who had opted to serve therein by voting affirmatively for the approval of said Constitution, had taken their oath of office. To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress to convene once every year on the fourth Monday of July for its regular session would be a contrariety, since Congress would already be deemed to be in session after the individual members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a conflict between the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the President can re-assume the powers and duties of his office, would also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four (24) hours following the declaration of martial law or the suspension of the privilage of the writ of habeas corpus. The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear and unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended. The Court also finds no merit in the petitioners' claim that EO 273 was issued by the President in grave abuse of discretion amounting to lack or excess of jurisdiction. "Grave abuse of discretion" has been defined, as follows: Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2 Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by this framers and other government agencies involved in its implementation, even under the past administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative process started long before the signing when the data were gathered, proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the President made a jump, so to speak, on the Congress, two days before it convened." 3 Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution, which states: Sec. 28 (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. 4 As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. The court, in City of Baguio vs. De Leon, 5 said: ... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found." There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus: "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; . . ." About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and continued; "Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution." To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court is on record as accepting the view in a leading American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that "inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153). The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public. 6 The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates against customs brokers. The contested provision states: Sec. 103. Exempt transactions. The following shall be exempt from the value-added tax: xxx xxx xxx (r) Service performed in the exercise of profession or calling (except customs brokers) subject to the occupation tax under the Local Tax Code, and professional services performed by registered general professional partnerships;

The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who are subject to the payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102 read: Sec. 102. Value-added tax on sale of services. There shall be levied, assessed and collected, a value-added tax equivalent to 10% percent of gross receipts derived by any person engaged in the sale of services. The phrase sale of services" means the performance of all kinds of services for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of personal property; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; and similar services regardless of whether or not the performance thereof call for the exercise or use of the physical or mental faculties: ... With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a potential conflict between the two sections, (Secs. 102 and 103), insofar as customs brokers are concerned, is averted. At any rate, the distinction of the customs brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based upon material differences, in that the activities of customs brokers (like those of stock, real estate and immigration brokers) partake more of a business, rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the classification of customs brokers then, the Court sees no reason why it should protest now. The Court takes note that EO 273 has been in effect for more than five (5) months now, so that the fears expressed by the petitioners that the adoption of the VAT will trigger skyrocketing of prices of basic commodities and services, as well as mass actions and demonstrations against the VAT should by now be evident. The fact that nothing of the sort has happened shows that the fears and apprehensions of the petitioners appear to be more imagined than real. It would seem that the VAT is not as bad as we are made to believe. In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the general welfare or the interests of the majority of the people, they should seek recourse and relief from the political branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot substitute its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The Court can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued implementation. WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs. SO ORDERED. Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur. Gutierrez, Jr. and Medialdea, JJ., are on leave.

Footnotes 1 Application of Lamb, 169 A2d 822, 830, 67 N.J. Super. 29, affd. 170 A2d 34, 34 n.J. 448, citing 18 C.J.S. Convene p. 37. 2 Alafriz vs. Nable, 72 Phil. 278, 280. 3 Comment on petition, G.R. No. 82152, p. 18. 4 Peralta vs. Comelec, L-47771 and others, March 11, 1978, 82 SCRA 30, 55. 5 134 Phil. 912, 919-920. 6 EO 273 enumerates in its sec. 102 zero-rated sales and in its sec. 103 transactions exempt from the VAT. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of JOSE ROXAS, petitioners, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the following properties: (1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province; (2) A residential house and lot located at Wright St., Malate, Manila; and (3) Shares of stocks in different corporations. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. AGRICULTURAL LANDS

At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance 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. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance Corporation 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. Fifty percent 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 Section 34 of the Tax Code. RESIDENTIAL HOUSE During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year. ASSESSMENTS On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, 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 of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of securities.

In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and 1955, as follows:
1953 P7,010.00 7,281.00 6,323.00 1955 P5,813.00 5,828.00 5,588.00

Antonio Roxas Eduardo Roxas Jose Roxas

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 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. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the

partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The following deductions were disallowed: ROXAS Y CIA.: 1953 Tickets for Banquet in honor of S. Osmea Gifts of San Miguel beer Contributions to Philippine Air Force Chapel Manila Police Trust Fund Philippines Herald's fund for Manila's neediest families 1955 Contributions to Contribution to Our Lady of Fatima Chapel, FEU ANTONIO ROXAS: 1953 Contributions to Pasay City Firemen Christmas Fund Pasay City Police Dept. X'mas fund 1955 Contributions to Baguio City Police Christmas fund Pasay City Firemen Christmas fund Pasay City Police Christmas fund EDUARDO ROXAS: 1953 Contributions to Hijas de Jesus' Retiro de Manresa Philippines Herald's fund for Manila's neediest families 1955 Contributions to Philippines Herald's fund for Manila's neediest families 450.00 100.00 25.00 25.00 50.00 25.00 50.00 50.00 100.00 150.00 100.00 P 40.00 28.00

120.00

JOSE ROXAS: 1955 Contributions to Philippines Herald's fund for Manila's neediest families

120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining 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. The Tax Court's judgment reads: WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's tax. With costs against petitioners. Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not appeal. The issues: (1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? (2) Are the deductions for business expenses and contributions deductible? (3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers? The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmers-occupants on installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles of partnership, quoted below: 4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus gerentes no deben conservarse; The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although they 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 ten-year amortization period. It should be borne in mind that 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 bounden 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. However, the Government could not comply with its duty for lack of funds. Obligingly, 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. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude. 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, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, 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%. DISALLOWED DEDUCTIONS Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses. Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business. In the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained. The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University. The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police 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. For this reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund 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. The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that 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. Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern University on the ground that the said 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. On the other hand, the lower court found that it 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. The disallowance should be sustained. Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. 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 law, which states: . . . "Real estate dealer" includes 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: . . . (Emphasis supplied) . is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is sustained. To Summarize, 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, computed as follows: * ANTONIO ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount declared Amount understated Contributions disallowed P 153,249.15 146,135.46 P 7,113.69 115.00 P 7,228.69 Less 1/3 share of contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax due Tax paid Deficiency 154,169.00 154,060.00 P 109.00 ========== EDUARDO ROXAS Net income per return P 304,166.92 P315,476.59

7,042.02

186.67 P315,663.26 4,200.00 P311,463.26

Add: 1/3 share, profits in Roxas y Cia Less profits declared Amount understated Less 1/3 share in contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax Due Tax paid Deficiency

P 153,249.15 146,052.58 P 7,196.57

7,042.02

155.55 P304,322.47 4,800.00 P299,592.47

P147,250.00 147,159.00 P91.00 =========== JOSE ROXAS

Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount reported Amount understated Less 1/3 share of contributions disallowed from partnership but allowed as deductions to partners Net income per review Less: Exemption Net income subject to tax Tax due Tax paid Deficiency P102,763.00 102,714.00 P 49.00 =========== P153,429.15 146,135.46 7,113.69

P222,681.76

7,042.02

71.67 P222,753.43 1,800.00 P220,953.43

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No costs. So ordered. Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Fernando, JJ., concur. Zaldivar, J., took no part. Concepcion, C.J., is on leave. Footnotes

See BIR Records, p. 387. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-59431 July 25, 1984

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

FERNANDO, C.J.: The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character 5 For petitioner, therefore, there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 7 The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit. This Court finds such a plea more than justified. The petition must be dismissed. 1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual or group of

individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times." 11 Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence. 12 2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in the Philippines. 3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision as petitioner here alleges fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm. 4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18 5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds. 19 6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the police power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest." 20 That same formulation applies as

well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same." 21 Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'" 23 7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shall be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. " 26 He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation." 30 8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income. 9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification, WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur. Teehankee, J., concurs in the result. Plana, J., took no part.

Separate Opinions

AQUINO, J., concurring: I concur in the result. The petitioner has no cause of action for prohibition. ABAD SANTOS, J., dissenting: This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in lower tax payments for those receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal.

Separate Opinions AQUINO, J., concurring: I concur in the result. The petitioner has no cause of action for prohibition. ABAD SANTOS, J., dissenting: This is a frivolous suit. While the tax rates for compensation income are lower than those for net income such circumtance does not necessarily result in lower tax payments for these receiving compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of net income will pay less taxes because they claim all sort of deduction justified or not I vote for dismissal. Footnotes 1 Petitioner must have realized that a suit for declaratory relief must be filed with Regional Trial Courts. 2 Batas Pambansa Blg. 135, Section 21 (1981).

3 The respondents are Ruben B. Ancheta, Acting Commissioner, Bureau of Internal Revenue; Romulo Villa, Deputy Commissioner, Bureau of Internal Revenue; Tomas Toledo, Deputy Commissioner, Bureau of Internal Revenue; Manuel Alba, Minister of Budget; Francisco Tantuico, Chairman, Commissioner on Audit; and Cesar E. A. Virata, Minister of Finance. 4 Petition, Parties, par. 1. The challenge is thus aimed at paragraphs (a) and (b) of Section 1 further Amending Section 21 of the National Internal Revenue Code of 1977. Par. (a) reads: "(a) On taxable compensation income. A tax is hereby imposed upon the taxable compensation income as determined in Section 28 (a) received during each taxable year from all sources by every individual, whether a citizen of the Philippines, determined in accordance with the following schedule:

Not over P2,500 Over P 2,500 but not over P 5,000 Over P 5,000 but not over 10,000 Over P 10,000 but not over P 20,000 Over P 20,000 but not over P 40,000 Over P 40.000 but not over P 60,000 Over P 60,000 but not over P100,000 Over P100,000 but not over P250,000 Over P250,000 but not over P500,000 Over P500,000

0% 1%

P 25 + 3% of excess over P 5,000 P 175 + 7 % of excess over P 10,000

P 875 + 11%, of excess over P 20,000

P 3,075 + I 15% of excess over P 40,000

P 6,075 + 19% of excess over P 60,000

P 13,675 + 24% excess over P100,000

P 49,675 + 29% of excess over P250,000

P 122,175 + 35% of excess over P500,000

Par. (b) reads: "(b) On taxable net income. A tax is hereby imposed upon the taxable net income as determined in Section 29 (a) received during each taxable year from all sources by every individual, whether a citizen of the Philippines, or an alien residing in the Philippines determined in accordance with the following schedule:

Not over P10,000 Over P 10,000 but not over P 30,000 Over P 30,000 but not over P150,000 Over P150,000 but not over P500,000 Over P500,000

5% P 500 + 15% of excess over P 10,000

P 3,500 + 30% of excess over P 30,000

P 39,500 + 45% of excess over P150,000 P197,000 + 601% of excess over P500,000

5 Ibid Statement, par. 4. 6 Article IV, Section 1 of the Constitution reads: "No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the laws." 7 Article VII, Section 7. par. (1) of the Constitution reads: "The rule of taxation shall be uniform and equitable. The Batasang Pambansa shall evolve a progressive system of taxation." 8 It was filed by Solicitor General Estelito P. Mendoza. He was assisted by Assistant Solicitor General Eduardo D. Montenegro and Solicitor Erlinda B, Masakayan. 9 Answer, pars. 1-6. 10 Ibid, par. 6. 11 Agricultural Credit and Cooperative Financing Administration v. Consideration of Unions in Government Corporation and Offices, L-21484, November 29, 1969, 30 SCRA 649, 662. 12 Cf, Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, per Castro, J. 13 Sarasola v. Trinidad, 40 Phil. 252, 262 (1919). 14 McColloch v. Maryland 4 Wheaton 316, 15 306 US 466 ( 938).

16 Ibid, 489 17 Ibid. 490. 18 Cf. Ermita-Malate Hotel and Motel Operator S Association v. Hon. City Mayor, 127 Phil. 306, 315 ( 1967); U.S. v. Salaveria, 39 Phil. 102,111 (1918) and Ebona v. Daet, 85 Phil, 369 (1950). Likewise referred to is O'Gorman and Young v. Hartford Fire Insurance Co 282 US 251, 328 (1931). 19 Cf. Manila Gas Co. v. Collector of Internal Revenue, 62 Phil. 895 (1936); Wells Fargo Bank and Union Trust Co. v. Collector, 70 Phil. 325 (1940); Republic v. Oasan Vda. de Fernandez, 99 Phil. 934 (1956). 20 The excerpt is from the opinion in J.M. Tuason and Co. v. The Land Tenure Administration, L-21064, February 18, 1970, 31 SCRA 413, 435 and reiterated in Bautista v. Juinio, G.R. No. 50908, January 31, 1984, 127 SCRA 329, 339. The former deals with an eminent domain proceeding and the latter with a suit contesting the validity of a police power measure. 21 Tigner v. Texas, 310 US 141, 147 (1940). 22 98 Phil. 148 (1955). 23 Ibid, 153. 24 Article VIII, Section 17, par. 1, first sentence of the Constitution 25 69 Phil. 420 (1940). 26 Ibid, 426. 27 Ibid, 424. 28 Eastern Theatrical Co. v. Alfonso, 83 Phil. 852, 862 (1949). 29 Manila Race Horse Trainers Asso. v. De la Fuente, 88 Phil. 60,65 (1951). 30 Uy Matias v. City of Cebu, 93 Phil. 300 (1953). 31 While petitioner cited figures to sustain in his assertion, public respondents refuted with other figures that argue against his submission. One reason for requiring declaratory relief proceedings to start in regional trial courts is precisely to enable petitioner to prove his allegation, absent an admission in the answer.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION.

G.R. No. L-31092 February 27, 1987 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

YAP, J.: The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it realized from the construction of the World Health Organization office building in Manila. The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. As an international organization, it enjoys privileges and immunities which are defined more specifically in the Host Agreement entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however, that the Organization will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . . When the WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the Republic of the Philippines on November 26, 1957. This agreement contained the following provision (Article III, paragraph 2): The Organization may import into the country materials and fixtures required for the construction free from all duties and taxes and agrees not to utilize any portion of the international reserves of the Government. Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22, 1951 which granted the Organization exemption from all direct and indirect taxes. In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies." The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00. Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross receipts derived by contractors from their contracts with the WHO for the construction of its new building, are exempt from tax in accordance with . . . the Host Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not covered by . . . the Host Agreement." On January 2, 1960, the WHO issued a certification state 91 inter alia,:

When the request for bids for the construction of the World Health Organization office building was called for, contractors were informed that there would be no taxes or fees levied upon them for their work in connection with the construction of the building as this will be considered an indirect tax to the Organization caused by the increase of the contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal Revenue and it can be stated that the contractors submitted their bids in good faith with the exemption in mind. The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the condition stated above, should be exempted from any taxes in connection with the construction of the World Health Organization office building. On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The Court of Tax Appeal's decision is now before us for review on certiorari. In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending that the Host Agreement is null and void, not having been ratified by the Philippine Senate as required by the Constitution. We find no merit in this contention. While treaties are required to be ratified by the Senate under the Constitution, less formal types of international agreements may be entered into by the Chief Executive and become binding without the concurrence of the legislative body. 1 The Host Agreement comes within the latter category; it is a valid and binding international agreement even without the concurrence of the Philippine Senate. The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this Court as legally binding on Philippine authorities. 2 Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview. Petitioner's position is that the contractor's tax "is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it." We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We agree. The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid by the manufacturer or producer; the fact that the manufacturer or producer might have added the amount of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice of America, an agency of the United States Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is made clear in Section 12 of the Host Agreement which provides: While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise duties, and from taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless, when the Organization is making important purchases for official use of property on which such duties and taxes have been charged or are chargeable the Government of the Republic of the Philippines shall make appropriate administrative arrangements for the remission or return of the amount of duty or tax. (Emphasis supplied). The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear intention of the Agreement to exempt the WHO from "indirect" taxation. The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from any taxes in connection with the construction of the WHO office building. The 3% contractor's tax would be within this category and should be viewed as a form of 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. Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed decision is hereby affirmed. SO ORDERED. Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

Footnotes 1 Usaffe Veterans Association, Inc. vs. Treasurer of the Philippines, et. al., 105 Phil. 1030. 2 World Health Organization and Dr. Leonce Verstuyft v. Hon. Benjamin Aquino, etc., et al., 48 SCRA 242. 3 127 Phil. 461 Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs. CITY OF ILOILO, defendants-appellants.

Pelaez, Jalandoni and Jamir for plaintiff-appellees. Assistant City Fiscal Vicente P. Gengos for defendant-appellant. CASTRO, J.: Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance. On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full: AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that: Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment herein provided. Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space divided into separate apartments or accessorias. Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses: (a) Apartment house made of strong materials (b) Apartment house made of mixed materials II Rooming house of strong materials P20.00 per door p.a. P10.00 per door p.a. P10.00 per door p.a.

Rooming house of mixed materials III. Tenement house partly or wholly engaged in or dedicated to business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay to Valeria. St. IV. Tenement house partly or wholly engaged in or dedicated to business in any other street V. Tenement houses at the streets surrounding the super market as soon as said place is declared commercial

P5.00 per door p.a.

P30.00 per door p.a.

P12.00 per door p.a.

P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended. Section 5. Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court. Section 6 This ordinance shall take effect upon approval. ENACTED, January 15, 1960. In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes. By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property. On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation. The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? 4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation? 1. The pertinent provisions of the Local Autonomy Act are hereunder quoted: SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or impose any of the following: (a) Residence tax; (b) Documentary stamp tax; (c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published primarily for the purpose of publishing advertisements; (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power; (e) Taxes on forest products and forest concessions; (f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa; (g) Taxes on income of any kind whatsoever; (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other kinds of customs fees, charges and duties; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies. A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended. In such event, the municipal board or city council in the case of cities and the municipal council or municipal district council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest. It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti. Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5. It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. 9 The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners. 10 It is a fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of assessors. 12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax.

"The spirit, rather than the letter, or 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." 15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege." 16. "The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such words must be taken in the connection in which they are used and the true character is to be deduced from the nature and essence of the subject." 17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a tenement house 18 as "any house or building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:. "And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." . The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." . 2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.21. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax.22. "In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character. At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform."25. 3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax." 26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. 28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30. 4. The trial court brands the ordinance as violative of the rule of uniformity of taxation. "... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." . It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." 31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. 32 So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.34. 5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris. 35. ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed. No pronouncement as to costs.. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur..

Footnotes
1

The record discloses that the delay caused in the lower court was due to the loss of the original record while the same was in the possession of the late Judge Perfecto Querubin. The record was later reconstituted under Judge Ramon Blanco..
2

Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per Concepcion, J.: .

"Neither the plaintiff nor the lower court maintains that the subject matter of the ordinance in question comes under any of the foregoing exceptions. Hence, under the rule "expressio unius est exclusio alterius", the ordinance should be deemed to come within the purview of the general rule. Indeed, the sponsor of the bill, which upon its passage became Republic Act No. 2264, explicitly informed the House of Representatives when he urged the same to approve it, that, under its provisions, local governments would be "able to do everything, excepting those things which are mentioned therein." ..." . C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967, per Castro, J.: . "... Heretofore, we have announced the doctrine that the grant of the power to tax to chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned therein," subject only to the limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965). There is no showing, and we do not believe it is possible to show, that the tax levied, called by any name percentage tax or sales tax - comes under any of the specific exceptions listed in Section 2 of the Local Autonomy Act. Not being excepted, it must be regarded as coming within the purview of the general rule. As the maxim goes, "Exceptio firmat regulum in casibus non excepti." Since its public purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained as valid." (Re: Ordinance imposing a tax on sales or real estate property situated in the City of Iloilo, of 1/2% of 1% of the contract price or consideration.). Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967, per Fernando, J.: . "In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31, 1963, to Hodges vs. Mun. Board, L-18276, Jan. 12, 1967, such broad taxing authority has been implemented and vitalized by this Court. "... The question before this Court is one of power. From and after June 19, 1959, when the Local Autonomy Act was enacted, the sphere of autonomy of a chartered city in the enactment of taxing measures has been considerably enlarged. "... In the absence of a clear and specific showing that there was a transgression of a constitutional provision or repugnancy to a controlling statute, an objection of such a generalized character deserves but scant sympathy from this Court. Considering the indubitable policy expressly set forth in the Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance imposing tax on all productions of centrifugal sugar (B-sugar) locally sold or sold within the Phil., at P.20 per picul, etc.].
3

"Taxes on property are taxes assessed on all property or on all property of a certain class located within a certain territory on a specified date in proportion to its value, or in accordance with some other reasonable method of apportionment, the obligation to pay which is absolute and unavoidable and it is not based upon any voluntary action of the person assessed. A property tax is ordinarily measured by the amount of property owned by the taxpayer on a given day, and not on the total amount owned by him during the year. It is ordinarily assessed at stated periods determined in advance, and collected at appointed times, and its payment is usually enforced by sale of the property taxed, and, occassionally, by imprisonment of the person assessed." (51 Am. Jur. 57) .

"A "real estate tax" is a tax in rem against realty without personal liability therefor on part of owner thereof, and a judgment recovered in proceedings for enforcement of real estate tax is one in rem against the realty without personal liability against the owner." (36 Words and Phrases, 286, citing Land O'Lakes Dairy Co. vs. Wadena County, 39 N. W. 2d. 164, 171, 229 Minn. 263).
4

"The term "license tax" or "license fee" implies an imposition or exaction on the right to use or dispose of a property, to pursue a business, occupation, or calling, or to exercise a privilege." (33 Am. Jur. 325-v26) . "The term "excise tax" is synonymous with "privilege tax", and the two are often used interchangeably, and whether a tax is characterized in the statute imposing it as a privilege tax or an excise tax is merely a choice of synonymous words, for an excise tax is a privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs. Senter, 149 Tenn. 569, 260 SW 144) . "Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation." (51 Am. Jur. 61) .
5

"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of one per centum on the assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer..." .
6

Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as the Assessment Law. `. `SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be levied, assessed, and collected an annual ad valorem tax on real property, including land, buildings, machinery and other improvements not hereinafter specially exempted.".
7

Com. Act 158, sections 28 to 53. Com. Act 158, sec. 29.

51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property, and is payable regardless of whether the property is used or not, although of course the value may vary in accordance with such factor." .
10

"Real estate, for purposes of taxation, includes all land within the district by which the tax is levied, and all rights and interests in such land, and all buildings and other structures affixed to the land, even though as between the landlord and the tenant they are the property of the tenant and may be removed by him at the termination of the lease." (51 Am. Jur. 438) Sec. 31 of Com. Act 158 provides: "When it shall appear that there are separate owners of the land and the improvements thereon, a separate assessment of the property of each shall be made." .
11

Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer." .
12

Secs. 28 to 34, Com. Act 158.

13

Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and payable on the first day of January and from this date such taxes together with all penalties accruing thereto shall constitute a lien on the property subject to such taxation." .

14

Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages or incumbrances of any kind whatsoever, and shall be enforceable against the property whether in the possession of the delinquent or any subsequent owner, and can only be removed by the payment of the tax and penalty.".
15

62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60.
16

51 Am. Jur. 59-60; 33 Am. Jur. 325-326.. 51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367. Webster's New International Dictionary, 2nd Ed., p. 2601.

17

18

19

City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be seen from the definition of each establishment hereunder quoted, a tenement house is different from hotel, lodging house, or boarding house. These are different business enterprises. They have been established for different purposes.
20

National Internal Revenue Code: . "SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified: . XXX XXX XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial brokers, customs brokers, and immigration brokers, one hundred and fifty pesos: Provided, however, That in the case of real estate dealers, the annual fixed tax to be collected shall be as follows: . "One hundred and fifty pesos, if the annual income from buying, selling, exchanging, leasing, or renting property (whether on their own account as principals or as owners of rental property or properties) is four thousand pesos or more but not exceeding ten thousand pesos; . "Three hundred pesos, if such annual income exceeds ten thousand pesos but does not exceed thirty thousand pesos; and . "Five hundred pesos, if such annual income exceeds thirty thousand pesos."
21

Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46, per Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of the City of Manila, approved on July 25, 1950, imposing a municipal occupation tax on persons exercising various professions (lawyers, medical practitioners, public accountants, dental surgeons, pharmacists, etc.), in the city and penalizes non-payment of the tax by a fine of not more than P200.00 or by imprisonment of not more than 6 months, or by both such fine and imprisonment in the discretion of the court, although section 201 [now sec. 182(B)] of the National Internal Revenue Code requires the payment of taxes on occupation or professional taxes. Said Justice Reyes: "The argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing obnoxious in the requirement thatlicense fees or taxes be

exacted with respect to the same occupation, calling or activity by both the state and the political subdivision thereof. (51 Am. Jur., 341.)" . A month after the promulgation of the above decision, Congress passed Rep. Act 1166, approved on June 18, 1954, providing as follows: "Any provisions of existing laws, city charters and ordinances, executive orders and regulations, or parts thereof, to the contrary notwithstanding, every professional legally authorized to practice his profession, who has paid the corresponding annual privilege tax on professions required by Sec. 182 of the NIRC, Com. Act No. 466,shall be entitled to practice the profession for which he has been duly qualified under the law, in all parts of the Philippines without being subject to any other tax, charge, license or fee for the practice of such profession; Provided, however, That they have paid to the office concerned the registration fees required in their respective professions." .
22

People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista Angelo, J. Appeal from the decision of the CFI of Zambales. Defendants-appellees were convicted by the JP Court of Palauig, Zambales, and sentenced to pay a fine of P5.00, for failure to pay the occupation tax imposed by a municipal ordinance on owners of fishponds on lands of private ownership. The Supreme Court, in sustaining the validity of the ordinance, held:. "The ground on which the trial court declared the municipal ordinance invalid would seem to be that, since the land on which the fishpond is situated is already subject to land tax, it would be unfair and discriminatory to levy another tax on the owner of the fishpond because that would amount to double taxation. This view is erroneous because it is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used therein is subject to property tax. It was also held that "the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling." The imposition of this kind of tax is in no sense called a double tax." . Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil. 687, per Reyes, J.B.L., J. "Considering that appellant constructed her four-door "accessoria" purposely for rent or profit; that she has been continuously leasing the same to third persons since its construction in 1947; that she manages her property herself; and that said leased holding appears to be her main source of livelihood, she is engaged in the leasing of real estate, and is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)(3)(s)] of the Internal Revenue Code, as amended by Rep. Act No. 42. "Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the income derived therefrom, so that to further subject its rentals to the "real estate dealers" tax amounts to double taxation. This argument has already been rejected by this Court in the case of People vs. Mendaros et al., L-6975, promulgated May 27, 1955, wherein we held that it is a well-settled rule that license tax may be levied upon a business or occupation although the land or property used therein is subject to property tax, and that"the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double tax." ".
23

84 C.J.S. 131-132.

24

Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs. Interisland Gas Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs. Hawaiian-

Philippine Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines vs. City of Butuan, et al., L-22814, Aug. 28, 1968. Pepsi-Cola Bottling Co. vs. City of Butuan, supra: . "The second and last objections are manifestly devoid of merit. Indeed -- independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion -- double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and some States of the Union. Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers is subject to one well-established exception, namely; legislative powers may be delegated to local governments - to which said theory does not apply - in respect of matters of local concern." .
25

84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of express or implied constitutional prohibition. "Double taxation should not be permitted unless the legislature has authority to impose it. However, since the taxing power is exclusively a legislative function, and since, except as it is limited or restrained by constitutional provisions, it is absolute and unlimited, it is generally held that there is nothing, in the abscence of any express or implied constitutional prohibition against double taxation, to prevent the imposition of more than one tax on property within the jurisdiction, as the power to tax twice is as ample as the power to tax once. In such case whether or not there should be double taxation is a matter within the discretion of the legislature. "In some states where double taxation is not expressly prohibited, it is held that double taxation is permissible, or not invalid or unconstitutional, or necessarily unlawful, provided some other constitutional requirement is not thereby violated, as a requirement that taxes must be equal and uniform." . The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation shall be uniform." .
26

Art. III, sec. 1, par. 12, Constitution.

27

51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v. State, 64 Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147 NE 754, 40 ALR 73 (holding the provisions of an ordinance making the non-payment of an excise tax levied in pursuance of such ordinance a misdemeanor punishable by fine not in violation of the constitutional prohibition against the imprisonment of any person for "debt in a civil action, or mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW 828,73 Am. St. Rep. 961. 26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the municipality to which the tax is payable is not a creditor of the person assessed. A debt is a sum of money due by certain and express agreement. It originates in, and is founded upon, contract express or implied. Taxes, on the other hand, do not rest upon contract, express or implied. They are obligations imposed upon citizens to pay the expenses of government. They are forced contributions, and in no way dependent upon the will or contract, express or implied, of the persons taxed." .

28

51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons, or upon all the persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. Taxes of a specified amount upon each person performing a certain act or engaging in a certain business or profession are not, however, poll taxes." .
29

Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section 21: "Except as otherwise provided by law, and subject to the conditions and limitations thereof, the Municipal Board shall have the following legislative powers: . "(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment, for each offense." .
30

"To begin with the defendants' appeal, we find that the lower court was in error in saying that the imposition of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section that authorizes the enactment of the ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal Board to "fix penalties for the violation of ordinances which not exceed to [sic] two hundred pesos fine or six months' imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly without legal basis." .
31

51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform and equal when imposed upon all property of the same character within the taxing authority." Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G. Supp. to No. 11, p. 303, it was said that there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. 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 no argument at all against equality and uniformity of the tax imposition." Applying this criterion to the present case, there would be discrimination if some boarding stables of the class used for the same number of horses were not taxed or were made to pay less or more than others." Tan Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes, J.B.L., J.: "The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.".
32

Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. One requirement with respect to taxation imposed by provisions relating to equality and uniformity, which has been introduced into some state constitutions in express language, is that taxation must be uniform throughout the political unit by or with respect to which the tax is levied. This means, for example, that a tax for a state purpose must be uniform and equal throughout the state, a tax for a county purpose must be uniform and equal throughout the county, anda tax for a city, village, or township purpose must be uniform and equal throughout the city, village, or township. It does not mean, however, that the taxes levied by or with respect to the various political subdivisions or taxing districts of the state must be at the same rate, or, as one court has graphically put it, that a man in one county shall pay the same rate of taxation for all purposes that is paid by a man in an adjoining county. Nor does the rule require that taxes for the same purposes shall be imposed in different territorial subdivisions at the same time. It has also been said in this connection that the omission to tax any particular individual who may be liable does not render the whole tax illegal or void."
33

84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally and impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols, 265 N.W.

859, 66 N.D. 355], so that no higher rate or greater levy in proportion to value is imposed on one person or species of property than on others similarly situated or of like character." 84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and character and similarly situated, and a tax, in order to be uniform, must operate alike on all persons, things, or property, similarly situated. So the requirement is complied with when the tax is levied equally and uniformly on all subjects of the same class and kind and is violated if particular kinds, species or items of property are selected to bear the whole burden of the tax, while others, which should be equally subjected to it, are left untaxed."
34

84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly and equally [Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256], and a liberal construction will be indulged in order to accomplish fair and equal taxation of all property within the state."
35

Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167, Sept. 27, 1956; Saldana vs. City of Iloilo, 55 O.G. 10267, and the cases cited therein. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants, vs. THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all of the City of Manila, respondents-appellees. Teotimo A. Roja for appellants. City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serrano for appellees. BAUTISTA ANGELO, J.: This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the Municipal Board of the City of Manila on March 24, 1950. The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the trucks in said City, challenge the validity of said ordinance 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, represented by the city fiscal, 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.

The issues having been joined, the Court of First Instance of Manila sustained the validity of the ordinance and dismissed the petition. Hence this appeal. The disputed ordinance was passed by the Municipal Board of the City of Manila under the authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the municipal board the power "to tax motor and other vehicles operating within the City of Manila the provisions of any existing law to the contrary notwithstanding." It is contended that this power is broad enough to confer upon the City of Manila the power to enact an ordinance imposing the property tax on motor vehicles operating within the city limits. In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the municipal corporation to impose tax on motor vehicles operating in any highway in the Philippines. The pertinent provisions are contained in section 70 (b) which provide in part: No further fees than those fixed in this Act shall be exacted or demanded by any public highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the operation of any motor vehicle by the owner thereof: Provided, however, That nothing in this Act shall be construed to exempt any motor vehicle from the payment of any lawful and equitable insular, local or municipal property tax imposed thereupon. . . . Note that under the above section no fees may be exacted or demanded for the operation of any motor vehicle other than those therein provided, the only exception being that which refers to the property tax which may be imposed by a municipal corporation. This provision is all-inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be construed as limiting the broad grant of power conferred upon the City of Manila by its Charter to impose taxes. When section 18 of said Charter provides that the City of Manila can impose a tax on motor vehicles operating within its limit, it can only refers to property tax as a different interpretation would make it repugnant to the Motor Vehicle Law. Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall be expended exclusively for the repair, maintenance and improvement of its streets and bridges." Considering the wording used in the ordinance in the light in the purpose for which the tax is created, can we consider the tax thus imposed as property tax, as claimed by respondents? While as a rule an ad valorem tax is a property tax, and this rule is supported by some authorities, the rule should not be taken in its absolute sense if the nature and purpose of the tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has been held that "If a tax is in its nature an excise, it does not become a property tax because it is proportioned in amount to the value of the property used in connection with the occupation, privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by property and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also been held that The character of the tax as a property tax or a license or occupation tax must be determined by its incidents, and from the natural and legal effect of the language employed in the act or ordinance, and not by the name by which it is described, or by the mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded, even though nominally and in form it is a license or occupation tax; and, on the other hand, if the tax is levied upon persons on account of their business, it will be construed as a license or occupation tax, even though it is graduated

according to the property used in such business, or on the gross receipts of the business. (37 C.J., 172) The ordinance in question falls under the foregoing rules. While it refers to property tax and it is fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles operating within the City of Manila with the main purpose of raising funds to be expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason that, under said Act, municipal corporation already participate in the distribution of the proceeds that are raised for the same purpose of repairing, maintaining and improving bridges and public highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent duplication in the imposition of fees for the same purpose. It is for this reason that we believe that the ordinance in question merely imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition above adverted to. It is also our opinion that 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. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in the City of Manila as may be inferred from the word "operating" used therein. The word "operating" denotes a connotation which is akin to a registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous payment of the registration fees. There is no pretense that the ordinance equally applies to motor vehicles which come to Manila for a temporary stay or for short errands, and it cannot be denied that they contribute in no small degree to the deterioration of the streets and public highway. The fact that they are benefited by their use they should also be made to share the corresponding burden. And yet such is not the case. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution. Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and void. Paras, C.J., Bengzon and Tuason, JJ., concur. Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.

Separate Opinions FERIA, J., concurring: I concur on the ground that it is a license tax. ****

Republic of the Philippines SUPREME COURT Manila

EN BANC [G.R. No. L-9167. September 27, 1956.] 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:
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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:
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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:
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(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 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
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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; Medina, et al. vs. City of Baguio, 48 Off, Gaz., No. 11, 4769].
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The question now to be determined is: 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?
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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:
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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:
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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.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-36081 April 24, 1989

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner , vs. QUEZON CITY, respondent. Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.: On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which provided: Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as supervision fee. Failure to submit said list and to pay the corresponding amount within the period herein prescribed shall subject the operator to the penalties provided in this Code ... including revocation of permit to operate. ... .1 The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972, which reads: SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. xxx xxx xxx SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public markets shall submit ... a monthly certified list of stallholders of lessees of space in their markets showing ... : a. name of stallholder or lessee; b. amount of rental; c. period of lease, indicating therein whether the same is on a daily, monthly or yearly basis. xxx xxx xxx SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3) consecutive months, the City shall revoke the permit of the privately-owned market to operate and/or take any other appropriate action or remedy allowed by law for the collection of the overdue percentage tax and surcharge. xxx xxx xxx 2 On 15 July 1972, 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 then Court of First Instance 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. In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The Solicitor General also filed an Answer arguing that petitioner, not having paid the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question, and was estopped from questioning, its validity; that the tax on gross receipts was not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular trade or business which was within the power of respondent to impose. In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest the five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972. Two (2) days later, on 25 September 1972, petitioner moved for judgment on the pleadings, alleging that the material facts had been admitted by the parties. On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect. Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition for Review. The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively, of a license fee. We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as the Revised Charter of Quezon City, authorizes the City Council: xxx xxx xxx (b) To provide for the levy and collection of taxes and other city revenues and apply the same to the payment of city expenses in accordance with appropriations. (c) To tax, fix the license fee, and regulate the business of the following: ... preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables, bread and other provisions. 4 The scope of legislative authority conferred upon the Quezon City Council in respect of businesses like that of the petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but also " to tax" 5 Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act, provides that: Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the

municipality, or the municipal district council of the municipal district; to collect fees and charges for service rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes just and uniform taxes licenses or fees: ... 6 It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority extending to almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public purposes, just and uniform," does not transgress any constitutional provision and is not repugnant to a controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly show that respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned public market. Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from capital invested in the construction of the Farmers Market, practically operates as a tax on income, one of those expressly excepted from respondent's taxing authority, and thus beyond the latter's competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on to state: 8 ... Provided, however, That no city, municipality or municipal district may levy or impose any of the following: xxx xxx xxx (g) Taxes on income of any kind whatsoever; The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes 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. 9 Thus, if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. 10 To be considered a license fee, the imposition questioned 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 as well. 11 When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. 12 Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. 13 In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350 passed on 30 January 1967 by respondents's local legislative body authorizing petitioner to establish and operate a market with a permit to sell fresh meat, fish, poultry and other foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to and inviting the patronage of the general public, even though privately owned, petitioner's operation thereof required a license issued by the respondent City, the issuance of which, applying the standards set forth above, was done principally in the exercise of the respondent's police power. 16 The operation of a privately owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close supervision and control by the respondent City, 17 for the protection of the health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and related standards, for the prevention of fraud and imposition upon the buying public, and so forth. We believe and so hold 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. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, 18 it nevertheless will be presumed to be reasonable. Local' governments are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates. 19 Thus: [A]n ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to such an inquiry are the municipal conditions as a whole and the nature of the business made subject to imposition. 20 Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel the Court to characterize the imposition as a revenue measure exclusively. The lower court correctly held that 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. Upon the other hand, it has not been suggested that such basis has no reasonable relationship to the probable costs of regulation and supervision of the petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned market; and the higher the volume of goods sold in such private market, the greater the extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public. Moreover, what we started with should be recalled here: the authority conferred upon the respondent's City Council is not merely "to regulate" but also embraces the power "to tax" the petitioner's business. Finally, petitioner argues that respondent is without power to impose a gross receipts tax for revenue purposes absent an express grant from the national government. As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that unit not having the inherent power of taxation. 21 The rule, however, finds no application in the instant case where what is involved is an exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly accompanied by the taxing power.

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. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes 1 Rollo, p. 102; Italics supplied. 2 Records on Appeal, pp. 14-15; Underscoring supplied. 3 Ibid, pp. 58-68. 4 46 Official Gazette 4732 (1950); Italics supplied. Certain portions of the Charter had been amended by R.A. 5541, 65 Official Gazette, p. 7126 (1968). The amendatory law, however, did not introduce any change to the portion quoted above. 5 See, in this connection, Pacific Commercial Co. v. Romualdez, et al., 49 Phil. 917 (1927). 6 Section 2 of R.A. 2264 has been amended by R.A. 4497, 62 Official Gazette, p. 8616 (1966); Underscoring supplied. R.A. 2264 was further amended by P.D. No. 145, 69 Official Gazette, p 2418 (1973), which however did not affect the abovequoted portion. 7 Nin Bay Mining Co. v. Municipality of Roxas, 14 SCRA 660 (1965); See also C.N. Hodges v. Municipal Board of the City of Iloilo, et. al., 19 SCRA 28 (1967); and Villanueva v. City of Iloilo, 26 SCRA 578 (1968). 8 supra, note 6; underscoring supplied. 9 Compania General de Tabacos de Filipinas v. City of Manila, 118 Phil. 383; 8 SCRA 370 (1963); Pacific Commercial Co. v. Romualdez, 49 Phil, 917 (1927). 10 Manila Electric Company v. El Auditor General y La Comision de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine Rabbit Bus Lines, 32 SCRA 215 (1970). 11 City of Iloilo v. Villanueva, 105 Phil. 337 (1959). 12 Manila Electric Company vs. El Auditor General y la Comision de Servicios Publicos, supra, at 134-135. 13 Serafin Saldana v. City of Iloilo, 104 Phil, 28. (1958). 14 Record on Appeal, p. 10. 15 Ibid.

16 In City of Jacksonville, et al. v. Ledwith 7 So. at 892 [1890]; 26 Fla. 163, it was held that a permit to establish a market was: "from the nature of a market, a license. It is a permit to do something which could not be done before without such permit, and hence is the grant of a license. x x x [T]he power to establish markets is within the police power, and [thus is] x x x the power to charge, as a police regulation, a fee for the permit or license for selling meats or vegetables therein, x x x. The fee, however, is not a tax for revenue, but a charge under the police power, and its amount is to be controlled by the principles governing in such cases." 17 Brief for the Respondent, pp. 6-7; Rollo, p. 172. 18 E.g., Calalang v. Lorenzo and Villar, 97 Phil. 212 (1955). 19 Procter & Gamble PMC v. Municipality of Jagna 94 SCRA 894 (1979); Northern Phil. Tobacco Co. v. Municipality of Agoo, 31 SCRA 304 (1970); and San Miguel Brewery, Inc. v. City of Cebu, 43 SCRA 275 (1972). 20 Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25 SCRA 192 at 205 (1968), citing 9 McQuillin Municipal Corporations, 3rd ed., at 65. In Atkins v. Philips, 8 So. at 431 (1890); 26 Fla. 281, the Supreme Court of Florida held: 21 City of Ozamis v. Lumapas, 65 SCRA 33 (1975). Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16619 June 29, 1963

COMPAIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee, vs. CITY OF MANILA, ET AL., defendants-appellants. Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee. City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-appellants. DIZON, J.: Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to refund the sum of P15,280.00 to Compania General de Tabacos de Filipinas. Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply as Tabacalera filed this action in the Court of First Instance of Manila to recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento also hereinafter referred to as the 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, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.1wph1.t In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor sales of the same period, and it is not denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to the liquor sales aforesaid. Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; 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 mentioned heretofore is an overpayment made by mistake, and therefore refundable. The City, on the other hand, contends that, for the permit issued to it granting proper authority to "conduct or engage in the sale of alcoholic beverages, or liquors" 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; that, even assuming that Tabacalera is not subject to the payment of the sales taxes prescribed by the said three ordinances as regards its liquor sales, it is not entitled to the refund demanded for the following reasons:. (a) The said amount was paid by the plaintiff voluntarily and without protest; (b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from the plaintiff's neglect of duty; . (c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed to the consumers; and (d) The said amount had been already expended by the defendant City for public improvements and essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the plaintiff. It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No. 3420, and City Ordinance No. 3816, amending City Ordinance No. 3301 were passed. By reason thereof, the City Treasurer issued the regulations marked Exhibit A, according to which, the term "general merchandise as used in said ordinances, includes all articles referred to in Chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of these, Sections 133-135 included liquor among the taxable articles. Pursuant to said regulations, Tabacalera included its sales of liquor in its sworn quarterly declaration submitted to the City Treasurer beginning from the third quarter of 1954 to the second quarter of 1957, with a total value of P722,501.09 and correspondingly paid a wholesaler's tax amounting to P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of P15,208.00 the amount sought to be recovered. It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance No. 3358 are not subject to the wholesale and retail dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee stopped including its sales of liquor in its quarterly sworn declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding refund of the alleged overpayment. As the claim was disallowed, the present action was instituted.

The term "tax" applies generally speaking to all kinds of exactions which become public funds. The term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26). 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, having been enacted by the Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it are essentially for purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must be subject to supervision or regulation by the state and by cities and municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.) 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. (Section 10 [o], Republic Act No. 409, as amended.). Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. Aside from this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-8799, August 31, 1956, that the word "merchandise" refers to all subjects of commerce and traffic; whatever is usually bought and sold in trade or market; goods or wares bought and sold for gain; commodities or goods to trade; and commercial commodities in general. 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, a calling in which it is obvious not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public health and morals. 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 (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83). This is precisely the case with the ordinances involved in the case at bar. Appellee's contention that the City is repudiating its previous view expressed by its Treasurer in a letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 that a liquor dealer who pays the annual license fee under Ordinance No. 3358 is exempted from the wholesalers and retailers taxes under the other three ordinances mentioned heretofore is of no consequence. The government is not bound by the errors or mistakes committed by its officers, specially on matters of law. Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points raised by the City. WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is hereby dismissed, with costs. Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes, Regala and Makalintal, JJ., concur. Bengzon, C.J. and Concepcion, J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-15351 January 28, 1961

MORCOIN CO., LTD. and SUTER, INC., plaintiffs-appellees, vs. THE CITY OF MANILA, THE MAYOR OF MANILA, THE CITY TREASURER and THE CHIEF OF POLICE OF MANILA, defendants-appellants. Celestino Sabate and Valentin A. Francisco for plaintiff-appellees. City Fiscal Hermogenes Concepcion, Jr. and Assistant Fiscal Artemio Cusi for defendants-appellants. GUTIERREZ DAVID, J.: Direct appeal from a decision of the Court of First Instance of Manila, Branch IV, declaring Ordinance No. 3628 of the City of Manila null and void. Morcoin Co., Ltd., and Suter, Inc., are owners and operators of automatic phonograph machines, more popularly known as juke boxes, in the City of Manila. As such owners and operators, they paid an annual permit fee of P5 for each machine, and a similar amount whenever a juke box is transferred to a different location. In compliance with Sections 773 and 774 of Ordinance No. 3347, they also paid an additional sum of P50 per annum as license fee for the installation and use of each juke box machine. On February 2, 1954, the Mayor of the City of Manila, in order to curb the use of pinball machines which "have conduced to promote idleness among an increasing number of city residents", recommended to the Municipal Board the further amendment of Sections 773 and 774 of Ordinance No. 1600 by restricting the operation or maintenance of said machines within a specified radius from certain designated places and "by making the rate of license fees more prohibitive." Emphasizing that "pinball machines contribute to moral delinquency", the City Mayor, on February 19, 1954, sent a " 1st TRACER" to the Municipal Board urging the prompt enactment of the proposed amendment to said sections 773 and 774. Five days thereafter, the Board's Committee on Laws sharing the same views of the City Mayor about the deleterious effects" which pinball machines produce, recommended, on second indorse 312 ment,the approval of the proposed amendment. Acting upon that recommendation, the Municipal Board of the City of Manila, on March 19, 1954, enacted Ordinance No.. 3628, containing the proposed amendment, which was approved by the City Mayor on the following day. See. 773 and 774 of Ordinance No. 1600 as amended by ordinance No. 3628 read as follows: SEC. 773. Licenses. No person, entity or corporation shall install or cause to be installed for the use of the public for compensation any mechanical contrivance or automatic apparatus which functions through the introduction of money not otherwise prohibited by the law of weights and measures and not a gambling device, for purposes of amusement or of confronting the weight of persons or things, or printing letters or numbers, or displaying features inside the apparatus or reproducing recorded music, including other kinds of machines or apparatus without having first obtained a license therefor from the City Treasurer. Such license must be posted on the apparatus concerned; Provided, that the operation or maintenance of pinball machines, not otherwise falling under the category of gambling device shall not be allowed within a radius of two hundred (200) meters from any church, hospital, institution of learning, public market, plaza, and government buildings.

Sec 774. Fees. There shall be paid for every license granted for the installation and use of an apparatus provided in his chapter, an annual fee of P300.00 which is payable in advance; Provided, that person-coin operated weighing or scale machines shall pay only an annual fee of P12.00, payable in advance." The validity of the above ordinance was contested by a group of owners and operators of pinball machines who Call themselves "Recreation and Amusement Association of the Philippines" before the Court of First Instance of Manila, but that court dismissed the action, it being of the opinion that the said ordinance was valid. On September 24, 1957, Morcoin Co., Ltd., and Suter, Inc., the owners and operators, as already stated, of juke box machines in the City of Manila brought an action in the Court of First Instance of Manila, its Mayor, Treasurer and Chief of Police, assailing the validity of Ordinance No. 628 on the ground that the license fee of P300 imposed by the said ordinance upon juke box machines is exorbitant, excessive, confiscatory and substantially disproportionate to the reasonable expenses of issuing the license for and regulating the said machines. The defendants, thru the City Fiscal, filed their answer denying the material allegations of the complaint and interposed a counter-claim for plaintiffs' failure to pay their outstanding obligations arising under Ordinance No. 3628. By way of special defenses, defendants alleged that the complaint states no cause of action, because the validity of Ordinance No. 3628 has already been upheld in the case of Recreation and Amusement Association of the Philippines vs. City of Manila, et al., (G.R. No. L.7922, February 22, 1957), and that the operation of automatic phonograph machines is a non-useful business upon which a large license fee may be imposed. After trial, the lower court rendered judgment declaring Ordinance No. 3628 null and void and enjoining the enforcement of the same in connection with plaintiffs' business. Hence this appeal. The appeal is without merit. There can be no question that Sections 773 and 774 of Ordinance No. 1600, as amended by Ordinance No. 3628, was enacted pursuant to section 18 [1] of the Revised Charter of the City of Manila (Republic Act No. 409 as amended), which provides that the Municipal Board has the legislative power "to regulate and fix the license fees for . . . slot machines . . .". The power to regulate and impose license fee for the operations of slot machines which include juke box machines, pinball machines and other coinoperated contrivances-should not, however, be construed as including the power to impose license taxes for revenue purposes. Indeed, a cursory reading of the legislative powers of the Municipal Board enumerated in section 18 of the City's Revised Charter shows that the power to tax is given where it was intended to be exercised and is not given where it was not so designed. As the authority was withheld, it must logically result that the power granted under the above-quoted provision of the City's Charter is purely regulatory for police purposes. (Pacific Commercial Co. vs. Romualdez and Alfonso, 49 Phil. 917; Hercules Lumber vs. Municipality of Zamboanga, 55 Phil. 653.) Such being the case, the amount of license fees that may be imposed upon juke box machines and other coin-operated contrivances cannot be prohibitive, extortionate, confiscatory or in an unlawful restraint of trade, but should be approximately commensurate with and sufficient to cover all the necessary or probable expenses of issuing the license and of such inspection, regulation and supervision as may be lawful. (Cu Unjieng vs. Patstone, 42 Phil. 818; City of Iloilo vs. Villanueva, G.R. No. L.12695, March 23, 1959; 33 Am. Jur. 367; 53 C.J.S. 517; See also the cases cited therein.) Any ordinance which imposes a license fee which is substantially in excess of the reasonable expense of issuing the license and regulating the occupation to which it pertains, is invalid. (25 Am. Law and Proc. 611; 28 id. 749, 750.) In the present case, we are inclined to agree with the trial court that the amount of P300 imposed by Ordinance No. 3628 as license fee for the installation and use of juke box machines is unreasonable and far exceeds the expenses of issuing the license and of regulating their operation. It will be observed that the ordinance in question does not even provide for inspection and supervision of each machine installed. And the Committees on Laws and Finance of the Municipal Board of the City of Manila themselves.which conducted a public hearing in connection with the petition filed during the pendency of this, case by some juke box operators found that juke box operators would not make any profit by paying the license fee of P300, and that the 'said amount of P300 is prohibitory and suppressive. 1 This finding is supported by the

record, for it was shown that two of plaintiffs' juke box machines, after deducting depreciation and operating expenses, but before the payment of permit and license fees, had an annual income of only about P211. In view of these circumstances, it is obvious that the amount of P300 charged as license fee is excessive and cannot be justified. In this connection, it should be stated that although the presumption is always in favor of the validity or reasonableness of the ordinance, such presumption must nevertheless be set aside when the invalidity or unreasonableness appears on the face of the ordinance itself or is established by proper evidence. It is argued that the business of operating juke box machines is a non-useful occupation and consequently the amount of license fee that may be imposed thereon may be very large without necessarily being considered unreasonable. We do not think it is correct to say that the operation of juke box machines is a non-useful occupation. The Committees on Laws and Finance of the Municipal Board of Manila themselves, in their joint report submitted to the Board, after public hearing, stated that the operation of juke boxes is "legitimate, harmless and of some cultural value." It is gratuitous and unfair to brand juke boxes as not contributing to the economic or moral wealth of the individual or of the nation, simply because the said contrivance may be found in nightclubs and bars where dancing is indulged in. Defendants cite the case of Recreation and Amusement Association of the Philippines vs. City of Manila, et al., G. R. No. L.7922, February 22, 1957), where this Court upheld the dismissal of the complaint, contesting the validity of Ordinance 3628. The main issue in that case, however, was the legal capacity of the plaintiff to sue, which was not registered in accordance with law. Besides, the said case involved the restriction of the use of pinball machines, which admittedly produce deleterious effects among city residents. Such machines have in fact been declared by this Court to be gambling devices which may be suppressed by ordinance. (Uy Ha vs. City of Manila, G.R. Nos. L-14149 and L-14069, May 30, 1960.) Defendants likewise cite the case of the Universal Picture Corporation vs. Romualdez (52 Phil. 576), wherein an ordinance of the City of Manila imposing the license fee of Pl,800 for first class cinematographs was held reasonable. The case cited is not in point. The ordinance there in question provided for police and fire protection as well is the inspection and supervision of wires in electrical installations, and the license fees fixed were charged only with a view of covering the expenses therefor. IN VIEW OF THE FOREGOING, the decision appealed from declaring Ordinance No. 2628 of the City of Manila invalid is hereby affirmed, with costs against appellants. Bengzon, Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes and Dizon, JJ., concur. Barrera, J., reserves his vote.

Footnotes
1

In view of this finding, the matter was referred to the City Treasurer for comment and recommendation as to what would be reasonable and commensurate with the necessary expenses of licensing and supervision. On the basis of the ocular inspection conducted by the deputies of the City Treasurer, the latter official recommended that the amount of P100 per annum would be reasonable for juke boxes in nightclubs.and other places 'where dancing is allowed and P15 for juke boxes in restaurants or places where food and drinks are served. Agreeing with the City Treasurer, the Committee on Ways and Means of the Municipal Board of the City of Manila recommended the approval of a proposed ordinance imposing a license fee of P100 on juke box machines. The proposed ordinance was enacted by the Municipal Board on September 11, 1959, but it was never approved by the City Mayor.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-29646 November 10, 1978 MAYOR ANTONIO J. VILLEGAS, petitioner, vs. HIU CHIONG TSAI PAO HO and JUDGE FRANCISCO ARCA, respondents. Angel C. Cruz, Gregorio A. Ejercito, Felix C. Chaves & Jose Laureta for petitioner. Sotero H. Laurel for respondents.

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

without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind. Violations of this ordinance is punishable by an imprisonment of not less than three (3) months to six (6) months or fine of not less than P100.00 but not more than P200.00 or both such fine and imprisonment, upon conviction. 5 On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No. 72797, praying for the issuance of the writ of preliminary injunction and restraining order to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537 null and void. 6 In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and void: 1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in taxation; 2) As a police power measure, it makes no distinction between useful and non-useful occupations, imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the fundamental principle on illegal delegation of legislative powers: 3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of their rights to life, liberty and property and therefore, violates the due process and equal protection clauses of the Constitution. 7 On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction. 8 Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the present petition on March 27, 1969. Petitioner assigned the following as errors allegedly committed by respondent Judge in the latter's decision of September 17,1968: 9 I THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL RULE OF UNIFORMITY OF TAXATION. II RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER. III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE DUE PROCESS AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION. Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on the ground that it violated the rule on uniformity of taxation because the rule on uniformity of taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a regulatory measure in nature. The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation. The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid, being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful. 10 In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a government agency power to determine the allocation of wheat flour among importers, the Supreme Court ruled against the interpretation of uncontrolled power as it vested in the administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard from which it can be measured or controlled. It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is not uncontrolled discretion but legal discretion to be exercised within the limits of the law. Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him by the ordinance. The ordinance in question violates the due process of law and equal protection rule of the Constitution. Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a means of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived of life without due process of

law. This guarantee includes the means of livelihood. The shelter of protection under the due process and equal protection clause is given to all persons, both aliens and citizens. 13 The trial court did not commit the errors assigned. WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs. SO ORDERED. Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur. Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result. Concepcion, Jr., J., took no part.

Separate Opinions

TEEHANKEE, J., concurring: I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment of aliens within the country is a matter of national policy and regulation, which properly pertain to the national government officials and agencies concerned and not to local governments, such as the City of Manila, which after all are mere creations of the national government. The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the country with the exception of certain specific fields and areas. Such national policies may not be interfered with, thwarted or in any manner negated by any local government or its officials since they are not separate from and independent of the national government. As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular (National) Government adopts a policy, a municipality is without legal authority to nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised within the limits of the organic laws, but they must be consistent with the general law and public policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011). With more reason are such national policies binding on local governments when they involve our foreign relations with other countries and their nationals who have been lawfully admitted here, since in such matters the views and decisions of the Chief of State and of the legislature must prevail over those of subordinate and local governments and officials who have no authority whatever to take official acts to the contrary.

Separate Opinions TEEHANKEE, J., concurring: I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason that the employment of aliens within the country is a matter of national policy and regulation, which properly pertain to the national government officials and agencies concerned and not to local governments, such as the City of Manila, which after all are mere creations of the national government. The national policy on the matter has been determined in the statutes enacted by the legislature, viz, the various Philippine nationalization laws which on the whole recognize the right of aliens to obtain gainful employment in the country with the exception of certain specific fields and areas. Such national policies may not be interfered with, thwarted or in any manner negated by any local government or its officials since they are not separate from and independent of the national government. As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil. 129: "The City of Manila is a subordinate body to the Insular (National Government ...). When the Insular (National) Government adopts a policy, a municipality is without legal authority to nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal powers be exercised within the limits of the organic laws, but they must be consistent with the general law and public policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd sec. 367, P. 1011). With more reason are such national policies binding on local governments when they involve our foreign relations with other countries and their nationals who have been lawfully admitted here, since in such matters the views and decisions of the Chief of State and of the legislature must prevail over those of subordinate and local governments and officials who have no authority whatever to take official acts to the contrary. Footnotes 1 Annex "F", Petition, Rollo, p. 64. 2 Petition, Rollo, p. 28. 3 Annex "A", of Petition, Rollo, p. 37-38. 4 Section 1. It shall he unlawful for any person not a citizen of the Philippines to be employed in any kind of position or occupation or allowed directly or indirectly to participate in the functions, administration or management in any office, corporation, store, restaurant, factory, business firm, or any other place of employment either as consultant, adviser, clerk, employee, technician, teacher, actor, actress, acrobat, singer or other theatrical performer, laborer, cook, etc., whether temporary, casual, permanent or otherwise and irrespective of the source or origin of his compensation or number of hours spent in said office, store, restaurant, factory, corporation or any other place of employment, or to engage in any kind of business and trade within the City of Manila, without first securing an employment permit from the Mayor of Manila, and paying the necessary fee therefor to the City the City Treasurer: PROVIDED, HOWEVER, That persons employed in diplomatic and consular missions of foreign countries and in technical assistance programs agreed upon by the Philippine Government and any foreign government, and those working in their respective households, and members of

different congregations or religious orders of any religion, sect or denomination, who are not paid either monetarily or in kind shag be exempted from the provisions of this Ordinance. 5 Section 4. Any violation of this Ordinance shall upon conviction, be punished by imprisonment of not less than three (3) months but not more than six (6) months or by a fine of not less than one hundred pesos (P100.00) but not more than two hundred pesos (P200.00), or by both such fine and imprisonment, in the discretion of the Court: PROVIDED, HOWEVER, That in case of juridical persons, the President, the VicePresident or the person in charge shall be liable. 6 Annex "B", Petition, Rollo, p. 39. 7 Ibid 8 Annex "F", Petition, Rollo, pp. 75-83. 9 Petition, Rollo, p. 31. 10 People vs. Fajardo, 104 Phil. 443, 446. 11 89 Phil. 439, 459-460. 12 80 Phil. 86. 13 Kwong Sing vs. City of Manila, 41 Phil, 103. Republic of the Philippines SUPREME COURT Manila EN BANC 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 Naawa 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. Moran, C.J., Paras, Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

Footnotes
1

AN ORDINANCE PROVIDING FOR LICENSE FEES ON PERSONS MAINTAINING OR CONDUCTING ANY BOARDING STABLE FOR HORSE RACES AND/OR HORSE STABLES, OR PLACES WHERE HORSE ARE KEPT, FED, OR BOARDED FOR OTHERS, FOR COMPENSATION OR HIRE, AND/OR FOR PRIVATE, AND FOR OTHER PURPOSES. Be it ordained by the Municipal Board of the City of Manila, that: SECTION 1. License. No person shall own, keep, maintain, or conduct any boarding stable, or place where race horse are kept, fed, or boarded for others, for compensation or hire, and/or for race horse stable privately owned not for hire, without first having obtained a permit from the Mayor and license therefor from the City Treasurer. SEC. 2. Fees. For every license granted under the provisions of this ordinance, there shall be paid an annual license fee, which may be paid either annually, semestrally or quarterly at the option of the taxpayer, to wit: Boarding stable for race horses:

Class A For each race horse, kept, maintained, fed or boarded in boarding stables........................................................

P10.00

Class B For each race horse, kept, maintained, or fed in private race horse stables........................................................

P5.00

SEC. 3. Contents of application. Every application for the license in this ordinance required, shall be accompanied by a sworn statement of the greatest number of animals to be kept by the applicant, which statement shall be the basis for computing the amount of fees to be paid for such license. SEC. 4. Effectivity. This ordinance shall take effect upon its approval.
*

83 Phil., 852. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-31156 February 27, 1976 PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees. Sabido, Sabido & Associates for appellant. Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.: This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959). On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962.

Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. 3 On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. 5 The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.' On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs." From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended. There are three capital questions raised in this appeal: 1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive? 2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? 3. Are Ordinances Nos. 23 and 27 unjust and unfair? 1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. 9 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." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more

general purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12 There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or municipality. 17 2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. 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. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former." That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular

limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. 21 Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified. 3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in line with the constutional 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 (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. 28 Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality. ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant. SO ORDERED. Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur.

Separate Opinions

FERNANDO, J., concurring: The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from a different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1 1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It is therein specifically provided: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the national government, was that while the President of the Philippines was vested with the power of control over all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local governments as may be provided by law ... 3 As far as legislative power over local government was concerned, no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved against the municipality." 7 Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. 12 So I would view the issues in this suit and accordingly concur in the result.

Separate Opinions FERNANDO, J., concurring: The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from a different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1 1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It is therein specifically provided: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the national government, was that while the President of the Philippines was vested with the power of control over all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local governments as may be provided by law ... 3 As far as legislative power over local government was concerned, no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved against the municipality." 7 Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. 12 So I would view the issues in this suit and accordingly concur in the result. Footnotes

1 "Sec. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising private in chartered cities, municipalities and municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district to collect fees and charges for service rendered by the city, municipality or municipal district; to regulate and impose reasonable for services rendered in connection with any business, profession occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees: Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code: Provided, however, That no city, municipality or municipal district may levy or impose any of the following: (a) Residence tax; (b) Documentary stamp tax; (c) Taxes on the business of any newspaper engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular interval and having fixed prices for subscription and sale, and which is not published primarily for the purpose of publishing advertisements; (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power; (e) Taxes on forest products and forest concessions; (f) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa (g) Taxes on income of any kind whatsoever; (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (i) Customs duties registration, wharfage on wharves owned by the national government, tonnage and all other kinds of customs fees, charges and dues; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax: (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies; and (i) Taxes, fees or levies, of any kind, which in effect impose a burden on exports of Philippine finished, manufactured or processed products and products of Philippine cottage industries. 2 Section 2. 3 Section 3.

4 Section 2. 5 Section 3. 6 Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150. 7 Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan, L-22814, August 28, 1968, 24 SCRA 793-96. 8 Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919). 9 Cooley, ante at 190. 10 Idem at 198-200. 11 Malcolm, Philippine Constitutional Law, 513-14. 12 Cooley ante at 334. 13 See footnote 1. 14 Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, 1, 2S 1 4, August 28, 1968, 24 SCRA 793-96. See Sec. 22, Art. VI, 1935 Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution. 15 Commissioner of Internal Revenue v. Lednicky L- 18169, July 31, 1964, 11 SCRA 609. 16 SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280. 17 Punzalan v. Mun. Bd of City of Manila, 50 O.G. 2485; manufacturers Life Ins. Co. v. Meer, 89 Phil. 351 (1951). 18 McQuillin. Municipal Corporations, 3rd. Ed., Vol. 6, at 206.-210. 19 Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin Bay Mining Co. v. Mun. of Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 663-64. 20 Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975. 21 SMB, Inc. v. City of Cebu, ante, Footnote 16. 22 Shell Co. of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA No. 953, Narcotic Drugs Law, June 20, 1953. 23 Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks contains 8 oz., or 192 oz. per case of 24 bottles; a family-size contains 26 oz., or 312 oz. per case of 12 bottles.

24 See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14, where the tax rate is P.10 per case of 24 bottles; City of Bacolod v. Gruet, L-18290, January 31, 1963, 7 SCRA 168-69, where the tax is P.03 on every case of bottled CocaCoal. 25 Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January 30, 1971, 31 SCRA 308. 26 William Lines, Inc. v. City of Ozamis, L-350048, April 23, 1974, 56 SCRA 593, Second Division, per Fernando, J. 27 Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRa 205. 28 Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125, January 31, 1973, 43 SCRA 133-34. 29 Subject of plaintiff-appellant's Motion for Admission and consideration of Essential Newly Dissevered Evidence, dated April 30, 1969. FERNANDO, J. 1 L-24756, October 31, 1968, 25 SCRA 938. 2 Article XI, Section 5 of the present Constitution. 3 Article VII, Section 10 of the 1935 Constitution. 4 Commonwealth Act 472 entitled: "An Act Revising the General Authority of Municipal Councils and Municipal District Councils to Levy Taxes, Subject to Certain Limitations." 5 Republic Act No. 2264. 6 L-18534, December 24,1964,12 SCRA 611. 7 Ibid, 619. Cf. Cuunjieng v. Potspone, 42 Phil. 818 (1922); De Linan v. Municipal Council of Daet, 44 Phil. 792 (1923); Arquiza Luta v. Municipality of Zamboanga, 50 Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga, 55 Phil. 653 (1931); Yeo Loby v. Zamboanga, 55 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap Tak Wing v. Municipal Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso 83 Phil. 852 (1949); De la Rosa v. City of Baguio, 91 Phil. 720 (I!)52); Medina v. City of Baguio, 91 Phil. 854 (1952); Standard-Vacuum Oil Co. v. Antigua, 96 Phil. 909 (1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956), We Wa Yu v. City of Lipa, Phil. 975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963 (1959). 8 L-14264, April 30, 1963, 7 SCRA 887. 9 Ibid, 892. 10 Ibid. 11 L-24756, October 31, 1968, 25 SCRA 938.

12 Ibid, 943-944. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-1104 May 31, 1949

EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants, vs. VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of Manila, defendants-appellees. Francisco Zulueta and Poblador Jr. for appellants. City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees. Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and Manuel D. Baldeo as amicus curiae. PERFECTO, J.: Twelve corporation engaged in motion picture business have initiated these proceeding through a complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila which was enacted by the municipalBoard of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took effect on May 1, 1946 said ordinance reading as follows: AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR OTHER PURPOSES. SEC. 1. In addition to the fees paid by cinematographers, theaters, vaudeville companies, theatrical shows and boxing exhibitions, as provided for in sections 633 and 778 of Ordinance No. 1600, known as the Revised Ordinance of the City of Manila, as amended, there shall be collected from the place of amusement which are specifically mentioned above the following fees on the price of every admission ticket sold by such enterprises:

a. For every ticket sold the price of which is from P0.25 to P0.99 b. For every ticket sold the price of which is from P1 to P1.99 c. For every ticket sold the price of which is from P2 to P2.99 d. for every ticket sold the price of which is from P3 to P4.99 e. or every ticket sold the price of which is from P5 to P5.99

P0.05

0.10

0.15

0.20

0.25

f. For every ticket sold the price of which is from P0 to P14.99 g. For ticket sold thee price of which is from P15 or more

0.35

0.50

SEC. 2 It shall be the duty of every proprietor lessee, promoter, or operatorof such cinematographs, theater, vaudeville companies, theatrical show and boxing exhibition to provide himself with tickets which shall be serially numbered, indication therein the name of amusement place and the fee charge for admission. Before such ticket are sold he same shall be presented to the office of the city Treasurer for registration. Tickets once issued and presented at the gate of entrance shall be cut by the gatekeeper into halves, the first half to be returned to the customer and the other half to be retained by the gate keeper. It shall also be the duty of said proprietor lessee promoter or operator to deliver to the Office of the City Treasurer the fees corresponding to the number of ticket old by him within two days after the performances or exhibition has taken place. SEC. 3. The fees herein prescribed shall not be paid where the admission fees or charge are collection for and in behalf of any charitable education or religion institution or association. All place of amusement which are operate by U.S. Army and Navy with fund belonging to the U.S. Government are hereby exempted from fees herein imposed. SEC. 4. Any person violation any of the provision of this ordinance shall upon conviction thereof be punished by a fine of not more than P200 or by imprisonment for not more than six months or by both such fine and imprisonment in the discretion of the court. If the violation is committed by the club firm or corporation the manager the managing director or person charged with the management of the business of such club firm or corporation shall be criminally responsible therefor. SEC. 5. This Ordinance shall take effect on the May 1, 1946. Plaintiffs, operator of theaters in Manila And distributor of local or imported films allege that they are interested in the provision of section 1,2 and 4 of said ordinance which they impugn as null and void upon the following grounds: (a) For violation the Constitution more particular the provision regarding the uniformity and equality of taxation and thee equal protection of the laws; (b) because the Municipal Board of Manila exceeded and over-stepped the power granted it the Charter of the City of Manila; (c) because it contravenes violates and is inconsistent with, existing nationallegislation more particularly revenue and tax laws and (d) because it is unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes principles of taxation and licensing laws. Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by the Municipal Board of Manila by virtue of its express legislative power to tax fix the license fee and regulate the business of theaters, cinematographs and further to fix the location of and to tax, fix the license fee for and regulate the business of theatrical performances public exhibition circus and other performances and places of amusement; (b) that the graduated tax required by said ordinance being applied to all cinematographs, theaters, vaudeville companies theatricalshow and boxing exhibitions similarly situated and as a class without distinction or exception the same does not violate the prohibition against uniformity and equality of taxation; (c) that the graduated tax onadmission tickets to theaters and other places of amusement imposed by the National Internal Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the National Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by and for the purposes of the Government of the City of Manila, and there is no

case of double taxation, (d) that said ordinance having been enacted under the express power of the Municipal Board to tax for revenue as distinguishedfrom its power to license for purely police purposes, the fact that the amount collected thereunder are higher than what are needed for police regulation and supervision does not render said ordinance unfair unjust capricious unreasonable and oppressive; (e) that consideration the nature of the business of the plaintiffs and the enormous volume of business they handle the graduated tax fixed by the ordinance is not unreasonable. Defendants allege also that since May 1, 1946, when the ordinance in question took effect plaintiffs have been charging the theater-going public increased prices for admission to the cinematographs owned and operated to the graduated tax imposed by said ordinance and as a result while refusing to pay said tax but at the same time collecting an amount equal to said tax plaintiffs have taken undue advantage of said ordinance to realized more profits. On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila rendered a decision upholding the validity of Ordinance No. 2958. Plaintiffs appellants assign in the their brief three errors committed by the trial court. We will consider them separately. Appellants contend that the lower court erred in holding that under section 2444 (m) of the Revised administrative Code the Municipal Board of the City ofManila had the power to enact Ordinance No. 2958. Section 2444 (m) of the Revised Administrative code reads as follows: To tax fix the license fee and regulate the business of hotels restaurants refreshment places, cafes, lodging houses, boarding houses livery garages warehouses, pawnshops theaters, cinematographs; and further to fix the location of and to tax fix the license fee for and regulate the businessof lively stables, the license fee for and regulate the business of livery stable, boarding stables, embalmers, public billiard table public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circusand other similar parades, public vehicles, race tracks, horse races,Junk dealers, theatrical performances, public exhibitions, circus andother performances and places of amusements, match factories, blacksmith shops, foundries, steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder, tar, pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum or any Ofthe products thereof and of all other highly combustible or explosivematerials and other establishment likely to endanger the public safety or give rise to conflagration or explosion and subject to the provision of ordinance issue by the (Philippines Health Service) Bureau of Health in accordance with law tanneries, renders tallow chandlers bone factories and soap factories. Appellants line of argument runs as follows: By virtue of the specific power granted in the above quoted provision of the Revised Administration Code Ordinance No. 2958 was enacted. On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466, known as the National Internal Revenue Code section 18, 260 and 261 of which read as follows: SEC. 18. Sources of revenue. The following taxes fees and charges are deemed to be national internal revenue taxes: (a) Income tax; (b) Estate inheritance and gift taxes; (c) Specific taxes on certain articles;

(d) Privilege taxes on business or occupation; (e) Documentary stamp taxes; (f) Mining taxes; (g) Miscellaneous taxes fees and charges, namely, taxes on banks and insurance companies franchise taxes on amusements charges on forest product fees for sealing weights and measures firearms license fees radio registration fees and water rentals. SEC. 260. Amusement taxes. There shall be collected from the proprietor, lessee, or operation of theater cinematographs, concert halls, circuses, boxing exhibition and other places of amusement the following taxes: (a) When the amount paid for admission exceeds twenty-nine centavos, two centavos on each admission; (b) When the amount paid for admission exceeds twenty-nine but does not exceed thirty-nine centavos, three centavos on each admission; (c) When the amount paid for admission exceeds thirty-nine centavos but does not exceed fortynine centavos four centavos on each admission. (d) When the amount paid for admission exceeds forty-nine centavos but does not exceed fiftynine centavos five admission. (e) When the amount paid for admission exceeds fifty-nine centavos but does not exceed sixtynine centavos six centavos on each admission. (f) When the amount paid for admission exceeds sixty-nine centavos but does not exceed seventy nine centavos seven centavos on each admission. (g) When the amount paid for admission exceeds seventy nine centavos but does not exceed eighty-nine centavos eight centavos on each admission; (h) When the amount paid for admission exceeds eighty-nine centavos but does not exceed ninty-nine centavos, nine centavos on each admission; (i) When the amount paid for admission exceeds ninety-nine centavos, ten centavos on each admission. In the case of theaters or cinematographs, the taxes herein prescribed shall first be decuted and withheld by the proprietros, lessees, or operators of such theaters or cinematogrphs and paid to the Collector of Internal Revenue before the gross receipts are divided between the proprietros, lessees, or operators of the theaters of cinematographs and the distributors of the cinematographic films. In the case of cockpits, race tracks, and cabarets, there shall be collected from the proprietor, lessee, or operator a tax equivalent to ten per centum of the gross receipts, irrespective of whether or not any amount is charged or paid for admission: Provided, however, That in the case of race tracks, this tax is in addition to the privilege tax prescribed in seciton 193. for the purpose of the amusement tax, the term "gross receipts" embraces all the receipts of the proprietor, lessee, or operator of the amusement place, excluding the receipts derived by him from the sale of liquors, beverages, or other articles subject to specific tax, or from any business subject to tax under this Code. (This section was amended by section 8, Republic Act No. 39, effective October

1, 1946. We are quoting the original provision to show the status of the law when the Ordinance was passed.) SEC. 261. Exemption. The tax herein imposed shall not be paid where the admission fee or charges are collected by or for and in behalf of any religious, charitable, scientific, or educational institution or association, and where no part of the net proceeds of such admission fees or charges inures to the benefit of any private stockholder or individual. Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the seven schedules and other details of said ordinance are, in every respect, identical with the amusement tax provided by section 260 of Commonwealth Act No. 466. But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code confers upon the City of Manila the power to impose a tax on business but not on amusement and, consequently, Ordinance No. 2958 was enacted beyond the charter powers of the City of Manila. The whole argument of plaintiffs hinges, therefore, on the assumption that the power granted to the City of Manila by section 2444(m) of the Revised Administrative Code is limited to the authority to impose a tax on business, with exclusion of the power to impose a tax amusement; but, the assumption is based on an arbitrary labeling of the kind of tax authorized by said section 2444(m). The distinction made by plaintiffs as to the power to tax on business and the power to tax on amusement has no ground under the provisions of section 2444(m) of the Revised Administrative Code. The tax therein authorized cannot be defined as tax on business and cannot be restricted within a smaller scope than what is authorized by the words used, to the extent of excluding what plaintiffs describe as tax on amusement. The very fact that section 2444 (m) of the Revised Administrative Code includes theaters, cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances, public exhibition, circus and other performances and places of amusements, will show conclusively that the power to tax amusement is expressly included within the power granted by section 2444(m) of the Revised Administrative Code. Plaintiffs-appellants contend that the lower court erred in not holding that section 2444 (m) of the Revised Administrative Code was repealed or the power therein contained was withdrawn by the National Assembly by the enactment of Commonwealth Act No. 466 known as the National Internal Revenue Code. In support of this contention, plaintiffs aver that the Charter of the City of Manila, containing section 2444(m) of the Revised Administrative Code, was enacted on December 8, 1929. On April 25, 1940, the National Assembly enacted Commonwealth Act No. 466, including provisions on amusement tax, covering the whole field on taxation and provided for more than what the ordinance in question has provided. As a result, there are two taxing powers seeking to occupy exactly the same field of legislation, and so the apparent conflict must be resolved with the conclusion that, with the enactment of Commonwealth Act No. 466, as later amended by Republic Act No. 39, section 2444(m) of the Revised Administrative Code has been impliedly repealed and the power therein delegated to the City of Manila withdrawn. We see absolutely no force in plaintiffs' contention. The conflict pointed out by them is imaginary. Both provisions of law may stand together and be enforced at the same time without any incompatibility among themselves. Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. 2958 violated the principle of equality and uniformity of taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the philippines).

To support this contenttion, appellantts point out to the fact that the ordinance in question does not tax "many more kinds of amusements" than those therein specified, such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement." the argument has absolutely no merit. 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 no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity of the tax imposition. 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; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The judgment of the trial court is affirmed with costs against appellants. Paras, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur. Perfecto, J., We certify that the Chief Justice voted to affirm the appealed judgment. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4887 May 30, 1953

UY MATIAO & CO., INC., plaintiff-appellee, vs. THE CITY OF CEBU, MIGUEL RAFFIAN, 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. Paras C.J., Feria, Pablo, Bengzon, Tuason, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur. ****

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 72477 October 16, 1990 NATIONAL POWER CORPORATION, petitioner, vs. HON. PRESIDING JUDGE, REGIONAL TRIAL COURT, 10TH JUDICIAL REGION BRANCH XXV, CAGAYAN DE ORO CITY, PROVINCE OF MISAMIS ORIENTAL, MUNICIPALITY OF JASAAN, MISAMIS ORIENTAL AND BARANGAY APLAYA, JASAAN, MISAMIS ORIENTAL, respondents. Pantaleon Z. Salcedo for respondent Barangay Aplaya. The Provincial Attorney for respondent Misamis Oriental and Municipality of Jasaan.

FERNAN, C.J.: In this Special Civil Action for Certiorari, petitioner National Power Corporation (NAPOCOR for brevity) questions the jurisdiction of the Regional Trial Court of Cagayan de Oro City, Branch XXV to hear Civil Case No. 9901 filed by respondents Province of Misamis Oriental and Municipality of Jasaan for the collection of real property tax and special education fund tax from petitioner covering the years 1978 to 1984. The antecedent facts are as follows: On October 10, 1984, the Province of Misamis Oriental filed a complaint 1 with the Regional Trial Court of Cagayan de Oro City, Branch XXV against NAPOCOR for the collection of real property tax and special education fund tax in the amounts of P11,105,008.10 and P11,104,658.10, respectively, covering the period 1978 to 1984. Petitioner NAPOCOR then defendant therein, filed a motion to dismiss 2 dated January 12, 1985 on the grounds that the court has no jurisdiction over the action or suit and that it is not the proper forum for the adjudication of the case. In support of this motion NAPOCOR cited Presidential Decree No. 242 dated July 9, 1973 which provides that disputes between agencies of the government including govemment-owned or controlled corporations shall be administratively settled or adjudicated by the Secretary of Justice. The court through Judge Pablito C. Pielago issued an order 3 dated January 28, 1985 denying the motion to dismiss. NAPOCOR filed a supplemental motion to dismiss 4 on February 22, 1985 citing a resolution of the Fiscal Incentive Review Board, No. 10-85 effective January 11, 1984, restoring the tax and duty exemption privileges of petitioner. On March 27, 1985, NAPOCOR filed its answer to the complaint with counterclaim. Treating the same as a second motion to dismiss and finding the affirmative defenses therein stated to be unmeritorious, the court a quo issued an order on June 27, 1985, denying the second motion to dismiss and requiring both parties to appear before the court for the purpose of submitting a stipulation of facts. On July 23, 1985, Barangay Aplaya, Municipality of Jasaan, Misamis Oriental filed a complaint in intervention 5 contending that non-payment by NAPOCOR of real property taxes would adversely affect its interest since under the law, ten percent (10%) of the real property tax collected on properties within its jurisdiction shall accrue to the general fund of the barangay. Thereafter, the case was set for trial pursuant to the court's order dated August 20, 1985. 6 On October 30, 1985, petitioner NAPOCOR filed before this Court the present special civil action for certiorari 7 setting forth the following issues, to wit: 1) Respondent Court acted without or in excess of jurisdiction and with grave abuse of discretion when it issued the orders dated January 28, 1985, June 27, 1985 and August 20, 1985, denying petitioner's motions to have Civil Case No. 9901 dismissed on the grounds of lack of jurisdiction and/or improper venue. 2) Petitioner is exempt from payment of real property taxes. Relied upon by NAPOCOR in assailing the jurisdiction of the lower court and/or the venue of the action are Sections 2 and 3 of Presidential Decree No. 242, entitled "PRESCRIBING THE PROCEDURE FOR ADMINISTRATIVE SETTLEMENT OR ADJUDICATION OF DISPUTES, CLAIMS AND CONTROVERSIES BETWEEN OR AMONG GOVERNMENT OFFICES, AGENCIES AND INSTRUMENTALITIES, INCLUDING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS, AND FOR OTHER PURPOSES" dated on July 9, 1973. Sections 2 and 3 of this Decree provide:

Section 2. In all cases involving only questions of law, the same shall be submitted to and settled or adjudicated by the Secretary of Justice, as Attorney General and ex officio legal adviser of all government-owned or controlled corporations and entities, in consonance with section 83 of the Revised Administrative Code. His ruling or determination of the question in each case shall be conclusive and binding upon all the parties concerned. Section 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted to and settled or adjudicated by: (a) The Solicitor General, with respect to disputes or claims or controversies between or among the departments, bureaus, offices and other agencies of the National Government; (b) The Govermnent Corporate Counsel, with respect to disputes or claims or controversies between or among the government-owned or controlled corporations or entities being served by the office of the Government Corporate Counsel and (c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall under the categories mentioned in paragraphs (a) and (b). (Emphasis supplied) In upholding the lower court's jurisdiction, respondent municipal corporations, on the other hand, rely on Presidential Decree No. 464, entitled "THE REAL PROPERTY TAX CODE" enacted on July 1, 1974, specifically Section 82 thereof which provides: Section 82. Collection of real property tax through the courts. The delinquent real property tax shall constitute a lawful indebtedness of the taxpayer to the province or city and collection of the tax may be enforced by civil action in any court of competent jurisdiction. The civil action shall be filed by the Provincial or City Fiscal within fifteen days after receipt of the statement of delinquency certified to by the provincial or city treasurer. This remedy shall be in addition to all other remedies provided by law. It is indeed desirable and beneficial to the Judiciary's ongoing program of decongesting court dockets that intra-governmental disputes such as this be settled administratively. Unfortunately, our consideration of the legal provisions involved leads us to a different conclusion. In reconciling these two conflicting provisions of P.D. 242 and P.D. 464 on the matter of jurisdiction, we are guided by the basic rules on statutory construction. An examination of these two decrees shows that P.D. 242 is a general law which deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. The coverage is broad and sweeping, encompassing all disputes, claims and controversies. P.D. 464 on the other hand, governs the appraisal and assessment of real property for purposes of taxation by provinces, cities and municipalities, as wen as the levy, collection and administration of real property tax. It is a special law which deals specifically with real property taxes. It is a basic tenet in statutory construction that between a general law and a special law, the special law prevails. GENERALIA SPECIALIBUS NON DEROGANT. 8 Where a later special law on a particular subject is repugnant to, or inconsistent with, a prior general law on the same subject, a partial repeal of the latter win be implied to the extent of the repugnancy or an exception grafted upon the general law.

A special law must be intended to constitute an exception to the general law in the absence of special circumstances forcing a contrary conclusion. 9 The conflict in the provisions on jurisdiction between P.D. 242 and P.D. 464 should be resolved in favor of the latter law, since it is a special law and of later enactment. P.D. 242 must yield to P.D. 464 on the matter of who or which tribunal or agency has jurisdiction over the enforcement and collection of real property taxes. Therefore, respondent court has jurisdiction to hear and decide Civil Case No. 9901. On the question of whether or not NAPOCOR is liable to pay real property taxes and special education fund taxes for the years 1978 to 1984, we rule in the affirmative. Presidential Decree No. 1177, entitled "REVISING THE BUDGET PROCESS IN ORDER TO INSTITUTIONALIZE THE BUDGETARY INNOVATIONS OF THE NEW SOCIETY" was passed on July 30, 1977. Section 23 thereof provides: Section 23. Tax and Duty Exemptions. All units of govemment, including governmentowned or controlled corporations, shall pay income taxes, customs duties and other taxes and fees as are imposed under revenue laws; provided, that organizations otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General Fund in the exact amount of taxes/duties due; provided, further, that a procedure shag be established by the Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be considered as both revenue and expenditure of the General Fund. (Emphasis supplied) Petitioner alleges that what has been withdrawn is its exemption from taxes, duties, and fees which are payable to the national government while its exemption from taxes, duties and fees payable to government branches, agencies and instrumentalities remains unaffected. Considering that real property taxes are payable to the local government, NAPOCOR maintains that it is exempt therefrom. We find the above argument untenable. It reads into the law a distinction that is not there. It is contrary to the clear intent of the law to withdraw from all units of government, including government-owned or controlled corporations their exemptions from all kinds of taxes. Had it been otherwise, then the law would have said so. Not having distinguished as to the kinds of tax exemptions withdrawn, the plain meaning is that all tax exemptions are covered. There the law does not distinguish, neither must we. Moreover, Presidential Decree No. 1931 entitled "DIRECTING THE RATIONALIZATION OF DUTY AND TAX EXEMPTION PRIVILEGES GRANTED TO GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS AND ALL OTHER UNITS OF GOVERNMENT" which was passed on June 11, 1984, categorically states: WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grunt of tax privileges to any government-owned or controlled corporation and all other units of government. (Emphasis supplied ) Thus, any dubiety on NAPOCOR'S liability to pay taxes, duties and fees should be considered unequivocably resolved by the above provision. In the case of National Power Corporation vs. The Province of Albay, et. al., 10 herein petitioner was held liable for real property taxes to the provincial government of Albay for the period June 11, 1984 to March 10, 1987, when it claims to have been enjoying tax exemptions under Resolutions Nos. 10-85, 1-86 and 17-87 of the Fiscal Incentives Review Board (FIRB). It must be noted that Resolution 10-85 was the same resolution cited by petitioner in its supplemental motion to dismiss 11 inCivil Case No. 9901. If the attempt (found ineffective for lack of authority in the above-cited case of NPC vs. The Province of Albay) to restore petitioner's tax exemptions began only in 1985 with the issuance of FIRB Resolution No. 10-85, it

stands to reason that prior thereto, i.e., from 1977 when P.D. 1177 was promulgated up to 1984, petitioner did not enjoy any tax privilege as would exempt it from the payment of the taxes under consideration. In the same case of NPC vs. The Province of Albay, 12 this Court had occasion to state: Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level. xxx xxx xxx To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the Government be said to have lost anything. The proceeds of the real property tax are divided among the province, city or municipality where the property subject to the tax is situated and shall be applied by the respective local government unit for its own use and benefit. Even the barrio where the property is situated shares in the real property tax collections. Likewise, the entire proceeds of the additional one per cent (1%) real property tax levied for the Special Education Fund created under R.A. 5447, are divided among the province, city and municipalities where the property is situated. WHEREFORE, the petition is DISMISSED. Petitioner having been found liable for the taxes being collected in Civil Case No. 9901, the respondent court is hereby directed to proceed with deliberate dispatch in hearing the case for the purpose of determining the exact liability of petitioner. No Costs. SO ORDERED. Gutierrez, Jr., Bidin and Cortes, JJ., concur. Feliciano, J., is on leave.

Footnotes 1 Rollo, pp. 18-21. 2 Rollo, pp. 22-24. 3 Rollo, pp. 25-26; 28-30. 4 Rollo, pp. 31-33. 5 Rollo, pp. 65-66. 6 Rollo, pp. 72-73. 7 Rollo, pp. 2-16.

8 Lagman vs. City of Manila, G.R. No. 23305, June 30, 1966, 17 SCRA 579. 9 Baga vs. PNB, 99 Phil. 889, cited in Butuan Sawmill, Inc. vs. City of Butuan, et al., No. L-21516, April 29, 1966, 16 SCRA 755. 10 G.R. No. 87479, June 4, 1990. 11 Rollo, pp. 31-33. 12 Ibid. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-23771 August 4, 1988 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.

SARMIENTO, J.: This is an appeal from the decision * of the Court of Tax Appeals (C.T.A., for brevity) dated September 15, 1964 in C.T.A. Cases Nos. 581 and 1302, which were jointly heard upon agreement of the parties, absolving the respondent taxpayer from liability for the deficiency percentage, franchise, and fixed taxes and surcharge assessed against it in the sums of P19,293.41 and P3,616.86 for the years 1946 to 1954 and 1959 to 1961, respectively. The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., 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. Section 10 of these franchises provide that: ...The said grantee in consideration of the franchise hereby granted, shall pay quarterly into the Provincial Treasury of Pangasinan, one per centum of the gross earnings obtained thru this privilege during the first twenty years and two per centum during the remaining fifteen years of the life of said franchise. On February 24, 1948, the President of the Philippines approved the franchises granted to the private respondent. On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent the total amount of P19,293.41 representing 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. On September 29, 1956, the private

respondent requested for a reinvestigation of the case on the ground that instead of incurring a deficiency liability, it made an overpayment of the franchise tax. On April 30, 1957, the BIR through its regional director, denied the private respondent's request for reinvestigation and reiterated the demand for payment of the same. In its letters dated July 2, and August 9, 1958 to the petitioner Commissioner, the private respondent protested the said assessment and requested for a conference with a view to settling the liability amicably. In his letters dated July 25 and August 28, 1958, the Commissioner denied the request of the private respondent. Thus, the appeal to the respondent Court of Tax Appeals on September 19, 1958, docketed as C.T.A. Case No. 581. In a letter dated August 21, 1962, the Commissioner demanded from the private respondent the payment of P3,616.86 representing deficiency franchise tax and surcharges for the years 1959 to 1961 again applying the franchise tax rate of 5% on gross receipts as prescribed in Section 259 of the National Internal Revenue Code. In a letter dated October 5, 1962, the private respondent protested the assessment and requested reconsideration thereof The same was denied on November 9, 1962. Thus, the appeal to the respondent Court of Appeals on November 29, 1962, docketed as C.T.A. No. 1302. Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan. Section 4 thereof provides that: In consideration of the franchise and rights hereby granted, the grantee shall pay into the Internal Revenue office of each Municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross receipts from electric current sold or supplied under this franchise. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial or national, now or in the future, on its poles, wires, insulator ... and on its franchise, rights, privileges, receipts, revenues and profits, from which taxes and/or licenses, the grantee is hereby expressly exempted and effective further 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 as provided for in the original franchise shall be collected, any provision of law to the contrary notwithstanding. On September 15, 1964, the respondent court ruled that the provisions of R.A. No. 3843 should apply and accordingly dismissed the claim of the Commissioner of Internal Revenue. The said ruling is now the subject of the petition at bar. The issues raised for resolution are: 1. Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal Revenue Code assessed against the private respondent on its gross receipts realized before the effectivity of R.A- No. 3843 is collectible. 2. Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity and equality of taxation" clause of the Constitution. 3. If the abovementioned Section 4 of R.A. No. 3843 is valid, whether or not it could be given retroactive effect so as to render uncollectible the taxes in question which were assessed before its enactment. 4. Whether or not the respondent taxpayer is liable for the fixed and deficiency percentage taxes in the amount of P3,025.96 for the period from January 1, 1946 to February 29, 1948, the period before the approval of its municipal franchises. The first issue raised by the petitioner before us is whether or not the five percent (5%) franchise tax prescribed in Section 259 of the National Internal Revenue Code (Commonwealth Act No. 466 as amended by R.A. No. 39) assessed against the private respondent on its gross receipts realized before

the effectivity of R.A- No. 3843 is collectible. It is the contention of the petitioner Commissioner of Internal Revenue that the private respondent should have been held liable for the 5% franchise tax on gross receipts prescribed in Section 259 of the Tax Code, instead of the lower franchise tax rates provided in the municipal franchises (1% of gross earnings for the first twenty years and 2% for the remaining fifteen years of the life of the franchises) because Section 259 of the Tax Code, as amended by RA No. 39 of October 1, 1946, applied to existing and future franchises. The franchises of the private respondent were already in existence at the time of the adoption of the said amendment, since the franchises were accepted on March 1, 1948 after approval by the President of the Philippines on February 24, 1948. The private respondent's original franchises did not contain the proviso that the tax provided therein "shall be in lieu of all taxes;" moreover, the franchises contained a reservation clause that they shag be subject to amendment, alteration, or repeal, but even in the absence of such cause, the power of the Legislature to alter, amend, or repeal any franchise is always deemed reserved. The franchise of the private respondent have been modified or amended by Section 259 of the Tax Code, the petitioner submits. We find no merit in petitioner's contention. R.A. No. 3843 granted the private respondent a legislative franchise in June, 1963, amending, altering, or even repealing the original municipal franchises, and providing that the private respondent should pay only a 2% franchise tax on its gross receipts, "in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, now or in the future ... and effective further 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 of law to the contrary notwithstanding." Thus, by virtue of R.A- No. 3843, the private respondent was liable to pay only the 2% franchise tax, effective from the date the original municipal franchise was granted. On the question as to whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity and equality of taxation" clause of the Constitution, and, if adjudged valid, whether or not it should be given retroactive effect, the petitioner submits that the said law 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. 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. 1 It is true that the private respondents municipal franchises were obtained under Act No. 667 2 of the Philippine Commission, but these original franchises have been replaced by a new legislative franchise, i.e. R.A. No. 3843. As correctly held by the respondent court, the latter was granted subject to the terms and conditions established in Act No. 3636, 3 as amended by C.A. No. 132. These conditions Identify the private respondent's power plant as falling within that class of power plants created by Act No. 3636, as amended. The benefits of the tax reduction provided by law (Act No. 3636 as amended by C.A. No. 132 and R.A. No. 3843) apply to the respondent's power plant and others circumscribed within this class. R.A-No. 3843 merely transferred the petitioner's power plant from that class provided for in Act No. 667, as amended, to which it belonged until the approval of R.A- No. 3843, and placed it within the class falling under Act No. 3636, as amended. Thus, it only effected the transfer of a taxable property from one class to another. We do not have the authority to inquire into the wisdom of such act. Furthermore, the 5% franchise tax rate provided in Section 259 of the Tax Code was never intended to have a universal application. 4 We note that the said Section 259 of the Tax Code expressly allows the payment of taxes at rates lower than 5% when the charter granting the franchise of a grantee, like the one granted to the private respondent under Section 4 of R.A. No. 3843, precludes the imposition of a higher tax. R.A. No. 3843 did not only fix and specify a franchise tax of 2% on its gross receipts, but made it "in lieu of any and all taxes, all laws to the contrary notwithstanding," thus, leaving no room for doubt regarding the legislative intent. "Charters or special laws granted and enacted by the Legislature are in the nature of private contracts. They do not constitute a part of the machinery of the general government. They are usually adopted after careful

consideration of the private rights in relation with resultant benefits to the State ... in passing a special charter the attention of the Legislature is directed to the facts and circumstances which the act or charter is intended to meet. The Legislature consider (sic) and make (sic) provision for all the circumstances of a particular case." 5 In view of the foregoing, we find no reason to disturb the respondent court's ruling upholding the constitutionality of the law in question. Given its validity, should the said law 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. The last issue to be resolved is whether or not the private respondent is liable for the fixed and deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1, 1946 to February 29, 1948) before the approval of its municipal franchises. As aforestated, the franchises were approved by the President only on February 24, 1948. Therefore, before the said date, the private respondent was liable for the payment of percentage and fixed taxes as seller of light, heat, and power which as the petitioner claims, amounted to P3,025.96. The legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948. However, as pointed out by the respondent court in its findings, during the period covered by the instant case, that is from January 1, 1946 to December 31, 1961, the private respondent paid the amount of P34,184.36, which was very much more than the amount rightfully due from it. Hence, the private respondent should no longer be made to pay for the deficiency tax in the amount of P3,025.98 for the period from January 1, 1946 to February 29, 1948. WHEREFORE, the appealed decision of the respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes, Grio-Aquino and Medialdea, JJ., concur. Footnotes * Penned by Hon. Mariano Nable, Presiding Judge, Hon. Roman M. Umali, Associate Judge, concurring. 1 Gomez v. Palomar, 25 SCRA 827. 2 An Act prescribing the method of applying to governments of municipalities... and of provinces for franchises to construct and operate street railway, electric light and power and telephone lines... (The model franchise for municipal franchises or the basic authority for granting municipal franchises.) 3 An Act prescribing the form for bills for the granting of electric light and power franchises, and for other purposes; Section 1 0 thereof provides for the payment of a franchise tax of 2% of the gross earnings ... in lieu of any and all taxes x x x (Model Franchise for legislative franchises). 4 See Phil. Railway Co. v. Collector of Internal Revenue, 91 Phil. 35; Visayan Electric Co. v. David 92 Phil. 969.

5 Manila Railroad Co. v. David, 40 Phil. 224. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs. CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-appellees. Sabido, Sabido and Associates for plaintiff-appellant. The City Attorney of Butuan City for defendants-appellees. CONCEPCION, C.J.: Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint, with costs. Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by it to the City of Butuan hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the effect: 1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "PepsiCola" soft drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuan and all municipalities of Agusan. . 2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively. 3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961. 4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and those that if may later on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional.

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as Exhibit "C". 6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance with the findings of the representative of the undersigned City Attorney who verified the records of the plaintiff. 7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92 which price is uniform throughout the Philippines. Said increase was made due to the increase in the production cost of its manufacture. 8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No. 110, as amended of the City of Butuan in their respective memoranda. xxx xxx x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund." Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers. The second and last objections are manifestly devoid of merit. Indeed independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and of some States of the Union. 1 Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers2 is subject to one well-established exception, namely: legislative powers may be delegated to local governments to which said theory does not apply3 in respect of matters of local concern.

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory. The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122: ... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a consignee of agent shall mean any person, association, partnership, company or corporation who acts in the place of another by authority from him or one entrusted with the business of another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale. As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based and computed from the cargo manifest or bill of lading ... showing the number of cases" not sold but "received" by the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of law. 4 Even however, 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. 5 The classification made in the exercise of this authority, to be valid, must, however, be reasonable 6 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 all those who belong to the same class. 7 These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax. WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. 1wph1.t Footnotes
1

De Villata v. Stanley, 32 Phil. 541; City of Manila v. Inter-Island Gas Service, 99 Phil. 847, 854; Syjuco v. Municipality of Paraaque, L-11265, Nov. 27, 1959; City of Bacolod v. Gruet, L-18290, Jan. 31, 1963.
2

U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377.

State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal. 520; Stoutenburgh v. Hennick 129 U.S. 141, 32 L. ed. 637.
4

Section 2(i), Republic Act No. 2264; Panaligan v. City of Tacloban, L- 9319, Sept. 27, 1957, 102 Phil. 1162-1163; East Asiatic Co. v. City of Davao, L-16253, August 21, 1962. .
5

Tan Tim Kee v. Court of Tax Appeals, L-18080, April 22, 1963; Nin Bay Mining Co. v. Municipality of Roxas, L-20125, July 20, 1965. .
6

Felwa v. Salas, L-26511, October 29, 1966; Aleja v. GSIS, L-18529, February 26, 1965; People v. Solon, L-14864, November 23, 1960; People v. Cayat, 68 Phil. 12; People v. Vera, 65 Phil. 56; Laurel v. Misa, 42 O.G. 2847.
7

Commissioner of Int. Rev. v. Botelho Shipping Corp., L-21633-34, June 29, 1967; Ermita-Malate Hotel & Motel Operators Ass'n. v. City Mayor, L-24693, October 23, 1967; Rafael v. Embroidery & Apparel Control & Inspection Board, L-19978, September 29, 1967; Meralco v. Public Utilities Employee Ass'n., 79 Phil. 409. .
8

Viray v. City of Caloocan, L-23118, July 26, 1967; PHILCONSA v. Gimenez, L-23326, December 18, 1965; Ormoc Sugar Co. v. Treasurer of Ormoc City, L-23794, February 17, 1968. ****

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9637 April 30, 1957

AMERICAN BIBLE SOCIETY, plaintiff-appellant, vs. CITY OF MANILA, defendant-appellee. City Fiscal Eugenio Angeles and Juan Nabong for appellant. Assistant City Fiscal Arsenio Naawa for appellee. FELIX, J.:

Plaintiff-appellant 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, with its principal office at 636 Isaac Peral in said City. The defendant appellee 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. In the course of its ministry, plaintiff's Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November, 1945, without providing itself with the necessary Mayor's permit and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required plaintiff to secure, within three days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A). Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken in court regarding the same (Annex B). To avoid the closing of its business as well as further fines and penalties in the premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and license fees in the aforementioned amount, giving at the same time notice to the City Treasurer that suit would be taken in court to question the legality of the ordinances under which, the said fees were being collected (Annex C), which was done on the same date by filing the complaint that gave rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further praying for such other relief and remedy as the court may deem just equitable. Defendant answered the complaint, maintaining in turn that said ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by section 2444, subsection (m2) of the Revised Administrative Code, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of the City of Manila, and praying that the complaint be dismissed, with costs against plaintiff. This answer was replied by the plaintiff reiterating the unconstitutionality of the often-repeated ordinances. Before trial the parties submitted the following stipulation of facts: COME NOW the parties in the above-entitled case, thru their undersigned attorneys and respectfully submit the following stipulation of facts: 1. That the plaintiff sold for the use of the purchasers at its principal office at 636 Isaac Peral, Manila, Bibles, New Testaments, bible portions and bible concordance in English and other foreign languages imported by it from the United States as well as Bibles, New Testaments and bible portions in the local dialects imported and/or purchased locally; that from the fourth quarter of 1945 to the first quarter of 1953 inclusive the sales made by the plaintiff were as follows:

Quarter 4th quarter 1945

Amount of Sales P1,244.21

1st quarter 1946 2nd quarter 1946 3rd quarter 1946 4th quarter 1946 1st quarter 1947 2nd quarter 1947 3rd quarter 1947 4th quarter 1947 1st quarter 1948 2nd quarter 1948 3rd quarter 1948 4th quarter 1948 1st quarter 1949 2nd quarter 1949 3rd quarter 1949 4th quarter 1949 1st quarter 1950 2nd quarter 1950

2,206.85 1,950.38 2,235.99 3,256.04 13,241.07 15,774.55 14,654.13 12,590.94 11,143.90 14,715.26 38,333.83 16,179.90 23,975.10 17,802.08 16,640.79 15,961.38 18,562.46 21,816.32

3rd quarter 1950 4th quarter 1950 1st quarter 1951 2nd quarter 1951 3rd quarter 1951 4th quarter 1951 1st quarter 1952 2nd quarter 1952 3rd quarter 1952 4th quarter 1952 1st quarter 1953

25,004.55 45,287.92 37,841.21 29,103.98 20,181.10 22,968.91 23,002.65 17,626.96 17,921.01 24,180.72 29,516.21

2. That the parties hereby reserve the right to present evidence of other facts not herein stipulated. WHEREFORE, it is respectfully prayed that this case be set for hearing so that the parties may present further evidence on their behalf. (Record on Appeal, pp. 15-16). When the case was set for hearing, plaintiff proved, among other things, that it has been in existence in the Philippines since 1899, and that its parent society is in New York, United States of America; that its, contiguous real properties located at Isaac Peral are exempt from real estate taxes; and that it was never required to pay any municipal license fee or tax before the war, nor does the American Bible Society in the United States pay any license fee or sales tax for the sale of bible therein. Plaintiff further tried to establish that it never made any profit from the sale of its bibles, which are disposed of for as low as one third of the cost, and that in order to maintain its operating cost it obtains substantial remittances from its New York office and voluntary contributions and gifts from certain churches, both in the United States and in the Philippines, which are interested in its missionary work. Regarding plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the admissions of plaintiff-appellant's lone witness who testified on cross-examination that bibles bearing the price of 70 cents each from plaintiff-appellant's New York office are sold here by plaintiff-appellant at P1.30 each; those bearing the price of $4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here at P15 each; and those bearing

the price of $11 each are sold here at P22 each, clearly show that plaintiff's contention that it never makes any profit from the sale of its bible, is evidently untenable. After hearing the Court rendered judgment, the last part of which is as follows: As may be seen from the repealed section (m-2) of the Revised Administrative Code and the repealing portions (o) of section 18 of Republic Act No. 409, although they seemingly differ in the way the legislative intent is expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in said legal provisions, and that the taxes to be levied by said ordinances is in the nature of percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. 3364). IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the opinion and so holds that this case should be dismissed, as it is hereby dismissed, for lack of merits, with costs against the plaintiff. Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals which certified the case to Us for the reason that the errors assigned to the lower Court involved only questions of law. Appellant contends that the lower Court erred: 1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, are not unconstitutional; 2. In holding that subsection m-2 of Section 2444 of the Revised Administrative Code under which Ordinances Nos. 2592 and 3000 were promulgated, was not repealed by Section 18 of Republic Act No. 409; 3. In not holding that an ordinance providing for taxes based on gross sales or receipts, in order to be valid under the new Charter of the City of Manila, must first be approved by the President of the Philippines; and 4. In holding that, as the sales made by the plaintiff-appellant have assumed commercial proportions, it cannot escape from the operation of said municipal ordinances under the cloak of religious privilege. The issues. As may be seen from the proceeding statement of the case, the issues involved in the present controversy may be reduced to the following: (1) whether or not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and 3364, are constitutional and valid; and (2) whether the provisions of said ordinances are applicable or not to the case at bar. Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines, provides that: (7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights. Predicated on this constitutional mandate, plaintiff-appellant contends that Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and illegal in so far as its society is concerned, because they provide for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the distribution and sale of bibles and other religious literature to the people of the Philippines.

Before entering into a discussion of the constitutional aspect of the case, We shall first consider the provisions of the questioned ordinances in relation to their application to the sale of bibles, etc. by appellant. The records, show that by letter of May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's permit in connection with the society's alleged business of distributing and selling bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this litigation, plus the sum of P35 for compromise on account of plaintiff's failure to secure the permit required by Ordinance No. 3000 of the City of Manila, as amended. This Ordinance is of general application and not particularly directed against institutions like the plaintiff, and it does not contain any provisions whatever prescribing religious censorship nor restraining the free exercise and enjoyment of any religious profession. Section 1 of Ordinance No. 3000 reads as follows: SEC. 1. PERMITS NECESSARY. It shall be unlawful for any person or entity to conduct or engage in any of the businesses, trades, or occupations enumerated in Section 3 of this Ordinance or other businesses, trades, or occupations for which a permit is required for the proper supervision and enforcement of existing laws and ordinances governing the sanitation, security, and welfare of the public and the health of the employees engaged in the business specified in said section 3 hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE CITY TREASURER. The business, trade or occupation of the plaintiff involved in this case is not particularly mentioned in Section 3 of the Ordinance, and the record does not show that a permit is required therefor under existing laws and ordinances for the proper supervision and enforcement of their provisions governing the sanitation, security and welfare of the public and the health of the employees engaged in the business of the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which reads as follows: 79. All other businesses, trades or occupations not mentioned in this Ordinance, except those upon which the City is not empowered to license or to tax P5.00 Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation. As to the license fees that the Treasurer of the City of Manila required the society to pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45, including the sum of P50 as compromise, Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028 prescribes the following: SEC. 1. FEES. Subject to the provisions of section 578 of the Revised Ordinances of the City of Manila, as amended, there shall be paid to the City Treasurer for engaging in any of the businesses or occupations below enumerated, quarterly, license fees based on gross sales or receipts realized during the preceding quarter in accordance with the rates herein prescribed: PROVIDED, HOWEVER, That a person engaged in any businesses or occupation for the first time shall pay the initial license fee based on the probable gross sales or receipts for the first quarter beginning from the date of the opening of the business as indicated herein for the corresponding business or occupation. xxx xxx xxx

GROUP 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as (1) retail dealers in general merchandise; (2) retail dealers exclusively engaged in the sale of . . . books, including stationery. xxx xxx xxx

As may be seen, the license fees required to be paid quarterly in Section 1 of said Ordinance No. 2529, as amended, are not imposed directly upon any religious institution but upon those engaged in any of the business or occupations therein enumerated, such as retail "dealers in general merchandise" which, it is alleged, cover the business or occupation of selling bibles, books, etc. Chapter 60 of the Revised Administrative Code which includes section 2444, subsection (m-2) of said legal body, as amended by Act No. 3659, approved on December 8, 1929, empowers the Municipal Board of the City of Manila: (M-2) To tax and fix the license fee on (a) dealers in new automobiles or accessories or both, and (b) retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax. For the purpose of taxation, these retail dealers shall be classified as (1) retail dealers in general merchandise, and (2) retail dealers exclusively engaged in the sale of (a) textiles . . . (e) books, including stationery, paper and office supplies, . . .: PROVIDED, HOWEVER, That the combined total tax of any debtor or manufacturer, or both, enumerated under these subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED PESOS PER ANNUM. and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as amended, were enacted in virtue of the power that said Act No. 3669 conferred upon the City of Manila. Appellant, however, contends that said ordinances are longer in force and effect as the law under which they were promulgated has been expressly repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as the Revised Manila Charter. Passing upon this point the lower Court categorically stated that Republic Act No. 409 expressly repealed the provisions of Chapter 60 of the Revised Administrative Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former Manila Charter and section 18 (o) of the new seemingly differ in the way the legislative intent was expressed, yet their meaning is practically the same for the purpose of taxing the merchandise mentioned in both legal provisions and, consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as still in full force and effect uninterruptedly up to the present. Often the legislature, instead of simply amending the pre-existing statute, will repeal the old statute in its entirety and by the same enactment re-enact all or certain portions of the preexisting law. Of course, the problem created by this sort of legislative action involves mainly the effect of the repeal upon rights and liabilities which accrued under the original statute. Are those rights and liabilities destroyed or preserved? The authorities are divided as to the effect of simultaneous repeals and re-enactments. Some adhere to the view that the rights and liabilities accrued under the repealed act are destroyed, since the statutes from which they sprang are actually terminated, even though for only a very short period of time. Others, and they seem to be in the majority, refuse to accept this view of the situation, and consequently maintain that all rights an liabilities which have accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal, therefore, continuing the law in force without interruption. (Crawford-Statutory Construction, Sec. 322). Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a new and wider concept of taxation and is different from the provisions of Section 2444(m-2) that the former cannot be considered as a substantial re-enactment of the provisions of the latter. We have quoted above the provisions of section 2444(m-2) of the Revised Administrative Code and We shall now copy hereunder the provisions of Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:

(o) To tax and fix the license fee on dealers in general merchandise, including importers and indentors, except those dealers who may be expressly subject to the payment of some other municipal tax under the provisions of this section. Dealers in general merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance. For purposes of this section, the term "General merchandise" shall include poultry and livestock, agricultural products, fish and other allied products. The only essential difference that We find between these two provisions that may have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the combined total tax of any dealer or manufacturer, or both, enumerated under subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned therein, shall not be in excess of P500 per annum, the corresponding section 18, subsection (o) of Republic Act No. 409, does not contain any limitation as to the amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in accordance with the weight of the authorities above referred to that maintain that "all rights and liabilities which have accrued under the original statute are preserved and may be enforced, since the reenactment neutralizes the repeal, therefore continuing the law in force without interruption", We hold that the questioned ordinances of the City of Manila are still in force and effect. Plaintiff, however, argues that the questioned ordinances, to be valid, must first be approved by the President of the Philippines as per section 18, subsection (ii) of Republic Act No. 409, which reads as follows: (ii) To tax, license and regulate any business, trade or occupation being conducted within the City of Manila, not otherwise enumerated in the preceding subsections, including percentage taxes based on gross sales or receipts, subject to the approval of the PRESIDENT, except amusement taxes. but this requirement of the President's approval was not contained in section 2444 of the former Charter of the City of Manila under which Ordinance No. 2529 was promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers in general merchandise" is expressly enumerated in subsection (o), section 18 of Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said business does not have to be approved by the President to be effective, as it is not among those referred to in said subsection (ii). Moreover, the questioned ordinances are still in force, having been promulgated by the Municipal Board of the City of Manila under the authority granted to it by law. The question that now remains to be determined is whether said ordinances are inapplicable, invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the Philippines by a religious corporation like the American Bible Society, plaintiff herein. With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and 3028, appellant contends that it is unconstitutional and illegal because it restrains the free exercise and enjoyment of the religious profession and worship of appellant. Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted, guarantees the freedom of religious profession and worship. "Religion has been spoken of as a profession of faith to an active

power that binds and elevates man to its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his relations to His Creator and to the obligations they impose of reverence to His being and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature: In the case of Murdock vs. Pennsylvania, it was held that an ordinance requiring that a license be obtained before a person could canvass or solicit orders for goods, paintings, pictures, wares or merchandise cannot be made to apply to members of Jehovah's Witnesses who went about from door to door distributing literature and soliciting people to "purchase" certain religious books and pamphlets, all published by the Watch Tower Bible & Tract Society. The "price" of the books was twenty-five cents each, the "price" of the pamphlets five cents each. It was shown that in making the solicitations there was a request for additional "contribution" of twenty-five cents each for the books and five cents each for the pamphlets. Lesser sum were accepted, however, and books were even donated in case interested persons were without funds. On the above facts the Supreme Court held that it could not be said that petitioners were engaged in commercial rather than a religious venture. Their activities could not be described as embraced in the occupation of selling books and pamphlets. Then the Court continued: "We do not mean to say that religious groups and the press are free from all financial burdens of government. See Grosjean vs. American Press Co., 297 U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something quite different, for example, from a tax on the income of one who engages in religious activities or a tax on property used or employed in connection with activities. It is one thing to impose a tax on the income or property of a preacher. It is quite another to exact a tax from him for the privilege of delivering a sermon. The tax imposed by the City of Jeannette is a flat license tax, payment of which is a condition of the exercise of these constitutional privileges. 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. Spreading religious beliefs in this ancient and honorable manner would thus be denied the needy. . . . It is contended however that the fact that the license tax can suppress or control this activity is unimportant if it does not do so. But that is to disregard the nature of this tax. It is a license tax a flat tax imposed on the exercise of a privilege granted by the Bill of Rights . . . The power to impose a license tax on the exercise of these freedom is indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax." Nor could dissemination of religious information be conditioned upon the approval of an official or manager even if the town were owned by a corporation as held in the case of Marsh vs. State of Alabama (326 U.S. 501), or by the United States itself as held in the case of Tucker vs. Texas (326 U.S. 517). In the former case the Supreme Court expressed the opinion that the right to enjoy freedom of the press and religion occupies a preferred position as against the constitutional right of property owners.

"When we balance the constitutional rights of owners of property against those of the people to enjoy freedom of press and religion, as we must here, we remain mindful of the fact that the latter occupy a preferred position. . . . In our view the circumstance that the property rights to the premises where the deprivation of property here involved, took place, were held by others than the public, is not sufficient to justify the State's permitting a corporation to govern a community of citizens so as to restrict their fundamental liberties and the enforcement of such restraint by the application of a State statute." (Taada and Fernando on the Constitution of the Philippines, Vol. 1, 4th ed., p. 304-306). Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, provides: SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall not be taxed under this Title in respect to income received by them as such (e) Corporations or associations organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income, shall be liable to the tax imposed under this Code; Appellant's counsel claims that the Collector of Internal Revenue has exempted the plaintiff from this tax and says that such exemption clearly indicates that the act of distributing and selling bibles, etc. is purely religious and does not fall under the above legal provisions. It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the business or occupation of selling said "merchandise" for profit. For this reason We believe that the provisions of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. With respect to Ordinance No. 3000, as amended, which requires the obtention the Mayor's permit before any person can engage in any of the businesses, trades or occupations enumerated therein, We do not find that it imposes any charge upon the enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was elucidated as follows: An ordinance by the City of Griffin, declaring that the practice of distributing either by hand or otherwise, circulars, handbooks, advertising, or literature of any kind, whether said articles are being delivered free, or whether same are being sold within the city limits of the City of Griffin, without first obtaining written permission from the city manager of the City of Griffin, shall be deemed a nuisance and punishable as an offense against the City of Griffin, does not deprive defendant of his constitutional right of the free exercise and enjoyment of religious profession and worship, even though it prohibits him from introducing and carrying out a scheme or purpose which he sees fit to claim as a part of his religious system. It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529 of the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee is powerless to license or tax the business of plaintiff Society involved herein for, as stated before, it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of the plaintiff.

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. Without pronouncement as to costs. It is so ordered. Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-39086 June 15, 1988 ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE, respondents.

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

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for nonpayment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted. The certificate of sale was correspondingly issued to him. On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss the complaint. On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972. On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106108). On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of P6,000.00 evidenced by PNB Check No. 904369. On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. Said Stipulations reads: STIPULATION OF FACTS COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following agreed stipulation of facts: 1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the position of Provincial Treasurer of the Province of Abra; 2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in Bangued, Abra under Original Certificate of Title No. 0-83; 3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the one attached to the complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal Treasurer. 5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject of evidence by the parties. WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the point agreed upon by the parties. Bangued, Abra, April 12, 1973. Sgd. Agripin o Brillant es Typ AGRIPI NO BRILLA NTES Attorne y for Plaintiff Sgd. Loreto Roldan Typ LORET O ROLDA N Provinci al Fiscal Counse l for Defend ants Provinci al Treasur er of Abra and the Municip al Treasur er of Bangue d, Abra

Sgd. Demetri o V. Pre Typ. DEMET RIO V. PRE Attorne y for Defend ant Paterno Millare (Rollo, pp. 1718) Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a school population of more than one thousand students all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the elementary pupils are housed in a two-storey building across the street; (d) that the high school and college students are housed in the main building; (e) that the Director with his family is in the second floor of the main building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos. From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20) The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49). Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thus ruled for the government and rendered the assailed decision. After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with prayer for preliminary injunction before this Court, which petition was filed on August 17, 1974 (Rollo, p.2). In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p. 74). Petitioner raised the following assignments of error: I

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER. II THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING. III THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES. IV THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2) The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes." Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis and therefore void. On the other hand, private respondents maintain that the college lot and building in question which were subjected to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as Annex "8" (Comment; Rollo, p. 90]). Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes ... Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409, otherwise known as the Assessment Law, provides: The following are exempted from real property tax under the Assessment Law: xxx xxx xxx (c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, scientific or educational purposes.

xxx xxx xxx In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax exemption, and not the mere incidental use thereof. As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation. In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions. The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p. 1430). The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]). It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court. That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mention thereof was made in the stipulation of facts, not even in the description of the school building by the trial judge, both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal. Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645 [1984]). Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved. PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject to the modification that half of the assessed tax be returned to the petitioner. SO ORDERED. Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Footnotes * Penned by the respondent Judge, Hon. Judge P. Aquino. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant, vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees. Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant. Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.: Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued, without costs. On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof,

an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and Highway 54), which projected feeder roads "do not connect any government property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question were private property at the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members were made to believe that the projected feeder roads in question were "public roads and not private streets of a private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donation copy of which is annexed to the petition of the four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of the nature of a contract; that, such, said donation violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation." Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and securing any new and further releases on the aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from making and securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any further payments out of said illegally appropriated funds. Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action". In support to this motion, respondent Zulueta

alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of public funds for the improvements of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct injury." Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for anything but a public purpose", that the instructions and improvement of the feeder roads in question, if such roads where private property, would not be a public purpose; that, being subject to the following condition: The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it being expressly understood that should the Government of the Republic of the Philippines violate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.) which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed. At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the projected feeder roads aforementioned, which, admittedly, were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the President on June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent. The lower court held that under these circumstances, the appropriation in question was "clearly for a private, not a public purpose." Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta contended, in his motion to dismiss that: A law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation of public funds for the improvement of what we, in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government established under the Constitution of the Republic of the Philippines and the system of checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3 As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling Case Law, is this: 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. (25 R.L.C. pp. 398-400; Emphasis supplied.) The rule is set forth in Corpus Juris Secundum in the following language: In accordance with the rule that the taxing power must be exercised for public purposes only, discussed supra sec. 14, money raised by taxation can be expended only for public purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.) Explaining the reason underlying said rule, Corpus Juris Secundum states: Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose.

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. (81 C.J.S. pp. 1147; emphasis supplied.) Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a necessary corollary to our democratic system of government, which, as such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that petitioner may not contest the legality of the donation above referred to because the same does not affect him directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises. The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation

infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether said roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation. Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are inherent in his person, including therefore, his right to the annulment of said contract, even though such creditors are not affected by the same, except indirectly, in the manner indicated in said legal provision. Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, 5upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the United States is stated in the American Jurisprudence as follows: In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.) However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under the composite system of government existing in the U.S., the states of the Union are integral part of the Federation from an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by representatives of each state of the Union, not of the people of the U.S., except insofar as the former represented the people of the respective States, and the people of each State has, independently of that of the others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective states of the Union of which they are citizens. The peculiar nature of the relation between said people and the Federal Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of each state and the government thereof, except that the authority of the Republic of the Philippines over the people of the Philippines is more fully direct than that of the states of the Union, insofar as the simple and unitary type of our national government is not subject to limitations analogous to those imposed by the Federal Constitution upon the states of the Union, and those imposed

upon the Federal Government in the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public funds which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines than that adopted with respect to acts of Congress of the United States appropriating federal funds. Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such position in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines. Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ of preliminary injunction should have been maintained. Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C. Zulueta. It is so ordered. Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and Dizon, JJ., concur.

Footnotes 1 For, pursuant to section 19(h) of the existing rules and regulation of the Urban Planning Commission, the owner of a subdivision is under obligation "to improve, repair and maintain all streets, highways and other ways in his subdivision until their dedication to public use is accepted by the government." 2 Ex parte Bagwell, 79 P. 2d. 395; Road District No. 4 Shelby County vs. Allred. 68 S.W 2d 164; State ex rel. Thomson vs. Giessel, 53-N.W. 2d. 726, Attorney General vs. City of Eau Claire, 37 Wis. 400; State ex rel. Smith vs. Annuity Pension Board, 241 Wis. 625, 6 N.W. 2d. 676; State vs. Smith, 293 N.W. 161; State vs. Dammann 280 N.W. 698; Sjostrum vs. State Highway Commission 228 P. 2d. 238; Hutton vs. Webb, 126 N.C. 897, 36 S.E. 341; Michigan Sugar Co. vs. Auditor General, 124 Mich. 674, 83 N.W. 625; Oxnard Beet Sugar Co. vs. State, 105 N.W. 716. 3 Casanovas vs. Hord. 8 Phil., McGirr vs. Hamilton, 30 Phil., 563; Compania General de Tabacos vs. Board of Public Utility, 34 Phil., 136; Central Capiz vs. Ramirez, 40 Phil., 883; Concepcion vs. Paredes, 42 Phil., 599; U.S. vs. Ang Tang Ho, 43 Phil., 6; McDaniel vs. Apacible, 44 Phil., 248; People vs. Pomar, 46 Phil., 440; Agcaoili vs. Suguitan, 48 Phil., 676; Government of P.I. vs. Springer, 50 Phil., 259; Manila Electric Co. vs. Pasay Transp. Co., 57 Phil., 600; People vs.

Linsangan, 62 Phil., 464; People and Hongkong & Shanghai Banking Corp. vs. Jose O. Vera, 65 Phil., 56; People vs. Carlos, 78 Phil., 535; 44 Off. Gaz. 428; In re Cunanan, 94 Phil., 534; 50 Off. Gaz., 1602; City of Baguio vs. Nawasa, 106 Phil., 144; City of Cebu vs. Nawasa, 107 Phil., 1112; Rutter vs. Esteban, 93 Phil., 68; Off. Gaz., [5]1807. 4 In the language of the Supreme Court of Nebraska, "An unconstitutional statute is a legal still birth, which neither moves, nor breathes, nor holds out any sign of life. It is a form without one vital spark. It is wholly dead from the time of conception, and, no right, either legal or equitable, arises from such inanimate thing." (Oxnard Beet Sugar Co. vs. State, 102 N.W. 80.). 5 See, among others, Livermore, vs. Waite, 102 Cal. 113, 25 L.R.A. 312,36 P. 424; Crawford vs. Gilchrist, 64 Fla. 41, 59 So. 963; Lucas vs. American Hawaiian Engineering and Constr. Co., 16 Haw. 80; Castle vs. Capena, 5 Haw. 27; Littler vs. Jayne, 124 Ill. 123, 16 N.E. 374; Burke vs. Snively, 208 I11. 328, 70 N.E. 372; Ellingham vs. Dye, 178 Ind. 336, 99 N.E. 1; Christmas vs. Warfield, 105 Md. 536; Sears vs. Steel, 55 Or. 544, 107 Pac. 3; State ex rel. Taylor vs. Pennover, 26 Or. 205, 37 Pac. 906; Carman vs. Woodruf, 10 Or. 123; MacKinley vs. Watson, 145 Pac. 266; Sears vs. James, 47 Or. 50, 82 Pac. 14; Mott vs. Pennsylvania R. Co., 30 Pa. 9, 72 Am. Dec. 664; Bradly vs. Power County, 37 Am. Dec. 563; Frost vs. Thomas, 26 Colo. 227, 77 Am. St. Rep. 259, 56 Pac. 899; Martin vs. Ingham, 38 Kan. 641, 17 Pac. 162; Martin vs. Lacy, 39 Kan. 703, 18 Pac. 951; Smith vs. Maguerich, 44 Ga. 163; Giddings vs. Blacker, 93 Mich. 1, 16 L.R.A. 402, 52 N.W. 944; Rippe vs. Becker, 56 Minn. 100, 57 N.W. 331; Auditor vs. Treasurer, 4 S.C. 311; McCullough vs. Brown, 31 S.C. 220, 19 S.E. 458; State ex rel. Lamb vs. Cummingham, 83 Wis. 90, 53 N.W. 35; State ex rel. Rosenhian vs. Frear, 138 Wis. 173, 119 N.W. 894. 6 Rubs vs. Thompson, 56 N.E. 2d. 761; Reid vs. Smith, 375 Ill. 147, 30N. E. 2d. 908; Fergus vs. Russel, 270 Ill. 304, 110 N.E. 130; Burke vs. Snively, 208 Ill. 328; Jones vs. Connell, 266 Ill. 443, 107 N.E. 731; Dudick vs. Baumann, 349 [PEPSI] Ill. 46, 181 N.E. 690. 7 Thompson vs. Canal Fund Comps., 2 Abb. Pr. 248; Shieffelin vs. Komfort, 212 N.Y. 520, 106 N.E. 675; Hutchison vs. Skinmer, 21 Misc. 729, 49N. Y. Supp. 360; Long vs. Johnson, 70 Misc. 308; 127 N.Y. Supp. 756; Whiteback vs. Hooker, 73 Misc. 573, 133 N.Y. Supp. 534; State ex rel. Cranmer vs. Thorson, 9 S.D. 149, 68 N.W. 202; Davenport vs. Elrod, 20 S.D. 567, 107 N.W. 833; Indiana Jones vs. Reed, 3 Wash. 57, 27 Pac. 1067; Birmingham vs. Cheetham, 19 Wash. 657, 54 Pac. 37; Tacoma vs. Bridges, 25 Wash. 221, 65 Pac. 186; Hilger vs. State, 63 Wash. 457, 116 Pac. 19. 8 It has 1,463,530 inhabitants. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-10470 June 26, 1958

SERAFIN SALDAA, plaintiff-appellant, vs. CITY OF ILOILO, defendant-appellee. Serafin B. Saldaa for appellant. City Fiscal Filemon R. Consolacion for appellee.

MONTEMAYOR, J.: Serafin Saldaa is appealing the decision of the Court of First Instance of Iloilo in Civil Case No. 2236, dismissing his complaint against the City of Iloilo, for the refund of taxes paid by him under protest, and upholding the legality of Ordinance No. 28, Series of 1946, as amended by Ordinance No. 30, same series of the defendant City. On May 25, 1946, the defendant City of Iloilo promulgated Ordinance No. 28, series of 1946, which for purposes of reference we reproduce below: ORDINANCE No. 28 AN ORDINANCE REGULATING THE EXIT OF FOOD SUPPLY AND LABOR ANIMALS AND IMPOSING PERMIT FEE THEREFOR. Be it ordained by the Municipal Board of the City of Iloilo, that: ARTICLE 1. For the purpose of regulating during this state of emergency, the exit of food supply and labor animals in order to avert shortage of the same in the City of Iloilo, it is strictly prohibited to send outside of the City of Iloilo, without first obtaining the necessary license permit from the Mayor, the following: Large cattle, pigs, goats, sheep or the like; Domestic fowls, eggs; Fish, whether fresh, salted or dried; Milkfish (semilla), bagoon (guinamos, crabs, prawn or the like); Fruits, such as bananas, melon, papayas or the like. ART. 2. The City Treasurer shall, for issuance of license permit required in article one hereof, collect a fee as follows: Large cattle, whether alive or slaughtered, P10 per head. Pigs, goats, and sheep, whether alive or slaughtered, P5 each. Chicken and other domestic fowls, whether alive or dressed P0.50 each. Eggs, P2.00 per hundred or P0.02 each. Fish, whether fresh, dried or salted, P0.20 per kilo. Bagoon (guinamos) P0.10 per kilo. Crabs, prawn or the like, P0.20 per kilo. Milkfish (semilla), P2 per pot. Banana, P2, per hundred bunches or P0.02 per bunch. Other fruits not mentioned herein P0.02 per kilo. Art. 3. It shall be unlawful for any carrier whether land, water, or air, to load any of the articles mentioned herein which is not provided with the corresponding permit as required by this ordinance. Art. 4. Violation of this ordinance shall be punished with a fine of not less than One Hundred (P100) Pesos, or more than Two Hundred (P200) Pesos, imprisonment of not less than ten (10) days but not exceeding six (6) months and to suffer subsidiary imprisonment in case of insolvency to pay the fine. . . . Ordinance No. 30, passed on June 4, 1946, amended Ordinance No. 28 by reducing the fees for each chicken from P.50 to P.20, eggs from P2 to P1 per hundred, and for fish from P.20 to P.10 per kilo,

bananas from P2 to P1 per hundred bunches etc. Under said ordinances, Saldaa had been paying, though under protest, so-called fees on fish bought in the City of Iloilo and sent by him to Manila by plane, during the period from September 16, 1946 to December 6, 1946, totalling P1,359.80. On September 17, 1951, plaintiff commenced the present proceedings by complaint for the reimbursement to him of the said amount with interest, on the ground that the ordinances in question were illegal, null and void, having been enacted beyond the powers of the Municipal Board of the City. In its answer, the defendant contended that the imposition and collection of the municipal licenses were within the power and duties of the Municipal Board in the exercise of its police power. The parties submitted an agreed statement of facts to the effect that during the period above-mentioned, Saldaa had sent fish out of Iloilo City to Manila, for the sending of which, the City collected P1,359.80 under the two ordinances in question, and that the payment of said amount was made under protest. On the basis of the agreed statement of facts, the lower court rendered the decision now appealed to us, holding that Ordinance No. 28 as amended was valid; that the purpose of the said ordinances was to regulate the exit of food supply and labor animals from the city of Iloilo and their sale beyond city limits, and falls squarely within the provisions of paragraph (aa), Section 21 of the Charter of the City, namely, Commonwealth Act No. 158; that the ordinance does not restrict trade but only regulates the business of purchase of foodstuffs for the purpose of taking them outside, with the purpose of averting the scarcity of foodstuffs; that the imposition and collection of the license fees provided in the said ordinance was included within the police power and that said fees were reasonable amounts, necessary to cover the expenses in the issuance of the licenses and the cost of the necessary inspection or police surveillance. One question involved in the appeal is whether the licensed fees imposed and collected were in reality taxes. The following authorities are illuminating: . . . . The differences between the license and the property tax are well established. The license represents the permission conceded to do an act, is not supposed to be imposed for revenue, and is in the main for police purposes. A property tax, on the other hand, is a tax in the ordinary sense, assessed according to the value of property. (City of Manila vs. Tanquintic, 58 Phil. 297, 300). . . . . Estos dos terminos "derechos" e "impuesto" no entranan el mismo concepto, porque Impuestos o Taxes son, segun todas las autoridades conocidas, "an enforced contribution of money or other property assessed in accordance with some reasonable rule of apportionment by authority of a sovereign state, on persons or property within its jurisdiction, for the purpose of defraying the public expenses" (26 R. C. L. par. 2, page 13); or "a rate or sum of money assessed on the person or property of a citizen by government for the use of the nation or state; burdens or charges imposed by the legislative power upon persons or property to raise money for public purposes" (61 C. J., 65); y Derechos o Fees, son por otra parte, "a reward or compensation allowed by law to an officer for specific services performed by him in the discharge of his official duties; a sum certain given for a particular service; the sum prescribed by law as for services rendered by public officers" (25 C. J., 1009). (Manila Electric Co. vs. Auditor General, et al., 73 Phil. 128, 133). . . . . So-called license taxes are of two kinds. The one is a tax for the purpose of revenue. The other, which is, strictly speaking, not a tax at all but merely an exercise of the police power, is a fee imposed for the purpose of regulation. . . . But a charge of a fixed sum which bears no relation to the cost of inspection and which is payable into the general revenue of the state is a tax rather than an exercise of the police power. (Cooley, Taxation, 4th ed., Vol. I, pp. 97-98). Judging from the amount of the fees fixed in the ordinances in question, we do not hesitate to find and to hold that the so-called fees were in reality taxes for city revenue. For instance, the P10.00 fee for every head of large cattle, whether alive or slaughtered, and the P5.00 fee for every pig, goat, or sheep, whether alive or slaughtered, cannot possibly be considered as mere expense incurred for, or the

cost of the inspection of each animal and the issuance of the corresponding permit. If a pig, goat, or sheep costs, say, P15 or even P20, then the P5.00 fee would constitute quite a considerable slice or portion of said cost; and if the animals and articles listed in the ordinances were sent out from the City of Iloilo in large quantities and numbers, there would be no doubt that the fees collected would amount to a sizable sum and augment greatly the revenues of the municipal corporation, way in excess of the cost of inspections and the issuance of the permits. Another important question is that Article 1 of the ordinance also strictly prohibits the sending out of the City of Iloilo, of the animals and articles enumerated therein, like large cattle, pigs, fowl, fish, eggs, fruits, etc., without first obtaining the necessary license permit from the mayor; and Article 3 declares it unlawful for any carrier whether land water or air, to load any of said animals or articles without the corresponding permit. The ordinance fails to provide for any regulations or conditions under which the permit can be granted or denied. In other words, the mayor has absolute power to refuse to issue any permit, practically making him absolute dictator over the subject matter. With merely telling the applicant and prospective licensee that said animals and articles are needed in the City of Iloilo, the mayor could refuse to grant the permit. To realize the danger of the grant of said absolute power is not difficult. As to the reasonableness of the prohibition of selling and taking out of the City of Iloilo of any of the animals and articles enumerated in the ordinance, appellant asks us to consider or take judicial notice of the fact that those animals and articles are not all produced in the City of Iloilo, but come from other towns of the province, even from other provinces adjacent, and are taken to the City of Iloilo only for the purpose of transportation to other places, like Manila. In other words, they are not brought into the City of Iloilo for the consumption of the residents thereof, but for export to other places. But once inside the city limits, under the ordinance, the mayor takes absolute control and has jurisdiction to allow or disallow their being taken out of the city, and in case he issues the permit for their being taken away, taxes are imposed thereon under the guise of license fees. As correctly argued by the appellant, nowhere in the charter of the defendant City is it authors to regulate and collect fees or taxes for, the taking out of the city, of animals and articles listed in the ordinance. On the other hand, a municipal corporation like the defendant City has no inherent power of taxation. To enact a valid ordinance, the City must find in its charter the power to do so, for said power cannot be assumed. A municipal corporation, unlike a sovereign state, is clothed with no inherent power of taxation. Its charter must plainly show an intent to confer that power or the corporation cannot assume it. And the power when granted is to be construed strictissimi juris. Any doubt or ambiguity arising out of the term used must be resolved against the corporation. (Santos Lumber Co. vs. City of Cebu, et al., 102 Phil., 870; See also Arong vs. Raffian, 98 Phil., 422). Aside from this lack of inherent power of taxation by a municipal corporation, Section 2287 of the Revised Administrative Code provides that municipal revenue obtainable by taxation shall be derived from such sources only as are expressly authorized by law; and it further provides, and this is very important, that: It shall not be in the power of the municipal council to impose a tax in any form whatever upon goods and merchandise into the municipality, or out of the same, and any attempt to impose an import or export tax upon such goods in the guise of an unreasonable charge for wharfage, use of bridges or otherwise, shall be void. (Emphasis supplied). This last provision is reproduced in Section 2629, of the same Revised Administrative Code, entitled "General Rules for Municipal Taxation and Licenses." In conclusion, we find that the ordinance in question as amended, is ultra vires, enacted beyond the general powers of a municipal corporation and not authorized by the defendant-appellee's charter, and consequently null and void; that the prohibition against taking animals and articles

out of the City of Iloilo without permit of the mayor is in restraint of trade and a curtailment of the rights of the owners of the said animals and articles to freely sell and of prospective purchasers to buy and dispose of them without the city limits in the ordinary course of commerce and trade; that the fees imposed in the said ordinances are in fact taxes not only unauthorized by the law or the charter of defendant City, but also in contravention of the provisions of Sections 2287 and 2629 of the Revised Administrative Code, which prohibit municipal corporations from imposing any tax in any form upon goods and merchandise carried into or out of the town or City. In view of the foregoing, the appealed decision is hereby reversed and the City of Iloilo is hereby ordered to reimburse plaintiff the amount of P1,359.80, with legal interest and costs. Paras, C. J., Bengzon, Reyes, A., Bautista Angelo, Concepcion, Reyes, J. B. L., Endencia, and Felix, JJ., concur. ****

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-36081 April 24, 1989 PROGRESSIVE DEVELOPMENT CORPORATION, petitioner , vs. QUEZON CITY, respondent. Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.: On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which provided: Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as supervision fee. Failure to submit said list and to pay the corresponding amount within the period herein prescribed shall subject the operator to the penalties provided in this Code ... including revocation of permit to operate. ... .1 The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972, which reads: SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public markets shall submit ... a monthly certified list of stallholders of lessees of space in their markets showing ... : a. name of stallholder or lessee; b. amount of rental; c. period of lease, indicating therein whether the same is on a daily, monthly or yearly basis. xxx xxx xxx SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3) consecutive months, the City shall revoke the permit of the privately-owned market to operate and/or take any other appropriate action or remedy allowed by law for the collection of the overdue percentage tax and surcharge. xxx xxx xxx 2 On 15 July 1972, 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 then Court of First Instance 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. In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The Solicitor General also filed an Answer arguing that petitioner, not having paid the ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to question, and was estopped from questioning, its validity; that the tax on gross receipts was not a tax on income but one imposed for the enjoyment of the privilege to engage in a particular trade or business which was within the power of respondent to impose. In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest the five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972. Two (2) days later, on 25 September 1972, petitioner moved for judgment on the pleadings, alleging that the material facts had been admitted by the parties. On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect. Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition for Review. The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively, of a license fee. We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as the Revised Charter of Quezon City, authorizes the City Council:

xxx xxx xxx (b) To provide for the levy and collection of taxes and other city revenues and apply the same to the payment of city expenses in accordance with appropriations. (c) To tax, fix the license fee, and regulate the business of the following: ... preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables, bread and other provisions. 4 The scope of legislative authority conferred upon the Quezon City Council in respect of businesses like that of the petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but also " to tax" 5 Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act, provides that: Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for service rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes just and uniform taxes licenses or fees: ... 6 It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority extending to almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public purposes, just and uniform," does not transgress any constitutional provision and is not repugnant to a controlling statute. 7 Both the Local Autonomy Act and the Charter of respondent clearly show that respondent is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned public market. Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from capital invested in the construction of the Farmers Market, practically operates as a tax on income, one of those expressly excepted from respondent's taxing authority, and thus beyond the latter's competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes on to state: 8 ... Provided, however, That no city, municipality or municipal district may levy or impose any of the following: xxx xxx xxx (g) Taxes on income of any kind whatsoever; The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes 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. 9 Thus, if the generating of revenue is

the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax. 10 To be considered a license fee, the imposition questioned 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 as well. 11 When an activity, occupation or profession is of such a character that inspection or supervision by public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been paid. 12 Accordingly, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. 13 In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350 passed on 30 January 1967 by respondents's local legislative body authorizing petitioner to establish and operate a market with a permit to sell fresh meat, fish, poultry and other foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous operation, the obligation to "abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City." 15 The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to and inviting the patronage of the general public, even though privately owned, petitioner's operation thereof required a license issued by the respondent City, the issuance of which, applying the standards set forth above, was done principally in the exercise of the respondent's police power. 16 The operation of a privately owned market is, as correctly noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned market; both are established for the rendition of service to the general public, which warrants close supervision and control by the respondent City, 17 for the protection of the health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with applicable food and drug and related standards, for the prevention of fraud and imposition upon the buying public, and so forth. We believe and so hold 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. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, 18 it nevertheless will be presumed to be reasonable. Local' governments are allowed wide discretion in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of the questioned rates. 19 Thus: [A]n ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained acceptance is that factors relevant to such an inquiry are the municipal conditions as a whole and the nature of the business made subject to imposition. 20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel the Court to characterize the imposition as a revenue measure exclusively. The lower court correctly held that 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. Upon the other hand, it has not been suggested that such basis has no reasonable relationship to the probable costs of regulation and supervision of the petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned market; and the higher the volume of goods sold in such private market, the greater the extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public. Moreover, what we started with should be recalled here: the authority conferred upon the respondent's City Council is not merely "to regulate" but also embraces the power "to tax" the petitioner's business. Finally, petitioner argues that respondent is without power to impose a gross receipts tax for revenue purposes absent an express grant from the national government. As a general rule, there must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that unit not having the inherent power of taxation. 21 The rule, however, finds no application in the instant case where what is involved is an exercise of, principally, the regulatory power of the respondent City and where that regulatory power is expressly accompanied by the taxing power. 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. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes 1 Rollo, p. 102; Italics supplied. 2 Records on Appeal, pp. 14-15; Underscoring supplied. 3 Ibid, pp. 58-68. 4 46 Official Gazette 4732 (1950); Italics supplied. Certain portions of the Charter had been amended by R.A. 5541, 65 Official Gazette, p. 7126 (1968). The amendatory law, however, did not introduce any change to the portion quoted above. 5 See, in this connection, Pacific Commercial Co. v. Romualdez, et al., 49 Phil. 917 (1927). 6 Section 2 of R.A. 2264 has been amended by R.A. 4497, 62 Official Gazette, p. 8616 (1966); Underscoring supplied. R.A. 2264 was further amended by P.D. No. 145, 69 Official Gazette, p 2418 (1973), which however did not affect the abovequoted portion.

7 Nin Bay Mining Co. v. Municipality of Roxas, 14 SCRA 660 (1965); See also C.N. Hodges v. Municipal Board of the City of Iloilo, et. al., 19 SCRA 28 (1967); and Villanueva v. City of Iloilo, 26 SCRA 578 (1968). 8 supra, note 6; underscoring supplied. 9 Compania General de Tabacos de Filipinas v. City of Manila, 118 Phil. 383; 8 SCRA 370 (1963); Pacific Commercial Co. v. Romualdez, 49 Phil, 917 (1927). 10 Manila Electric Company v. El Auditor General y La Comision de Servicios Publicos, 73 Phil. 133 (1941); Republic v. Philippine Rabbit Bus Lines, 32 SCRA 215 (1970). 11 City of Iloilo v. Villanueva, 105 Phil. 337 (1959). 12 Manila Electric Company vs. El Auditor General y la Comision de Servicios Publicos, supra, at 134-135. 13 Serafin Saldana v. City of Iloilo, 104 Phil, 28. (1958). 14 Record on Appeal, p. 10. 15 Ibid. 16 In City of Jacksonville, et al. v. Ledwith 7 So. at 892 [1890]; 26 Fla. 163, it was held that a permit to establish a market was: "from the nature of a market, a license. It is a permit to do something which could not be done before without such permit, and hence is the grant of a license. x x x [T]he power to establish markets is within the police power, and [thus is] x x x the power to charge, as a police regulation, a fee for the permit or license for selling meats or vegetables therein, x x x. The fee, however, is not a tax for revenue, but a charge under the police power, and its amount is to be controlled by the principles governing in such cases." 17 Brief for the Respondent, pp. 6-7; Rollo, p. 172. 18 E.g., Calalang v. Lorenzo and Villar, 97 Phil. 212 (1955). 19 Procter & Gamble PMC v. Municipality of Jagna 94 SCRA 894 (1979); Northern Phil. Tobacco Co. v. Municipality of Agoo, 31 SCRA 304 (1970); and San Miguel Brewery, Inc. v. City of Cebu, 43 SCRA 275 (1972). 20 Victorias Milling Co., Inc. v. Municipality of Victorias, Negros Occidental, 25 SCRA 192 at 205 (1968), citing 9 McQuillin Municipal Corporations, 3rd ed., at 65. In Atkins v. Philips, 8 So. at 431 (1890); 26 Fla. 281, the Supreme Court of Florida held: 21 City of Ozamis v. Lumapas, 65 SCRA 33 (1975).

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-65773-74 April 30, 1987 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents. Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British Airways.

MELENCIO-HERRERA, J.: Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18 November, 1983 denying reconsideration. BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is engaged in the international airline business and is a member-signatory of the Interline Air Transport Association (IATA). As such it operates air transportation service and sells transportation tickets over the routes of the other airline members. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and necessity to operate in the Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB. 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. 1 G.R. No. 65773 (CTA Case No. 2373, the First Case) On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This was protested by BOAC. Subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest. On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR on 16 February 1972. But before said denial, BOAC had already filed a petition for review with the Tax Court on 27 January 1972, assailing the assessment and praying for the refund of the amount paid. G.R. No. 65774 (CTA Case No. 2561, the Second Case)

On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of corporation returns) penalized under Section 74 of the National Internal Revenue Code (NIRC). On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated 16 February 1972, however, the CIR not only denied the BOAC request for refund in the First Case but also re-issued in the Second Case the deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71 plus P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request for reconsideration was denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971. This case was subsequently tried jointly with the First Case. On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, 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. Thus, in the dispositive portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum of P858,307.79, and to cancel the deficiency income tax assessments against BOAC in the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71. Hence, this Petition for Review on certiorari of the Decision of the Tax Court. The Solicitor General, in representation of the CIR, has aptly defined the issues, thus: 1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable. 2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines. 3. In the alternative that private respondent may not be considered a resident foreign corporation but a non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (35%) of its gross income received from all sources within the Philippines. Under Section 20 of the 1977 Tax Code: (h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein. (i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade or business within the Philippines and not having any office or place of business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. 2 "In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. 3 BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines. 5 Sec. 24. Rates of tax on corporations. ... (b) Tax on foreign corporations. ... (2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign country, except a foreign life insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied) Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in the Philippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws. The Tax Code defines "gross income" thus: "Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3]; Emphasis supplied) The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words 'income from any source whatever' disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws." Income means "cash received or its equivalent"; it is the amount of money coming to a person within a specific time ...; it means something distinct from principal or capital. For, while capital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow of wealth. 6

The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to P10,428,368 .00. 7 Did such "flow of wealth" come from "sources within the Philippines", The source of an income is the property, activity or service that produced the income. 8 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. A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship. 9 True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal property, does not mention income from the sale of tickets for international transportation. However, that does not render it less an income from sources within the Philippines. Section 37, by its language, does not intend the enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income from sources within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so considered. " 10 BOAC, however, would impress upon this Court that income derived from transportation is income for services, with the result that the place where the services are rendered determines the source; and since BOAC's service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws. The Tax Court upholds that stand in the joint Decision under review. The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. 11 Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines. business a And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", 12 it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines. 13 It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed as follows: ... Provided, however, That international carriers shall pay a tax of 2- per cent on their gross Philippine billings. (Sec. 24[b] [21, Tax Code).

Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the term "gross Philippine billings," thus: ... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail provided the cargo or mail originates from the Philippines. ... The foregoing provision ensures that international airlines are taxed on their income from Philippine sources. The 2- % tax on gross Philippine billings is an income tax. If it had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business. Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of the appeal in JAL vs. Commissioner of Internal Revenue (G.R. No. L-30041) on February 3, 1969, is res judicata to the present case. The ruling by the Tax Court in that case was to the effect that the mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax. As elucidated by the Tax Court, however, the common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. It purports to tax the business of transportation. 14 Being an excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source." Since the two cases treat of a different subject matter, the decision in one cannot be res judicata to the other. WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private respondent, the British Overseas Airways Corporation (BOAC), is hereby ordered to pay the amount of P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1% monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with the Tax Code. The BOAC claim for refund in the amount of P858,307.79 is hereby denied. Without costs. SO ORDERED. Paras, Gancayco, Padilla, Bidin, Sarmiento and Cortes, JJ., concur. Fernan, J., took no part.

Separate Opinions

TEEHANKEE, C.J., concurring: I concur with the Court's majority judgment upholding the assessments of deficiency income taxes against respondent BOAC for the fiscal years 1959-1969 to 1970-1971 and therefore setting aside the appealed joint decision of respondent Court of Tax Appeals. I just wish to point out that the conflict between the majority opinion penned by Mr. Justice Feliciano as to the proper characterization of the taxable income derived by respondent BOAC from the sales in the Philippines of tickets foe BOAC form the issued by its general sales agent in the Philippines gas become moot after November 24, 1972. Booth opinions state

that by amendment through P.D. No.69, promulgated on November 24, 1972, of section 24(b) (2) of the Tax Code providing dor the rate of income tax on foreign corporations, international carriers such as respondent BOAC, have since then been taxed at a reduced rate of 2-% on their gross Philippine billings. There is, therefore, no longer ant source of substantial conflict between the two opinions as to the present 2-% tax on their gross Philippine billings charged against such international carriers as herein respondent foreign corporation. FELICIANO, J., dissenting: With great respect and reluctance, i record my dissent from the opinion of Mme. Justice A.A. MelencioHerrera speaking for the majority . In my opinion, the joint decision of the Court of Tax Appeals in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, is correct and should be affirmed. The fundamental issue raised in this petition for review is whether the British Overseas Airways Corporation (BOAC), a foreign airline company which does not maintain any flight operations to and from the Philippines, is liable for Philippine income taxation in respect of "sales of air tickets" in the Philippines through a general sales agent, relating to the carriage of passengers and cargo between two points both outside the Philippines. 1. The Solicitor General has defined as one of the issue in this case the question of: 2. Whether or not during the fiscal years in question 1 BOAC [was] a resident foreign corporation doing business in the Philippines or [had] an office or place of business in the Philippines. It is important to note at the outset that the answer to the above-quoted issue is not determinative of the lialibity of the BOAC to Philippine income taxation in respect of the income here involved. The liability of BOAC to Philippine income taxation in respect of such income depends, not on BOAC's status as a "resident foreign corporation" or alternatively, as a "non-resident foreign corporation," but rather on whether or not such income is derived from "source within the Philippines." A "resident foreign corporation" or foreign corporation engaged in trade or business in the Philippines or having an office or place of business in the Philippines is subject to Philippine income taxation only in respect of income derived from sources within the Philippines. Section 24 (b) (2) of the National Internal Revenue CODE ("Tax Code"), as amended by Republic Act No. 2343, approved 20 June 1959, as it existed up to 3 August 1969, read as follows: (2) Resident corporations. A foreign corporation engaged in trade or business with in the Philippines (expect foreign life insurance companies) shall be taxable as provided in subsection (a) of this section. Section 24 (a) of the Tax Code in turn provides: Rate of tax on corporations. (a) Tax on domestic corporations. ... and a like tax shall be livied, collected, and paid annually upon the total net income received in the preceeding taxable year from all sources within the Philippines by every corporation organized, authorized, or existing under the laws of any foreign country: ... . (Emphasis supplied) Republic Act No. 6110, which took effect on 4 August 1969, made this even clearer when it amended once more Section 24 (b) (2) of the Tax Code so as to read as follows:

(2) Resident Corporations. A corporation, organized, authorized or existing under the laws of any foreign counrty, except foreign life insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied) Exactly the same rule is provided by Section 24 (b) (1) of the Tax Code upon non-resident foreign corporations. Section 24 (b) (1) as amended by Republic Act No. 3825 approved 22 June 1963, read as follows: (b) Tax on foreign corporations. (1) Non-resident corporations. There shall be levied, collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premium, annuities, compensations, remunerations, emoluments, or other fixed or determinative annual or periodical gains, profits and income a tax equal to thirty per centum of such amount: provided, however, that premiums shall not include reinsurance premiums. 2 Clearly, whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it is liable to income tax only to the extent that it derives income from sources within the Philippines. The circumtances that a foreign corporation is resident in the Philippines yields no inference that all or any part of its income is Philippine source income. Similarly, the non-resident status of a foreign corporation does not imply that it has no Philippine source income. Conversely, the receipt of Philippine source income creates no presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present purposes, is therefore whether of not BOAC is deriving income from sources within the Philippines. 2. For purposes of income taxation, it is well to bear in mind that the "source of income" relates not to the physical sourcing of a flow of money or the physical situs of payment but rather to the "property, activity or service which produced the income." In Howden and Co., Ltd. vs. Collector of Internal Revenue, 3 the court dealt with the issue of the applicable source rule relating to reinsurance premiums paid by a local insurance company to a foreign reinsurance company in respect of risks located in the Philippines. The Court said: The source of an income is the property, activity or services that produced the income. The reinsurance premiums remitted to appellants by virtue of the reinsurance contract, accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co. against liability. Said undertaking is the activity that produced the reinsurance premiums, and the same took place in the Philippines. [T]he reinsurance, the liabilities insured and the risk originally underwritten by Commonwealth Insurance Co., upon which the reinsurance premiums and indemnity were based, were all situated in the Philippines. 4 The Court may be seen to be saying that it is the underlying prestation which is properly regarded as the activity giving rise to the income that is sought to be taxed. In the Howden case, that underlying prestation was the indemnification of the local insurance company. Such indemnification could take place only in the Philippines where the risks were located and where payment from the foreign reinsurance (in case the casualty insured against occurs) would be received in Philippine pesos under the reinsurance premiums paid by the local insurance companies constituted Philippine source income of the foreign reinsurances. The concept of "source of income" for purposes of income taxation originated in the United States income tax system. The phrase "sources within the United States" was first introduced into the U.S. tax system in

1916, and was subsequently embodied in the 1939 U.S. Tax Code. As is commonly known, our Tax Code (Commonwealth Act 466, as amended) was patterned after the 1939 U.S. Tax Code. It therefore seems useful to refer to a standard U.S. text on federal income taxation: The Supreme Court has said, in a definition much quoted but often debated, that income may be derived from three possible sources only: (1) capital and/or (2) labor and/or (3) the sale of capital assets. While the three elements of this attempt at definition need not be accepted as all-inclusive, they serve as useful guides in any inquiry into whether a particular item is from "source within the United States" and suggest an investigation into the nature and location of the activities or property which produce the income. If the income is from labor (services) the place where the labor is done should be decisive; if it is done in this counrty, the income should be from "source within the United States." If the income is from capital, the place where the capital is employed should be decisive; if it is employed in this country, the income should be from "source within the United States". If the income is from the sale of capital assets, the place where the sale is made should be likewise decisive. Much confusion will be avoided by regarding the term "source" in this fundamental light. It is not a place; it is an activity or property. As such, it has a situs or location; and if that situs or location is within the United States the resulting income is taxable to nonresident aliens and foreign corporations. The intention of Congress in the 1916 and subsequent statutes was to discard the 1909 and 1913 basis of taxing nonresident aliens and foreign corporations and to make the test of taxability the "source", or situs of the activities or property which produce the income . . . . Thus, if income is to taxed, the recipient thereof must be resident within the jurisdiction, or the property or activities out of which the income issue or is derived must be situated within the jurisdiction so that the source of the income may be said to have a situs in this country. The underlying theory is that the consideration for taxation is protection of life and property and that the income rightly to be levied upon to defray the burdens of the United States Government is that income which is created by activities and property protected by this Government or obtained by persons enjoying that protection. 5 3. We turn now to the question what is the source of income rule applicable in the instant case. There are two possibly relevant source of income rules that must be confronted; (a) the source rule applicable in respect of contracts of service; and (b) the source rule applicable in respect of sales of personal property. Where a contract for the rendition of service is involved, the applicable source rule may be simply stated as follows: the income is sourced in the place where the service contracted for is rendered. Section 37 (a) (3) of our Tax Code reads as follows: Section 37. Income for sources within the Philippines. (a) Gross income from sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (3) Services. Compensation for labor or personal services performed in the Philippines;... (Emphasis supplied) Section 37 (c) (3) of the Tax Code, on the other hand, deals with income from sources without the Philippines in the following manner: (c) Gross income from sources without the Philippines. The following items of gross income shall be treated as income from sources without the Philippines:

(3) Compensation for labor or personal services performed without the Philippines; ... (Emphasis supplied) It should not be supposed that Section 37 (a) (3) and (c) (3) of the Tax Code apply only in respect of services rendered by individual natural persons; they also apply to services rendered by or through the medium of a juridical person. 6 Further, a contract of carriage or of transportation is assimilated in our Tax Code and Revenue Regulations to a contract for services. Thus, Section 37 (e) of the Tax Code provides as follows: (e) Income form sources partly within and partly without the Philippines. Items of gross income, expenses, losses and deductions, other than those specified in subsections (a) and (c) of this section shall be allocated or apportioned to sources within or without the Philippines, under the rules and regulations prescribed by the Secretary of Finance. ... Gains, profits, and income from (1) transportation or other services rendered partly within and partly without the Philippines, or (2) from the sale of personnel property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources within and partly from sources without the Philippines. ... (Emphasis supplied) It should be noted that the above underscored portion of Section 37 (e) was derived from the 1939 U.S. Tax Code which "was based upon a recognition that transportation was a service and that the source of the income derived therefrom was to be treated as being the place where the service of transportation was rendered. 7 Section 37 (e) of the Tax Code quoted above carries a strong well-nigh irresistible, implication that income derived from transportation or other services rendered entirely outside the Philippines must be treated as derived entirely from sources without the Philippines. This implication is reinforced by a consideration of certain provisions of Revenue Regulations No. 2 entitled "Income Tax Regulations" as amended, first promulgated by the Department of Finance on 10 February 1940. Section 155 of Revenue Regulations No. 2 (implementing Section 37 of the Tax Code) provides in part as follows: Section 155. Compensation for labor or personnel services. Gross income from sources within the Philippines includes compensation for labor or personal services within the Philippines regardless of the residence of the payer, of the place in which the contract for services was made, or of the place of payment (Emphasis supplied) Section 163 of Revenue Regulations No. 2 (still relating to Section 37 of the Tax Code) deals with a particular species of foreign transportation companies i.e., foreign steamship companies deriving income from sources partly within and partly without the Philippines: Section 163 Foreign steamship companies. The return of foreign steamship companies whose vessels touch parts of the Philippines should include as gross income, the total receipts of all out-going business whether freight or passengers. With the gross income thus ascertained, the ratio existing between it and the gross income from all ports, both within and without the Philippines of all vessels, whether touching of the Philippines or not, should be determined as the basis upon which allowable deductions may be computed, . (Emphasis supplied) Another type of utility or service enterprise is dealt with in Section 164 of Revenue Regulations No. 2 (again implementing Section 37 of the Tax Code) with provides as follows: Section 164. Telegraph and cable services. A foreign corporation carrying on the business of transmission of telegraph or cable messages between points in the

Philippines and points outside the Philippines derives income partly form source within and partly from sources without the Philippines. ... (Emphasis supplied) Once more, a very strong inference arises under Sections 163 and 164 of Revenue Regulations No. 2 that steamship and telegraph and cable services rendered between points both outside the Philippines give rise to income wholly from sources outside the Philippines, and therefore not subject to Philippine income taxation. We turn to the "source of income" rules relating to the sale of personal property, upon the one hand, and to the purchase and sale of personal property, upon the other hand. We consider first sales of personal property. Income from the sale of personal property by the producer or manufacturer of such personal property will be regarded as sourced entirely within or entirely without the Philippines or as sourced partly within and partly without the Philippines, depending upon two factors: (a) the place where the sale of such personal property occurs; and (b) the place where such personal property was produced or manufactured. If the personal property involved was both produced or manufactured and sold outside the Philippines, the income derived therefrom will be regarded as sourced entirely outside the Philippines, although the personal property had been produced outside the Philippines, or if the sale of the property takes place outside the Philippines and the personal was produced in the Philippines, then, the income derived from the sale will be deemed partly as income sourced without the Philippines. In other words, the income (and the related expenses, losses and deductions) will be allocated between sources within and sources without the Philippines. Thus, Section 37 (e) of the Tax Code, although already quoted above, may be usefully quoted again: (e) Income from sources partly within and partly without the Philippines. ... Gains, profits and income from (1) transportation or other services rendered partly within and partly without the Philippines; or (2) from the sale of personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources within and partly from sources without the Philippines. ... (Emphasis supplied) In contrast, income derived from the purchase and sale of personal property i. e., trading is, under the Tax Code, regarded as sourced wholly in the place where the personal property is sold. Section 37 (e) of the Tax Code provides in part as follows: (e) Income from sources partly within and partly without the Philippines ... Gains, profits and income derived from the purchase of personal property within and its sale without the Philippines or from the purchase of personal property without and its sale within the Philippines, shall be treated as derived entirely from sources within the country in which sold. (Emphasis supplied) Section 159 of Revenue Regulations No. 2 puts the applicable rule succinctly: Section 159. Sale of personal property. Income derived from the purchase and sale of personal property shall be treated as derived entirely from the country in which sold. The word "sold" includes "exchange." The "country" in which "sold" ordinarily means the place where the property is marketed. This Section does not apply to income from the sale personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines or produced (in whole or in part) by the taxpayer without and sold within the Philippines. (See Section 162 of these regulations). (Emphasis supplied)

4. It will be seen that the basic problem is one of characterization of the transactions entered into by BOAC in the Philippines. Those transactions may be characterized either as sales of personal property (i. e., "sales of airline tickets") or as entering into a lease of services or a contract of service or carriage. The applicable "source of income" rules differ depending upon which characterization is given to the BOAC transactions. The appropriate characterization, in my opinion, of the BOAC transactions is that of entering into contracts of service, i.e., carriage of passengers or cargo between points located outside the Philippines. The phrase "sale of airline tickets," while widely used in popular parlance, does not appear to be correct as a matter of tax law. The airline ticket in and of itself has no monetary value, even as scrap paper. The value of the ticket lies wholly in the right acquired by the "purchaser" the passenger to demand a prestation from BOAC, which prestation consists of the carriage of the "purchaser" or passenger from the one point to another outside the Philippines. The ticket is really the evidence of the contract of carriage entered into between BOAC and the passenger. The money paid by the passenger changes hands in the Philippines. But the passenger does not receive undertaken to be delivered by BOAC. The "purchase price of the airline ticket" is quite different from the purchase price of a physical good or commodity such as a pair of shoes of a refrigerator or an automobile; it is really the compensation paid for the undertaking of BOAC to transport the passenger or cargo outside the Philippines. The characterization of the BOAC transactions either as sales of personal property or as purchases and sales of personal property, appear entirely inappropriate from other viewpoint. Consider first purchases and sales: is BOAC properly regarded as engaged in trading in the purchase and sale of personal property? Certainly, BOAC was not purchasing tickets outside the Philippines and selling them in the Philippines. Consider next sales: can BOAC be regarded as "selling" personal property produced or manufactured by it? In a popular or journalistic sense, BOAC might be described as "selling" "a product" its service. However, for the technical purposes of the law on income taxation, BOAC is in fact entering into contracts of service or carriage. The very existance of "source rules" specifically and precisely applicable to the rendition of services must preclude the application here of "source rules" applying generally to sales, and purchases and sales, of personal property which can be invoked only by the grace of popular language. On a slighty more abstract level, BOAC's income is more appropriately characterized as derived from a "service", rather than from an "activity" (a broader term than service and including the activity of selling) or from the here involved is income taxation, and not a sales tax or an excise or privilege tax. 5. The taxation of international carriers is today effected under Section 24 (b) (2) of the Tax Code, as amended by Presidential Decree No. 69, promulgated on 24 November 1972 and by Presidential Decree No. 1355, promulgated on 21 April 1978, in the following manner: (2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceeding taxable year from all sources within the Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per cent on their gross Philippine billings. "Gross Philippines of passage documents sold therein, whether for passenger, excess baggege or mail, provide the cargo or mail originates from the Philippines. The gross revenue realized from the said cargo or mail shall include the gross freight charge up to final destination. Gross revenues from chartered flights originating from the Philippines shall likewise form part of "gross Philippine billings" regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability to revenues from chartered flights, the term "originating from the Philippines" shall include flight of passsengers who stay in the Philippines for more than forty-eight (48) hours prior to embarkation. (Emphasis supplied)

Under the above-quoted proviso international carriers issuing for compensation passage documentation in the Philippines for uplifts from any point in the world to any other point in the world, are not charged any Philippine income tax on their Philippine billings (i.e., billings in respect of passenger or cargo originating from the Philippines). Under this new approach, international carriers who service port or points in the Philippines are treated in exactly the same way as international carriers not serving any port or point in the Philippines. Thus, the source of income rule applicable, as above discussed, to transportation or other services rendered partly within and partly without the Philippines, or wholly without the Philippines, has been set aside. in place of Philippine income taxation, the Tax Code now imposes this 2 per cent tax computed on the basis of billings in respect of passengers and cargo originating from the Philippines regardless of where embarkation and debarkation would be taking place. This 2- per cent tax is effectively a tax on gross receipts or an excise or privilege tax and not a tax on income. Thereby, the Government has done away with the difficulties attending the allocation of income and related expenses, losses and deductions. Because taxes are the very lifeblood of government, the resulting potential "loss" or "gain" in the amount of taxes collectible by the state is sometimes, with varying degrees of consciousness, considered in choosing from among competing possible characterizations under or interpretation of tax statutes. It is hence perhaps useful to point out that the determination of the appropriate characterization here that of contracts of air carriage rather than sales of airline tickets entails no down-the-road loss of income tax revenues to the Government. In lieu thereof, the Government takes in revenues generated by the 2- per cent tax on the gross Philippine billings or receipts of international carriers. I would vote to affirm the decision of the Court of Tax Appeals.

Separate Opinions TEEHANKEE, C.J., concurring: I concur with the Court's majority judgment upholding the assessments of deficiency income taxes against respondent BOAC for the fiscal years 1959-1969 to 1970-1971 and therefore setting aside the appealed joint decision of respondent Court of Tax Appeals. I just wish to point out that the conflict between the majority opinion penned by Mr. Justice Feliciano as to the proper characterization of the taxable income derived by respondent BOAC from the sales in the Philippines of tickets foe BOAC form the issued by its general sales agent in the Philippines gas become moot after November 24, 1972. Booth opinions state that by amendment through P.D. No.69, promulgated on November 24, 1972, of section 24(b) (2) of the Tax Code providing dor the rate of income tax on foreign corporations, international carriers such as respondent BOAC, have since then been taxed at a reduced rate of 2-% on their gross Philippine billings. There is, therefore, no longer ant source of substantial conflict between the two opinions as to the present 2-% tax on their gross Philippine billings charged against such international carriers as herein respondent foreign corporation. FELICIANO, J., dissenting: With great respect and reluctance, i record my dissent from the opinion of Mme. Justice A.A. MelencioHerrera speaking for the majority . In my opinion, the joint decision of the Court of Tax Appeals in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, is correct and should be affirmed. The fundamental issue raised in this petition for review is whether the British Overseas Airways Corporation (BOAC), a foreign airline company which does not maintain any flight operations to and from

the Philippines, is liable for Philippine income taxation in respect of "sales of air tickets" in the Philippines through a general sales agent, relating to the carriage of passengers and cargo between two points both outside the Philippines. 1. The Solicitor General has defined as one of the issue in this case the question of: 2. Whether or not during the fiscal years in question 1 BOAC [was] a resident foreign corporation doing business in the Philippines or [had] an office or place of business in the Philippines. It is important to note at the outset that the answer to the above-quoted issue is not determinative of the lialibity of the BOAC to Philippine income taxation in respect of the income here involved. The liability of BOAC to Philippine income taxation in respect of such income depends, not on BOAC's status as a "resident foreign corporation" or alternatively, as a "non-resident foreign corporation," but rather on whether or not such income is derived from "source within the Philippines." A "resident foreign corporation" or foreign corporation engaged in trade or business in the Philippines or having an office or place of business in the Philippines is subject to Philippine income taxation only in respect of income derived from sources within the Philippines. Section 24 (b) (2) of the National Internal Revenue CODE ("Tax Code"), as amended by Republic Act No. 2343, approved 20 June 1959, as it existed up to 3 August 1969, read as follows: (2) Resident corporations. A foreign corporation engaged in trade or business with in the Philippines (expect foreign life insurance companies) shall be taxable as provided in subsection (a) of this section. Section 24 (a) of the Tax Code in turn provides: Rate of tax on corporations. (a) Tax on domestic corporations. ... and a like tax shall be livied, collected, and paid annually upon the total net income received in the preceeding taxable year from all sources within the Philippines by every corporation organized, authorized, or existing under the laws of any foreign country: ... . (Emphasis supplied) Republic Act No. 6110, which took effect on 4 August 1969, made this even clearer when it amended once more Section 24 (b) (2) of the Tax Code so as to read as follows: (2) Resident Corporations. A corporation, organized, authorized or existing under the laws of any foreign counrty, except foreign life insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied) Exactly the same rule is provided by Section 24 (b) (1) of the Tax Code upon non-resident foreign corporations. Section 24 (b) (1) as amended by Republic Act No. 3825 approved 22 June 1963, read as follows: (b) Tax on foreign corporations. (1) Non-resident corporations. There shall be levied, collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premium, annuities, compensations, remunerations, emoluments, or other fixed or determinative annual or periodical gains,

profits and income a tax equal to thirty per centum of such amount: provided, however, that premiums shall not include reinsurance premiums. 2 Clearly, whether the foreign corporate taxpayer is doing business in the Philippines and therefore a resident foreign corporation, or not doing business in the Philippines and therefore a non-resident foreign corporation, it is liable to income tax only to the extent that it derives income from sources within the Philippines. The circumtances that a foreign corporation is resident in the Philippines yields no inference that all or any part of its income is Philippine source income. Similarly, the non-resident status of a foreign corporation does not imply that it has no Philippine source income. Conversely, the receipt of Philippine source income creates no presumption that the recipient foreign corporation is a resident of the Philippines. The critical issue, for present purposes, is therefore whether of not BOAC is deriving income from sources within the Philippines. 2. For purposes of income taxation, it is well to bear in mind that the "source of income" relates not to the physical sourcing of a flow of money or the physical situs of payment but rather to the "property, activity or service which produced the income." In Howden and Co., Ltd. vs. Collector of Internal Revenue, 3 the court dealt with the issue of the applicable source rule relating to reinsurance premiums paid by a local insurance company to a foreign reinsurance company in respect of risks located in the Philippines. The Court said: The source of an income is the property, activity or services that produced the income. The reinsurance premiums remitted to appellants by virtue of the reinsurance contract, accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co. against liability. Said undertaking is the activity that produced the reinsurance premiums, and the same took place in the Philippines. [T]he reinsurance, the liabilities insured and the risk originally underwritten by Commonwealth Insurance Co., upon which the reinsurance premiums and indemnity were based, were all situated in the Philippines. 4 The Court may be seen to be saying that it is the underlying prestation which is properly regarded as the activity giving rise to the income that is sought to be taxed. In the Howden case, that underlying prestation was the indemnification of the local insurance company. Such indemnification could take place only in the Philippines where the risks were located and where payment from the foreign reinsurance (in case the casualty insured against occurs) would be received in Philippine pesos under the reinsurance premiums paid by the local insurance companies constituted Philippine source income of the foreign reinsurances. The concept of "source of income" for purposes of income taxation originated in the United States income tax system. The phrase "sources within the United States" was first introduced into the U.S. tax system in 1916, and was subsequently embodied in the 1939 U.S. Tax Code. As is commonly known, our Tax Code (Commonwealth Act 466, as amended) was patterned after the 1939 U.S. Tax Code. It therefore seems useful to refer to a standard U.S. text on federal income taxation: The Supreme Court has said, in a definition much quoted but often debated, that income may be derived from three possible sources only: (1) capital and/or (2) labor and/or (3) the sale of capital assets. While the three elements of this attempt at definition need not be accepted as all-inclusive, they serve as useful guides in any inquiry into whether a particular item is from "source within the United States" and suggest an investigation into the nature and location of the activities or property which produce the income. If the income is from labor (services) the place where the labor is done should be decisive; if it is done in this counrty, the income should be from "source within the United States." If the income is from capital, the place where the capital is employed should be decisive; if it is employed in this country, the income should be from "source within the United States". If the income is from the sale of capital assets, the place where the sale is made should be likewise decisive. Much confusion will be avoided by regarding the term "source" in this fundamental light. It is not a place; it is an activity or property. As such, it has a situs or

location; and if that situs or location is within the United States the resulting income is taxable to nonresident aliens and foreign corporations. The intention of Congress in the 1916 and subsequent statutes was to discard the 1909 and 1913 basis of taxing nonresident aliens and foreign corporations and to make the test of taxability the "source", or situs of the activities or property which produce the income . . . . Thus, if income is to taxed, the recipient thereof must be resident within the jurisdiction, or the property or activities out of which the income issue or is derived must be situated within the jurisdiction so that the source of the income may be said to have a situs in this country. The underlying theory is that the consideration for taxation is protection of life and property and that the income rightly to be levied upon to defray the burdens of the United States Government is that income which is created by activities and property protected by this Government or obtained by persons enjoying that protection. 5 3. We turn now to the question what is the source of income rule applicable in the instant case. There are two possibly relevant source of income rules that must be confronted; (a) the source rule applicable in respect of contracts of service; and (b) the source rule applicable in respect of sales of personal property. Where a contract for the rendition of service is involved, the applicable source rule may be simply stated as follows: the income is sourced in the place where the service contracted for is rendered. Section 37 (a) (3) of our Tax Code reads as follows: Section 37. Income for sources within the Philippines. (a) Gross income from sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (3) Services. Compensation for labor or personal services performed in the Philippines;... (Emphasis supplied) Section 37 (c) (3) of the Tax Code, on the other hand, deals with income from sources without the Philippines in the following manner: (c) Gross income from sources without the Philippines. The following items of gross income shall be treated as income from sources without the Philippines: (3) Compensation for labor or personal services performed without the Philippines; ... (Emphasis supplied) It should not be supposed that Section 37 (a) (3) and (c) (3) of the Tax Code apply only in respect of services rendered by individual natural persons; they also apply to services rendered by or through the medium of a juridical person. 6 Further, a contract of carriage or of transportation is assimilated in our Tax Code and Revenue Regulations to a contract for services. Thus, Section 37 (e) of the Tax Code provides as follows: (e) Income form sources partly within and partly without the Philippines. Items of gross income, expenses, losses and deductions, other than those specified in subsections (a) and (c) of this section shall be allocated or apportioned to sources within or without the Philippines, under the rules and regulations prescribed by the Secretary of Finance. ... Gains, profits, and income from (1) transportation or other services rendered partly within and partly without the Philippines, or (2) from the sale of personnel property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or produced (in

whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources within and partly from sources without the Philippines. ... (Emphasis supplied) It should be noted that the above underscored portion of Section 37 (e) was derived from the 1939 U.S. Tax Code which "was based upon a recognition that transportation was a service and that the source of the income derived therefrom was to be treated as being the place where the service of transportation was rendered. 7 Section 37 (e) of the Tax Code quoted above carries a strong well-nigh irresistible, implication that income derived from transportation or other services rendered entirely outside the Philippines must be treated as derived entirely from sources without the Philippines. This implication is reinforced by a consideration of certain provisions of Revenue Regulations No. 2 entitled "Income Tax Regulations" as amended, first promulgated by the Department of Finance on 10 February 1940. Section 155 of Revenue Regulations No. 2 (implementing Section 37 of the Tax Code) provides in part as follows: Section 155. Compensation for labor or personnel services. Gross income from sources within the Philippines includes compensation for labor or personal services within the Philippines regardless of the residence of the payer, of the place in which the contract for services was made, or of the place of payment (Emphasis supplied) Section 163 of Revenue Regulations No. 2 (still relating to Section 37 of the Tax Code) deals with a particular species of foreign transportation companies i.e., foreign steamship companies deriving income from sources partly within and partly without the Philippines: Section 163 Foreign steamship companies. The return of foreign steamship companies whose vessels touch parts of the Philippines should include as gross income, the total receipts of all out-going business whether freight or passengers. With the gross income thus ascertained, the ratio existing between it and the gross income from all ports, both within and without the Philippines of all vessels, whether touching of the Philippines or not, should be determined as the basis upon which allowable deductions may be computed, . (Emphasis supplied) Another type of utility or service enterprise is dealt with in Section 164 of Revenue Regulations No. 2 (again implementing Section 37 of the Tax Code) with provides as follows: Section 164. Telegraph and cable services. A foreign corporation carrying on the business of transmission of telegraph or cable messages between points in the Philippines and points outside the Philippines derives income partly form source within and partly from sources without the Philippines. ... (Emphasis supplied) Once more, a very strong inference arises under Sections 163 and 164 of Revenue Regulations No. 2 that steamship and telegraph and cable services rendered between points both outside the Philippines give rise to income wholly from sources outside the Philippines, and therefore not subject to Philippine income taxation. We turn to the "source of income" rules relating to the sale of personal property, upon the one hand, and to the purchase and sale of personal property, upon the other hand. We consider first sales of personal property. Income from the sale of personal property by the producer or manufacturer of such personal property will be regarded as sourced entirely within or entirely without the

Philippines or as sourced partly within and partly without the Philippines, depending upon two factors: (a) the place where the sale of such personal property occurs; and (b) the place where such personal property was produced or manufactured. If the personal property involved was both produced or manufactured and sold outside the Philippines, the income derived therefrom will be regarded as sourced entirely outside the Philippines, although the personal property had been produced outside the Philippines, or if the sale of the property takes place outside the Philippines and the personal was produced in the Philippines, then, the income derived from the sale will be deemed partly as income sourced without the Philippines. In other words, the income (and the related expenses, losses and deductions) will be allocated between sources within and sources without the Philippines. Thus, Section 37 (e) of the Tax Code, although already quoted above, may be usefully quoted again: (e) Income from sources partly within and partly without the Philippines. ... Gains, profits and income from (1) transportation or other services rendered partly within and partly without the Philippines; or (2) from the sale of personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines, or produced (in whole or in part) by the taxpayer without and sold within the Philippines, shall be treated as derived partly from sources within and partly from sources without the Philippines. ... (Emphasis supplied) In contrast, income derived from the purchase and sale of personal property i. e., trading is, under the Tax Code, regarded as sourced wholly in the place where the personal property is sold. Section 37 (e) of the Tax Code provides in part as follows: (e) Income from sources partly within and partly without the Philippines ... Gains, profits and income derived from the purchase of personal property within and its sale without the Philippines or from the purchase of personal property without and its sale within the Philippines, shall be treated as derived entirely from sources within the country in which sold. (Emphasis supplied) Section 159 of Revenue Regulations No. 2 puts the applicable rule succinctly: Section 159. Sale of personal property. Income derived from the purchase and sale of personal property shall be treated as derived entirely from the country in which sold. The word "sold" includes "exchange." The "country" in which "sold" ordinarily means the place where the property is marketed. This Section does not apply to income from the sale personal property produced (in whole or in part) by the taxpayer within and sold without the Philippines or produced (in whole or in part) by the taxpayer without and sold within the Philippines. (See Section 162 of these regulations). (Emphasis supplied) 4. It will be seen that the basic problem is one of characterization of the transactions entered into by BOAC in the Philippines. Those transactions may be characterized either as sales of personal property (i. e., "sales of airline tickets") or as entering into a lease of services or a contract of service or carriage. The applicable "source of income" rules differ depending upon which characterization is given to the BOAC transactions. The appropriate characterization, in my opinion, of the BOAC transactions is that of entering into contracts of service, i.e., carriage of passengers or cargo between points located outside the Philippines. The phrase "sale of airline tickets," while widely used in popular parlance, does not appear to be correct as a matter of tax law. The airline ticket in and of itself has no monetary value, even as scrap paper. The value of the ticket lies wholly in the right acquired by the "purchaser" the passenger to demand a prestation from BOAC, which prestation consists of the carriage of the "purchaser" or passenger from the one point to another outside the Philippines. The ticket is really the evidence of the contract of carriage entered into between BOAC and the passenger. The money paid by the passenger changes hands in the

Philippines. But the passenger does not receive undertaken to be delivered by BOAC. The "purchase price of the airline ticket" is quite different from the purchase price of a physical good or commodity such as a pair of shoes of a refrigerator or an automobile; it is really the compensation paid for the undertaking of BOAC to transport the passenger or cargo outside the Philippines. The characterization of the BOAC transactions either as sales of personal property or as purchases and sales of personal property, appear entirely inappropriate from other viewpoint. Consider first purchases and sales: is BOAC properly regarded as engaged in trading in the purchase and sale of personal property? Certainly, BOAC was not purchasing tickets outside the Philippines and selling them in the Philippines. Consider next sales: can BOAC be regarded as "selling" personal property produced or manufactured by it? In a popular or journalistic sense, BOAC might be described as "selling" "a product" its service. However, for the technical purposes of the law on income taxation, BOAC is in fact entering into contracts of service or carriage. The very existance of "source rules" specifically and precisely applicable to the rendition of services must preclude the application here of "source rules" applying generally to sales, and purchases and sales, of personal property which can be invoked only by the grace of popular language. On a slighty more abstract level, BOAC's income is more appropriately characterized as derived from a "service", rather than from an "activity" (a broader term than service and including the activity of selling) or from the here involved is income taxation, and not a sales tax or an excise or privilege tax. 5. The taxation of international carriers is today effected under Section 24 (b) (2) of the Tax Code, as amended by Presidential Decree No. 69, promulgated on 24 November 1972 and by Presidential Decree No. 1355, promulgated on 21 April 1978, in the following manner: (2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceeding taxable year from all sources within the Philippines: Provided, however, That international carriers shall pay a tax of two and one-half per cent on their gross Philippine billings. "Gross Philippines of passage documents sold therein, whether for passenger, excess baggege or mail, provide the cargo or mail originates from the Philippines. The gross revenue realized from the said cargo or mail shall include the gross freight charge up to final destination. Gross revenues from chartered flights originating from the Philippines shall likewise form part of "gross Philippine billings" regardless of the place of sale or payment of the passage documents. For purposes of determining the taxability to revenues from chartered flights, the term "originating from the Philippines" shall include flight of passsengers who stay in the Philippines for more than forty-eight (48) hours prior to embarkation. (Emphasis supplied) Under the above-quoted proviso international carriers issuing for compensation passage documentation in the Philippines for uplifts from any point in the world to any other point in the world, are not charged any Philippine income tax on their Philippine billings (i.e., billings in respect of passenger or cargo originating from the Philippines). Under this new approach, international carriers who service port or points in the Philippines are treated in exactly the same way as international carriers not serving any port or point in the Philippines. Thus, the source of income rule applicable, as above discussed, to transportation or other services rendered partly within and partly without the Philippines, or wholly without the Philippines, has been set aside. in place of Philippine income taxation, the Tax Code now imposes this 2 per cent tax computed on the basis of billings in respect of passengers and cargo originating from the Philippines regardless of where embarkation and debarkation would be taking place. This 2- per cent tax is effectively a tax on gross receipts or an excise or privilege tax and not a tax on income. Thereby, the Government has done away with the difficulties attending the allocation of income and related expenses, losses and deductions. Because taxes are the very lifeblood of government, the resulting potential "loss" or "gain" in the amount of taxes collectible by the state is sometimes, with varying degrees of consciousness, considered in choosing from among competing possible characterizations under or interpretation of tax statutes. It is hence perhaps useful to point out that the determination of the

appropriate characterization here that of contracts of air carriage rather than sales of airline tickets entails no down-the-road loss of income tax revenues to the Government. In lieu thereof, the Government takes in revenues generated by the 2- per cent tax on the gross Philippine billings or receipts of international carriers. I would vote to affirm the decision of the Court of Tax Appeals. Narvasa, Gutierrez, Jr., and Cruz, JJ., dissent.

Footnotes 1 Partial Stipulation of Facts, Annex "E" and Annex "4", pp. 74-77 and 87-90, Rollo. 2 The Mentholatum Co., Inc., et al. vs. Anacleto Mangaliman, et al., 72 Phil. 524 (1941); Section 1, R.A. No. 5455. 3 Pacific Micronesian Line, Inc. vs. Del Rosario and Peligon, 96 Phil. 23, 30, citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's Philippine Law of Stock Corporation, p. 415. 4 P. 11, BOAC Memorandum; p. 261, Rollo. 5 Section 24(b), (2), Tax Code, as amended by R.A. 6110, approved on 4 August 1969. 6 Madrigal and Paternol vs. Rafferty and Concepcion, 38 Phil. 414 (1918). 7 Memorandum for Petitioner, p. 22; p. 299, Rollo. 8 Mertens, Jr., Jacob, Law on Federal Income Taxation, Vol. 8, Section 45.27; cited in Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 (1965). 9 14 Am Jur 2d 813. 10 British Trader's Insurance Co., Ltd. vs. Commissioner of Internal Revenue, 13 SCRA 719 (1965). 11 Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 (1965). 12 Partial Stipulation of Facts, paragraph 5, p. 89, Rollo. 13 Manila Gas Corporation vs. Collector of Internal Revenue. 62 Phil. 895 (1935). 14 Commissioner of Internal Revenue vs. U.S. Lines, Co., 5 SCRA 175 (1962). Feliciano, J. 1 I.e., 1959-1969 and 1971.

2 Underscoring supplied, Republic Act No. 6110 continued the above-quoted subparagraph, except that it raised the tax rate from 30% to 30% 3 13 SCRA 601 (1965). 4 13 SCRA, at 604; underscoring supplied. 5 8 Mertens, Law of Federal Income Taxation, Section 45.27 (1957); underscoring supplied; footnotes omitted. 6 Commissioner v. Hawaiian Philippine Co., 100 F. 2d 988, 991 (9th Cir. 1939), where the Court also observed that the sugar milling services rendered by the respondent were not any less in the nature of "personal" services merely because "they were performed, in part, through the use of machinery, or because of the magnitude of the taxpayers operations." Id. 7 8 Mertens, Id., Section 45.43, which goes on the state that: "It was the intention of Congress under the 1921 law to place the taxation of transportation companies upon a sounder and more scientific basis(rather than the species of franchise tax previously imposed upon non-residents in general), and so the principle was adopted of considering income derived from transportation to be income for services, with the result that the place where the services were rendered determined the source. The result was income from sources partly within and partly without the United States." (Id) (Emphasis supplied)

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-52019 August 19, 1988 ILOILO BOTTLERS, INC., plaintiff-appellee, vs. CITY OF ILOILO, defendant-appellant. Efrain B. Trenas for plaintiff-appellee. Diosdado Garingalao for defendant-appellant.

CORTES, J.: The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks. On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly

constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid under protest. On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of which state xxx xxx xxx 2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola And 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is outside the jurisdiction of defendant; 3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of 1960 which ordinance was successively amended by Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45, Series of 1964; which provides as follows: Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles. Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance. 4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines and bottled the soft-drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial losses and in fact closed the same and later sold the plant to the plaintiff Iloilo Bottlers, Inc. 5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the jurisdiction of the City of Iloilo; 6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned municipal license tax due therefrom for bottler because its bottling plant was then still situated at Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax (after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo; 7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the municipal license tax under the above-mentioned ordinance, a xerox copy

of the said letter is attached to the complaint as Annex "A" and made an integral part hereof by reference. 8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its (customers) directly, it could not be considered as a distributor in line with the doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk Lumber Co., L- 8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs. City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is attached as Annex "B" to the complaint and made an integral part hereof by reference. As a result of the said letter of the plaintiff, the defendant did not anymore press the plaintiff to pay the said municipal license tax; 9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to the Municipality of Pavia, Iloilo; 10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the said ordinance although it sells its product directly to the consumer, in line with the jurisprudence enunciated by the Supreme Court but due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence tax in the sum of P3,329.20, under protest, and thereafter has been paying defendant every quarter under protest; 11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff under protest agreed to the payment of the back taxes, on staggered basis, which was acceded to by the defendant; 12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit: No. of Cases sold

SEVEN-UP

PEPSICOLA 49,060

TOTAL

TAX DUE P8,84 0

Jul to Dec

39,340

88,400

Jan. to Dec. Jan. to Dec. Jan. to Dec. TOT AL

81,240

87,660

168,900

16,89 0

79,389

89,211

168,600

16,60 0

80,670

88,480

169,150

16,91 5

280,639

314,411

595,050

P 59,50 5

13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of the Province of Iloilo as well as the City of Iloilo; 14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as manufacturer's sales tax on all the softdrinks it manufactures as follows: O.R. No. 4683995 - January, 1972 Sales P17,222.90 O.R. No. 5614767 - February " " 17,024.81 O.R. No. .5614870 - March " " 17,589.19 O.R. No. 5614891 - April " " 18,726.77 O.R. No. 5614897 - May " " 16,710.99 O.R. No. 5614935 - June " " 14,791.20 O.R. No. 5614967 - July " " 13,952.00 O.R. No. 5614973 - August " " 15,726.16 O.R. No. 56'L4999 - September " " 19,159.54

and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P l0,000.00 every year, plus a municipal license tax for engaging in its business to the municipality of Pavia in its amount of P2,000.00 every year. xxx xxx xxx [Rollo, P. 10 (Record on Appeal, pp. 25-31)] On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15, 1973, so as to include the amounts paid by the company after the filing of the complaint. The City of Iloilo appealed to the Court of Appeals which certified the case to this Court. The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of: 1. distribution of soft-drinks 2. manufacture of soft-drinks, and 3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo. There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance. Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance. The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax. The first ground, however, merits serious consideration. This Court has always recognized that the right to manufacture implies the right to sell/distribute the manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into.

In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two marketing systems: Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare the company liable under the tax ordinance. With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties. WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered DISMISSED. No Costs. SO ORDERED. Fernan, C.J., Feliciano and Bidin, JJ., concur. Gutierrez, Jr., J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-26379 December 27, 1969

WILLIAM C. REAGAN, ETC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. Quasha, Asperilla, Blanco, Zafra and Tayag for petitioner. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and Special Attorney Gamaliel H. Mantolino for respondent. FERNANDO, J.: A question novel in character, the answer to which has far-reaching implications, is raised by petitioner William C. Reagan, at one time a civilian employee of an American corporation providing technical assistance to the United States Air Force in the Philippines. He would dispute the payment of the income tax assessed on him by respondent Commissioner of Internal Revenue on an amount realized by him on a sale of his automobile to a member of the United States Marine Corps, the transaction having taken place at the Clark Field Air Base at Pampanga. It is his contention, seriously and earnestly expressed, that in legal contemplation the sale was made outside Philippine territory and therefore beyond our jurisdictional power to tax. Such a plea, far-fetched and implausible, on its face betraying no kinship with reality, he would justify by invoking, mistakenly as will hereafter be more fully shown an observation to that effect in a 1951 opinion, 1 petitioner ignoring that such utterance was made purely as a flourish of rhetoric and by way of emphasizing the decision reached, that the trading firm as purchaser of army goods must respond for the sales taxes due from an importer, as the American armed forces being exempt could not be taxed as such under the National Internal Revenue Code. 2 Such an assumption, inspired by the commendable aim to render unavailing any attempt at tax evasion on the part of such vendee, found expression anew in a 1962 decision,3 coupled with the reminder however, to render the truth unmistakable, that "the areas covered by the United States Military Bases are not foreign territories both in the political and geographical sense." As thus clarified, it is manifest that such a view amounts at most to a legal fiction and is moreover obiter. It certainly cannot control the resolution of the specific question that confronts us. We declare our stand in an unequivocal manner. The sale having taken place on what indisputably is Philippine territory, petitioner's liability for the income tax due as a result thereof was unavoidable. As the Court of Tax Appeals reached a similar conclusion, we sustain its decision now before us on appeal. In the decision appealed from, the Court of Tax Appeals, after stating the nature of the case, started the recital of facts thus: "It appears that petitioner, a citizen of the United States and an employee of Bendix Radio, Division of Bendix Aviation Corporation, which provides technical assistance to the United States Air Force, was assigned at Clark Air Base, Philippines, on or about July 7, 1959 ... . Nine (9) months thereafter and before his tour of duty expired, petitioner imported on April 22, 1960 a tax-free 1960 Cadillac car with accessories valued at $6,443.83, including freight, insurance and other charges." 4 Then came the following: "On July 11, 1960, more than two (2) months after the 1960 Cadillac car was imported into the Philippines, petitioner requested the Base Commander, Clark Air Base, for a permit to sell the car, which was granted provided that the sale was made to a member of the United States Armed Forces or a citizen of the United States employed in the U.S. military bases in the Philippines. On the

same date, July 11, 1960, petitioner sold his car for $6,600.00 to a certain Willie Johnson, Jr. (Private first class), United States Marine Corps, Sangley Point, Cavite, Philippines, as shown by a Bill of Sale . . . executed at Clark Air Base. On the same date, Pfc. Willie (William) Johnson, Jr. sold the car to Fred Meneses for P32,000.00 as evidenced by a deed of sale executed in Manila." 5 As a result of the transaction thus made, respondent Commissioner of Internal Revenue, after deducting the landed cost of the car as well as the personal exemption to which petitioner was entitled, fixed as his net taxable income arising from such transaction the amount of P17,912.34, rendering him liable for income tax in the sum of P2,979.00. After paying the sum, he sought a refund from respondent claiming that he was exempt, but pending action on his request for refund, he filed the case with the Court of Tax Appeals seeking recovery of the sum of P2,979.00 plus the legal rate of interest. As noted in the appealed decision: "The only issue submitted for our resolution is whether or not the said income tax of P2,979.00 was legally collected by respondent for petitioner." 6 After discussing the legal issues raised, primarily the contention that the Clark Air Base "in legal contemplation, is a base outside the Philippines" the sale therefore having taken place on "foreign soil", the Court of Tax Appeals found nothing objectionable in the assessment and thereafter the payment of P2,979.00 as income tax and denied the refund on the same. Hence, this appeal predicated on a legal theory we cannot accept. Petitioner cannot make out a case for reversal. 1. Resort to fundamentals is unavoidable to place things in their proper perspective, petitioner apparently feeling justified in his refusal to defer to basic postulates of constitutional and international law, induced no doubt by the weight he would accord to the observation made by this Court in the two opinions earlier referred to. To repeat, scant comfort, if at all is to be derived from such an obiter dictum, one which is likewise far from reflecting the fact as it is. Nothing is better settled than that the Philippines being 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. Necessarily, likewise, it has to be exclusive. If it were not thus, there is a diminution of its sovereignty. It is to be admitted that any state may, by its consent, express or implied, submit to a restriction of its sovereign rights. There may thus be a curtailment of what otherwise is a power plenary in character. That is the concept of sovereignty as auto-limitation, which, in the succinct language of Jellinek, "is the property of a state-force due to which it has the exclusive capacity of legal self-determination and selfrestriction."7 A state then, if it chooses to, may refrain from the exercise of what otherwise is illimitable competence. Its laws may as to some persons found within its territory no longer control. Nor does the matter end there. It is not precluded from allowing another power to participate in the exercise of jurisdictional right over certain portions of its territory. If it does so, it by no means follows that such areas become impressed with an alien character. They retain their status as native soil. They are still subject to its authority. Its jurisdiction may be diminished, but it does not disappear. So it is with the bases under lease to the American armed forces by virtue of the military bases agreement of 1947. They are not and cannot be foreign territory. Decisions coming from petitioner's native land, penned by jurists of repute, speak to that effect with impressive unanimity. We start with the citation from Chief Justice Marshall, announced in the leading case of Schooner Exchange v. M'Faddon,8 an 1812 decision: "The jurisdiction of the nation within its own territory is necessarily exclusive and absolute. It is susceptible of no limitation not imposed by itself. Any restriction upon it, deriving validity from an external source, would imply a diminution of its sovereignty to the extent of the restriction, and an investment of that sovereignty to the same extent in that power which could impose such restriction." After which came this paragraph: "All exceptions, therefore, to the full and

complete power of a nation within its own territories, must be traced up to the consent of the nation itself. They can flow from no other legitimate source." Chief Justice Taney, in an 1857 decision,9 affirmed the fundamental principle of everyone within the territorial domain of a state being subject to its commands: "For undoubtedly every person who is found within the limits of a government, whether the temporary purposes or as a resident, is bound by its laws." It is no exaggeration then for Justice Brewer to stress that the United States government "is one having jurisdiction over every foot of soil within its territory, and acting directly upon each [individual found therein]; . . ."10 Not too long ago, there was a reiteration of such a view, this time from the pen of Justice Van Devanter. Thus: "It now is settled in the United States and recognized elsewhere that the territory subject to its jurisdiction includes the land areas under its dominion and control the ports, harbors, bays, and other in closed arms of the sea along its coast, and a marginal belt of the sea extending from the coast line outward a marine league, or 3 geographic miles." 11 He could cite moreover, in addition to many American decisions, such eminent treatise-writers as Kent, Moore, Hyde, Wilson, Westlake, Wheaton and Oppenheim. As a matter of fact, the eminent commentator Hyde in his three-volume work on International Law, as interpreted and applied by the United States, made clear that not even the embassy premises of a foreign power are to be considered outside the territorial domain of the host state. Thus: "The ground occupied by an embassy is not in fact the territory of the foreign State to which the premises belong through possession or ownership. The lawfulness or unlawfulness of acts there committed is determined by the territorial sovereign. If an attache commits an offense within the precincts of an embassy, his immunity from prosecution is not because he has not violated the local law, but rather for the reason that the individual is exempt from prosecution. If a person not so exempt, or whose immunity is waived, similarly commits a crime therein, the territorial sovereign, if it secures custody of the offender, may subject him to prosecution, even though its criminal code normally does not contemplate the punishment of one who commits an offense outside of the national domain. It is not believed, therefore, that an ambassador himself possesses the right to exercise jurisdiction, contrary to the will of the State of his sojourn, even within his embassy with respect to acts there committed. Nor is there apparent at the present time any tendency on the part of States to acquiesce in his exercise of it." 12 2. In the light of the above, the first and crucial error imputed to the Court of Tax Appeals to the effect that it should have held that the Clark Air Force is foreign soil or territory for purposes of income tax legislation is clearly without support in law. As thus correctly viewed, petitioner's hope for the reversal of the decision completely fades away. There is nothing in the Military Bases Agreement that lends support to such an assertion. It has not become foreign soil or territory. This country's jurisdictional rights therein, certainly not excluding the power to tax, have been preserved. As to certain tax matters, an appropriate exemption was provided for. Petitioner could not have been unaware that to maintain the contrary would be to defy reality and would be an affront to the law. While his first assigned error is thus worded, he would seek to impart plausibility to his claim by the ostensible invocation of the exemption clause in the Agreement by virtue of which a "national of the United States serving in or employed in the Philippines in connection with the construction, maintenance, operation or defense of the bases and residing in the Philippines only by reason of such employment" is not to be taxed on his income unless "derived from Philippine source or sources other than the United States sources." 13 The reliance, to repeat, is more apparent than real for as noted at the outset of this opinion, petitioner places more faith not on the language of the provision on exemption but on a sentiment given expression in a 1951 opinion of this Court, which would be made to yield such an unwarranted interpretation at war with the controlling constitutional and international law principles. At any rate, even if such a contention were more adequately pressed and insisted upon, it is on its face devoid of merit as the source clearly was Philippine.

In Saura Import and Export Co. v. Meer,14 the case above referred to, this Court affirmed a decision rendered about seven months previously,15 holding liable as an importer, within the contemplation of the National Internal Revenue Code provision, the trading firm that purchased army goods from a United States government agency in the Philippines. It is easily understandable why. If it were not thus, tax evasion would have been facilitated. The United States forces that brought in such equipment later disposed of as surplus, when no longer needed for military purposes, was beyond the reach of our tax statutes. Justice Tuason, who spoke for the Court, adhered to such a rationale, quoting extensively from the earlier opinion. He could have stopped there. He chose not to do so. The transaction having occurred in 1946, not so long after the liberation of the Philippines, he proceeded to discuss the role of the American military contingent in the Philippines as a belligerent occupant. In the course of such a dissertion, drawing on his well-known gift for rhetoric and cognizant that he was making an as if statement, he did say: "While in army bases or installations within the Philippines those goods were in contemplation of law on foreign soil." It is thus evident that the first, and thereafter the controlling, decision as to the liability for sales taxes as an importer by the purchaser, could have been reached without any need for such expression as that given utterance by Justice Tuason. Its value then as an authoritative doctrine cannot be as much as petitioner would mistakenly attach to it. It was clearly obiter not being necessary for the resolution of the issue before this Court.16 It was an opinion "uttered by the way."17 It could not then be controlling on the question before us now, the liability of the petitioner for income tax which, as announced at the opening of this opinion, is squarely raised for the first time.18 On this point, Chief Justice Marshall could again be listened to with profit. Thus: "It is a maxim, not to be disregarded, that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used. If they go beyond the case, they may be respected, but ought not to control the judgment in a subsequent suit when the very point is presented for decision." 19 Nor did the fact that such utterance of Justice Tuason was cited in Co Po v. Collector of Internal Revenue,20 a 1962 decision relied upon by petitioner, put a different complexion on the matter. Again, it was by way of pure embellishment, there being no need to repeat it, to reach the conclusion that it was the purchaser of army goods, this time from military bases, that must respond for the advance sales taxes as importer. Again, the purpose that animated the reiteration of such a view was clearly to emphasize that through the employment of such a fiction, tax evasion is precluded. What is more, how far divorced from the truth was such statement was emphasized by Justice Barrera, who penned the Co Po opinion, thus: "It is true that the areas covered by the United States Military Bases are not foreign territories both in the political and geographical sense."21 Justice Tuason moreover made explicit that rather than corresponding with reality, what was said by him was in the way of a legal fiction. Note his stress on "in contemplation of law." To lend further support to a conclusion already announced, being at that a confirmation of what had been arrived at in the earlier case, distinguished by its sound appreciation of the issue then before this Court and to preclude any tax evasion, an observation certainly not to be taken literally was thus given utterance. This is not to say that it should have been ignored altogether afterwards. It could be utilized again, as it undoubtedly was, especially so for the purpose intended, namely to stigmatize as without support in law any attempt on the part of a taxpayer to escape an obligation incumbent upon him. So it was quoted with that end in view in the Co Po case. It certainly does not justify any effort to render futile the collection of a tax legally due, as here. That was farthest from the thought of Justice Tuason. What is more, the statement on its face is, to repeat, a legal fiction. This is not to discount the uses of a fictio juris in the science of the law. It was Cardozo who pointed out its value as a device "to advance the ends of justice" although at times it could be "clumsy" and even "offensive". 22 Certainly, then, while far

from objectionable as thus enunciated, this observation of Justice Tuason could be misused or misconstrued in a clumsy manner to reach an offensive result. To repeat, properly used, a legal fiction could be relied upon by the law, as Frankfurter noted, in the pursuit of legitimate ends. 23 Petitioner then would be well-advised to take to heart such counsel of care and circumspection before invoking not a legal fiction that would avoid a mockery of the law by avoiding tax evasion but what clearly is a misinterpretation thereof, leading to results that would have shocked its originator. The conclusion is thus irresistible that the crucial error assigned, the only one that calls for discussion to the effect that for income tax purposes the Clark Air Force Base is outside Philippine territory, is utterly without merit. So we have said earlier. 3. To impute then to the statement of Justice Tuason the meaning that petitioner would fasten on it is, to paraphrase Frankfurter, to be guilty of succumbing to the vice of literalness. To so conclude is, whether by design or inadvertence, to misread it. It certainly is not susceptible of the mischievous consequences now sought to be fastened on it by petitioner. That it would be fraught with such peril to the enforcement of our tax statutes on the military bases under lease to the American armed forces could not have been within the contemplation of Justice Tuason. To so attribute such a bizarre consequence is to be guilty of a grave disservice to the memory of a great jurist. For his real and genuine sentiment on the matter in consonance with the imperative mandate of controlling constitutional and international law concepts was categorically set forth by him, not as an obiter but as the rationale of the decision, in People v. Acierto24 thus: "By the [Military Bases] Agreement, it should be noted, the Philippine Government merely consents that the United States exercise jurisdiction in certain cases. The consent was given purely as a matter of comity, courtesy, or expediency over the bases as part of the Philippine territory or divested itself completely of jurisdiction over offenses committed therein." Nor did he stop there. He did stress further the full extent of our territorial jurisdiction in words that do not admit of doubt. Thus: "This provision is not and can not on principle or authority be construed as a limitation upon the rights of the Philippine Government. If anything, it is an emphatic recognition and reaffirmation of Philippine sovereignty over the bases and of the truth that all jurisdictional rights granted to the United States and not exercised by the latter are reserved by the Philippines for itself." 25 It is in the same spirit that we approach the specific question confronting us in this litigation. We hold, as announced at the outset, that petitioner was liable for the income tax arising from a sale of his automobile in the Clark Field Air Base, which clearly is and cannot otherwise be other than, within our territorial jurisdiction to tax. 4. With the mist thus lifted from the situation as it truly presents itself, there is nothing that stands in the way of an affirmance of the Court of Tax Appeals decision. No useful purpose would be served by discussing the other assigned errors, petitioner himself being fully aware that if the Clark Air Force Base is to be considered, as it ought to be and as it is, Philippine soil or territory, his claim for exemption from the income tax due was distinguished only by its futility. There is further satisfaction in finding ourselves unable to indulge petitioner in his plea for reversal. We thus manifest fealty to a pronouncement made time and time again that the law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted.26 Petitioner had not done so. Petitioner cannot do so. WHEREFORE, the decision of the Court of Tax Appeals of May 12, 1966 denying the refund of P2,979.00 as the income tax paid by petitioner is affirmed. With costs against petitioner. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Teehankee, JJ., concur.

Reyes, J.B.L., J., concurs in the result. Barredo, J., took no part.

Footnotes
1

Saura Import and Export Co. v. Meer, 88 Phil. 199, 202 affirming Go Cheng Tee v. Meer, 87 Phil. 18 (1950).
2

Sec. 186, National Internal Revenue Code. Co Po v. Collector of Internal Revenue, 5 SCRA 1057. Decision, Annex 4, Brief for Petitioner-Appellant, pp. 20-21. Ibid., p. 21. Ibid., p. 23. Jellinek as quoted in Cohen, Recent Theories of Sovereignty, p. 35 (1937). 7 Cranch 116, 136. Brown v. Duchesne, 19 How. 183, 194. In re Debs. 158 US 564 (1894). Cunard Steamship Co. v. Mellon, 262 US 100 (1922).

10

11

12

2 Hyde, International Law Chiefly as Interpreted and Applied by the United States, pp. 12851286 (1947).
13

Act XII of the Military Bases Agreement, par. 2, reads: "No national of the United States serving in or employed in the Philippines in connection with the construction, maintenance, operation or defense of the bases and residing in the Philippines by reason only of such employment, or his spouse and minor children and dependent parents of either spouse, shall be liable to pay income tax in the Philippines except in respect of income derived from Philippine source or sources other than the United States sources." (1 Philippine Treaty Series, 357, 362 [1968]).
14

88 Phil. 199 (1951). Go Cheng Tee v. Meer, 87 Phil. 18 (1950).

15

16

Uy Po v. Collector of Customs, 34 Phil. 153 (1916); Morales v. Paredes, 55 Phil. 565 (1930); Abad v. Carganillo Vda. de Yance, 95 Phil. 51 (1954).
17

People v. Macadaeg, 91 Phil. 410 (1952). Cf. de los Reyes v. de Villa, 48 Phil. 227 (1925).

18

19

6 Wheat, 264, 399 (1821) reiterated in Myers v. United States, 272 US 52, (1926). Cf. Northern Nat. Bank. v. Porter Township, 110 US 608 (1884); Weyerhaeuser v. Hoyt, 219 US 380 (1911); Osaka Shosen Kaisha Line v. United States, 300 US 98; Wright v. United States, 302 US 583 (1938); Green v. United States, 355 US 184 (1957).
20

25 SCRA 1057. Ibid., p. 1059. Cardozo, The Paradoxes of Legal Science, 34 (1928). Nashville C. St. Louis Ry v. Browning, 310 US 362 (1940). 92 Phil. 534, 542 (1953). Ibid., p. 534.

21

22

23

24

25

26

Cf. Commissioner of Internal Revenue v. Guerrero, 21 SCRA 180 (1967) and the cases therein cited. See also E. Rodriguez, Inc. v. Collector of Internal Revenue, 28 SCRA 1119 (1969). Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-46720 June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee. De Witt, Perkins and Ponce Enrile for appellant. Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee. Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici curi. MORAN, J.: An appeal from a declaratory judgment rendered by the Court of First Instance of Manila. Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership (sociedad anonima), organized and existing under the laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly admitted to probate in California where her estate was administered and settled. Petitioner-appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created by the said will. The Federal and State of California's inheritance taxes due on said shares have been duly paid. Respondent Collector of Internal Revenue sought to subject anew the aforesaid shares of stock to the Philippine inheritance tax, to which petitionerappellant objected. Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement that, "if it should be held by a final declaratory judgment that the transfer of the aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax, interest and penalties (saving error in computation) without protest and will not file to recover the same; and the

petitioner believes and t herefore alleges that it should be held that such transfer is not subject to said tax, the respondent will not proceed to assess and collect the same." The Court of First Instance of Manila rendered judgment, holding that the transmission by will of the said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the petitioner. Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon transmission by inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to real and tangible personal property of a non-resident decedent, located in the Philippines, the Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident reason that, being a property situated in this country, its transfer is, in some way, defendant, for its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes place under his domiciliary laws. Section 1536 of the Administrative Code, as amended, provides that every transmission by virtue of inheritance of any share issued by any corporation of sociedad anonima organized or constituted in the Philippines, is subject to the tax therein provided. This provision has already been applied to shares of stock in a domestic corporation which were owned by a British subject residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by the United States Supreme Court in four cases (Farmers Loan & Trust Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U.S., 586; 74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75 Law. ed., 131; First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles only by the State where the decedent was domiciled at the time of his death, and that, under the due-process clause, the State in which a corporation has been incorporated has no power to impose such tax if the shares of stock in such corporation are owned by a non-resident decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal Government to impose an inheritance tax on the transmission, by death of a non-resident, of stock in a domestic (America) corporation, irrespective of the situs of the corresponding certificates of stock. But it is contended that the doctrine in the foregoing case is not applicable, because the due-process clause is directed at the State and not at the Federal Government, and that the federal or national power of the United States is to be determined in relation to other countries and their subjects by applying the principles of jurisdiction recognized in international relations. Be that as it may, the truth is that the due-process clause is "directed at the protection of the individual and he is entitled to its immunity as much against the state as against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was predicated on a proper regard for the relation of the states of the American Union, which requires that property should be taxed in only one state and that jurisdiction to tax is restricted accordingly. In other words, the application to the states of the due-process rule springs from a proper distribution of their powers and spheres of activity as ordained by the United States Constitution, and such distribution is enforced and protected by not allowing one state to reach out and tax property in another. And these considerations do not apply to the Philippines. Our status rests upon a wholly distinct basis and no analogy, however remote, cam be suggested in the relation of one state of the Union with another or with the United States. The status of the Philippines has been aptly defined as one which, though a part of the United States in the international sense, is, nevertheless, foreign thereto in a domestic sense. (Downes vs. Bidwell, 182 U. S., 244, 341.) At any rate, we see nothing of consequence in drawing any distinct between the operation and effect of the due-process clause as it applies to the individual states and to the national government of the United States. The question here involved is essentially not one of due-process, but of the power of the Philippine Government to tax. If that power be conceded, the guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is challenged, which is not, on considerations repugnant to such guaranty of due process of that of the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or discriminatory.

Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs. Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 9192) There is thus a marked shift from artificial postulates of law, formulated for reasons of convenience, to the actualities of each case. An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as o intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. It is on the basis of the first consideration that the case of Burnet vs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of the Government to impose an inheritance tax upon transmission, by death of a non-resident, of shares of stock in a domestic (America) corporation, regardless of the situs of their corresponding certificates; and on the basis of the second consideration, the case of Cury vs. McCanless, supra. In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal estate tax is precluded by the due-process clause of the Fifth Amendment, held: The point, being solely one of jurisdiction to tax, involves none of the other consideration raised by confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of justice which are embodied in the due-process clause for the protection of life, liberty, and property of all persons citizens and friendly aliens alike. Russian Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473, 476; 41 S. Ct., 229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S. Ct., 358. If in the instant case the Federal Government had jurisdiction to impose the tax, there is manifestly no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44 Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States, 195 U.S., 27, 61; 49 Law. ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312; Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L. R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86, 93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.) And, in sustaining the power of the Federal Government to tax properties within its borders, wherever its owner may have been domiciled at the time of his death, the court ruled: . . . There does not appear, a priori, to be anything contrary to the principles of international law, or hurtful to the polity of nations, in a State's taxing property physically situated within its borders, wherever its owner may have been domiciled at the time of his death. . . . As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct grounds the citizenship of the owner, his domicile, the source of income, the situs of the property efforts have been made to preclude multiple taxation through the negotiation of appropriate international conventions. These endeavors, however, have proceeded upon express or implied recognition, and not in denial, of the sovereign taxing power as exerted by governments in the exercise of jurisdiction upon any one of these grounds. . . . (See pages 396397; 399.)

In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of Alabama and Tennessee may each constitutionally impose death taxes upon the transfer of an interest in intangibles held in trust by an Alabama trustee but passing under the will of a beneficiary decedent domiciles in Tennessee, sustained the power of each State to impose the tax. In arriving at this conclusion, the court made the following observations: In cases where the owner of intangibles confines his activity to the place of his domicile it has been found convenient to substitute a rule for a reason, cf. New York ex rel., Cohn vs. Graves, 300 U.S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L. R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at their situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410, supra; Baldwin vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L. R., 1303, supra, which means only that it is the identify owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of each state concerned to tax. Whether we regard the right of a state to tax as founded on power over the object taxed, as declared by Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through dominion over tangibles or over persons whose relationships are source of intangibles rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it is undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many circumstances in which more than one state may have jurisdiction to impose a tax and measure it by some or all of the taxpayer's intangibles. Shares or corporate stock be taxed at the domicile of the shareholder and also at that of the corporation which the taxing state has created and controls; and income may be taxed both by the state where it is earned and by the state of the recipient's domicile. protection, benefit, and power over the subject matter are not confined to either state. . . .(p. 1347-1349.) . . . We find it impossible to say that taxation of intangibles can be reduced in every case to the mere mechanical operation of locating at a single place, and there taxing, every legal interest growing out of all the complex legal relationships which may be entered into between persons. This is the case because in point of actuality those interests may be too diverse in their relationships to various taxing jurisdictions to admit of unitary treatment without discarding modes of taxation long accepted and applied before the Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.) We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue here involved is controlled by those doctrines. In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. Judgment is affirmed, with costs against petitioner-appellant.

Avancea, C.J., Imperial, Diaz and Concepcion, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. Nos. L-9456 and L-9481 January 6, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. DOMINGO DE LARA, as ancilliary administrator of the estate of HUGO H. MILLER (Deceased), and the COURT OF TAX APPEALS, respondents. Allison J. Gibbs, Zafra, De Leon and Veneracion for Domingo E. de Lara. Assistant Solicitor General Ramon L. Avancena and Cezar L. Kierulf for the Collector of Internal Revenue. MONTEMAYOR, J.: These are two separate appeals, one by the Collector of Internal Revenue, later on referred to as the Collector, and the other by Domingo de Lara as Ancilliary Administrator of the estate of Hugo H. Miller, from the decision of the Court of Tax Appeals of June 25, 1955, with the following dispositive part: WHEREFORE, respondent's assessment for estate and inheritance taxes upon the estate of the decedent Hugo H. Miller is hereby modified in accordance with the computation attached as Annex "A" of this decision. Petitioner is hereby ordered to pay the amount of P2,047.22 representing estate taxes due, together with the interests and other increments. In case of failure to pay the amount of P2,047.22 within thirty (30) days from the time this decision has become final, the 5 per cent surcharge and the corresponding interest due thereon shall be paid as a part of the tax. The facts in the case gathered from the record and as found by the Court of Tax Appeals may be briefly stated as follows: Hugo H. Miller, an American citizen, was born in Santa Cruz, California, U.S.A., in 1883. In 1905, he came to the Philippines. From 1906 to 1917, he was connected with the public school system, first as a teacher and later as a division superintendent of schools, later retiring under the Osmeiia Retirement Act. After his retirement, Miller accepted an executive position in the local branch of Ginn & Co., book publishers with principal offices in New York and Boston, U.S.A., up to the outbreak of the Pacific War. From 1922 up to December 7, 1941, he was stationed in the Philippines as Oriental representative of Ginn & Co., covering not only the Philippines, but also China and Japan. His principal work was selling books specially written for Philippine schools. In or about the year 1922, Miller lived at the Manila Hotel. His wife remained at their home in Ben-Lomond, Santa Cruz, California, but she used to come to the Philippines for brief visits with Miller, staying three or four months. Miller also used to visit his wife in California. He never lived in any residential house in the Philippines. After the death of his wife in 1931, he transferred from the Manila Hotel to the Army and Navy Club, where he was staying at the outbreak of the Pacific War. On January 17, 1941, Miller executed his last will and testament in Santa Cruz, California, in which he declared that he was "of Santa Cruz, California". On December 7, 1941, because of the Pacific War, the office of Ginn & Co. was closed, and Miller joined the Board of Censors of the United States Navy. During the war, he was taken prisoner by the Japanese forces in Leyte, and in January, 1944, he was transferred to Catbalogan, Samar, where he was reported to have been executed by said forces on March 11, 1944, and since then, nothing has been heard from him. At the time of his death in 1944, Miller owned the following properties:

Real Property situated in Ben-Lomond, Santa Cruz, California valued at ...................................................................... Real property situated in Burlingame, San Mateo, California valued at .................................................................................... .... Tangible Personal property, worth............................................. Cash in the banks in the United States.................................... Accounts Receivable from various persons in the United States including notes ...............................................................

P 5,000.00

16,200.00

2,140.00

21,178.20

36,062.74

Stocks in U.S. Corporations and U.S. Savings Bonds, valued at .................................................................................... .... 123,637.16 Shares of stock in Philippine Corporations, valued at ..........

51,906.45

Testate proceedings were instituted before the Court of California in Santa Cruz County, in the course of which Miller's will of January 17, 1941 was admitted to probate on May 10, 1946. Said court subsequently issued an order and decree of settlement of final account and final distribution, wherein it found that Miller was a "resident of the County of Santa Cruz, State of California" at the time of his death in 1944. Thereafter ancilliary proceedings were filed by the executors of the will before the Court of First Instance of Manila, which court by order of November 21, 1946, admitted to probate the will of Miller was probated in the California court, also found that Miller was a resident of Santa Cruz, California, at the time of his death. On July 29, 1949, the Bank of America, National Trust and Savings Association of San Francisco California, co-executor named in Miller's will, filed an estate and inheritance tax return with the Collector, covering only the shares of stock issued by Philippines corporations, reporting a liability of P269.43 for taxes and P230.27 for inheritance taxes. After due investigation, the Collector assessed estate and inheritance taxes, which was received by the said executor on April 3, 1950. The estate of Miller protested the assessment of the liability for estate and inheritance taxes, including penalties and other increments at P77,300.92, as of January 16, 1954. This assessment was appealed by De Lara as Ancilliary Administrator before the Board of Tax Appeals, which appeal was later heard and decided by the Court of Tax Appeals. In determining the "gross estate" of a decedent, under Section 122 in relation to section 88 of our Tax Code, it is first necessary to decide whether the decedent was a resident or a non-resident of the Philippines at the time of his death. The Collector maintains that under the tax laws, residence and domicile have different meanings; that tax laws on estate and inheritance taxes only mention resident and non-resident, and no reference whatsoever is made to domicile except in Section 93 (d) of the Tax Code; that Miller during his long stay in the Philippines had required a "residence" in this country, and was a

resident thereof at the time of his death, and consequently, his intangible personal properties situated here as well as in the United States were subject to said taxes. The Ancilliary Administrator, however, equally maintains that for estate and inheritance tax purposes, the term "residence" is synonymous with the term domicile. We agree with the Court of Tax Appeals that at the time that The National Internal Revenue Code was promulgated in 1939, the prevailing construction given by the courts to the "residence" was synonymous with domicile. and that the two were used intercnangeabiy. Cases were cited in support of this view, paricularly that of Velilla vs. Posadas, 62 Phil. 624, wherein this Tribunal used the terms "residence" and "domicile" interchangeably and without distinction, the case involving the application of the term residence employed in the inheritance tax law at the time (section 1536- 1548 of the Revised Administrative Code), and that consequently, it will be presumed that in using the term residence or resident in the meaning as construed and interpreted by the Court. Moreover, there is reason to believe that the Legislature adopted the American (Federal and State) estate and inheritance tax system (see e.g. Report to the Tax Commision of the Philippines, Vol. II, pages 122-124, cited in I Dalupan, National Internal Revenue Code Annotated, p. 469-470). In the United States, for estate tax purposes, a resident is considered one who at the time of his death had his domicile in the United States, and in American jurisprudence, for purposes of estate and taxation, "residence" is interpreted as synonymous with domicile, and that The incidence of estate and succession has historically been determined by domicile and situs and not by the fact of actual residence. (Bowring vs. Bowers, (1928) 24 F 2d 918, at 921, 6 AFTR 7498, cert. den (1928) 272 U.S.608). We also agree with the Court of Tax Appeals that at the time of his death, Miller had his residence or domicile in Santa Cruz, California. During his country, Miller never acquired a house for residential purposes for he stayed at the Manila Hotel and later on at the Army and Navy Club. Except this wife never stayed in the Philippines. The bulk of his savings and properties were in the United States. To his home in California, he had been sending souvenirs, such as carvings, curios and other similar collections from the Philippines and the Far East. In November, 1940, Miller took out a property insurance policy and indicated therein his address as Santa Cruz, California, this aside from the fact that Miller, as already stated, executed his will in Santa Cruz, California, wherein he stated that he was "of Santa Cruz, California". From the foregoing, it is clear that as a non-resident of the Philippines, the only properties of his estate subject to estate and inheritance taxes are those shares of stock issued by Philippines corporations, valued at P51,906.45. It is true, as stated by the Tax Court, that while it may be the general rule that personal property, like shares of stock in the Philippines, is taxable at the domicile of the owner (Miller) under the doctrine of mobilia secuuntur persona, nevertheless, when he during his life time, . . . extended his activities with respect to his intangibles, so as to avail himself of the protection and benefits of the laws of the Philippines, in such a way as to bring his person or property within the reach of the Philippines, the reason for a single place of taxation no longer obtainsprotection, benefit, and power over the subject matter are no longer confined to California, but also to the Philippines (Wells Fargo Bank & Union Trust Co. vs. Collector (1940), 70 Phil. 325). In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled herein: and besides, the right to vote the certificates at stockholders' meetings, the right to collect dividends, and the right to dispose of the shares including the transmission and acquisition thereof by succession, all enjoy the protection of the Philippines, so that the right to collect the estate and inheritance taxes cannot be questioned (Wells Fargo Bank & Union Trust Co. vs. Collector supra). It is recognized that the state may, consistently with due process, impose a tax upon transfer by death of shares of stock in a domestic corporation owned by a decedent whose domicile was outside of the state (Burnett vs. Brooks, 288 U.S. 378; State Commission vs. Aldrich, (1942) 316 U.S. 174, 86 L. Ed. 1358, 62 ALR 1008)." (Brief for the Petitioner, p. 79-80). The Ancilliary Administrator for purposes of exemption invokes the proviso in Section 122 of the Tax Code, which provides as follows:

. . ."And Provided, however, That no tax shall be collected under this Title in respect of intangible personal property (a) if the decedent at the time of his death was a resident of a foreign country which at the time of his death did not impose a transfer tax or death tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that country, or (b) if the laws of the foreign country of which the decedent was resident at the tune of his death allow a similar exemption from transfer taxes or death taxes of every character in respect of intangible personal property owned by citizen, of the Philippine not residing in that foreign country. The Ancilliary Administrator bases his claim of exemption on (a) the exemption of non-residents from the California inheritance taxes with respect to intangibles, and (b) the exemption by way of reduction of P4,000 from the estates of non-residents, under the United States Federal Estate Tax Law. Section 6 of the California Inheritance Tax Act of 1935, now reenacted as Section 13851, California Revenue and Taxation Code, reads as follows: SEC. 6. The following exemption from the tax are hereby allowed: xxx xxx xxx.

(7) The tax imposed by this act in respect of intangible personal property shall not be payable if decedent is a resident of a State or Territory of the United States or a foreign state or country which at the time of his death imposed a legacy, succession of death tax in respect of intangible personal property within the State or Territory or foreign state or country of residents of the States or Territory or foreign state or country of residence of the decedent at the time of his death contained a reciprocal provision under which non-residents were exempted from legacy or succession taxes or death taxes of every character in respect of intangible personal property providing the State or Territory or foreign state or country of residence of such non-residents allowed a similar exemption to residents of the State, Territory or foreign state or country of residence of such decedent. Considering the State of California as a foreign country in relation to section 122 of Our Tax Code we beleive and hold, as did the Tax Court, that the Ancilliary Administrator is entitled to exemption from the tax on the intangible personal property found in the Philippines. Incidentally, this exemption granted to non-residents under the provision of Section 122 of our Tax Code, was to reduce the burden of multiple taxation, which otherwise would subject a decedent's intangible personal property to the inheritance tax, both in his place of residence and domicile and the place where those properties are found. As regards the exemption or reduction of P4,000 based on the reduction under the Federal Tax Law in the amount of $2,000, we agree with the Tax Court that the amount of $2,000 allowed under the Federal Estate Tax Law is in the nature of deduction and not of an exemption. Besides, as the Tax Court observes--. . . . this exemption is allowed on all gross estate of non-residents of the United States, who are not citizens thereof, irrespective of whether there is a corresponding or similar exemption from transfer or death taxes of non-residents of the Philippines, who are citizens of the United States; and thirdly, because this exemption is allowed on all gross estates of non-residents irrespective of whether it involves tangible or intangible, real or personal property; so that for these reasons petitioner cannot claim a reciprocity. . . Furthermore, in the Philippines, there is already a reduction on gross estate tax in the amount of P3,000 under section 85 of the Tax Code, before it was amended, which in part provides as follows: SEC. 85. Rates of estate tax.There shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, whether a resident or non-resident of the Philippines, a tax equal to the sum of the following percentages of the value of the net estate determined as provided in sections 88 and 89:

One per centrum of the amount by which the net estate exceeds three thousand pesos and does not exceed ten thousand pesos;. . . It will be noticed from the dispositive part of the appealed decision of the Tax Court that the Ancilliary Administrator was ordered to pay the amount of P2,047.22, representing estate taxes due, together with interest and other increments. Said Ancilliary Administrator invokes the provisions of Republic Act No. 1253, which was passed for the benefit of veterans, guerrillas or victims of Japanese atrocities who died during the Japanese occupation. The provisions of this Act could not be invoked during the hearing before the Tax Court for the reason that said Republic Act was approved only on June 10, 1955. We are satisfied that inasmuch as Miller, not only suffered deprivation of the war, but was killed by the Japanese military forces, his estate is entitled to the benefits of this Act. Consequently, the interests and other increments provided in the appealed judgment should not be paid by his estate. With the above modification, the appealed decision of the Court of Tax Appeals is hereby affirmed. We deem it unnecessary to pass upon the other points raised in the appeal. No costs. Bengzon, Paras, C.J., Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs. CITY OF ILOILO, defendants-appellants. (SUPRA) Pelaez, Jalandoni and Jamir for plaintiff-appellees. Assistant City Fiscal Vicente P. Gengos for defendant-appellant. CASTRO, J.: Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance. On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to

enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full: AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that: Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment herein provided. Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space divided into separate apartments or accessorias. Section 3. The municipal license tax provided in Section 1 hereof shall be as follows:

I. Tenement houses: (a) Apartment house made of strong materials (b) Apartment house made of mixed materials II Rooming house of strong materials Rooming house of mixed materials III. Tenement house partly or wholly engaged in or dedicated to business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay to Valeria. St. IV. Tenement house partly or wholly engaged in or dedicated to business in any other street V. Tenement houses at the streets surrounding the super market as soon as said place is declared commercial P20.00 per door p.a. P10.00 per door p.a. P10.00 per door p.a. P5.00 per door p.a.

P30.00 per door p.a.

P12.00 per door p.a.

P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended. Section 5. Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court.

Section 6 This ordinance shall take effect upon approval. ENACTED, January 15, 1960. In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes. By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property. On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation. The issues posed in this appeal are: 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? 4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation? 1. The pertinent provisions of the Local Autonomy Act are hereunder quoted: SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose

taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or impose any of the following: (a) Residence tax; (b) Documentary stamp tax; (c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published primarily for the purpose of publishing advertisements; (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power; (e) Taxes on forest products and forest concessions; (f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa; (g) Taxes on income of any kind whatsoever; (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other kinds of customs fees, charges and duties; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies. A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended. In such event, the municipal board or city council in the case of cities and the municipal council or municipal district council in the case of municipalities or municipal districts may appeal the decision of the Secretary of Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest. It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute. 2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax," 3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5. It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. 9 The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners. 10 It is a fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of assessors. 12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax. "The spirit, rather than the letter, or 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." 15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege." 16. "The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such words must be taken in the connection in which they are used and the true character is to be deduced from the nature and essence of the subject." 17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a tenement house 18 as "any house or building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses. This is precisely one of

the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:. "And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." . The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." . 2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual income.20. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.21. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a wellsettled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax.22. "In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform."25. 3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll tax." 26 It is elementary, however, that "a tax is not a debt in the sense of an obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. 28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30. 4. The trial court brands the ordinance as violative of the rule of uniformity of taxation. "... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation.". Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." . It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority." 31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. 32 So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.34. 5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-12695, supra, as

ultra vires, the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris. 35. ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed. No pronouncement as to costs.. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano, JJ., concur..

Footnotes
1

The record discloses that the delay caused in the lower court was due to the loss of the original record while the same was in the possession of the late Judge Perfecto Querubin. The record was later reconstituted under Judge Ramon Blanco..
2

Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, L-20125, July 20, 1965, per Concepcion, J.: . "Neither the plaintiff nor the lower court maintains that the subject matter of the ordinance in question comes under any of the foregoing exceptions. Hence, under the rule "expressio unius est exclusio alterius", the ordinance should be deemed to come within the purview of the general rule. Indeed, the sponsor of the bill, which upon its passage became Republic Act No. 2264, explicitly informed the House of Representatives when he urged the same to approve it, that, under its provisions, local governments would be "able to do everything, excepting those things which are mentioned therein." ..." . C.N. Hodges vs. The Mun. Board of the City of Iloilo, et al., L-18276, Jan. 12, 1967, per Castro, J.: . "... Heretofore, we have announced the doctrine that the grant of the power to tax to chartered cities under section 2 of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those which are mentioned therein," subject only to the limitation that the tax so levied is for "public purposes, just and uniform" (Nin Bay Mining Co. vs. Mun. of Roxas, Prov. of Palawan, G.R. No. L-20125, July 20, 1965). There is no showing, and we do not believe it is possible to show, that the tax levied, called by any name percentage tax or sales tax - comes under any of the specific exceptions listed in Section 2 of the Local Autonomy Act. Not being excepted, it must be regarded as coming within the purview of the general rule. As the maxim goes, "Exceptio firmat regulum in casibus non excepti." Since its public purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained as valid." (Re: Ordinance imposing a tax on

sales or real estate property situated in the City of Iloilo, of 1/2% of 1% of the contract price or consideration.). Ormoc Sugar Co., Inc. vs. Mun. Board of Ormoc City, et al., L-24322, July 21, 1967, per Fernando, J.: . "In a number of decisions starting from City of Bacolod v. Gruet, L-18290, Jan. 31, 1963, to Hodges vs. Mun. Board, L-18276, Jan. 12, 1967, such broad taxing authority has been implemented and vitalized by this Court. "... The question before this Court is one of power. From and after June 19, 1959, when the Local Autonomy Act was enacted, the sphere of autonomy of a chartered city in the enactment of taxing measures has been considerably enlarged. "... In the absence of a clear and specific showing that there was a transgression of a constitutional provision or repugnancy to a controlling statute, an objection of such a generalized character deserves but scant sympathy from this Court. Considering the indubitable policy expressly set forth in the Local Autonomy Act, the invocation of such a talismanic formula as "restraint of trade" without more no longer suffices, assuming it ever did, to nullify a taxing ordinance, otherwise valid." [Re: Ordinance imposing tax on all productions of centrifugal sugar (B-sugar) locally sold or sold within the Phil., at P.20 per picul, etc.].
3

"Taxes on property are taxes assessed on all property or on all property of a certain class located within a certain territory on a specified date in proportion to its value, or in accordance with some other reasonable method of apportionment, the obligation to pay which is absolute and unavoidable and it is not based upon any voluntary action of the person assessed. A property tax is ordinarily measured by the amount of property owned by the taxpayer on a given day, and not on the total amount owned by him during the year. It is ordinarily assessed at stated periods determined in advance, and collected at appointed times, and its payment is usually enforced by sale of the property taxed, and, occassionally, by imprisonment of the person assessed." (51 Am. Jur. 57) . "A "real estate tax" is a tax in rem against realty without personal liability therefor on part of owner thereof, and a judgment recovered in proceedings for enforcement of real estate tax is one in rem against the realty without personal liability against the owner." (36 Words and Phrases, 286, citing Land O'Lakes Dairy Co. vs. Wadena County, 39 N. W. 2d. 164, 171, 229 Minn. 263).
4

"The term "license tax" or "license fee" implies an imposition or exaction on the right to use or dispose of a property, to pursue a business, occupation, or calling, or to exercise a privilege." (33 Am. Jur. 325-v26) . "The term "excise tax" is synonymous with "privilege tax", and the two are often used interchangeably, and whether a tax is characterized in the statute imposing it as a privilege tax or an excise tax is merely a choice of synonymous words, for an excise tax is a privilege tax." (51 Am. Jur. 62, citing Bank of Commerce & T. Co. vs. Senter, 149 Tenn. 569, 260 SW 144) . "Thus, it is said that an excise tax is a charge imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation." (51 Am. Jur. 61) .

"SEC. 38. Annual tax and penalties. Extension and remission of the tax. -- An annual tax of one per centum on the assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer..." .
6

Commonwealth Act No. 470 -- "SECTION 1. Title of this Act. - This Act shall be known as the Assessment Law. `. `SEC. 2. Incidence of real property tax. -- Except in chartered cities, there shall be levied, assessed, and collected an annual ad valorem tax on real property, including land, buildings, machinery and other improvements not hereinafter specially exempted.".
7

Com. Act 158, sections 28 to 53. Com. Act 158, sec. 29.

51 Am. Jur. 53: "An ad valorem property tax is invariably based upon ownership of property, and is payable regardless of whether the property is used or not, although of course the value may vary in accordance with such factor." .
10

"Real estate, for purposes of taxation, includes all land within the district by which the tax is levied, and all rights and interests in such land, and all buildings and other structures affixed to the land, even though as between the landlord and the tenant they are the property of the tenant and may be removed by him at the termination of the lease." (51 Am. Jur. 438) Sec. 31 of Com. Act 158 provides: "When it shall appear that there are separate owners of the land and the improvements thereon, a separate assessment of the property of each shall be made." .
11

Sec. 38 of Com. Act 158 provides: "An annual tax of one per centum on the assessed value of all real estate in the city subject to taxation shall be levied by the city treasurer." .
12

Secs. 28 to 34, Com. Act 158.

13

Sec. 38 of Com. Act 158 provides: "All taxes on real estate for any year shall be due and payable on the first day of January and from this date such taxes together with all penalties accruing thereto shall constitute a lien on the property subject to such taxation." .
14

Sec. 38 of Com. Act 158 provides: "Such lien shall be superior to all other liens, mortgages or incumbrances of any kind whatsoever, and shall be enforceable against the property whether in the possession of the delinquent or any subsequent owner, and can only be removed by the payment of the tax and penalty.".
15

62 C.J.S. 845; Manila Race Horse Trainers Assn. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60.
16

51 Am. Jur. 59-60; 33 Am. Jur. 325-326.. 51 Am. Jur. 56, citing Eyre v. Jacob, 14 Gratt (Va.) 422; 73 Am. Dec. 367. Webster's New International Dictionary, 2nd Ed., p. 2601.

17

18

19

City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959: "As may be seen from the definition of each establishment hereunder quoted, a tenement house is different from hotel, lodging house, or boarding house. These are different business enterprises. They have been established for different purposes.

20

National Internal Revenue Code: . "SEC. 182. Fixed taxes. -- On business ...; (3) Other fixed taxes. -- The following fixed taxes shall be collected as follows, the amount stated being for the whole year, when not otherwise specified: . XXX XXX XXX

"(s) Stockbrokers, dealers in securities, real estate brokers, real estate dealers, commercial brokers, customs brokers, and immigration brokers, one hundred and fifty pesos: Provided, however, That in the case of real estate dealers, the annual fixed tax to be collected shall be as follows: . "One hundred and fifty pesos, if the annual income from buying, selling, exchanging, leasing, or renting property (whether on their own account as principals or as owners of rental property or properties) is four thousand pesos or more but not exceeding ten thousand pesos; . "Three hundred pesos, if such annual income exceeds ten thousand pesos but does not exceed thirty thousand pesos; and . "Five hundred pesos, if such annual income exceeds thirty thousand pesos."
21

Punsalan, et al. vs. Mun. Board of the City of Manila, et al., L-4817, May 26, 1954, 95 Phil. 46, per Reyes, J.: In this case the Supreme Court upheld the validity of Ordinance 3398 of the City of Manila, approved on July 25, 1950, imposing a municipal occupation tax on persons exercising various professions (lawyers, medical practitioners, public accountants, dental surgeons, pharmacists, etc.), in the city and penalizes non-payment of the tax by a fine of not more than P200.00 or by imprisonment of not more than 6 months, or by both such fine and imprisonment in the discretion of the court, although section 201 [now sec. 182(B)] of the National Internal Revenue Code requires the payment of taxes on occupation or professional taxes. Said Justice Reyes: "The argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing obnoxious in the requirement thatlicense fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivision thereof. (51 Am. Jur., 341.)" . A month after the promulgation of the above decision, Congress passed Rep. Act 1166, approved on June 18, 1954, providing as follows: "Any provisions of existing laws, city charters and ordinances, executive orders and regulations, or parts thereof, to the contrary notwithstanding, every professional legally authorized to practice his profession, who has paid the corresponding annual privilege tax on professions required by Sec. 182 of the NIRC, Com. Act No. 466,shall be entitled to practice the profession for which he has been duly qualified under the law, in all parts of the Philippines without being subject to any other tax, charge, license or fee for the practice of such profession; Provided, however, That they have paid to the office concerned the registration fees required in their respective professions." .
22

People vs. Santiago Mendaros, et al., L-6975, May 27, 1955, 97 Phil. 958-959, per Bautista Angelo, J. Appeal from the decision of the CFI of Zambales. Defendants-appellees were convicted by the JP Court of Palauig, Zambales, and sentenced to pay a fine of P5.00, for failure to pay the occupation tax imposed by a municipal ordinance on owners of fishponds on lands of private ownership. The Supreme Court, in sustaining the validity of the ordinance, held:.

"The ground on which the trial court declared the municipal ordinance invalid would seem to be that, since the land on which the fishpond is situated is already subject to land tax, it would be unfair and discriminatory to levy another tax on the owner of the fishpond because that would amount to double taxation. This view is erroneous because it is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used therein is subject to property tax. It was also held that "the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling." The imposition of this kind of tax is in no sense called a double tax." . Veronica Sanchez vs. The Collector of Internal Revenue, L-7521, Oct. 18, 1955, 97 Phil. 687, per Reyes, J.B.L., J. "Considering that appellant constructed her four-door "accessoria" purposely for rent or profit; that she has been continuously leasing the same to third persons since its construction in 1947; that she manages her property herself; and that said leased holding appears to be her main source of livelihood, she is engaged in the leasing of real estate, and is a real estate dealer as defined in section 194(s) [now, Sec. 182(A)(3)(s)] of the Internal Revenue Code, as amended by Rep. Act No. 42. "Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the income derived therefrom, so that to further subject its rentals to the "real estate dealers" tax amounts to double taxation. This argument has already been rejected by this Court in the case of People vs. Mendaros et al., L-6975, promulgated May 27, 1955, wherein we held that it is a well-settled rule that license tax may be levied upon a business or occupation although the land or property used therein is subject to property tax, and that"the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double tax." ".
23

84 C.J.S. 131-132.

24

Manufacturers' Life Insurance Co. vs. Meer, L-2910, June 29, 1951; City of Manila vs. Interisland Gas Service, L-8799, Aug 31, 1956; Commissioner of Internal Revenue vs. HawaiianPhilippine Co., L-16315, May 30, 1964; Pepsi-Cola Bottling Co. of the Philippines vs. City of Butuan, et al., L-22814, Aug. 28, 1968. Pepsi-Cola Bottling Co. vs. City of Butuan, supra: . "The second and last objections are manifestly devoid of merit. Indeed -- independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion -- double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and some States of the Union. Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers is subject to one well-established exception, namely; legislative powers may be delegated to local governments - to which said theory does not apply - in respect of matters of local concern." .
25

84 C.J.S. 133-134; "Double taxation, although not favored, is permissible in the absence of express or implied constitutional prohibition.

"Double taxation should not be permitted unless the legislature has authority to impose it. However, since the taxing power is exclusively a legislative function, and since, except as it is limited or restrained by constitutional provisions, it is absolute and unlimited, it is generally held that there is nothing, in the abscence of any express or implied constitutional prohibition against double taxation, to prevent the imposition of more than one tax on property within the jurisdiction, as the power to tax twice is as ample as the power to tax once. In such case whether or not there should be double taxation is a matter within the discretion of the legislature. "In some states where double taxation is not expressly prohibited, it is held that double taxation is permissible, or not invalid or unconstitutional, or necessarily unlawful, provided some other constitutional requirement is not thereby violated, as a requirement that taxes must be equal and uniform." . The Constitution of the Philippines, Art. VI, sec. 22 (1) provides: "The rule of taxation shall be uniform." .
26

Art. III, sec. 1, par. 12, Constitution.

27

51 Am. Jur. 860-861, citing Cousins v. State, 50 Ala. 113, 20 Am. Rep. 290; Rosenbloom v. State, 64 Neb. 342, 89 NW 1053, 57 LRA 922; Voelkel v. Cincinnati, 112 Ohio St. 374, 147 NE 754, 40 ALR 73 (holding the provisions of an ordinance making the non-payment of an excise tax levied in pursuance of such ordinance a misdemeanor punishable by fine not in violation of the constitutional prohibition against the imprisonment of any person for "debt in a civil action, or mesne or final process"); Ex parte Mann, 39 Tex. Crim. Rep. 491, 46 SW 828,73 Am. St. Rep. 961. 26 R.C.L. 25-26: "It is generally considered that a tax is not a debt, and that the municipality to which the tax is payable is not a creditor of the person assessed. A debt is a sum of money due by certain and express agreement. It originates in, and is founded upon, contract express or implied. Taxes, on the other hand, do not rest upon contract, express or implied. They are obligations imposed upon citizens to pay the expenses of government. They are forced contributions, and in no way dependent upon the will or contract, express or implied, of the persons taxed." .
28

51 Am. Jur. 66-67; "Capitation or poll taxes are taxes of a fixed amount upon all persons, or upon all the persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged. Taxes of a specified amount upon each person performing a certain act or engaging in a certain business or profession are not, however, poll taxes." .
29

Com. Act No. 158 (An Act Establishing a Form of Government for the City of Iloilo), section 21: "Except as otherwise provided by law, and subject to the conditions and limitations thereof, the Municipal Board shall have the following legislative powers: . "(aa) ... and to fix penalties for the violation of ordinances which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment, for each offense." .
30

"To begin with the defendants' appeal, we find that the lower court was in error in saying that the imposition of the penalty provided for in the ordinance was without the authority of law. The last paragraph (kk) of the very section that authorizes the enactment of the ordinance (section 18 of the Manila Charter) in express terms also empowers the Municipal Board to "fix penalties for the violation of ordinances which not exceed to [sic] two hundred pesos fine or six months'

imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement below that the ordinance in question is illegal and void because it imposes a penalty not authorized by law is clearly without legal basis." .
31

51 Am. Jur. 203, citing Re Page, 60 Kan. 842, 59 P 478, 47 LRA 68: "Taxes are uniform and equal when imposed upon all property of the same character within the taxing authority." Manila Race Horse Trainers Assn., Inc. vs. De la Fuente, L-2947, Jan. 11, 1951, 88 Phil. 60: "In the case of Eastern Theatrical Co., Inc. vs. Alfonso, [L-1104, May 31, 1949], 46 O.G. Supp. to No. 11, p. 303, it was said that there is equality and uniformity in taxation if all articles or kinds of property of the same class are taxed at the same rate. 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 no argument at all against equality and uniformity of the tax imposition." Applying this criterion to the present case, there would be discrimination if some boarding stables of the class used for the same number of horses were not taxed or were made to pay less or more than others." Tan Kim Kee vs. Court of Tax Appeals, et al., L-18080, April 22, 1963, per Reyes, J.B.L., J.: "The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class.".
32

Am. Jur. 203: "153. Uniformity of Operation Throughout Tax Unit. One requirement with respect to taxation imposed by provisions relating to equality and uniformity, which has been introduced into some state constitutions in express language, is that taxation must be uniform throughout the political unit by or with respect to which the tax is levied. This means, for example, that a tax for a state purpose must be uniform and equal throughout the state, a tax for a county purpose must be uniform and equal throughout the county, anda tax for a city, village, or township purpose must be uniform and equal throughout the city, village, or township. It does not mean, however, that the taxes levied by or with respect to the various political subdivisions or taxing districts of the state must be at the same rate, or, as one court has graphically put it, that a man in one county shall pay the same rate of taxation for all purposes that is paid by a man in an adjoining county. Nor does the rule require that taxes for the same purposes shall be imposed in different territorial subdivisions at the same time. It has also been said in this connection that the omission to tax any particular individual who may be liable does not render the whole tax illegal or void."
33

84 C.J.S. 77: "Equality in taxation is accomplished when the burden of the tax falls equally and impartially on all the persons and property subject to it [State ex rel. Haggart v. Nichols, 265 N.W. 859, 66 N.D. 355], so that no higher rate or greater levy in proportion to value is imposed on one person or species of property than on others similarly situated or of like character." 84 C.J.S. 79: "The rule of uniformity in taxation applies to property of like kind and character and similarly situated, and a tax, in order to be uniform, must operate alike on all persons, things, or property, similarly situated. So the requirement is complied with when the tax is levied equally and uniformly on all subjects of the same class and kind and is violated if particular kinds, species or items of property are selected to bear the whole burden of the tax, while others, which should be equally subjected to it, are left untaxed."
34

84 C.J.S. 81: "There is a presumption the at tax statutes are intended to operate uniformly and equally [Alaska Consol. Canneries v. Territory of Alaska, C.C.A. Alaska, 16 F. 2d. 256], and a liberal construction will be indulged in order to accomplish fair and equal taxation of all property within the state."
35

Medina vs. City of Baguio, L-4060, Aug. 29, 1952; Wa Wa Yu vs. City of Lipa, L-9167, Sept. 27, 1956; Saldana vs. City of Iloilo, 55 O.G. 10267, and the cases cited therein.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO, plaintiff-appellee, vs. FORTUNATO DE LEON, defendant-appellant. The City Attorney for plaintiff-appellee. Fortunato de Leon for and in his own behalf as defendant-appellant. FERNANDO, J.: In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio imposing a license fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-appellant Fortunato de Leon. He was held liable as a real estate dealer with a property therein worth more than P10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the principal question. In addition, there has been a firm and unyielding insistence by defendant-appellant of the lack of jurisdiction of the City Court of Baguio, where the suit originated, a complaint having been filed against him by the City Attorney of Baguio for his failure to pay the amount of P300 as license fee covering the period from the first quarter of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated demands. Nor was defendant-appellant agreeable to such a suit being instituted by the City Treasurer without the consent of the Mayor, which for him was indispensable. The lower court was of a different mind. In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and held defendant-appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no question about the liability of defendant-appellant for the above license fee, it being shown in the partial stipulation of facts, that he was "engaged in the rental of his property in Baguio" deriving income therefrom during the period covered by the first quarter of 1958 to the fourth quarter of 1962. The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city charter of Baguio2 empowering it to fix the license fee and regulate "businesses, trades and occupations as may be established or practiced in the City." Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of the ordinance now assailed, the decision appealed from must be affirmed. The task confronting defendant-appellant, therefore, was far from easy. Why he failed is understandable, considering that even a cursory reading of the above amendment readily discloses that the enactment of the ordinance in question finds support in the power thus conferred. Nor is the question raised by him as to the validity thereof novel in character. In Medina v. City of Baguio,3 the effect of the amendatory section insofar as it would expand the previous power vested by the city charter was clarified in these terms: "Appellants apparently have in mind section 2553, paragraph (c) of the Revised Administrative Code, which empowers the City of Baguio merely to impose a license fee for the purpose of rating the business that may be established in the city. The power as thus conferred is

indeed limited, as it does not include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely having in view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our opinion, the amendment above adverted to empowers the city council not only to impose a license fee but also to levy a tax for purposes of revenue, more so when in amending section 2553 (b), the phrase 'as provided by law' has been removed by section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to tax, to license and to regulate provided that the subjects affected be one of those included in the charter. In this sense, the ordinance under consideration cannot be considered ultra vires whether its purpose be to levy a tax or impose a license fee. The terminology used is of no consequence." It would be an undue and unwarranted emasculation of the above power thus granted if defendantappellant were to be sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could be discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the lower court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance. As mentioned at the outset, however, defendant-appellant likewise alleged procedural missteps and asserted that the challenged ordinance suffered from certain constitutional infirmities. To such points raised by him, we shall now turn. 1. Defendant-appellant makes much of the alleged lack of jurisdiction of the City Court of Baguio in the suit for the collection of the real estate dealer's fee from him in the amount of P300. He contended before the lower court, and it is his contention now, that while the amount of P300 sought was within the jurisdiction of the City Court of Baguio where this action originated, since the principal issue was the legality and constitutionality of the challenged ordinance, it is not such City Court but the Court of First Instance that has original jurisdiction. There is here a misapprehension of the Judiciary Act. The City Court has jurisdiction. Only recently, on September 7, 1968 to be exact, we rejected a contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in that case filed a claim for the payment of his salary before the Justice of the Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction was raised; the defendant Mayor asserted that what was in issue was the enforcement of the decision of the Commission of Civil Service; the Justice of the Peace Court was thus without jurisdiction to try the case. The above plea was curtly dismissed by Us, as what was involved was "an ordinary money claim" and therefore "within the original jurisdiction of the Justice of the Peace Court where it was filed, considering the amount involved." Such is likewise the situation here. Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a defendant this license fee corresponding to the years 1951 and 1952 was filed with the Municipal Court of Manila, in view of the amount involved. The thought that the municipal court lacked jurisdiction apparently was not even in the minds of the parties and did not receive any consideration by this Court. Evidently, the fear is entertained by defendant-appellant that whenever a constitutional question is raised, it is the Court of First Instance that should have original jurisdiction on the matter. It does not admit of doubt, however, that what confers jurisdiction is the amount set forth in the complaint. Here, the sum sought to be recovered was clearly within the jurisdiction of the City Court of Baguio. Nor could it be plausibly maintained that the validity of such ordinance being open to question as a defense against its enforcement from one adversely affected, the matter should be elevated to the Court of First Instance. For the City Court could rely on the presumption of the validity of such ordinance, 6 and the mere fact, however, that in the answer to such a complaint a constitutional question was raised did not suffice to oust the City Court of its jurisdiction. The suit remains one for collection, the lack of validity being only a defense to such an attempt at recovery. Since the City Court is possessed of judicial power and it is likewise axiomatic that the judicial power embraces the ascertainment of facts and the application of the law, the Constitution as the highest law superseding any statute or ordinance in conflict therewith, it cannot be said that a City Court is bereft of competence to proceed on the matter. In the exercise of such

delicate power, however, the admonition of Cooley on inferior tribunals is well worth remembering. Thus: "It must be evident to any one that the power to declare a legislative enactment void is one which the judge, conscious of the fallibility of the human judgment, will shrink from exercising in any case where he can conscientiously and with due regard to duty and official oath decline the responsibility." 7 While it remains undoubted that such a power to pass on the validity of an ordinance alleged to infringe certain constitutional rights of a litigant exists, still it should be exercised with due care and circumspection, considering not only the presumption of validity but also the relatively modest rank of a city court in the judicial hierarchy. 2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutory authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of the allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated the requirement of uniformity. We do not view the matter thus. As to why double taxation is not violative of due process, Justice Holmes made clear in this language: "The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause] no more forbids double taxation than it does doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." 8With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To some, it delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost as noted by an eminent critic, still stalks the juridical state. In a 1947 decision, however, 9 we quoted with approval this excerpt from a leading American decision: 10 "Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results." At any rate, it has been expressly affirmed by us that such an "argument against double taxation may not be invoked where one tax is imposed by the state and the other is imposed by the city ..., it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof."11 The above would clearly indicate how lacking in merit is this argument based on double taxation. Now, as to the claim that there was a violation of the rule of uniformity established by the constitution. According to the challenged ordinance, a real estate dealer who leases property worth P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000, then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above ordinance cannot be assailed as violative of the constitutional requirement of uniformity. In Philippine Trust Company v. Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found." There was no occasion in that case to consider the possible effect on such a constitutional requirement where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso.13 Thus: "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; ..." About two years later, Justice Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v. De la Fuente14 incorporated the above excerpt in his opinion and continued: "Taking everything into account, the differentiation against which the plaintiffs complain conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution." To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that the statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation." This Court is on record as accepting the view in a leading American case 16 that

"inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation."17 It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is no need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained that the license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe the mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility. 3. That would dispose of all the errors assigned, except the last two, which would predicate a grievance on the complaint having been started by the City Treasurer rather than the City Mayor of Baguio. These alleged errors, as was the case with the others assigned, lack merit. In much the same way that an act of a department head of the national government, performed within the limits of his authority, is presumptively the act of the President unless reprobated or disapproved, 18 similarly the act of the City Treasurer, whose position is roughly analogous, may be assumed to carry the seal of approval of the City Mayor unless repudiated or set aside. This should be the case considering that such city official is called upon to see to it that revenues due the City are collected. When administrative steps are futile and unavailing, given the stubbornness and obduracy of a taxpayer, convinced in good faith that no tax was due, judicial remedy may be resorted to by him. It would be a reflection on the state of the law if such fidelity to duty would be met by condemnation rather than commendation. So, much for the analytical approach. The conclusion thus reached has a reinforcement that comes to it from the functional and pragmatic test. If a city treasurer has to await the nod from the city mayor before a municipal ordinance is enforced, then opportunity exists for favoritism and undue discrimination to come into play. Whatever valid reason may exist as to why one taxpayer is to be accorded a treatment denied another, the suspicion is unavoidable that such a manifestation of official favor could have been induced by unnamed but not unknown consideration. It would not be going too far to assert that even defendantappellant would find no satisfaction in such a sad state of affairs. The more desirable legal doctrine therefore, on the assumption that a choice exists, is one that would do away with such temptation on the part of both taxpayer and public official alike. WHEREFORE, the lower court decision of December 19, 1964, is hereby affirmed. Costs against defendant-appellant. Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Angeles and Capistrano, JJ., concur. Zaldivar, J., is on leave.

Footnotes
1

Ordinance No. 218. Section 2553, paragraph (c), Revised Administrative Code. 91 Phil. 854, 856-857 (1952). L-20977.

101 Phil. 859 (1957).

U.S. v. Salaveria, 39 Phil. 102 (1918) and Ermita-Malate Hotel Association v. Mayor of Manila, L-24693, July 31, 1967.
7

Cooley on Constitutional Limitations, Vol. I, 8th ed. 332 (1927). Fort Smith Lumber Co. v. Arkansas, 251 US 523, 533 (1920). Wise & Co. v. Meer, 78 Phil. 655. Helmich v. Hellman, 276 US 233 (1928). Punsalan v. Municipal Board of Manila, 95 Phil. 46, 49 (1954). 69 Phil. 420 (1940). 83 Phil. 852, 862 (1949). 88 Phil. 60, 65 (1951). Uy Matias v. City of Cebu, 93 Phil. 300 (1953). Carmichael v. Southern Coal and Coke Co., 301 US 495 (1937). Lutz v. Araneta, 98 Phil. 148, 153 (1955). Villena v. Sec. of the Interior, 67 Phil. 451 (1939). Republic of the Philippines SUPREME COURT Manila EN BANC

10

11

12

13

14

15

16

17

18

G.R. No. L-22814

August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-appellant, vs. CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD, THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, defendants-appellees. Sabido, Sabido and Associates for plaintiff-appellant. The City Attorney of Butuan City for defendants-appellees. CONCEPCION, C.J.: Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissing plaintiff's complaint, with costs.

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with offices and principal place of business in Quezon City. The defendants are the City of Butuan, its City Mayor, the members of its municipal board and its City Treasurer. Plaintiff seeks to recover the sums paid by it to the City of Butuan hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties submitted the case for decision in the lower court upon a stipulation to the effect: 1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the "PepsiCola" soft drinks for sale to customers in the City of Butuan and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuan and all municipalities of Agusan. . 2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits "A" and "B", respectively. 3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January 1 to July 30, 1961. 4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and those that if may later on pay until the termination of this case on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, that the tax imposed is excessive and that it is unconstitutional. 5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as Exhibit "C". 6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciation which the company claims to be P3,052.62. This is in accordance with the findings of the representative of the undersigned City Attorney who verified the records of the plaintiff. 7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles was increased to P1.92 which price is uniform throughout the Philippines. Said increase was made due to the increase in the production cost of its manufacture. 8. That the parties reserve the right to submit arguments on the constitutionality and illegality of Ordinance No. 110, as amended of the City of Butuan in their respective memoranda. xxx xxx x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", within the purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks and carbonated beverages therein named, and "all other

soft drinks or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City. Section 10 of the ordinance provides that the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School Fund." Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, is an unconstitutional delegation of legislative powers. The second and last objections are manifestly devoid of merit. Indeed independently of whether or not the tax in question, when considered in relation to the sales tax prescribed by Acts of Congress, amounts to double taxation, on which we need not and do not express any opinion - double taxation, in general, is not forbidden by our fundamental law. We have not adopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and of some States of the Union. 1 Then, again, the general principle against delegation of legislative powers, in consequence of the theory of separation of powers2 is subject to one well-established exception, namely: legislative powers may be delegated to local governments to which said theory does not apply3 in respect of matters of local concern. The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of soft drinks or carbonated drinks in the production and sale of which plaintiff is engaged or less than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, or confiscatory. The first and the fourth objections merit, however, serious consideration. In this connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originally approved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association, partnership, company or corporation engaged in selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No. 122: ... Definition of the Term Consignee or Agent. For purposes of this Ordinance, a consignee of agent shall mean any person, association, partnership, company or corporation who acts in the place of another by authority from him or one entrusted with the business of another or to whom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks every month for resale, either retail or wholesale. As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City. Besides, the tax would not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinks are consigned or shipped to him every month. When we consider, also, that the tax "shall be based and computed from the cargo manifest or bill of lading ... showing the number of cases" not sold but "received" by the taxpayer, the intention to limit the application of the ordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty, which is beyond defendant's authority to impose by express provision of law. 4

Even however, 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. 5 The classification made in the exercise of this authority, to be valid, must, however, be reasonable 6 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 all those who belong to the same class. 7 These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose were merely to levy a burden upon the sale of soft drinks or carbonated beverages, there is no reason why sales thereof by sealers other than agents or consignees of producers or merchants established outside the City of Butuan should be exempt from the tax. WHEREFORE, the decision appealed from is hereby reversed, and another one shall be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by the latter, with interest thereon at the legal rate from the date of the promulgation of this decision, in addition to the costs, and defendants herein are, accordingly, restrained and prohibited permanently from enforcing said Ordinance, as amended. It is so ordered. Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. 1wph1.t Footnotes
1

De Villata v. Stanley, 32 Phil. 541; City of Manila v. Inter-Island Gas Service, 99 Phil. 847, 854; Syjuco v. Municipality of Paraaque, L-11265, Nov. 27, 1959; City of Bacolod v. Gruet, L-18290, Jan. 31, 1963.
2

U.S. v. Bull, 15 Phil. 7, 27; Kilbourn v. Thompson, 103 U.S. 168, 26 L. ed. 377.

State v. City of Mankato, 136 N.W. 264; People v. Provinces, 34 Cal. 520; Stoutenburgh v. Hennick 129 U.S. 141, 32 L. ed. 637.
4

Section 2(i), Republic Act No. 2264; Panaligan v. City of Tacloban, L- 9319, Sept. 27, 1957, 102 Phil. 1162-1163; East Asiatic Co. v. City of Davao, L-16253, August 21, 1962. .
5

Tan Tim Kee v. Court of Tax Appeals, L-18080, April 22, 1963; Nin Bay Mining Co. v. Municipality of Roxas, L-20125, July 20, 1965. .
6

Felwa v. Salas, L-26511, October 29, 1966; Aleja v. GSIS, L-18529, February 26, 1965; People v. Solon, L-14864, November 23, 1960; People v. Cayat, 68 Phil. 12; People v. Vera, 65 Phil. 56; Laurel v. Misa, 42 O.G. 2847.
7

Commissioner of Int. Rev. v. Botelho Shipping Corp., L-21633-34, June 29, 1967; Ermita-Malate Hotel & Motel Operators Ass'n. v. City Mayor, L-24693, October 23, 1967; Rafael v. Embroidery &

Apparel Control & Inspection Board, L-19978, September 29, 1967; Meralco v. Public Utilities Employee Ass'n., 79 Phil. 409. .
8

Viray v. City of Caloocan, L-23118, July 26, 1967; PHILCONSA v. Gimenez, L-23326, December 18, 1965; Ormoc Sugar Co. v. Treasurer of Ormoc City, L-23794, February 17, 1968. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-7521 October 18, 1955

VERONICA SANCHEZ, plaintiff-appellant, vs. THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee. Benjamin C. Yatco for appellant. Office of the Solicitor General Ambrocio Padilla and Solicitors Esmeraldo Umali and Roman Cansino, Jr. for appellee. REYES, J.B.L., J.: Appellant Veronica Sanchez is the owner of a two-story, four-door "accessoria" building at 181 Libertad Street, Pasay City, which she constructed in 1947. The building has an assessed value of P21,540 and the land is assessed at P7,980, or a total value of P29,540 (Exhibit 2). While appellant lives in one of the apartments, she is renting the rest to other persons. In 1949, she derived an income therefrom of P7,540 (Exhibit 1). Appellant also runs a small dry goods store in the Pasay market, from which she derives an annual income of about P1,300 (also Exhibit 1). In the early part of 1951, the Collector of Internal Revenue made demand upon appellant for the payment of P163.51 as income tax for the year 1950, and P637 as real estate dealer's tax for the year 1946 to 1950, plus the sum of P50 as compromise (Exhibit 4). Appellant paid the taxes demanded under protest, and on October 16, 1951 filed action in the Court of First Instance of Manila (C. C. No. 14957) against the Collector of Internal Revenue for the refund of the taxes paid, claiming that she is not a real estate dealer. The lower Court, after trial, found appellant to be such a dealer, as defined by section 194 (s) of the National Internal Revenue Code, as amended by Republic Act Nos. 42 and 588, and declared the collection of the taxes in question legal and in accordance with said provision. Wherefore, Veronica Sanchez appealed to this Court. At the outset, it should be noted that while appellant claims the refund of the amount of P825 allegedly paid by her to the Collector of Internal Revenue as real estate dealer's tax, it appears that the sum of P163.31 thereof corresponds to her income tax for the year 1949 (Exhibit 4), so that the amount of tax actually involved herein is only P687, paid by appellant as real estate dealer's tax for the year 1946 to 1950. We notice also that the lower Court, in deciding this case, applied the definition of "real estate dealer" in section 194 (s) of the National Internal Revenue Code, as amended by Republic Acts Nos. 42 and 588. Republic Act No. 588 took effect only on September 22, 1950, while the tax in question was paid by appellant for the year 1946 to 1950. Hence, the law applicable to this case is section 194 (s) of the Tax Code before it was amended by Republic Act No. 588, which defines real estate dealers as follows: "Real estate dealers" includes all persons who for their own account are engaged in the sale of lands, buildings or interests therein or in leasing real estate. (R. A. No. 42)

Does appellant fall within the above definition? We are of the opinion that she does. The kind of nature of the building constructed by herwhich is a four-door "accessoria"shows that it was from the beginning intended for lease as a source of income or profit to the owner; and while appellant resides in one of the apartments, it appears that she always rented the other apartments to other persons from the time the building was constructed up to the time of the filing of this case. The case of Argellies vs. Meer* G. R. No. L-3730, promulgated on April 25, 1952, cited by appellant in support of her appeal, is not in point. In that case, Argellies had always resid d outside the Philippines, and his properties in Manila were administered and managed by a local real estate company. We held that Argellies could not be considered as engaged in business of letting real estate, because he did not appear to have reinvested the rents received by him from this country, nor to have taken part in the management of his local holdings. In the case at bar, however, it was appellant who had the apartment in question constructed, purposely for lease or profit, and she manages the property herself. While she runs a small store in Pasay market, it is unlikely and the evidence does not show, that she devotes all her personal time and labor to such store, considering its size and the fact that she derives little income therefrom. On the other hand, the work of attending to her leased property and her tenants would not take much of her time and attention, especially since she lives in the premises herself. And the leasing of her apartment appears to be her principal means of livelihood, for the income she derives therefrom amounts to more than five times that which she makes from her store. Considering, therefore, that appellant constructed her four-door "accesoria" purposely for rent or profit; that she has been continuously leasing the same to third persons since its construction in 1947; that she manages her property herself; and that said leased holding appears to be her main source of livelihood, we conclude that appellant is engaged in the leasing of real estate, and is a real estate dealer as defined by section 194 (s) of the Internal Revenue Code, as amended by Republic Act No. 42. Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the income derive therefrom, so that to further subject its rentals to the "real estate dealers' tax" amounts to double taxation. This argument has already been rejected by this Court in the case of People vs. Mendaros, et al., L-6975, promulgated May 27, 1955, wherein we held that "it is a well settled rule that license tax may be levied upon a business or occupation although the land or property used there in is subject to property tax", and that "the state may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double tax. The evidence shows, however, that the apartment house in question was constructed only in 1947, while the real estate dealer's tax demanded of and paid by appellant was for the year 1946 to 1950 (see Exhibit 4). Wherefore, appellant is entitled to a refund of the tax paid for the year 1946, amounting to P37.50. With the modification that the appellee Collector of Internal Revenue is ordered to refund to appellant Veronica Sanchez the amount of P37.50 paid as real estate dealer's tax for the year 1946, the decision appealed from is, in all other respects, affirmed. Costs against appellants. So ordered. Bengzon, Acting C. J., Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, and Concepcion, JJ., concur.

Footnotes
*

91 Phil., 147.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-8799 August 31, 1956

THE CITY OF MANILA, plaintiff-appellee, vs. THE INTER-ISLAND GAS SERVICE, INC., defendant-appellant. Pedro Lopez for appellant. City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for appellee. CONCEPCION, J.: The City of Manila instituted this action for the collection of a sum of money allegedly due from the defendant Inter-Island Gas Service, Inc., by way of deficiency municipal tax. The main issue is whether liquified flammable gas comes within the purview of section 1, Group 2, of Ordinance No. 1925 of the City of Manila, as amended by Ordinance No. 3364 thereof, which provides that: . . . there shall be paid to the City Treasurer for engaging in any of the business or occupations below enumerated, quarterly license fees based on gross sales or receipts realized during the preceding quarter, in accordance with the rates herein prescribed: Provided, however, That a person engaging in any business or occupation for the first time shall pay the initial license fee based on the probable gross sales of receipts for the first quarter beginning from the date of the opening of the business as indicated herein for the corresponding business or occupation. xxx xxx xxx

Group 2. Retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as:(1) Retail dealers in general merchandise and (2) retail dealers exclusively engaged in the sale of electrical supplies; sporting goods; office equipment and materials; rice; textile including knitted wares; hardware, including, glassware; cooking utensils and construction materials; papers; books, including stationary. Both parties stipulated: "1. That the plaintiff is a municipal corporation created and existing under the laws of the Philippines and that the defendant is a corporation likewise created by any existing under the laws of the Philippines; "2. That the defendant sold at retail in the City of Manila from the 4th quarter of 1949 to the a 4th quarter of 1951, inclusive, cooking appliances and liquified petroleum gas in cylinders in the following amounts:

Period of sales

Amount of sales P207,651.53

4th quarter 1949

1st quarter 1950 2nd quarter 1950 3rd quarter 1950 4th quarter 1950 1st quarter 1951 2nd quarter 1951 3rd quarter 1951 4th quarter 1951

190,936.92 188,796.79 212,542.53 206,696.26 216,346.69 219,283.45 184,290.85 191,138.62

"3. That the defendant paid the different amount alleged in paragraph 4 of the complaint corresponding to the quarters therein stated based on its sales of cooking appliances only; "4. That the total claim of the plaintiff against the defendant under section 1, Group 2, of Ordinance No. 1925, as last amended by Ordinance No. 3364 is P11,250.00, based on the defendant's sales alleged in paragraph 2 of the complaint computed at the rate of P1,250.00 quarterly corresponding to the first, second, third and fourth quarterly of 1951, and the first quarter of 1952; and "5. That the defendant has paid the prescribed fees under Ordinance No. 3259 of the City of Manila, 'An Ordinance prescribing regulations for storage, installations, use and transportation of compressed and liquefied, inflammable gases other than acetylene, and providing fees therefor", covering the same quarters mentioned in paragraph 4 of the complaint. Then the case was submitted for decision, whereupon the Court of First Instance of Manila rendered judgment for the plaintiff, the dispositive part of which, as amended reads as follows: Therefore, this Court is of opinion and so holds, that the City Government of Manila has the right to impose tax on liquefied flammable gas under Ordinance No. 925, as amended by Ordinance No. 3364. And for this reason, the defendant Inter-Island Gas Service, Inc., is hereby sentenced to pay to the City of Manila the sum of P8,361 as deficiency tax due from the year 1952, inclusive, including the amount of P50 as surcharge thereon, and the payment of the costs . . . The defendant has appealed from this decision and now in maintains that: . 1. The lower court erred in not holding and declaring that the No. 1925 as amended (imposing a tax for purposes of revenue), does not clearly provided that it applies to the sale of liquified flammable gas. 2. The lower court erred in not holding and declaring that the provisions of section 1, Group 2, of Ordinance No. 1925, as amended by Ordinance No. 3364, are and clearly within the legislative

powers granted to the Municipal Board of Manila, if said Ordinance is applied to the sale of liquefied flammable gas. 3. That assuming arguendo that under the provision of section 1, Group 2, of Ordinance No. 1925, as last amended by Ordinance No. 3364, liquefied flammable gas in included, still the lower court erred in not finding and declaring that said Ordinance No. 1925, as amended, is a percentage tax; hence, the complaint does not state a cause of action because no allegation has been made that the ordinance in question had previously been approved by the President of the Philippines. 4. Further assuming arguendo that Ordinance No. 1925, as amended, is valid, yet the lower court erred in not finding that to apply it to the liquefied gas business of the defendant will constitute double taxation; hence, unconstitutional and void. . 5. The lower court erred in ordering the defendant to pay the City of Manila the sum of P8,861.00 as deficiency tax due under Ordinance No. 1925, as amended by Ordinance No. 3364, and to pay the costs. In support of the first two assignments of error appellant cites paragraphs (m) and (o) of section 18 of the Revised Charter of Manila (Republic Act No. 409) authorizing said city: "(m) To tax, fix the license fee and regulate the . . . storage and sale of . . . petroleum or any of the products thereof and of all other highly combustible or explosive materials xxx xxx xxx

"(o) To tax and fix the license fee on dealers in general merchandise. . . . . Then appellant argues that liquefied flammable gas is included in said paragraph (m) and, hence, excluded from the connotation of the word "merchandise," as used in paragraph (o). This argument at first impressed the court, but, upon further reflection, we are persuaded that it is not decisive on the issue before us. Indeed, although the clause "petroleum or any of the products thereof and all other said paragraph (m) may indicate the intent of Congress of the Philippines to include liquefied flammable gas within the purview of said paragraph, it does not follow necessarily that in using the word "merchandise", in Municipal Ordinance No. 1925, as amended, the Municipal Board of Manila intended to convey thereto the restricted meaning allegedly given to the term "merchandise" in paragraph (o) of Section 18 of its Revised Charter, or to exclude liquefied flammable gas from the operation of said ordinance. In this connection, it should be noted that the authority of the City of Manila to tax dealers in liquefied flammable gas under its Revised Charter, is conceded. Accordingly, the question whether the grant of power appears in paragraph (m) or in paragraph (o) of the aforementioned Section 18, is immaterial to the exercise of said authority. As already adverted to, the case hinges on the connotation of the term "merchandise" as used in said ordinance, or the interest of the Municipal Board in connection therewith. Referring to the meaning of said word, Corpus Juris Secundum has the following to say: The word "merchandise," employed as a noun, is defined as meaning the objects of commerce; the subjects of commerce and traffic; whatever is usually bought and sold in trade, or market, or by merchants; goods; ware; commodities, goods, or wares bought and sold for gain; commodities or goods to trade with; a commercial commodity or commercial commodities in general. The term is also defined as meaning things which are ordinarily bought and sold; anything movable, anything customarily bought and sold for profit; any movable object of trade or traffic;

any article which is the object of commerce, or which may be bought or sold in trade; the staple of a mercantile business; that which is passed from hand to hand by purchase and sale. (Vol. 57 pp. 1056-1057.) Inasmuch as, admittedly, liquefied gas may be, and is being, bought and sold in trade, it clearly is a merchandise, and comes within the purview of the ordinary import of this world. Was it used in this sense in Ordinance No. 1925, as amended, as, in effect, held by the lower court or did the Municipal Board intend to convey therewith the meaning allegedly given thereto in paragraph (o) of Section 18 of Republic Act No. 409, as contended by defendant-appellant? We find ourselves unable to accept the latter view, not only because the former is more in accord with the simple and usual connotation of said term, but, also, because it appears that said ordinance has not followed the classification made in Section 18 of Republic Act No. 109. Thus, for instance, although the word "merchandise" appears in paragraph (o) of said Section 18, it is included in Group 2 of said ordinance, together with electrical supplies, sporting goods, textiles, hardware, including glassware, and cooking utensils, which are found in paragraph (n) of said Article 18. Moreover, said Group 2 refers to "retail dealers in new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax, such as: (1) Retail dealers in general merchandise . . . ." Obviously, the enumeration made in said Group 2 is not all inclusive. It merely illustrates some of the objects the dealers in which are taxed under its provision. The word "merchandise" as used therein has not restrictive meaning. Said group taxes dealers in all "new (not yet used) merchandise, which dealers are not yet subject to the payment of any municipal tax." Liquefied flammable gas is a "new" object of commerce, and hence, merchandise, and, at the time of the passage of said ordinance, dealers therein were not, as yet, subject to the payment of any municipal tax. In short, the first and second assignments of error are untenable. Under the third assignment of error, it is claimed that the tax imposed under the ordinance in question is in the nature of a percentage tax. The schedule of taxes under the aforementioned Group 2 is a follows:

Class 1. .................... 2. ....................

Quarterly gross sales Over to P125,000.00 P100,000.00 to 125,000.00 90,000.00 to 99.999.99 80,000.00 to 89,999.99 70,000.00 to 79,999.99 60,000.00 to 69,999.99 50,000.00 to 59,999.99 45,000.00 to 49,999.99 40,000.00 to 44,999.99

Quarterly license fee P1,250.00 P1,125.00

3. .................... 4. .................... 5. .................... 6. .................... 7. .................... 8. .................... 9. ....................

1,000.00 900.00 800.00 700.00 600.00 500.00 450.00

10. .................. 11. .................. 12. .................. 13. .................. 14. .................. 15. .................. 16. .................. 17. .................. 18. .................. 19. .................. 20. .................. 21. .................. 22. .................. 23. .................. 24. .................. 25. .................. 26. .................. 27. .................. 28. ................... 29. ................... 30. ................... 31. ...................

36,000.00 to 39,999.99 33,000.00 to 35,999.99 30,000.00 to 32,999.99 27,000.00 to 29,999.99 25,000.00 to 27,499.99 22,000.00 to 24,999.99 20,000.00 to 22,499.99 18,700.00 to 20,499.99 17,200.00 to 18,699.99 15,500.00 to 17,199.99 14,100.00 to 15,499.99 12,700.00 to 14.099.99 11,500.00 to 12,699.99 10,500.00 to 11,499.99 9,500.00 to 10,499.99 8,700.00 to 9,499.99 8,000.00 to 8,699.99 7,200.00 to 7,999.99 6,300.00 to 7,199.99 5,500.00 to 6,299.99 5,000.00 to 5,499.99 4,500.00 to 4,999.99

400.00 360.00 330.00 300.00 275.00 250.00 225.00 205.00 187.00 172.00 155.00 141.00 127.00 115.00 105.00 95.00 87.00 80.00 72.00 63.00 55.00 50.00

32. ................... 33. ................... 34. ...................

4,400.00 to 4,999.99 3,500.00 to 3,999.99 Less than to 3,500.00

45.00 40.00 35.00

PROVIDED, That retail dealers only rice, whose quarterly sales do not exceed two thousand pesos (P2,000) shall only pay a quarterly license fee of eighteen pesos (P18). (Appellee's Brief, pp. 2-3.) This is not a percentage tax. It is a graduated tax, not based on a given ratio between the gross income and the burden imposed upon the taxpayer. The fourth assignment of error is even more devoid of merit because: (1) the fees paid by the defendant under Ordinance No. 3259 for the storage, installation, use and transportation of compressed inflammable gases was charged by way of license fees, in the exercise of the police power of the State, not under its inherent power of taxation; and (2) double taxation is not prohibited in our Constitution. Being a mere consequence of the previous assignments of error, the last one needs no discussion. Wherefore, the decision appealed from is hereby affirmed, with cost against defendant-appellant. It is so ordered. Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Reyes, J.B.L., and Felix, JJ., concur Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-4918 May 14, 1954

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. JOSE LEON GONZALES, ET AL., defendant-appellants. Office of the Solicitor General Pompeyo Diaz and Solicitor Antonio A. Torres for plaintiff-appellant. Angelo M. Tesoro, Ramirez and Ortigas, Alberto V. Cruz, Guillermo B. Ilagan, Filemon I. Almazan and Fortunato de Leon for defendants-appellants. BENGZON, J.: In January 1947, in the Court of First Instance of Rizal, the Republic started this proceeding under Commonwealth Act No. 539 for the purpose of expropriating an extensive tract of land over 87 hectares for resale to the tenants thereof. Situated within the Maysilo Estate, Caloocan, and originally covered by Transfer Certificate of Title No. 35486 the property is now represented by seven Transfer Certificates of Title. numbered and owned respectively: 1373 by Jose Leon Gonzalez; 1368 by Juan F. Gonzalez; 1369 by Maria C. Gonzalez-Hilario; 1372 by Concepcion A. Gonzalez Virata; 1370 by Consuelo Gonzalez-Precilla; 1371 by Francisco Felipe Gonzalez; and 1374 by Jose Leon Gonzalez et al.

Eight kilometers north of Plaza Santa Cruz, 1.7 kilometers east of Rizal Avenue, and 2 kilometers above Highway 54, the estate is bounded by the Araneta Institute property, the Seventh Day Adventists' land, and the Piedad Estate. It lies within the sites of the University of the Philippines and the Capitol and within the field of expansion of the City of Manila. All the defendants at first opposed the compulsory sale; but subsequently they waived the object, recognizing the social-justice aims of the Government, (there were about two hundred tenants) and agreed to the designation of commissioners to determine the reasonable market value of the property to be taken. Wherefore, in June 1948, the court appointed the following commissioners: Atty. Erasmo R. Cruz, recommended by plaintiff and Deputy Clerk Benito Macrohon, selected by the judge. In the performance of their duties the Commissioners received oral and documentary evidence, inspected the premises, and thereafter submitted one majority report, plus one thereafter submitted one majority report, plus one minority report by Commissioner Sugeco. The first divided the property into two parts: one portion previously occupied by the U.S. Army with roads, playground, water and sewerage system, and valued at 5 pesos per square meter; and another consisting of rolling lands and rice fields priced at fifteen centavos per square meter. The report thereby fixed P1.75 per square meter as the average compensation for the entire estate. On the other hand Sugeco's minority opinion rated the whole parcel at ten centavos per square meter only. The two reports provoked objections from both sides, whose oppositions were seasonably filed in writing. On May 6, 1949, obeying orders of the trial judge, Clerk of Court Severo Abellera repaired to the premises, made inquiries, and reported afterwards that the realty was fairly worth P1.90 per square meter. Then on March 29, 1950, the Honorable Gavino Abaya, Judge, rendered his decision appraising the estate at P1.50 per square meter. It should be explained, in this connection, that all defendants agreed the entire property should be evaluated as a whole for the purpose of facilitating the award. The parties petitioned for reconsideration. Denial thereof motivated this appeal both by the plaintiff and by the defendants. The plaintiff, in a series of assignments reaches the conclusion, and submits the proposition, that "there is no reliable standard for determining the reasonable worth of the defendants' land except the tax declaration Exhibit B which puts its value at P28,850. . . . . Taking into account however, that the assessed value is usually lower by 1/3 of of the real market value, the defendants should be given a additional 30 per cent of P28,850 or P8,655." Such position is clearly untenable. The declaration was made in 1927; and this Court can take judicial notice of the upward trend of values, particularly of lands in or near manila. As a matter of fact, the revised assessment in 1948 valued the entire property at P366,150. i.e., 0.42 per square meter which is more than ten times the 1927 assessment. And in its motion for reconsideration submitted to the lower court, plaintiff invoked, as "index of value" of the land, the sale made to Francisco R. Aguinaldo, one month before the expropriation at one peso per square meter thus giving the lot in question a total value of P871,982. Another piece of evidence, indicative of prices in the vicinity, is Exhibit M showing the Seventh day Adventists purchased in 1927, at the rate of P0.25 per square meter, a big lot adjoining the land to be expropriated. After twenty years the prices should be much higher. Yet the Government insists in compensating herein defendants at the rate of P0.04 per square meter. Obviously unmeritorious contention. Now as to defendants' appeal. Although they took the view in the court below that the land's value could be reasonably fixed at P1.75 per square meter1 the defendants here maintain they should be

compensated at the rate of P2.50 per square meter. They quote with approval His Honor's summary of their own evidence as follows: On November 28, 1945, Lorenzo Buenaventura bought and paid at P2 per square meter a lot which is almost adjoining the lands in question it being separated only by a street called Sta. Quitoria (Exhibit "2"); that on July 29, 1949, the Balintawak Estate Inc., sold to Narciso T. Reyes a parcel of land at the rate of P2.84 per square meter (Exhibit "3-K"); that on December 29, 1946, Concepcion Andrea Gonzalez sold to Francisco R. Aguinaldo a portion of the property in question at P1 (Exhibit "3-L"); that on November 13, 1947, Jose M. Rato sold to the Araneta Institute of Agriculture 373,377 (3,730) square meters at the rate of P1 and P1.60 per square meter (Exhibit "3-N"); that on May 14, 1948, Ambrosio Pablo and Sons sold to Cromwell Cosmetic Export Company 20,764 square meters at the rate of P2.50 per square meter (Exhibit "3-O"); that on November 14, 1947, the Manila Golf Club sold to the Ayala and Company 367,817 square meters at the rate of P1.08 per square meter (Exhibit "3-P"); that on April 26, 1948, Ayala and Company sold to J.M. Tuason & Company the property described in Exhibit "3-P" at the rate of P2.50 per square meter; Julian Encarnacion, secretary of the Balintawak Estate Inc., subdivision, which adjoins the property in question, declared that the lots of said subdivision are sold from P6 to P12 per square meter in cash and from P9 to P15 per square meter by installment. And they rely principally on the prices in Exhibits 3-K, 3-O and 3-Q because they "were sufficiently near in point of time with the date of condemnation proceedings" to reflect true land values in the locality. However such Exhibits cannot be taken as conclusive valuation. In Exhibit 3-K, the parcel was purchased from the Balintawak Estate Inc. a real estate subdivision corporation. Prices in realty subdivisions are necessarily higher, because of improvements therein, such as roads, bridges, curbs, etc. The sale in Exhibit 3-0, though exhibiting a higher valuation, cannot be literally followed because it refers to a much smaller lot on the provincial highway. The prices in 3-Q of the Manila Golf Club, refer to a lot nearer Manila by a kilometer. Hence defendants-appellants' demand for P2.50 per square meter may not be upheld. Now having found plaintiff's proposition as unreasonable, and defendants' claim for P2.50 as unfounded, we may proceed to examine whether the trial court's determination of the market value should be modified, on the basis of the evidence of record. It is needless to repeat that the Government, in eminent domain proceedings, must pay just compensation or the fair market value, that such value represents the price which the property will bring when offered for sale by one who desires, but is not obliged, to sell and is bought by one who is under no imperative necessity of having it 2 and that in determining such value, evidence is competent of bona fide sales of other nearby parcels at times sufficiently near to the proceedings to exclude general changes of values due to new conditions in the vicinity. 3 Parenthetically, in expropriations like this for the benefit of other individuals, not directly benefiting the public it might be interesting to inquire whether a more liberal interpretation of "just compensation" should be adopted in favor of the owner who is compelled to part with his private property for the exclusive benefit of a few. Consider that unlike other eminent domain proceedings, this does not directly benefit him as a part of the "public." However, this is unnecessary, for the record yields, sufficient elements of decision to make a just and equitable award. The majority commissioners,4 rejecting the plaintiff's evidence, took into account the bona fide sales of nearby parcels and, aided by personal knowledge they gained thru inspection, arrived at the conclusion that the reasonable market value of the entire property was P1.75 per square meter. The dissenting commissioner's report based mainly on the 1927 assessment values proved too conservative to be of any help.

The Clerk of Court was specifically instructed to make a new assessment, in view of conflicting reports and the objections of the parties. This officer after conducting an ocular inspection of the place and gathering information from people residing in the vicinity recommended P1.90 per square meter. After hearing the parties, the trial judge, in his discretion, estimated that under the circumstances one peso and fifty centavos per square meter was reasonable compensation for the hacienda. We have not been shown wherein the trial judge abused his discretion in reducing the prices recommended by the court's referees. Two purchases-and-sale transactions in 1947, about neighboring realty may shed favorable light upon His Honor's valuation. In August 1947 Jose Ma. Rato sold to Victoneta Inc. 581,872 square meters of adjoining land at P0.85 per square meter (Exhibit 3-M). In July 1947 Jose Ma. Rato sold to Araneta Institute of Agriculture four parcels of land totalling 373,377 square meters adjoining the land sold by Exhibit 3-M at prices ranging from P1 to P1.60 per square meter. No improvements were included in both sales. These two parcels, being sufficiently large and located within the vicinity afford some adequate bases of comparison. It is unimportant that the sales were consummated several months after these proceedings had for public use roads, bridges, canals, markets, etc. these do not tend to inflate prices of adjoining properties. These two sales were made by Spaniard residing in Madrid, thru a local agent. He was obviously anxious to liquidate his affairs here, as shown by the circumstance that in two months he disposed of two sizable parcels of real estate. Such disposition and such absence must have given him a natural disadvantage in the bargaining, so that a discount of 10 or 20 per cent was not improbable. The topographical features of Rato's land do not appear. It probably is agricultural sold to an agricultural institute. On the other hand, the defendants' hacienda is mostly high ground, rolling hills (p. 206 Record on Appeal) which, subdivided into residential lots, would command higher prices. Another thing: whereas defendants' land is served by Reparo Street, the Victoneta Inc. lot dos not enjoy that advantage (Exhibit 3). But most significant is the admitted fact that one-third of defendants' land has permanent improvements, made by the U.S. Army, consisting of good paved roads, playgrounds, water system, sewerage and general leveling of the land suitable for residential lots (p. 214 Record on Appeal) together with electric installations and buildings (p. 206 Record on Appeal). Considering the above circumstances, in relation to the price of P2.50 paid for the Manila Golf Club by J.M. Tuason & Co., we do not feel justified to declare that the price of P1.50 is excessive. Neither is it too low. Two defendants, at least, admitted it was just and reasonable. (p. 274 Record on Appeal). Wherefore, on the question of just compensation, the trial judge's assessment has to be proved. Yet there is one point on which defendants' appeal should be heeded. The Government deposited P28,850 and entered the premises by virtue of a court order, under Act No. 2826. The Rural Program Administration took possession on or about January 25, 1947. Defendants lost the control and use of their property as of that date. Their counsel now claim legal interest on the amount of compensation; and the plaintiff agrees, as it has to. In Philippines Railway vs. Solon, 13 Phil., 34 we held that in condemnation proceedings "the owner of the land is entitled to interest, on the amount awarded, from the time the plaintiff takes possession of the property."

Another assignment of error of the defendant is that the lower court failed to make the plaintiff pay the costs. The plaintiff appellee acknowledges this, in view of section 13 Rule 69. The last part of the section is not applicable, because the plaintiff appealed and lost. Wherefore the decision of the court a quo will be affirmed as to the value to be paid by the plaintiff for the expropriated land. It is of course understood that the money already deposited and taken by defendants should be discounted. Said decision, however, will be modified by awarding interest to the defendant at six per cent from January 25, 1947 until the date of payment. Costs will be chargeable to the plaintiff. So ordered. Paras, C.J., Pablo, Montemayor, Reyes, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Footnotes
1

They said: "Wherefore, the herein defendants respectfully pray that the decision in question be reconsidered and amended by fixing the value for the purpose of compensation at a amount ranging from P1.75 to P2.50 per square meter . . . " Such language means the property could be bought at P1.75 per square meter. Some of defendants asserted P2 was just payment.
2

Manila Railroad Co. vs. Alan, 36 Phil., 500; Manila Railroad Co. vs. Caligrihan, 40 Phil., 326. Manila Railroad Co. vs. Velasquez, 32 Phil., 286. One of them appointed by the court, and therefore presumably impartial. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. L-69259 January 26, 1988 DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs. INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

GUTIERREZ, JR., J.: The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract. Briefly, the facts of the case are summarized as follows: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the

Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry. On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions (Exhibits A to A5) On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive) The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per stipulation of the parties (Exhs. A to D-3 inclusive) On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property (TCT No.T-4240) together with another parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo) On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco. After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision reads: ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs preferential right to acquire the subject property (right of first refusal) and ordering the defendants and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo) The lower court's decision was affirmed on appeal by the Intermediate Appellate Court. The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision. We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and gave it due course. The petitioners allege that: The denial of the petition will work great injustice to the petitioners, in that:

1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million; 2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer of actual ownership interests by petitioners to third parties; and 3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent will acquire the land not under "similar conditions" by which it was transferred to petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp. 251-252, Rollo) The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange." Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo) Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the coowners should be deemed to be the same, there being in substance and in effect an Identity of interest." (p. 254, Rollo) The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. There is a sale when ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo) On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate existence should be disregarded. It maintains that there was actual

transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock. We rule for the petitioners. After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties. A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107). Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter. It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. As explained by Eduardo Neria: xxx xxx xxx ATTY. LINSANGAN: Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses Hernandez and Pacheco in connection with their execution of a deed of exchange on the properties for no par value shares of the defendant corporation?

A Yes, sir. COURT: Q What do you mean by "point of view"? A To take advantage for both spouses and corporation in entering in the deed of exchange. ATTY. LINSANGAN: Q (What do you mean by "point of view"?) What are these benefits to the spouses of this deed of exchange? A Continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation. Q What are these advantages to the said spouses from the point of view of taxation in entering in the deed of exchange? A Having fulfilled the conditions in the income tax law, providing for tax free exchange of property, they were able to execute the deed of exchange free from income tax and acquire a corporation. Q What provision in the income tax law are you referring to? A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation." Q Did you explain to the spouses this benefit at the time you executed the deed of exchange? A Yes, sir Q You also, testified during the last hearing that the decision to have no par value share in the defendant corporation was for the purpose of flexibility. Can you explain flexibility in connection with the ownership of the property in question? A There is flexibility in using no par value shares as the value is determined by the board of directors in increasing capitalization. The board can fix the value of the shares equivalent to the capital requirements of the corporation. Q Now also from the point of taxation, is there any flexibility in the holding by the corporation of the property in question?

A Yes, since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies. Q Now what advantage is this continuity in relation to ownership by a particular person of certain properties in respect to taxation? A The property is not subjected to taxes on succession as the corporation does not die. Q So the benefit you are talking about are inheritance taxes? A Yes, sir. (pp. 3-5, tsn., December 15, 1981) The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596). The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs. SO ORDERED. Fernan (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20960-61 October 31, 1968

COMMlSSIONER OF INTERNAL REVENUE and COMMISSIONER OF CUSTOMS, petitionersappellants, vs. PHILIPPINE ACE LINES, INC., respondent-appellee. Office of the Solicitor General Antonio Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Francisco J. Malate, Jr. for petitioners-appellants. Dakila F. Castro & Associates for respondent-appellee.

ANGELES, J.: On appeal by the Government from the decision rendered jointly in Tax Cases Nos. 964 & 984 of the Court of Tax Appeals, reversing the rulings of the Commissioner of Internal Revenue holding the Philippine Ace Lines, Inc. liable to pay the aggregate amount of P1,407,724.57 as compensating taxes on four (4) ocean-going cargo vessels acquired by said company from the Reparations Commission of the Philippines, and of the Commissioner of Customs to place the four vessels under customs custody until the aforementioned amount claimed by the Government was first paid. The antecedent facts of the case are not in dispute and may be summarized briefly as follows: Under date of January 23, 1959, the Reparations Commission agreed to sell to the Philippine Ace Lines the cargo vessel M/S YAKAL and M/S MOLAVE which were procured by the former from Japan for the end-use of the latter under the Philippine- Japanese Reparations Agreement of May 9, 1956, at the agreed prices of P4,283,241.48 and P4,292,457.48, respectively. Similar agreements involving two (2) other ocean-going cargo vessels were subsequently entered into by and between the same parties: one, dated November 11, 1959, referring to the purchase and sale of M/S TINDALO for the price of P7,054.177.78 and, the other, concerning the purchase and sale of M/S NARRA under date of December 14, 1959, for the price of P3,599,995.44. All these agreements invariably denominated as "Contract of Conditional Purchase and Sale of Reparations Goods" stipulated, among others, that the Reparations Commission retains title and ownership of the above-described vessels until they were fully paid for and that the purchase prices of the vessels were to be paid by Philippine Ace Lines to the Reparations Commission under deferred payment plans in ten (10) equal annual installments. The four (4) vessels referred to were thereafter delivered to Philippine Ace Lines in Japan; they were taken to the Philippines where they were registered in the Bureau of Customs in the name of the Reparations Commission; and thereafter, the vessels were operated and utilized by Philippine Ace Lines in its shipping business, plying between ports of foreign countries and the Philippines. Sometime later, however, the Commissioner of Internal Revenue assessed against the Philippine Ace lines the amounts of P304,428.00, P256,275.00, P499,948.10 and P305.073.47 as compensating taxes on the M/S YAKAL, M/S NARRA, M/S TINDALO and M/S MOLAVE, respectively, and demanded payment of the said amounts. The Commisioner of Customs, joining the Commissioner of Internal Revenue, then placed the vessels under customs custody at the different ports of the Philippines where they were found at the time, and refused to give due course to the "clearance" of said vessels as requested by their respective owner and operator Reparations Commission and Philippine Ace Lines unless the compensating taxes assessed against the latter were first paid to the Commissioner of Internal Revenue. Philippine Ace Lines protested said actions of the Commissioners of Internal Revenue and of Customs, alleging that the legal title and ownership of the vessels operated by it were still vested with the Reparations Commission which, under Section 14 of the Reparations Act, 1 was exempt from payment of all duties, fees and taxes on all reparations goods obtained by it; but the said officials rejected the protest and ruled that the compensating taxes should first be paid, per directive to that effect by the Secretary of Finance. Subsequent protests calling the attention of the Commissioner of Internal Revenue and the Commissioner of Customs to the substantial loss and irreparable injury it has suffered by the tying up of the four ships in port also proved futile. Offshoots of the controversy, Philippine Ace Lines interposed two (2) separate appeals (petitions for review) from the above rulings or decisions of the Commissioner of Internal Revenue and the Commissioner of Customs, to the Court of Tax Appeals where they were docketed as C.T.A. Case No. 964, involving M/S YAKAL and M/S NARRA, and C.T.A. Case No. 984, concerning M/S TINDALO and M/S MOLAVE. While the cases were pending trial, Philippine Ace Lines petitioned the court a quo to enjoin the collection of the compensating tax assessed against it and after hearing, writs of preliminary injunction were issued upon the filing of surety bonds to guarantee payment of the amounts claimed.

In the meantime, Congress enacted Republic Act No. 3079 (effective June 17, 1961) which amended Republic Act No. 1789, otherwise known as the Reparations Act, and provided as follows: SEC. 14. Exemption from tax. All reparations goods obtained by the Government shall be exempt from the payment of all duties, fees and taxes. Reparations goods obtained by private parties shall be exempt from the payment of customs duties, compensating tax, consular fees and the special import tax. xxx xxx xxx

SEC. 20. This Act shall take effect upon its approval, except that the amendment contained in section seven hereof relating to the requirements for procurement orders including the requirement of downpayment by private applicant end-users shall not apply to procurement orders already duly issued and verified at the time of the passage of this amendatory Act, and except further that the amendment contained in section ten relating to the insurance of the reparations goods by the end-users upon delivery shall apply also to goods covered by contracts already entered into by the Commission and the end-user prior to the approval of this amendatory Act as well as goods already delivered to the end-user, and except further that the amendments contained in sections eleven and twelve hereof relating to the terms of the installment payments on capital goods disposed of to private parties, and the execution of a performance bond before delivery of reparations goods, shall not apply to contract for the utilization of reparations goods already entered into by the Commission and the end-users prior to the approval of thisamendatory Act: Provided, That any end-user may apply the renovation of his utilization contract with the commission in order to avail of any provision of this amendatory Act which is more favorable to an applicant end-user than has heretofore been granted in like manner and to the same extent as an end-user filing his application after the approval of this amendatory Act, and the Commission may agree to such renovation on condition that the end-user shall voluntarily assume all the new obligations provided for in this amendatory Act. [Emphasis supplied] Invoking the favorable provisions of the new law (Republic Act No. 3079, above quote Philippine Ace Lines then entered into "Renovated Contract(s) of Conditional Purchase and Sale of Reparations Goods" with the Reparations Commission, covering the four (4) cargo vessels. It had previously acquired from the latter under the Reparations Act. Thereafter, the said company filed a "Supplement to the Petition for Review" in each of the above entitled cases before the Court of Tax Appeals, submitting therewith copies of the said renovated contracts it had entered with the Reparations Commission regarding the purchase and sale of M/S MOLAVE, M/S TINDALO, M/S YAKAL and M/S NARRA, with the allegation that "expressly implementing section 14 of Republic Act No. 3079 in the aforesaid renovated contracts," the Reparations Commission and the Philippine Ace Lines have agreed as follows: NOW THEREFORE, for and in consideration of the premises above stated and of the payments to be made by the herein Conditional Vendee as stipulated in Annex "B" hereof which is made an integral part of this contract, the parties herein agree to execute this renovation of contract of Conditional Purchase and Sale and the Conditional Vendor hereby transfers and conveys unto the herein Conditional Vendee the ocean-going vessels above-described ...; subject further to the pertinent provisions of Republic Act No. 1789 as amended, including particularly the exempting provisions of Section 14 thereof relative to the exemption from payment of compensating tax which the herein Conditional Vendee, as an implemented machinery, do hereby, by these presents, implement. ... In their "Answer to Supplement to Petition for Review" filed with the court below by counsel for the Commissioner of Internal Revenue and the Commissioner of Customs, the foregoing allegation was admitted. They claimed, however, that even if Philippine Ace Lines and the Reparations Commission have agreed to implement the provisions of Section 14 of Republic Act No. 1789, as amended by Republic Act No. 3079, in the "Renovated Contract of Conditional Purchase and Sale of Reparations Goods" entered into between them, such implementation did not relieve the Philippine Ace Lines from the

payment of the compensating taxes in question. The parties thereafter submitted the cases for decision upon a stipulation of facts containing, substantially, the facts as above set forth. On January 25, 1963, the Court of Tax Appeals rendered a joint decision in the two cases, reversing the rulings of the Commissioner of Internal Revenue and the Commissioner of Customs, in the following rationale: The sole issue presented for our consideration is whether or not petitioner is liable for the compensating tax on the four ocean-going vessels in question. Petitioner claims that it is not liable on the grounds that said vessels are still owned by the Reparations Commission and that, assuming that it was liable therefor under Section 190 of the National Internal Revenue Code, in relation to Section 14 of Republic Act 1789 before its amendment, it is now exempt from said tax by virtue of Section 20 of Republic Act No. 3079 in relation to Section 14 of Republic Act No. 1789, as amended. On the other hand, respondent claims that petitioner is liable and that the latter's liability is not affected by the exemption provision of the new law. xxx xxx xxx

The Government does not deny the fact that petitioner has complied with all the requirements of law in order that it may avail itself of all the favorable provisions granted in Republic Act No. 3079. It is, however, contended that the favorable provisions mentioned in Section 20 of said Act which may be availed of by an applicant for renovation of his utilization contract with the Reparations Commission do not include exemption from compensating tax because such exemption is not expressly stated in the law. In providing that the favorable provisions of Republic Act No. 3079 shall be available to applicants for renovation of their utilization contracts, on condition that said applicants shall voluntarily assume all the new obligations provided in the new law, the law intends to place persons who acquired reparations goods before the enactment of the amendatory Act on the same footing as those who acquire reparations goods after its enactment. This is so because of the provision that once an application for renovation of a utilization contract has been approved, the favorable provisions of said Act shall be available to the applicant "in like manner and to the same extent as an end-user filing his application after the approval of this amendatory Act." To deny exemption from compensating tax to one whose utilization contract has been renovated, while granting the exemption to one who files an application for acquisition of reparations goods after the approval of the new law, would be contrary to the express mandate of the law that they both be subject to the same obligations and they both enjoy the same privileges in like manner and to the same extent. It would be a manifest distortion of the literal meaning and purpose of the law. FOR THE FOREGOING CONSIDERATIONS, the decisions appealed from in both cases are hereby reversed. Accordingly, the surety bonds filed by petitioner to guarantee payment of the tax in question are thereby cancelled. No pronouncement as to costs. Not satisfied with the foregoing decision of the Court of Tax Appeals, the Government has interposed the instant appeal therefrom to this Court. Appellant now charges that the lower court had erred in holding that the renovation of the contracts of purchase and sale of the vessels involved in these cases, after the approval of Republic Act No. 3079, entitled Philippine Ace Lines to the exemption from payment of compensating tax under the provisions of the said law, notwithstanding the fact that the vessels referred to were acquired from the Reparations Commission long before the approval of said amendatory Act which, by the way, did not expressly authorize such exemption. It is argued that the favorable provisions of Republic Act No. 3079 invoked by Philippine Ace Lines and relied upon by the decision of the court below cannot include exemption from compensating tax, otherwise, had Congress intended so, it would have provided for such exemption in clear and explicit terms; that the tax exemption contained in Section 14 of the amendatory Act cannot

have retroactive application in the absence of any provision for retroactivity; and that to grant such exemption to end-users who have acquired reparations goods before the approval of Republic Act No. 3079 would be prejudicial to the Government. Appellant's position calls to mind Commissioner of Internal Revenue vs. Bothelo Shipping Corporation,2 the factual setting of which is on all fours with the case at bar, and where this Court, speaking through Chief Justice Roberto Concepcion, disposed of the same charge and contentions in clear and unequivocal terms, in the following wise: The inherent weakness of the last ground becomes manifest when we consider that, if true, there could be no tax exemption of any kind whatsoever, even if Congress should wish to create one, because every such exemption implies a waiver of the right to collect what otherwise would be due to the Government, and, in this sense, is prejudicial thereto. In fact, however, tax exemptions may and do exist, such as the one prescribed in section 14 of Republic Act No. 1789, as amended by Republic Act No. 3079, which, by the way, is "clear and explicit," thus, meeting the first ground of appellant's contention. It may not be amiss to add that no tax exemption like any other legal exemption or exception is given without any reason therefor. In much the same way as other statutory commands, its avowed purpose is some public benefit or interest, which the law-making body considers sufficient to offset the monetary loss entailed in the grant of the exemption. Indeed, section 20 of Republic Act No. 3079 exacts a valuable consideration for the retroactivity of its favorable provision, namely, the voluntary assumption, by the end-user, who bought reparations goods prior to June 17, 1961, of "all the new obligations provided for in" said Act. The argument adduced in support of the third ground is that the view adopted by the Tax Court would operate to grant exemption to particular persons, the Buyers therein. It should be noted, however, that there is no constitutional injunction against granting tax exemptions to particular persons. In fact, it is not unusual to grant legislative franchises to specific individuals or entities, conferring tax exemptions thereto. What the fundamental law forbids is the denial of equal protection such as through unreasonable discrimination or classification. Furthermore, Section 14 of the Law on Reparations, as amended, exempts from the compensating tax, not particular persons but persons belonging to a particular class. Indeed, appellants do not assail the Constitutionality of said section 14, insofar as it grants exemptions to end-users who, after the approval of Republic Act No. 3079, on June 17, 1961, purchased reparations goods procured by the Commission. From the view point of Constitutional Law, especially the equal protection clause, there is no difference between the grant of exemption to said end-users, and the extension of the grant to those whose contracts of purchase and sale were made before said date, under Republic Act No. 1789. It is true that Republic Act No. 3079 does not explicitly declare that those who purchased reparations goods prior to June 17, 1961, are exempt from the compensating tax. It does not say so, because they do not really enjoy such exemption, unless they comply with the proviso in Section 20 of said Act, by applying for the renovation of their respective utilization contracts, "in order to avail of any provision of the Amendatory Act which is more favorable" to the applicant. In other words, it is manifest, from the language of said section 20, that the same intended to give such buyers the opportunity to be treated "in like manner and to the same extent as an end-user filing his application after the approval of this Amendatory Act." Like the "most favored nation clause" in international agreements, the aforementioned section 20 thus seeks, not to discriminate or to create an exemption or exceptions, but to abolish the discrimination, exemption or exception that would otherwise result, in favor of the end-user who bought after June 17, 1961 and against one who bought prior thereto. Indeed, it is difficult to find substantial justification for the distinction between the one and the other. ...

We find no cogent reason to modify, much less depart from the conclusion reached in Bothelo, as expressed in the above-quoted opinion of the Court there, and the same should resolve the identical problem now brought before Us in this proceeding. WHEREFORE, the decision of the Court of Tax Appeals appealed from in these cases is affirmed; no pronouncement as to costs. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Fernando and Capistrano, JJ., concur. Zaldivar, J., is on leave.

Footnotes
1

Sec. 14, R.A. 1789. Exemption from tax.- All reparations goods obtained by the Government shall be exempt from the payment of all duties, fees and taxes. Reparations goods obtained by private parties shall be exempt only from the payment of customs duties, consular fees and special import tax.
2

L-21633, June 29, 1967. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-14878

December 26, 1963

SURIGAO CONSOLIDATED MINING CO., INC., petitioner, vs. COLLECTOR OF INTERNAL REVENUE and COURT OF APPEALS, respondents. Leido, Angeles and Valladolid for petitioner. Office of the Solicitor General for respondents. REGALA, J.: This is a petition to review the decision of the Court of Tax Appeals in Manila Civil Case No. 4770 dismissing for lack of merit the action of the Surigao Consolidated Mining Company for the refund of the total amount of P17,051.14 allegedly representing overpayment of ad valorem tax for the fourth quarter of 1941. The record shows that before the outbreak of World War II, the Surigao Consolidated Mining Company (called SURIGAO CONSOLIDATED, for short), a domestic corporation which then had its principal office in the City of Iloilo, was operating its mining concessions in Mainit, Surigao. Pursuant to section 246 of the Internal Revenue Code, which prescribes the time and manner of payment of royalties or ad valorem taxes, it filed a bond and had been regularly filing its returns for minerals removed from its mines during each calendar quarter and paying ad valorem tax thereon within 20 days after the close of every quarter. In each case, computation of the ad valorem tax was based on the market value of the minerals set forth in the returns, subject to adjustment upon the receipt of the smelter showing the actual market value of the minerals to the United States.

Due to the interruption, of the communications outbreak of the war, the principal office of Surigao Consolidated lost contact with its mines and never received the production reports for the fourth quarter of 1941. In order to avoid incurring any tax penalty, said company, on January 19, 1942, deposited a check amount of P27,000.00 payable to and "indorsed in favor of the City Treasurer (of Iloilo) in payment of the ad valorem taxes (approximate adjustment to be made when circumstances allow it) for the fourth quarter of 1941." After the termination of the war, Commonwealth Act No. 722 was enacted, which provided for the filing of returns for minerals removed during the last quarter of 1941 up to December 31, 1945 and the payment of ad valorem tax on said minerals to February 28, 1946. Availing of the provisions of the aforementioned Act, the Surigao Consolidated, on December 28, 1945, ad valorem tax returns for the fourth quarter declaring as its tax liability the amount of P43,486.54. Applying the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, the returns indicated an unpaid balance of P16,486.54 as the " tax subject to revision." However, on February 26, 1946, the Surigao Consolidated filed an amended ad valorem tax returns under which amendment it declared a reduced ad valorem tax in the amount of P37,189.00. And crediting itself with the amount of P27,000.00 previously deposited with the City Treasurer of Iloilo, it paid the remaining balance of P10,189.00. On September 24, 1946, the Surigao Consolidated again filed a statement of adjustment allegedly containing figures and data of the complete smelter returns for minerals shipped to the United States. In the accompanying letter, a request was made, this time not only for the reduction of tax, but for the refund of the amount of P18,107.87. On October 19, 1946, another statement of adjustment was filed reducing the claim for refund to P17,158.01. Finally, on March 15, 1947, a third statement of adjustment was submitted further reducing the claim for refund to the amount of P 17,051.14. As the Collector of Internal Revenue denied the request for the refund of the said P17,051.14 on the ground that the money already paid as ad valorem tax was legally due to the Government, the Surigao Consolidated instituted with the Court of First Instance of Manila civil action for its recovery. However, upon the enactment of Republic Act No. 1125 creating the Court of Tax Appeals, the case was remanded to the latter court for proper disposition. After hearing, the Court of Tax Appeals, on July 16, 1958, finding that the amount sought to be refunded been lawfully collected, rendered its decision denying the claim for refund. The Surigao Consolidated in due time filed a motion for new trial on the ground that the decision was "not justified by the overwhelming weight of evidence" and that it was contrary to law. The tax court, however, denied the motion. Hence, this petition for review.lawphil.net The question to be resolved is whether or not Surigao Consolidated, petitioner herein, is entitled to the refund of ad valorem tax in the total amount of P17,051.14, itemized as follows: 1. Ad valorem tax on minerals removed from the mines but allegedly lost in transit on account of war 2. Ad valorem tax on minerals extracted from the mines but allegedly looted during the Japanese occupation 3. Alleged overpayment of ad valorem tax on minerals shipped to the United States P1,191.46

15,609.73

249.95

P17,051.14 The first, item in petitioner's claim for refund in the amount of P1,191.46 represents the amount of ad valorem tax paid on minerals removed from the mines but alleged to have been lost in transit on account of the war. The refund is sought under section 1 (d) of Republic Act No. 81, which provides as follows: SECTION 1. Any provision of existing law to the contrary notwithstanding:

(d) All unpaid royalties, ad valorem or specific taxes on all minerals mined from mining claims or concessions existing and in force on January first, nineteen hundred and forty-two, and which minerals were lost by reason of the war or circumstances arising therefrom, are hereby condoned: Provided, That if said minerals had been or shall be recovered by the miner or producer, such royalties, ad valorem or specific taxes on the same shall be immediately due and demandable. Petitioner argues that since the law condones the taxes due from taxpayers who failed to pay their taxes, it would be unfair to deny this benefit to those taxpayers who had been prompt in paying theirs. The argument merits careful consideration. At first it would seem to be sound and logical. But the aforequoted section clearly refers to the condonation of unpaid taxes only. The condonation of a tax liability is equivalent and is in the nature of a tax exemption. Being so, it should be sustained only when expressed in explicit terms, and it can not be extended beyond the plain meaning of those terms. It is the universal rule that he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be mistaken. (Statutory Construction by Francisco, citing Government of P. I. v. Monte de Piedad, 25 Phil. 42.) The application of a statute creating an exemption for taxation to taxes already assessed depends upon whether it is retrospective in its operation. Such a statute has no retrospective operation, unless by the terms thereof it clearly appears to be the intention of the legislature that the exemption shall relate back to taxes which have already become fixed, as a statute which releases a person or corporation from a burden common to the whole community should be strictly (Louisville Water Co. v. Hamilton, 81 Ky. 517, ... cited 6 American and English Ann. Cases, p. 438). Petitioner having failed to point to Us any portion of the law that explicitly provides for a refund of those taxpayers who had paid their taxes on the items and under circumstances mentioned in the abovequoted provision, We are constrained to hold that the benefits of said provision does not extend to it. Even assuming arguendo that the provisions of Republic Act No. 81 authorizes the refund of taxes already paid by petitioner, the latter would not still be entitled to the refund sought for under the first item. It is to be noted that petitioner's evidence of the alleged loss in transit as observed by the Court of Tax Appeals, merely of testimony of witnesses who did not have personal knowledge of the circumstances which gave rise to the loss. Such evidence cannot, of course be considered sufficient to establish that the minerals were in fact lost. Judge Luciano of the Court of Tax Appeals during the trial, would be to create a dangerous precendent. Under the second item, petitioner seeks to recover the amount of P15,609.73 representing the ad valorem tax paid on minerals extracted from its mines but alleged to have been looted during the enemy occupation. In connection with the alleged looting of the minerals, the Tax Court has this to say: We are again confronted with the case where plaintiff has, to our mind, failed to present adequate evidence to prove such loss. The evidence, if at all, is merely limited to the general and

uncorroborated statements of plaintiff's officers that the same were lost in the mines. These testimonies cannot be taken on their full face value, especially because they had no direct supervision over the handling of such minerals at the time of the alleged loss. Much less had these officers have personal knowledge of the loss. Under the circumstances, we can not make the finding that the minerals were in fact lost. Going over the record, We find no reason to disturb the above findings of the Court of Tax Appeals, there being no showing that they are not substantiated by the evidence. With this observation, it would be useless ceremony to delve into the issue of whether ad valorem tax should be or should not be paid on minerals extracted from the mines but not removed therefrom. One more item in petitioner's claim is the alleged overpayment of ad valorem tax in the amount of P249.95 on the minerals shipped to the United States. It is that an ad valorem tax in the amount of P20,387.81 was originally paid on the minerals shipped to the United States with a gross value of P410,299.49; that the smelter returns from the United States show that the actual market value of the minerals shipped to the States was P416,895.28; and that after deducting all allowable deductions amounting in all to P1,828,34, the true and correct amount of ad valorem tax on said minerals was P20,137.86. Petitioner, therefore, claims difference between the amount of P20,387.81 and P20,137.86 is an overpayment. It is not disputed that, as indicated above, the amount of ad valorem tax on the minerals shipped to the United States is subject to adjustment upon the receipt of the smelter returns showing their actual market value Petitioner contends that the statements of adjustment alleged to contain the figures and data set forth in the smelter returns are adequate evidence of the actual market value of the minerals shipped to the United States. The best evidence of the actual market value minerals shipped to the United States are the smelter returns themselves. These returns are admittedly petitioner's possession, but for unknown reasons, petitioner failed to produce them during the trial. As there is no credible and satisfactory explanation for the non-production of said returns, there arises the presumption that if produced they would be adverse to petitioner. Under the circumstances, the Court of Tax Appeals cannot be said to have committed error, much less abused its discretion, in refusing to give any probative value statements of adjustment. It is a settled doctrine that in a suit for the recovery of the payment of taxes or any portion thereof as having been illegally or erroneously collected, the burden is upon the taxpayer to establish the facts which show the illegality of the tax or that the determination thereof is erroneous. In this case, petitioner failed to show that the amount of taxes sought to be refunded have been erroneously collected. Conformably to the above, We are of the opinion that the Court of Tax Appeals did not commit any error in denying petitioner's claim. WHEREFORE, the decision appealed from is hereby affirmed. Costs against petitioner. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Makalintal, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 41085 September 14, 1934

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. SEVERINO CASTAEDA, ET AL., defendants. SEVERINO CASTAEDA, appellant. Zosimo Rivas for appellant. Office of the Solicitor General Hilado for appellee. HULL, J.: Defendant-appellant was convicted of the crime of parricide in the Court of First instance of Zambales. The facts of the case are well set forth in the decision of the trial court. . . . In June, 1929, Eladio Castaeda and his wife Maria Fontillas were living together with their son, the accused Severino Castaeda, in their house, situated in the barrio of Siminublan, San Narciso, Zambales. The other accused, also their son, was then living in a separate house nearby. One night in June, 1929, Eladio Castaeda, while drunk, was scolding and threatening his wife who then shouted for help. The wife ran away from the house, evidently to take refuge in the house of accused Felixberto. She was followed and chased by the deceased who, however, had nothing in his hand. The other accused, Severino Castaeda, followed his parents and as he was coming down their house, picked inches in diameter. Maria Fontillas went up the house of defendant Felixberto and the deceased followed her. Just as the deceased was entering the kitchen, his son, the defendant Felixberto, met him and gave him a fist blow on the left eye, which made the deceased somewhat groggy and to incline his head towards the right side. Right at that moment, his other son Severino Castaeda, who had already reached that part of the kitchen, struck and hit the piece of wood he was carrying the deceased on the left side of the head of the tempoparietal region, which had caused a fracture on the skull of said deceased, which fracture resulted in cerebral hemorrhage, causing his death a few hours thereafter, that is, the following morning. Severino Castaeda then said that he would kill anybody who would tell what had happened. For this reason, the neighbors who had gone to the place in response to the screams for help and who had witnessed the incident, immediately left the place. . . . Most of the witnesses to the tragic incident helped not only in making the coffin of the deceased but also burying him in the cemetery in San Narciso. Because of their fear on account of the threats made by the accused, for the last four years, the persons in the barrio who had known what really happened, and kept quiet about the matter. . . . Thanks to the activity of the Constabulary, especially Lieuts. Canuto and Arambulo, the trial place of the deceased was found and his mortal remains were exhumed. The coffin of the deceased, which was made of hard wood, was still intact. The skull of the deceased was found still intact, but with a big perforation on the tempo-parietal region, which fact, according to the District Health Officer, Dr. Anicio Pascual, proves that the deceased had received a strong, enormous blow on the head which resulted irresistibly in his death. The corresponding information charging the two defendants with the crime of parricide was filed before the justice of the peace of San Narciso, on September 25, 1933. The information does not allege, and the prosecution has not established, any conspiracy between the two defendants. Without a previous plan or agreement to assault or kill their father, the two defendants performed two different acts directed against their father, Felixberto Fontillas alias Castaeda giving a fist blow on the left eye, and defendant Severino Castaeda giving a blow on the left temple with a piece of wood which, according to the prosecution evidence, was the direct cause of the death of the deceased. It is clear that the defendants acted independently of each other. Under these facts, each of the defendants should be held liable only for the acts committed by him. (U. S. vs. Reyes and Javier, 14 Phil., 27; U. S. vs. Macuti, 26 Phil., 170; People vs. Martinez, 42 Phil., 85.) The prosecution evidence has not shown the nature of the injury, if there was any, inflicted upon the left eye of the deceased as a result of the act performed by the defendant Felixberto. Neither has the prosecution shown that the fist blow that landed on the left eye of the deceased has contributed in any manner to the death of the deceased. . .

When the other accused, Severino Castaeda, was duly arraigned in open court, assisted by his attorneys of record, Messers. Alejo Labrador and Vicente Aquino, and after he had fully understood all the contents of the information which was read to him in his own native dialect, he voluntarily and spontaneously pleaded guilty. The court ordered, nevertheless, the prosecution to present its evidence in order that the proper penalty to be imposed may be determined. Counsel for the defense prayed that in view of the fact that at the previous separate trial against Felixberto Fontillas alias Castaedas, accused Severino Castaeda was present throughout the trial and that the attorneys who assisted Felixberto Fontillas alias Castaeda and cross-examined the witnesses for the prosecution are the same attorneys that now represent said Severino Castaeda, the evidence in said former trial against Felixberto Castaeda be deemed reproduced as evidence in the trial against Severino Castaeda. The prosecution offered no objection to this petition, and rested its case. Whereupon, counsel for the defense put on the witness-stand the accused Severino Castaeda who admitted having killed his father, the deceased Eladio Castaeda, but tried to prove the existence of the following mitigating circumstances: (1) that he had no intention to commit so grave a wrong as that committed; (2) that there was an incomplete defense of a relative; and (3) that he had acted with passion and obfuscation. The court finds that Severino's plea of incomplete defense of his mother is without merit. His uncorroborated testimony that his deceased father was carrying a bolo when he was chasing Maria Fontillas with intent of stabbing her, should give way to the clear and positive testimony of the disinterested eye-witnesses for the prosecution who testified that at the time the deceased was chasing his wife, he was not carrying a bolo or anything in his hand. This accused knew that at the time in question his aged father was drunk. The court finds that the deceased was not carrying a bolo on the occasion in question. He was just chasing his wife and quarreling with her just because at the time he was intoxicated. There was, therefore, no unlawful aggression on the part of the deceased. Neither was there evidence proving that the life of Maria Fontillas at the time she was being chased was in imminent danger. There was also no reasonable necessity of the means employed by defendant Severino to prevent his father from chasing his mother. The court, however, finds that in committing the offense, the following mitigating circumstances concurred and should, therefore, be considered in favor of defendant Severino: (1) his plea of guilty; (2) lack of intent to commit so grave a wrong as that committed; and (3) lack of instruction. The court finds no aggravating circumstance against him. The court finds the accused Severino Castaeda guilty beyond reasonable doubt of the crime of parricide charge against him with the attendance of the mitigating circumstances as aforesaid and without the concurrence of any aggravating circumstance. The defense would want the court to believe that the application of the penalty should be in accordance with article 69 of the Revised Penal Code and not in accordance with the rules established by article 63 of the said Code. The court is of the opinion that article 69 is not applicable to the instant case, as the condition prescribed therein does not exist. The penalty prescribed for the crime of parricide under article 246 of the Revised Penal Code is composed of two indivisible penalties, to wit, reclusion perpetua to death. When the commission of the act is attended by some mitigating circumstance or more than one mitigating circumstance and there is no aggravating circumstance, the lesser penalty shall be applied. (Article 63[3], Revised Penal Code, and U. S. vs. Ortencio, 38 Phil., 341.) In the opinion of the court, the proper rule to be applied in the instant case against Severino Castaeda is that prescribed under article 63 (3). Wherefore, the court hereby sentences the accused Severino Castaeda to suffer the penalty of reclusion perpetua, the accessories of the law, and to pay one-half of the costs. . . . This appeal raises virtually the same questions a presented to the trial court. The claim of incomplete selfdefense cannot be allowed, as there was no reasonable necessity for the means employed to prevent or repel the unlawful aggression, which is essential under subsection 2 of article 11 of the Revised Penal Code.

The penalty prescribed for the crime of parricide under article 246 of the Revised Penal Code is composed of two indivisible penalties, to wit, reclusion perpetua to death. Notwithstanding the numerous mitigating circumstances found to exist by the trial court, paragraph 3 of article 63 is specific and must be applied. We are convinced by a careful review of the record that the trial court properly appreciated the facts and the law. The judgment appealed from is therefore affirmed. We are likewise convinced that appellant did not have that malice nor has exhibited such moral turpitude as requires life imprisonment, and therefore under the provisions of article 5 of the Revised Penal Code, we respectfully invite the attention of the Chief Executive to the case with a view to executive clemency after appellant has served an appreciable amount of confinement. No expression as to costs. So ordered. Avancea, C.J., Abad Santos, Vickers and Diaz, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-28739 and L-28902 March 29, 1972 DAVAO LIGHT and POWER CO., INC., petitioner-appellant, vs. THE COMMISSIONER OF CUSTOMS and COURT OF TAX APPEALS, respondents-appellees. Abelardo P. Cecilio for petitioner-appellant. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Isidro C. Borromeo and Solicitor Sumilang V. Bernardo for respondents-appellees.

REYES, J.B.L., J.:p These are appeals from the decision of the Court of Tax Appeals in CTA Cases Nos. 1337 and 1551, denying the claim of Davao Light & Power Co., Inc., for refund of the amount paid by said company as customs duties, special import taxes, compensating taxes and wharfage fees on the importations of electrical supplies and materials for installation and use at its power plant. The Davao Light & Power Co., Inc., hereafter referred to as Davao Light, is the grantee of a legislative franchise to install, operate and maintain an electric light, heat and power plant in the city (then Municipality) of Davao, for a period of 50 years. On two different occasions in 1962, it imported electrical supplies, materials and equipment for installation in its power plant. The importations arrived in the port of Cebu City, on which the Collector of Customs imposed, and Davao light paid under protest, customs duties and taxes in the total amount of P9,928.00. As the Collector of Customs later ruled unfavorably on the protests (Nos. 267, 268, 269 and 278) and denied its claim for refund of the taxes and duties paid on the imported articles, Davao Light appealed to the Commissioner of Customs. And when said official sued the action of the Collector, Davao Light went to the Court of Tax Appeals, maintaining its claim to exemption from the taxes and duties imposable on the aforementioned motions.

In the Court of Tax Appeals, the parties entered into a stipulation of facts, the pertinent provisions of which read as follows: 6. That the petitioner (Davao Light) is a grantee of a legislative franchise under Philippine Legislature Act No. 3760, ...; 7. That the petitioner was granted by the Public Service Commission its Certificate of Public Convenience and Necessity in 1931 and by virtue of said franchise has established and has been maintaining and operating a power plant generating electric light, heat and power and distributing the same for sale within the municipality (now City) of Davao; 8. That the National Power Corporation was created by virtue of Commonwealth Act No. 120, and under Section 2, par. (g) it was empowered and granted authority: "To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs, pipes, mains, transmission lines, power stations and substations and other works, for the purpose of developing hydraulic power from any river, creek, lake, spring and waterfalls in the Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install, maintain and operate and improve gas, oil or steam engines and/or other prime movers, generators and other machinery in plants and/or auxiliary plants for the production of electric power; to establish, develop, operate and maintain and administer power and lighting systems for the use of the Government and the general public; to sell electric power and to fix the rates and provide for the collection of the charges for any service rendered: Provided, that the rates of charges shall not be subject to revision by the Public Service Commission." 9. That by virtue of this authority given the National Power Corporation, it established and constructed a power plant, power stations and transmission lines in Davao City, for the purpose of generating electric light, heat and power for the inhabitants of Davao City and its surrounding areas and that it is presently operating and maintaining said power plant, power station and transmission lines and selling electric power, heat and light in the City of Davao; 10. That Section 17 of (pre-Commonwealth) Act No. 3636 (Standard Electric Power & Light Franchises Law) provides: "In the event of any competing individual, association of persons or corporation receiving either a franchise or permission from the Government of the Philippine Islands, or from any province, city or municipality thereof, to conduct a similar business in all or any substantial portion of the territory covered by this franchise to that of the grantee, in which franchise or permission there shall be any term or terms more favorable than those herein granted or tending to place the herein grantee at any disadvantage, then such term or terms shall ipso facto become a part of the terms hereof and shall operate equally in favor of the grantee as in the case of said competing individual asssociation of persons or corporations." xxx xxx xxx 12 That under Section 2 of Republic Act No. 358, as amended by Republic Act No. 937, it is provided that "to facilitate payment of its indebtedness, the National Power Corporation shall exempt from all taxes, except real property tax, and from all duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities."

It was therein petitioner's contention that pursuant to Section 17 of Act 3636, the provision of Republic Act 987 granting tax exemption privileges to the National Power Corporation ipso facto became part of its franchise; hence, its claim to exemption from taxes and customs duties on the importations in question. In its decision of 15 December 1967, the Court of Tax Appeals affirmed the ruling of the Customs Commissioner, the Court holding that the tax exemption privileges granted to the National Power Corporation were intended to benefit only said government corporation and did not extend to other bodies or entities. Davao Light thus brought the present petition for review in this Court, raising the same issue of the correctness of the imposition of taxes and customs duties on its importations of electrical supplies and materials for use in its electric plant. Petitioner in this instance reiterates the contention that is legislative franchise to construct, maintain and operate an electric light, heat and power system (granted by Act 3760) was specifically made subject to Act 3636, which Act, in its Section 17, provides that any favorable terms granted to any "competing individual, association of persons or corporation" shall ipso facto become part of a franchise earlier issued. As the National Power Corporation (NPC) is actually operating a power plant, power stations and transmission lines in Davao City and selling electric power, heat and light in said locality, and said corporation is enjoying exemption from all taxes, duties, fees, imposts and charges collectible by the government, it is argued that such tax exemption benefits ipso facto became part of its franchise and are not available to petitioner. There is no merit in petitioner's contention. Firstly, the aforecited provision of Section 17 of Act 3636 makes mention of franchise or permit issued to "competing" individuals, associations or corporations. In short, by express provision of law favorable terms contained in a subsequent franchise issued to an individual, association, etc. shall automatically be considered incorporated in the franchise or permit earlier issued to another individual, association, etc. engaged in the same business. The idea is to place both competing groups or entities on equal footing and not to give one an advantage over the other. This principle of fair play, which is the basic idea behind the provision, does not find operation in the present case. It is undeniable that petitioner's purpose in securing a franchise to establish and operate an electric plant and power stations was to engage in a business or profit-making venture. The NPC, on the other hand, was specifically created to undertake the development of hydraulic power throughout the country and the production of power from other sources, for use of the government and the general public. 1 As envisioned by the law creating it, the activity to be pursued by the NPC can hardly be motivated by profit or income. In operating and maintaining a power plant, power stations and transmission lines in Davao City, as duly authorized in its charter, the NPC can not be considered as posing competition to petitioner's business. In fact, there is evidence on record that the NPC does not sell electric lower directly to the general public; instead, it did sell lower to petitioner for resale to the latter's customers. 2 In other words, the NPC is even the source of petitioner's merchandise; it is aiding petitioner in its business operations, not competing with it. Nor would the fact that the NPC supplies electric power to the National Development Company (NDC) plant in Davao justify the claim that the NPC is a competitor to petitioner's business, because Section 10 of Commonwealth Act 120 (NPC charter) made it NPC's duty to supply power to the NDC. Sec. 10. At any time that the Board certifies that the Corporation is able to furnish electric power for lighting an other purposes to any office, shop, or establishment operated and/or owned or controlled by the National Government or by any city, province, municipality or other political subdivision of the Commonwealth of the Philippines, the National Government and the government of said city, province, municipality or other political subdivision shall be compelled to secure from the Corporation as soon as practicable

such electric power as it may need for lighting and the operation of its offices, shops or establishments or for any work undertaken by it. The provisions of this section shall also apply to firms or business owned or controlled by the National Government or by the government of any city, province, municipality or other political subdivisions. Be that as it may, such an isolated case of sale of electric power to one government-owned plant would not be enough to classify the NPC as a "competing" concern to petitioner's enterprise, which must be assumed to be catering to the general public to which the NPC has no dealing. Secondly, petitioner can not rely on the provisions of Republic Act 358, as amended by Republic Act 987 3 , to support its claim for tax exemption. Section 1 of Republic Act 358, approved on 4 June 1949, amended Section 2 (k) of Commonwealth Act 120, which authorized the NPC to "contract indebtedness and issue bonds subject to the approval of the President of the Philippines, upon recommendation of the Secretary of Finance" in an amount not to exceed one hundred seventy million five hundred pesos. Then in its Section 2, the same law provided: SEC 2. To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities, and municipalities." (emphasis supplied). On the same day, 4 June 1949, Republic Act 357 was approved, authorizing the President of the Philippines to negotiate and contract loans from time to time from the International Bank for Reconstruction and Development, on behalf of the NPC, and to guarantee, absolutely and unconditionally, as primary obligator and not merely as surety, the payment of loans therefore contracted. 4 The provisions of Section 2 of Republic Act 358 granting tax exemption to the NPC, taken in the light of the existing legislation affecting the NPC, notably Republic Act 357, must be construed as intended to benefit only the NPC, the lawmakers expecting (as so unequivocally expressed in the law) that by relieving said corporation of tax obligations, the NPC would be enabled to pay easily its indebtedness or whatever indebtedness it is certain to incur. In granting such tax exemption, the government actually waived its right to collect taxes from the NPC in order to facilitate the liquidation by said corporation of its liabilities, and the consequential release by the government itself from its obligation (as principal obligor) in the transactions entered into by the President on behalf of the NPC. Such condition, peculiar only to the NPC, cannot be said to exist in petitioner's case; hence, the absolute lack of basis for awarding of equal privileges (granted to the NPC) to said petitioner. Similarly, petitioner can not lay claim to the enjoyment of the tax exemption benefits given to NPC because said corporation happened to be operating a power plant in the same locality where petitioner has a franchise. The legal principle on the matter is firmly established and well-observed: exemption from taxation is never presumed; 5 for tax exemption to be recognized, the grant must be clear and expressed; it cannot be made to rest on vague implications. 6 The possession by petitioner of a permit to operate an electric plant in Davao City does not entitle it to the same exemption privileges enjoyed by another operator without an express provision of the law to that effect. FOR THE FOREGOING CONSIDERATIONS, the decision of the Court of Tax Appeals is hereby affirmed, with costs against the petitioner. Concepcion, C.J., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Footnotes 1 Section 1, Commonwealth Act 120. 2 Page 135, CTA Record. 3 Section 2 of Republic Act 358 was amended so as to exclude from the exemption taxes due on real properties. 4 Section 3, Republic Act 357. 5 Resins, Inc. vs. Auditor General, L-17888, 29 Oct. 1968, 25 SCRA 754; Asturias Sugar Central, Inc. vs. Commissioner, L-19337, 30 September 1969, 25 SCRA 617; Commissioner vs. Visayan Electric Co., L-22611, 27 May 1968, 23 SCRA 715; Commissioner of Internal Revenue vs. Guerrero, L-20812, 22 Sept. 1967, 21 SCRA 180, and cases cited therein; Esso Standard Eastern, Inc. vs. Acting Commissioner, L-21841, 28 Oct. 1966, 18 SCRA 488, and cases cited therein. 6 Borja vs. Collector, L-12134, 30 November 1961, 3 SCRA 590. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. Nos. L-22805 & L-27858 June 30, 1975 WONDER MECHANICAL ENGINEERING CORPORATION represented by Mr. LUCIO QUIJANO, President & General Manager, petitioner, vs. THE HON. COURT OF TAX APPEALS and THE BUREAU OF INTERNAL REVENUE BEING REPRESENTED BY THE COMMISSIONER OF INTERNAL REVENUE, respondents. L-22805 Sarte and Espinosa for petitioner. Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney Augusto A. Lim for respondents. L-27858 Jose Sarte for petitioner. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang and Special Attorney Elpidio C. Cid for respondents.

ESGUERRA, J.: Two petitions for review of the decisions of the respondent Court of Tax Appeals in G.R. Nos. L-22805 and L-27858. The first decision (L-22805) dismissed the appeal of petitioner Wonder Mechanical Engineering Corporation in C.T.A. Case No. 1036, "for lack of jurisdiction, the same having been filed beyond the 30 day period prescribed in Section 11 of Republic Act No. 1125", and confirmed the decision of respondent Commissioner of Internal Revenue which "assessed against petitioner the total amount of P69,699.56 as fixed taxes and sales and percentage taxes, inclusive of the 25% surcharge for the years 1953-54". The second decision (L-27858) ordered the same petitioner to pay, respondent Commissioner of Internal Revenue the amount of "P25,080.91 as deficiency sales and percentage taxes from 1957 to June 30, 1960, inclusive of the 25% surcharge, plus costs", based on the common principal issue of "whether or not the manufacture and sale of steel chairs, jeepney parts and other articles which are not machines for making other products, and job orders done by petitioner come within the purview of the tax exemption granted it under Republic Act Nos. 35 and 901." Petitioner is a corporation which was granted tax exemption privilege under Republic Act 35 in respect to the "manufacture of machines for making cigarette paper, pails, lead washers, rivets, nails, candies. chairs, etc.". The tax exemption expired on May 30, 1951. On September 14, 1953, petitioner applied with the Secretary of Finance for reinstatement of the exemption privilege under the provisions of R.A. 901 approved July 7, 1954, the reinstatement to commence on June 20, 1953, the date Republic Act 901 took effect. In G.R. No. L-22805, respondent Commissioner of Internal Revenue, sometime in 1955, caused the investigation of petitioner for the purpose of ascertaining whether or not it had any tax liability. The findings of Revenue Examiner Alfonso B. Camillo on September 30, 1955, stated "that during the years 1953 and 1954 the petitioner was engaged in the business of manufacturing various articles, namely, auto spare parts, flourescent lamp shades, rice threshers, post clips, radio screws, washers, electric irons, kerosene stoves and other articles; that it also engaged in business of electroplating and in repair of machines; that although it was engaged in said business, it did not provide itself with the proper privilege tax receipts as required by Section 182 of the Tax Code and did not pay the sales tax on its gross sales of articles manufactured by it and the percentage tax due on the gross receipts of its electroplating and repair business pursuant to Sections 183, 185, 186 and 191 of the same Code". Based on the foregoing, respondent Commissioner of Internal Revenue assessed against petitioner on November 29, 1955, the total amount of P69,699.56 as fixed taxes and sales and percentage taxes, inclusive of the 25% surcharge, as follows: Sales and percentage taxes for 1953 and 1954 P55,719.65 25% surcharge 13,929.91 C-14 fixed tax (1953-1954) 20.00 C-4 (27) fixed tax (1954) 10.00 C-4 (37) fixed tax (1953-1954) 20.00 TOTAL P69.699.56 Respondent also suggested the payment of the amount of P3,300.00 as penalties in extrajudicial settlement of petitioner's violations of Sections 182, 183, 185, 186 and 191 of the Tax Code and of the Bookkeeping Regulations (p. 25, B.I.R. rec.).

In G.R. No. L-27858, respondent Commissioner of Internal Revenue caused the investigation of petitioner for the purpose of ascertaining its tax liability on August 10, 1960, as a result of which on December 7, 1960, Revenue Examiner Pedro Cabigao reported that "petitioner had manufactured and sold steel chairs without paying the 30% sales tax imposed by Section 185(c) of the Tax Code; accepted job orders without paying the 3% tax in gross receipts imposed by Section 191 of the same Code; manufactured and sold other articles subject to 7% sales tax under Section 186 of the same Code but not covered by the tax exemption privilege; failed to register with the Bureau of Internal Revenue books of accounts and sales invoices as required by the Bookkeeping Regulations; failed to indicate in the sales invoices the Residence Certificate number of customers who purchased articles worth P50.00 or over, in violation of the Bookkeeping Regulation; and failed to produce its books of accounts and business records for inspection and examination when required to do so by the revenue examiner in violation of the Bookkeeping Regulations (pp. 17-18 B.I.R. rec.)". Based on the foregoing, the respondent Commissioner of Internal Revenue on October 6, 1961, assessed against the petitioner "the payment of P25,080.91 as deficiency percentage taxes and 25% surcharge for 1957 to 1960 and suggested the payment of P5,020.00 as total compromise penalty in extrajudicial settlement of the various violations of the Tax Code and Bookkeeping Regulation (pp. 28-29 B.I.R. rec.).1wph1.t " Regarding the compromise penalty suggested by respondent Bureau of Internal Revenue in both G.R. L22805 and L-27858, it does not appear that petitioner accepted the imposition of the compromise amounts. Hence We find no compelling reasons to alter the decision of respondent Court of Tax Appeals in L-27858 that With respect to the compromise penalty in the total amount of P5,020.00 suggested by respondent to be paid by petitioner, it is now a well settled doctrine that compromise penalty cannot be imposed or collected without the agreement or conformity of the tax payer (Collector of Internal Revenue vs. University of Santo Tomas, et al., G.R. Nos. L11274 & L-11280, November 28, 1958; the Collector of Internal Revenue v. Bautista, et al., G.R. Nos. L-12250 & 12259, May 27, 1959; the Philippines International Fair, Inc. v. Collector of Internal Revenue, G.R. Nos. L-12928 & L-12932, March 31, 1962). (Emphasis for emphasis) Inasmuch as the figures appearing in the Bureau of Internal Revenue's tax delinquency assessments in both cases (L-22805 and L-27858) are not in dispute, and the respondent Court of Tax Appeals ruled in its decision in G.R. No. L-27858 on the lone issue presented in both cases that the tax assessment of "P25,080.91 as deficiency sales and percentage taxes from 1957 to June 30, 1960" must be paid by petitioner as the sale of other manufactured items did not come within the purview, of the tax exemption granted petitioner. We find it no longer necessary to make a definite stand on the question raised in L22805 as to the alleged error committed by respondent Court of Tax Appeals in dismissing the appeal in C.T.A. 1036 (subject matter of L-22805) for lack of jurisdiction, the same having been filed beyond the 30day period prescribed in Section 11 of Republic Act 1126. Suffice it to say on that issue that appellants must perfect their appeal from the decision of the Commissioner of Internal Revenue to the Court of Tax Appeals within the statutory period of 30 days, otherwise said Court acquires no jurisdiction. We turn Our attention on the vital issue of tax exemption claimed by petitioner as basis for questioning the tax assessments made by respondent Bureau of Internal Revenue in both cases (G.R. L-22805 and 27858). There is no doubt that petitioner was given a Certificate of Tax Exemption By the Secretary of Finance on July 7,1954, as follows: Be it known that upon application filed by Wonder Mechanical Engineering Corporation, 1310 M. Hizon, Sta. Cruz, Manila, in respect to the manufacture of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc., the said industry/industries have been determined to be new and necessary under the provisions of Republic Act No. 901 (or of Republic Act No. 35), in view of which this Certificate of

Tax Exemption has been issued entitling the abovenamed firm/person to tax exemption from the payment of taxes directly payable by it/him in respect to the said industry/industries until December 31, 1958, and thereafter to a diminishing exemption until June 20, 1959, as provided in section 1 of Republic Act No. 901, except the exemption from the income tax which will wholly terminate on June 20, 1955 (B.I.R. rec., page 13). (Emphasis for emphasis) Republic Act 35, approved on September 30, 1946, grants to persons "who or which shall engage in a new and necessary industry", for a period of four years from the date of the organization of such industry, exemption "from the payment of all internal revenue taxes directly payable by such person". Republic Act 901, approved on June 20, 1953, which amended Republic Act 35 by extending the period of tax exemption, elaborated on the meaning of "new and necessary industry" as follows: Sec. 2. For the purposes of this Act, a "new industry is one not existing or operating on a commercial scale prior to January first, nineteen hundred and forty-five. Where several applications for exemption are filed in connection with the same kind of industry, the Secretary of Finance shall approve them in the order in which they have been filed until the total output or production of those already granted exemption for that particular kind of industry is sufficient to meet local demand or consumption: Provided, That the limitation shall not apply to products intended for export. (Emphasis for emphasis) Sec. 3. For the purposes of this Act, a "necessary" industry is one complying with the following requirements: (1) Where the establishment of the industry will contribute to the attainment of a stable and balanced national economy. (2) Where the industry will operate on a commercial scale in conformity with up-to-date practices and will make its products available to the general public in quantities and at prices which justify its operation with a reasonable degree of permanency. (3) Where the imported raw materials represent a value not exceeding sixty percentum of the manufacturing cost plus reasonable selling price and administrative expenses: Provided, That a grantee of tax exemption shall use materials of domestic origin, growth, or manufacture wherever the same are available or could be made available in reasonable quantity and quality and at reasonable prices. ... (Emphasis for emphasis) . From the above-quoted provisions of the law, it is clear that an industry to be entitled to tax exemption must be "new and necessary" and that the tax exemption was granted to new and necessary industries as an incentive to greater and adequate production of products made scarce by the second world war which wrought havoc on our national economy, a production "sufficient to meet local demand or consumption"; that will contribute "to the attainment of a stable and balanced national economy"; an industry that "will make its products available to the general public in quantities and at prices which will justify its operation." Viewed in the light of the foregoing reasons for the State grant of tax exemption, We are firmly convinced that petitioner was granted tax exemption in the manufacture and sale "of machines for making cigarette paper, pails, lead washers, nails, rivets, candies, etc.", as explicitly stated in the Certificate of Exemption (Annex A of the petition in G.R. No. L-22805), but certainly not for the manufacture and sale of the articles produced by those machines.

That such was the intention of the State when it granted tax exemption to the petitioner in the manufacture of machines for making certain products could be deduced from the following: Before the approval of the original grant of tax exemption to Petitioner for engaging in a new and necessary industry under Republic Act No. 35, the then Secretary of Finance submitted a memorandum to the Cabinet, dated March 3, 1949, the pertinent portions of which read as follows: "... If (petitioner) turns out machines whenever orders therefore are received. Among its products are a medicine tablet wrapping machine for Dr. Agustin Liboro, photographs of which are attached, a loud speaker for the Manila Supply, and a "Lompia wrapping" machine for a certain Chinese. ... The manufacture of the above-mentioned machines can be considered a new and necessary industry for the purpose of Republic Act No. 35. It is recommended that the benefits of said Act be extended to this corporation in respect to said industry. Respectfully submitted: (SGD.) PIO PEDROSA Secretary" The letter of the Executive Secretary to the petitioner dated May 30, 1949, reads as follows: "Sirs: I have the honor to advise you that His Excellency, the President, has today, upon recommendation of the Honorable, the Secretary of Finance, approved your application for exemption from the payment of internal revenue taxes on your business of manufacturing machines for making a number of products, such as cigarette paper, pails, lead washers, rivets, nails, candies, chairs, etc., under the provisions of Section 2 of Republic Act No. 35. Very respectfully, (SGD.) TEODORO EVANGELISTA Executive Secretary" (Emphasis for emphasis) Aside from the clarity of the State's intention in granting tax exemption to petitioner in so far as it manufactures machines for making certain products, as manifested in the acts of its duly authorized representatives in the Executive branch of the government, it is quite difficult for Us to believe that the manufacture of steel chairs, jeep parts, and other articles not constituting machines for making certain products would fall under the classification of "new and necessary" industries envisioned in Republic Acts 35 and 901 as to entitle the petitioner to tax exemption. There is no way to dispute the "cardinal rule in taxation that exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right thereto by the dearest grant

of organic or statute law" as succinctly stated in the decision of the respondent Court of Tax Appeals in C.T.A. No. 1265 (L-27858).1wph1.t Tax exemption must be clearly expressed and cannot be established by implication. Exemption from a common burden cannot be permitted to exist upon vague implication. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; House vs. Posadas, 53 Phil. 338; Collector of Internal Revenue vs. Manila Jockey Club, Inc., G.R. No. L-8755, March 23, 1956, 98 Phil. 676). WHEREFORE, the decisions of respondent Court of Tax Appeals in these two cases are affirmed. Costs against the petitioner in both cases. Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-27813 August 15, 1975 ATLAS FERTILIZER CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. Gadioma & Josue for petitioner. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio A. Torres, Solicitor Lolita O. Gal-lang and Special Attorney Gamaliel H. Mantolino for respondent.

CASTRO, J.: This is a petition for review of the decision of the Court of Tax Appeals in case 1521 finding no merit in the claim of the Atlas Fertilizer Corporation (hereinafter referred to as AFC) for refund of or tax credit for alleged overpayment of sales taxes. Sometime in 1957 the fertilizer department of the Atlas Consolidated Mining and Development Corporation (hereinafter referred to as ACMDC) was incorporated as the Atlas Fertilizer Corporation. With the approval of the Department of Finance, ACMDC transferred to AFC its tax exemption privileges for fertilizer manufacture, a new and necessary industry under Republic Act 901. AFC enjoyed this privilege until December 31, 1962. 1 In the manufacture of fertilizer, AFC used a mineral ingredient known as pyrite, some of which it imported and some it purchased from ACMDC. AFC did not deduct the cost of the pyrite it purchased locally in computing the 7% sales tax due on its sales under Section 186 of the National Internal Revenue Code until May 1964 when, on the advice of counsel, it started to do so.

On June 18, 1964 AFC filed the present action against the Commissioner of Internal Revenue for refund of or tax credit for overpayments in sales taxes on fertilizer sales made by it from June 20, 1962 to April 1964. The alleged overpayment, based on BIR data, amounts to P77,310.76. On March 15, 1967, after due hearing, the tax court rendered its decision denying AFC's claim. Hence, the present recourse. The basic issue is whether the cost of the pyrite AFC purchased from ACMDC and used in the manufacture of fertilizer may be deducted for purposes of computing the sales tax imposed by Section 186 of the Tax Code. This section pertinently reads: Sec. 186. Percentage tax on sales of other articles. There shall be levied, assessed and collected once only on every original sale, barter, exchange, and similar transaction either for nominal or valuable considerations, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four and one hundred and eighty-five a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or producer: Provided, That where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section and section one hundred and eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles. ... AFC maintains that it is entitled to deduct the cost of the pyrite it purchased from ACMDC, under the authority of Section 186-A in relation to Section 188(c) of the Tax Code. According to AFC, Section 186-A grants to a manufacturer of an article subject to the sales tax, such as fertilizer, the right to deduct the value of a tax-free product used as raw material in the manufacture of the finished item from the gross selling price of the latter, while Section 188(c) exempts the sale of minerals, like pyrite, from the sales tax. AFC argues that these two provisions of the Tax Code are applicable to its fertilizer sales because pyrite is a mineral the sale of which the Code expressly exempts from the sales tax, thereby making it a tax free product whose value it may therefore deduct from the gross selling price of its fertilizer by virtue of Section 186-A. At all events, assuming that its pyrite purchases from ACMDC do not come within the purview of the provisions of these two sections of the Tax Code, it may still deduct the cost of its pyrite purchases from ACMDC under the authority of Section 186 (supra) of the Tax Code which provides that when an article which is subject to the payment of the sales tax under that section is used as a raw material in a manufactured article subject to tax under the same section, the total cost of such raw material is deductible from the gross selling price of the finished product for purposes of computing the sales tax on the latter. The cited Sections 186-A and 188(c) read as follows: Sec. 186-A. Whenever a tax-free product is utilized in the manufacture or production of any article, in the determination of the value of such finished article, the value of such taxfree product shall be deducted. Sec. 188. Transactions and persons not subject to percentage tax. In computing the tax imposed in sections one hundred eighty-four, one hundred eighty-five, and one hundred eighty-six, transactions in the following commodities shall be excluded: xxx xxx xxx (c) Minerals and mineral products when sold, bartered, or exchanged by the lessee, concessionaire, or owner of the mineral land from which removed. ...

The Commissioner of Internal Revenue, however, contends that the term "tax-free product" as used in Section 186-A has reference only to raw materials purchased from a tax-exempt industry established under R.A. 901. He argues that before the addition of Section 186-A to the Tax Code (by virtue of R.A. 2025 on June 22, 1957) the cost of raw materials purchased from tax exempt industries was not deductible from the gross selling price of the finished product in computing the sales tax. This discouraged purchases from those industries because manufacturers preferred to use imported raw materials the total cost of which was deductible from the gross sales of their finished products as the former had been subject to sales tax prior to release from customs custody. Moreover, the pyrite which AFC purchased from ACMDC has been subject to the mining tax imposed under either Section 242 or 243 of the Tax Code and, therefore, cannot be said to constitute a "tax-free product." Neither may Section 186 be successfully invoked because pyrite is not subject to sales tax under either Section 186 or Section 189. As to the applicability of Section 188(c) (supra), the Commissioner states that the evidence on record fails to show that the pyrite in question was sold by ACMDC as a "lessee, concessionaire or owner of the mineral land from which [the mineral or mineral product was] removed." We are of the considered opinion that the submission of AFC is correct. 1. We have assiduously scrutinized the pertinent Congressional records to evaluate the merit of the argument that Section 186-A was incorporated into the Tax Code to benefit exclusively new and necessary industries established under R.A. 901, and have failed to find any indication that the policy and intent of R.A. 2025 are as pointed out by the Commissioner. A close analysis of R.A. 2025 would show that except for a section amending the tax on capital gains, that statute's amendatory provisions are confined to Title V of the Tax Code which governs the privilege tax on businesses and occupations and, in particular, to the provisions of the said title on fixed and percentage (sales) taxes, that is, sections 180 to 189. No mention at all of R.A. 901 is made in Section 186-A; words relating the latter to the former should be found without difficulty if the two are related. The placement of Section 186-A in the Tax Code is quite striking. Section 186-A is undeniably a general provision which ordains a uniform rate of sales tax on all articles not otherwise enumerated in other sections of the Tax Code imposing a specific rate of sales tax. It also grants producers and manufacturers the right to deduct from the gross value of their finished products the cost of raw material input subject to tax under the said section and Section 189. This policy appears to be uniformly provided for in the other sections of the Code dealing with sales taxes, namely, sections 183, 184, 185 and 189. The interposition of Section 186-A among those provisions of the Tax Code clearly indicates or in the very least compellingly implies but a singular legislative purpose, which is to extend (even as it limits the applicability of) Section 186-A to raw materials the sale of which is exempt from sales tax. In Republic Flour Mills, Inc. vs. Commission of Internal Revenue 2 we repudiated the argument that Section 186-A applies only to tax-exempt industries established under R.A. 901 as prescribed in B.I.R. Circular No. V-252 dated July 15, 1957. "Indeed," the Court said, "if the Commissioner's definition were correct, it would be logical to expect that Section 186-A of the Tax Code (ante), instead of referring to 'a tax fine product' utilized in the manufacture of other articles, would have proclaimed the deductibility of the value of 'products of a tax exempt industry ... utilized in the manufacture or production of any article.'" 2. The Commissioner and the tax court are correct in their insistence that the exemption from the payment of the sales tax provided by Section 188(c) of the Tax Code in favor of one who sells a mineral or mineral product applies only when this commodity is sold or exchanged by the lessee, concessionaire or owner of the mineral land from which the mineral or mineral product is removed. The words used in Section 188(c) plainly and literally support this view. The evidence on record, as contended by the Commissioner and correctly sustained by the tax court, does not show that ACMDC is a lessee, concessionaire or owner of the mineral land from which the pyrite bought by the AFC was removed. For this reason, AFC is misled in invoking Section 188(c) and Section 186-A of the Tax Code. The latter section allows a manufacturer or producer of an article subject to the sales tax the right to deduct from the

gross selling price or gross value in money thereof the value of a tax-free product used in the manufacture or production of the finished article. Since AFC failed to show that it acquired the pyrite in question from ACMDC under circumstances that call for the application of the exemption granted under Section 188(c), the sale of the said pyrite cannot therefore be considered exempt from the sales tax, and deduction under Section 186-A of the cost of such pyrite from the gross selling price of fertilizer sold by AFC to its customers would not be appropriate. The non-applicability of Sections 188 and 186-A to the purchases of pyrite made by AFC from ACMDC however, makes it obvious that ACMDC's pyrite sales to AFC are subject to the sales tax under Section 186 of the Tax Code, pyrite not being one of the products or commodities mentioned in sections 184 and 185 3 of the Tax Code. Section 186 (supra), in essence, prescribes that where an article subject to the sales tax is not among those enumerated in Sections 184 and 185 of the Tax Code (which impose higher rates of sales taxes on the sale of luxury and semi-luxury items, respectively), a tax of 7% on the gross selling price or gross value in money of the article concerned shall be collected "once only on every original sale, barter, exchange, and similar transaction" of the said article. Because of this policy of imposing the sales tax only once on the original sale, the proviso of Section 186 states correspondingly that where articles subject to tax under it "are manufactured out of materials likewise subject to tax" under Section 186 or 189 4 of the Tax Code, then "the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles." The AFC's submission that under Section 186 of the Tax Code it may deduct the cost of its local purchases of pyrite from the gross selling price of its fertilizer wherein the said pyrite was used as an ingredient, must therefore be upheld. To repeat. the main issue in the case at bar is whether the AFC is entitled under the Tax Code to deduct the purchase cost of the pyrite it used as ingredient in its manufacture of fertilizer for the purpose of computing the sales tax it must pay on its sales of fertilizer. In expounding their respective positions on this issue, the Commissioner of Internal Revenue and the Court of Tax Appeals appear to have been confused by their obssessional preoccupation with the incidental matter of whether or not the ACMDC had paid a sales tax on the pyrite it had sold to the AFC; they failed to take due stock of the organic relationship among the pertinent sections and provisions of the Tax Code involved (already hereinbefore discussed), viz., Sections 186, 186-A and 188(c), as well as a precept quite basic in the field of sales taxes. Under Section 188(c), if the ACMDC was the lessee, owner or concessionaire of the mineral land from which it removed the pyrite that it had sold to the AFC, then it was exempt from paying any sales tax on its sales of pyrite. Any purchasersuch as the AFCof pyrite from the ACMDC may deduct the purchase cost of such pyrite under the authority of Section 186-A which provides: Whenever a tax-free product is utilized in the manufacture or production of any article, in the determination of the value of such finished article, the value of such tax-free product shall be deducted. On the other hand, if the ACMDC was not qualified for exemption from sales tax on its sales of pyrite under Section 188(c) (because it was not the lessee, owner or concessionaire of the mineral land from which it removed the pyrite), then the AFC (or any other purchaser of pyrite from the former) cannot invoke Section 186-A as the legal authority for deducting the total cost of the pyrite it purchased from the ACMDC. However, it does not thereby follow that the AFC (a purchaser of pyrite from the ACMDC) is barred from deducting the purchase cost of the pyrite from the gross selling price of the manufactured article (fertilizer) sold by it. The deduction can still be made, but under the authority of Section 186 which pertinently reads:

... Provided, That where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section and section one hundred and eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles. The inordinate attention paid by the Commissioner of Internal Revenue and the Court of Tax Appeals to the possibility that the ACMDC did not pay any sales tax on its sales of pyrite to the AFC becomes more clearly inapropos when it is considered that, fundamentally, the sales tax is an obligation of the seller and not of the buyer. 5 The Commissioner's recourse is against the ACMDC, and not against the AFC, if the former did not pay any sales tax on its sales of pyrite to the AFC, assuming that the ACMDC was not exempt under Section 188(c) of the Tax Code from payment of sales tax on its sales of pyrite. ACCORDINGLY, the decision of the Court of Tax Appeals is set aside. The Commissioner of Internal Revenue is hereby ordered to credit the Atlas Fertilizer Corporation in the amount of P77,310.76 against its current or future tax liabilities. No pronouncement as to costs. Teehankee, Makasiar, Esguerra, Muoz Palma and Martin, JJ., concur.

Footnotes 1 R.A. 901 which took effect on June 20, 1953 revised R.A. 35. It granted "new and necessary industries full exemption from direct internal revenue taxes until December 31, 1958 and gradually diminishing tax exemptions from January 1, 1959 to December 31, 1962. 2 L-25602, Feb. 18, 1970, 31 SCRA 520, 526. 3 Section 184 covers the sale of luxury items, such as jewelry, automobiles, toilet preparations (eg., perfumes, cosmetics, essences) etc., Section 185 covers semi-luxury items such as household appliances, watches, clocks, fishing rods, suitcases, advertising devices, etc. 4 Section 189 imposes a percentage tax on proprietors or operators of rope factories, sugar centrals, coconut oil mills, dessicated coconut factories and cassava mills. 5 In this jurisdiction the settled rule is that the payment of the sales tax is an obligation alone of the seller, not the purchaser, even if in the commercial world it is a usual practice among vendors to shift all or part of the tax burden to their customers. See Abad vs. Court of Tax Appeals, L-20834, L-20903, October 19, 1966, 18 SCRA 374, 385; Commissioner of Internal Revenue vs. American Rubber Co., Inc., L-19667, November 29, 1966, 18 SCRA 853; Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, L-19707, August 17, 1967, 20 SCRA 1056; Gil Hermanos vs. Hord, 10 Phil. 218. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-24754 July 18, 1975 THE COMMISSIONER OF INTERNAL REVENUE, petitioner-appellant, vs. P. J. KIENER COMPANY, LTD., INTERNATIONAL CONSTRUCTION CORPORATION, GAVINO T. UNCHUAN AND THE COURT OF TAX APPEALS, respondent-appellees. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, and Special Attorney Antonio H. Garces for petitioner-appellant. Andres T. Velarde for respondents-appellees.

MARTIN, J.: This is a case that draws Us to the tax exemption provision written in the Military Bases Agreement 1 celebrated by the Republic of the Philippines and the United States of America on March 14, 1947, and pursued in the "Aide Memoire" 2 between the two Governments on April 27, 1955. A quo a decision was rendered by respondent Court of Tax Appeals ordering the Commissioner of Internal Revenue "to give tax credit to [private respondents] the amount of P18,272.21, without pronouncement as to costs." The Tax Court modified the ruling of the Commissioner of Internal Revenue denying the request of the private respondents for tax credit amounting to P21,478.31, the total of specific taxes supposedly paid by them. Petitioner seeks a review of said judgment. Respondent P.J. Kiener Company, Ltd. is a domestic limited co-partnership, doing business in the Philippines, while respondent International Construction Corporation is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, likewise engaged in business in the Philippines. 3 On or about December 14, 1957, respondent companies entered into a joint venture with respondent Gavino T. Unchuan, a licensed Filipino civil engineer, to bid for the construction of the Mactan Airfield in Mactan Island, Municipality of Opon (now Lapu-lapu City), Cebu. Respondents won the bid. And so, on February 19, 1958, the Republic of the Philippines, represented by Lt. Gen. Alfonso Arellano, then Chief of Staff, Armed Forces of the Philippines, entered into a contract with private respondents, Article I of which provides, inter alia, "... That the ... general conditions ... are hereby made integral parts of this contract by incorporation and reference respectively." Of these "General Conditions", Section 3-19 provides: 3.19. Taxes In accordance with the Mutual Defense Agreement between the United States of America and the Republic of the Philippines, no tax of any kind or description will be levied on any material, equipment or supplies which may be purchased or otherwise acquired in connection with the project under contract, which material, equipment or supplies are required solely for such project. (Emphasis supplied).1wph1.t This is the root of the controversy. Towards the middle of 1958, private respondents commenced construction of the Mactan Airfield and started purchasing "petroleum products to run and maintain their machineries and equipment" from Caltex (Phil.) Inc. 4 During the period of February 1, 1960 through April 11, 1960, they likewise purchased motor gasoline, kerosene, lubricating and/or motor oil, and diesel fuel from Caltex(Phil.) Inc. For these petroleum products, Caltex (Phil.) Inc. paid the Bureau of Internal Revenue P21,478.31 of specific taxes.

This amount was, in turn, included in the prices of the petroleum products paid by private respondents to Caltex (Phil.) Inc. 5 On 29 December 1960, private respondents wrote petitioner, requesting it to refund to Caltex (Phil.) Inc. the amount of P21,478.31. 6 Caltex (Phil.) Inc. followed the request with a formal claim for tax credit on January 12, 1961. Since no answer was forthcoming, private respondents instituted on January 31, 1962, a petition for review with the respondent Court of Tax Appeals. They prayed that they be credited the amounts of P21,478.31 and P151.65, specific and sales taxes, respectively, plus interest at the legal rate from that date until the grant of the tax credit. 7 However, before the trial of the case, the sales tax of P151.65 was credited in favor of Caltex (Phil.) Inc. 8 Subsequently, or on 7 January 1963, petitioner formally denied the request of Caltex (Phil.) Inc. stating that as per the ruling of the Department of Finance in its answer to the query of the Philippine Electrical Supply, dated July 18, 1962: Oils used by contractors in the operation of their machines or other equipment in pursuance of their contract are not materials to be solely used for the aforesaid military projects but petroleum products to be used in the operation of contractor's machines or equipment. Consequently, the same cannot be exempted from local taxes as well as customs duties and special import tax. After trial, the Tax Court rendered the judgment appealed from. It deducted from the P21,478.31 claimed for the specific tax of P908.40 (petroleum products used in the demolition of the Opon Church in Mactan) and the specific tax of P2,297.74 paid on January, 15, and 25, 1960 for being barred by prescription (claim for refund was filed only on January 31, 1962. 9 Petitioner delimits its issue or question to the dispositive portion of the Tax Court decision ordering petitioner "to give tax credit to [private respondents] in the amount of P18,272.21 ..." 10 and assigns that the Tax Court erred I ... IN HOLDING THAT UNDER THE MUTUAL DEFENSE AGREEMENT BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF THE PHILIPPINES THE PETROLEUM PRODUCTS IN QUESTION ARE EXEMPT FROM THE PAYMENT OF THE SPECIFIC TAX. II ... IN HOLDING THAT UNDER THE "AIDE MEMOIRE" OF APRIL 27, 1955, BETWEEN THE PHILIPPINE REPUBLIC AND THE UNITED STATES OF AMERICA, THE PETROLEUM PRODUCTS IN QUESTION ARE EXEMPT FROM THE PAYMENT OF SPECIFIC TAX. III ... IN HOLDING THAT THE PETROLEUM PRODUCTS IN QUESTION COME WITHIN THE PURVIEW OF THE WORDS "MATERIAL" OR "SUPPLIES" MENTIONED IN THE "AIDE MEMOIRE" OF APRIL 27, 1955, BETWEEN THE PHILIPPINE REPUBLIC AND THE UNITED STATES OF AMERICA, AND OF SECTION 3-19 OF THE GENERAL CONDITIONS ATTACHED TO THE SPECIFICATION FOR MACTAN AIRFIELD WHICH WAS MADE AN INTEGRAL PART OF THE CONTRACT BETWEEN THE PHILIPPINE

GOVERNMENT AND THE RESPONDENTS P.J. KIENER COMPANY, LTD., INTERNATIONAL CONSTRUCTION CORPORATION AND GAVINO T. UNCHUAN. IV ... IN HOLDING THAT THE RESPONDENTS P.J. KIENER COMPANY LTD., INTERNATIONAL CONSTRUCTION CORPORATION AND GAVINO T. UNCHUAN ARE ENTITLED TO CLAIM FOR TAX CREDIT OF THE SPECIFIC TAXES WHICH THEY ALLEGEDLY PAID ON THE PETROLEUM PRODUCTS IN QUESTION; AND V ... IN ORDERING THE HEREIN PETITIONER TO GIVE TAX CREDIT TO THE RESPONDENTS IN THE AMOUNT OF P18,272.21. The matrix of these imputations, however, is whether the Petroleum products in question are "materials" or "supplies" purchased or otherwise acquired "in connection with the construction of the Mactan Airfield and which "materials" or "supplies" are required "solely" for such project. Private respondents flawlessly narrate that when they began construction towards the middle of 1958, they started purchasing the petroleum Products from Caltex (Phil.) Inc. "to run and maintain their machineries and equipment used in the construction." The "equipment" refers to fuel pumping machineries, radar facilities, and the like. Purchase went through April 11, 1960, when months thereafter the conflict on the tax credit arose. Private respondents would deliver the conclusion that these petroleum products are tax-exempt since they have been "... purchased or otherwise acquired in connection with the project ..." The fact that they are not incorporated into the Mactan Airbase would not defeat the exemption. 11 The sense which private respondents proffer to attach to the terms "materials" and "supplies" eludes the link welded into the Military Bases Agreement and "Aide Memoire" and recognized in Section 3-19 of the "General Conditions". The Military Bases Agreement states that "No import, excise, consumption or other tax ... shall be charged on material, equipment, supplies or goods ... for exclusive use in the construction ... of the bases ..." (Art. V, footnote 1). The "Aide Memoire" provides: "... no internal taxes of any kind or description, except income taxes, shall be levied on any materials, equipment, supplies and/or services which may be purchased or otherwise acquired in connection with the [construction of the Mactan Airfield] ..." (Sec. 6, Footnote 2). Section 13-9 of the "General Condition" stipulates that "... no tax of any kind or description will be levied on any material, equipment or supplies which may be purchased or otherwise acquired in connection with the project ... " Reduced into simple terms, the underscored phrases continuously used in the two treaties and in the contract could only mean, collectively. "construction" materials or supplies which must necessarily be incorporated in the construction of the Airfield. For the terms "materials" and "supplies" refer to something "going into or consumed" in the performance of the work 12 such as mortar, cement, sand, bricks, lumber 13 or nails, glass, hardware, and a thousand other things that might be meant, which are necessary to the complete direction of a building or structure. 14 Thus, examined, the petroleum products purchased by the private respondents "to run and maintain their machineries and equipment" cannot be categorized as "materials" or "supplies" since they do not go into or are consumed in the construction, but in the machineries and equipment. Nonetheless, private respondents would unwrap a thesis that if Section 13-9 of the "General Conditions" intended to refer only to "materials" or "supplies" which form part and/or incorporated into the project, the said section would have so stated, just like when it provided that "Only equipment which will be incorporated in the construction" are tax free. 15 They would thus seize the absence of such proviso as a recognition of the tax-exemption of those "materials" or "supplies" not necessarily incorporated in the construction. The argument misses the point. In its textual completeness, Section 13-9 provides: "Only equipment which will be incorporated in the construction can be imported tax free on certification of the

Engineer." (Last sentence, 2nd par.) It deals centrally on the importation of equipment. The Government had conceded the privilege of exemption to this item because the same may not be economically procurable in terms of price and quality within the Philippines." (See. 2, "Aide Memoire"). To assure, however, that the privilege is not abused or circumvented, the Government has stipulated in Section 13-9 of the "General Conditions" that the equipment "[must] be incorporated in the construction ..."It was intended by the Government as an open restraint against possible detour of the revenue and customs laws. The reason is easily discernible. There still pervaded even at that time the sentiment of preference to local products, as can be plucked from the ultimate sentence of Section 2, "Aide Memoire", thus: Locally produced materials, however, shall be used wherever such materials are of satisfactory quality and are available at reasonable, comparable prices. Under these circumstances, the contractual proviso in Section 13-9 (supra) cannot be isolated and stretched to mean that " materials" and "supplies" need not be incorporated in the construction to be taxexempt. It is essentially non sequitur. Private respondents would, however, seek a final refuge in the Commissioner of Customs vs. Caltex (Phil.) Inc., No. L-13067, December 29, 1959 ruling that "gasoline and oil furnished [Caltex] drivers during the construction job come within the import of the "material or supplies" ". In that case, Caltex (Phil.) Inc. was granted by the Secretary of Agriculture and Natural resources a petroleum refining concession with the right to establish and operate a petroleum refinery in the municipalities of Bauan and Batangas, province of Batangas. The concession made the provisions of Republic Act No. 387 16 as an integral part. In its operation, Caltex (Phil.) Inc. used as basic material crude oil imported from abroad. Customs duties were imposed on this imported crude oil and so, Caltex sought for refund. The Court of Tax Appeals ordered a refund. On petition for review, the Supreme Court held that under Article 103 of the Act 17 the petroleum products imported by respondent Caltex(Phil.) Inc. for its use during the construction of the refinery are exempt from the customs duties and that gasoline and oil furnished its drivers during the construction job come within the import of the words "material" or "supplies". It bears emphasis, however, that the words "material" or supplies" in that ruling were interpreted in relation to the provisions of the Act, particularly Article 103. Unlike the treaties and contract in the case at bar, no express provision 18 is therein contained that the "materials" or "supplies" must be "for exclusive use in the construction" (Art. V, Military Bases Agreement) or "in connection with the [construction] ... which materials ... supplies are required solely for such projects." (Cf. Sec. 6, "Aide Memoire" and See. 13-9 of "General Conditions").1wph1.t It is understandable why. At that time there was no Philippine crude petroleum available for the use of any refinery in the Philippines, and so imported crude petroleum was allowed so as not to defeat the objective of the Act which has to promote and encourage the exploration, development, production and utilization of the petroleum resources of the Philippines. Thus far, the importation of these "materials" and" supplies" was only circumscribed by a liberal proviso that the exemption shall not be allowed on "goods imported by the concessionaire for his personal use or that of any others." 19 Beyond that, the exemption operates. As far as the "materials" and "supplies" are concerned, they need not be incorporated into the construction to fall within the province of the exemption. The present case is situated on a different plane. Explicitly, the "materials" and "supplies' must be for exclusive use in, in connection with, and required solely for the construction of the Mactan Airfield. In short, the "materials" and "supplies" need be incorporated in the construction for the exemption to apply. It, therefore, results that the Caltex ruling cannot be invoked as it is o be interpreted within the context of Republic Act 387. Anent this, the Secretary of Finance in its letter of July 18, 1962 to the Philippine Electrical Supply Co., Inc. ruled that "Oils used by contractors in the operation of their machines or other equipment ... are not materials to be used solely for ... military projects but petroleum products to be used in the operation of the contractor's machines or equipment. 20 They are, consequently, not tax-exempt. The ruling

commands much respect and weight, since it proceeds from the official of the government called upon to execute or implement administrative laws 21 and it lays down a sound rule on the matter. 22 Nor could the ambiguity that thus sprang from the tax-exemption provision in the Military Bases Agreement and in the "Aide Memoire" in accordance with which 23 the contract in question was entered into be interpreted in favor of the American Government or, for that matter, any party claiming under it, like private respondents. 24 Lauterpacht says that "if two meanings of a stipulation are admissible, that which is least to the advantage of the party for whose benefit the stipulation was inserted in the treaty should be preferred. 25 Especially when it is considered that for the Philippine Government, "the exception contained in the tax statutes must be strictly construed against the one claiming the exemption" 26 because the law "does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted." 27 An error has been assigned by petitioner that while the petroleum products were all purchased by private respondents from the Caltex (Phil.) Inc., for which the latter paid the specific taxes and sales taxes, private respondents did not come up with proofs that the specific taxes of P21,478.31 were included in the purchase price paid by them, and that the phrase "Statement of Specific Tax Excluded from Sales to P.J. Kiener Co. Ltd." appearing in both Exhibits A and B of private respondents means that the purchase price did not include said taxes. 28 The Court of Tax Appeals, however, found that the tax of P21,478.31 has been shifted by Caltex (Phil.) Inc. to private respondents. 29 This finding of the Tax Court must be accorded deference, "being well-nigh conclusive" upon the Supreme Court. 30 IN VIEW OF THE FOREGOING, the judgment of the Court of Tax Appeals ordering petitioner "to give tax credit to [private respondents] the amount of P18,272.21" is reversed and set aside. In all other respects the judgment appealed from is affirmed. Without pronouncement as to costs. SO ORDERED. Castro, Makasiar and Muoz Palma, JJ., concur. Esguerra, J., concurs in the result. Teehankee, J, is on leave.

Footnotes 1 Art. V. Exemption from Customs and Other Duties. No import, excise, consumption or other tax, duty or impost shall be charged on material, equipment, supplies or goods, including food stores and clothing, for exclusive use in the construction, maintenance, operation or defense of the bases, consigned to, or destined for, the United States authorities and certified by them to be for such purposes. 2 Sec. 6. The Government of the Republic of the Philippines shall permit the unrestricted entry, and shall exempt from all duties and all taxes, such products, property, materials, services and/or equipment as required to be imported for the construction of military facilities pursuant to this Agreement, whether such importation is effected either directly by the Philippine Government and/or the Government of the United States or indirectly by private persons or firms under contract with the Philippine Government for construction of said military facilities. The Philippine Government agrees that no internal taxes of any kind or description, except income taxes, shall be levied on any materials, equipment,

supplies and/or services which may be purchased or otherwise acquired in connection with the terms of this Agreement on an approved project as referred to herein, which materials, equipment, supplies and/or services are required solely for such projects. 3 CTA Records, at p. 1 4 Brief, Respondents-Appellees, at p. 5 5 CTA Records, at p. 3 6 Brief, Petitioner, at p. 3 7 Idem., at p. 4 8 Idem., at p. 4 9 See Commissioner of Internal Revenue v. Victorias Milling Co., Inc., L-24108, January 3, 1968, 22 SCRA 12. 10 Brief, Petitioner, at p. 5. 11 Brief, Respondents-Appellees, at p. 17 12 26-A Words and Phrases, Perm. ed., 316, citing People's Nat. Bank vs. Southern Surety Co., 288 P. 827, 828, 105 Cal. App. 731; see also Bouvier's Law Dictionary, p. 2121, defining "materials" as "matter which is intended to be used in the creation of a mechanical structure." 13 26-A Words and Phrases, Perm. ed. 299, citing Johns-Manville Corporation vs. La Tour D' Argent Corporation, 277 Ill. App. 502: Travelers' Ins. Co. v. Village of Ilion, 213 N.Y.S. 206, 207,126 Misc. 275. 14 Tsutakawa v. Kumamoto, 101 P. 869, 53 Wash. 231; Armour & Co. vs. Western Construction Co., 78 P. 1106, 1107; 36 Wash. 529, cited in 26-A Words and Phrases, Perm. ed., p. 300. 15 Brief. Respondents-Appellees, at p. 15. 16 An Act to Promote the Exploration, Development, Exploitation, and Utilization of the Petroleum Resources of the Philippines; to Encourage the Conservation of such Petroleum Resources; to Authorize the Secretary of Agriculture and Natural Resources to Create an Administration Unit and a Technical Board in the Bureau of Mines; to Appropriate Funds therefor; and for other purposes, signed into law on June 18, 1949. 17 Art. 103. Customs duties.-During the first five years following the granting of any concession, the concessionaire may import free of customs duty, all equipment, machinery, material, instruments, supplies and accessories. No exemption shall be allowed on goods imported by the concessionaire for his personal use or that of any others; nor for sale or for re-export; and if any goods on which exemption has been allowed be thus used or disposed of, the concessionaire is obliged to make a report to the Secretary of Agriculture and Natural Resources to that effect and to pay such import duty as is due.

18 see Footnote 17. 19 idem. 20 At p. 5, this Decision. It reversed its previous ruling of July 11, 1958 that the said petroleum products may be supplied tax-free (CTA. Records, at p. 52). 21 Tan v. Municipality of Pagbilao, Quezon, L-14264, April 30, 1963, 7 SCRA 887. 22 Sarmiento, et al. v. Nolasco, et al., L-38565, November 15, 1974, First Division, per Esguerra, J., 61 SCRA 81. 23 At p. 3, this Decision. 24 The Mactan Airbase is listed in Annex "B" of the Military Bases Agreement as one of the bases granted to the United States under Art. 1 thereof. Its construction was financed by the American Government. As earlier pointed out, the construction was bidded to private respondents. 25 Oppenheim's International Law, Lauterpacht, Vol. 1, Peace, Seventh Ed., p. 860. 26 Union Garment Co., Inc. v. Court of Tax Appeals, L-16809, January 31, 1962, 4 SCRA 304; see also Commissioner of Internal Revenue v. Guerrero, L-20942, September 22, 1967, 21 SCRA 180; Republic Flour Mills, Inc. v. Commissioner of Internal Revenue, L25602, February 18, 1970, 31 SCRA 520. 27 Reagan vs. Commissioner of Internal Revenue, L-26379, December 27, 1969, 30 SCRA 968. 28 Brief, Petitioner, p. 13, et seq. 29 CTA Records, p. 107; p. 5 of Court of Tax Appeals decision. 30 Nasiad, et al. v. The Court of Tax Appeals, L-29318, November 29, 1974, Second Division, per Fernando, J., 61 SCRA 244 and cases cited. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. Nos. L-41376-77 June 29, 1988 NORTHERN LINES INC., petitioner, vs. THE HON. COURT OF TAX APPEALS, COMMISSIONER OF CUSTOMS and COMMISSIONER OF INTERNAL REVENUE, respondents. San Juan, Africa, Gonzales & San Agustin for petitioner.

CORTES, J.: The issue before the Court in this petition for review of a resolution of the Court Tax Appeals is whether or not petitioner Northern Lines, Inc. is entitled to an exemption from the payment of compensating tax on two (2) vessels it had procured under the Reparations Law. The facts of the case are not disputed. Petitioner Northern Lines, Inc. is a domestic corporation engaged in the shipping business. On 1960, pursuant to contracts of Conditional Purchase and Sale, it procured from the Reparations Commission two (2) vessels, the "Don Salvador," formerly named "Magsaysay," and the "Don Amando," formerly the "Estancia." Both vessels were released to petitioner as end-user but remained registered in the name of the Reparations Commission as owner. The Commissioner of Customs assessed and demanded from petitioner the payment of compensating tax in the amount of P123,951.50 on the vessel "Don Salvador" and P122,332.99 on the vessel "Don Amando." Disputing the assessment, petitioner brought its case to the Commissioner of Internal Revenue. However, the latter sustained the assessment of the Commissioner of Customs. Petitioner, not satisfied with the assessment, filed two (2) "Petitions for Review with Preliminary Injunction" with the Court of Tax Appeals on October 24 and 28, 1960, docketed as C.T.A. Cases Nos. 955 (for the assessment on the "Don Amado) and 960 (for that on the "Don Salvador.") An amended petition in C.T.A. Case No. 955 was filed on October 26, 1960. The Court of Tax Appeals granted the petitions for the issuance of writs of preliminary injunction and approved the bond for each case filed by petitioner. Answers in the two cases were flied on January 3, 1961. On November 17, 1970, a "Partial Stipulation of Facts" was filed by the parties. On November 29, 1971, the Court of Tax Appeals rendered a joint decision whereby the assessment was sustained and petitioner and its surety were ordered to pay the amounts assessed as compensating tax. Petitioner's motion for reconsideration was denied by the tax court on March 21, 1972 for lack of merit. A copy of the decision was received by petitioner on May 11, 1972. On May 20, 1972, petitioner appealed the decision of the Court of Tax Appeals to this Court in G.R. Nos. L-35070-71 but the appeal was denied for lack of merit in a resolution dated June 1, 1972. Subsequent motions filed by petitioner to have the cases remanded to the Court of Tax Appeals for new trial were denied by this Court in resolutions dated August 17, 1972 and September 25, 1972. In the meantime, petitioner requested from the Reparation Commission the renovation of the Contracts of Conditional Purchase and Sale covering the two vessels. The Commission denied petitioner's request in Resolution No. 268, dated October 10, 1972. Petitioner's request for reconsideration was denied in Resolution No. 346, dated December 13, 1972. On November 3, 1972, the Commissioner of Internal Revenue sent a demand letter to petitioner for the payment of the assessed compensating tax. Petitioner failed to pay the amounts demanded.

In a letter dated February 4, 1974, petitioner requested from the Reparations Commission the restructuring of its delinquent accounts, Pursuant to Presidential Decree No. 332, an amendatory act to the Reparations Law. This decree became effective on November 9, 1973. On June 20, 1974, the Commissioner of Internal Revenue filed a motion for the issuance of a writ of execution, which the Court of Tax Appeals granted on October 11, 1974. On February 14, 1975, petitioner and the Reparations Commissions entered into a Memorandum of Agreement for this restructuring of petitioner's delinquent accounts. Thus, on March 11, 1975, petitioner filed a motion to quash the writ of execution, on the ground that by virtue of the Memorandum of Agreement petitioner was now entitled to be exempted from the compensating tax as provided in Republic Act No. 1789 (the Reparations Law) as amended. In a resolution dated August 4, 1975, the Court of Tax Appeals denied the motion to quash the writ of execution. Hence, the instant petition for review. Petitioner assigns the following errors: I THE HONORABLE COURT OF TAX APPEALS ERRED IN HOLDING THAT A DECISION WHICH HAS BECOME FINAL AND EXECUTORY CANNOT BE SUBJECT TO RENOVATION. II THE HONORABLE COURT OF TAX APPEAL ERRED IN NOT HOLDING THAT PETITIONERS COMPLIANCE WITH THE REQUIREMENTS OF P.D. 332 IS DEEMED COMPLIANCE WITH THE REQUIREMENTS OF R.A. 3079. Petitioner primarily argues that the Memorandum of Agreement entered into by and between petitioner and the Reparations Commission effectively novated the judgment of the Court of Tax Appeals and, hence, said judgment has become moot and academic and may no longer be executed. To support its main argument, petitioner cited abundant jurisprudence on novation of judgments [Petitioner's Brief, pp. 13-17.] This contention deserves scant consideration. Petitioner's theory of novation of judgment cannot be applied to the instant case as the Memorandum of Agreement, which petitioner claims was a subsequent agreement that novated the final and executory judgment rendered by the Court of Tax Appeals, was entered into by and between petitioner and the Reparations Commission, which was not a party to the tax case. As pointed out by the Solicitor General: Furthermore, in all of the cases cited by petitioner, the compromise agreement and/or settlement were entered into and agreed upon by the party litigants. In this case, it bears repeating that the Memorandum of agreement was entered into between the petitionertaxpayer and the Reparations Commission which is not a party to the tax case. [Respondents' Brief, pp. 11-12.] Thus, while petitioner is correct in arguing that final and executory judgments may be compromised, it must be emphasized that as shown by the cases cited by petitioner itself in its brief (i.e. Fua Cam Lu v. Yap Fuaco 74 Phil. 287 (1943); Jesalva v. Hon. Bautista, 105 Phil. 348 (1959); Sandico, Sr. v. Piquing G.R. No. L-26115 November 29, 1971, 42 SCRA 322; Workmen's Insurance Co., Inc. v. Court of Appeals, G.R. No. L-29044, August 15, 1968, 24 SCRA 626; J.V. Development Corp. v. Cabullo, G.R. No. L-28733, September 30, 1971, 41 SCRA 127; Juan-Marcelo v. Go Kim Pah, G.R. No. L-27268, January 29, 1968, 22 SCRA 309; Palanca v. Court of Industrial Relations, G.R. Nos. L-33364-65; November 24, 1972, 48 SCRA 137] the compromise agreement must have been entered into by the party litigants. Evidently, such a situation does not obtain in

the instant case as the Memorandum of Agreement, if at all it could be categorized as a compromise agreement, was executed by and between petitioner and the Reparations Commission, a stranger to the tax case. The respondents in the tax case, the Commissioners of Internal Revenue and Customs, who should be parties to any binding compromise agreement, are definitely not parties to the Memorandum of Agreement. On this note, petitioner's theory of novation of judgment must fail. Petitioner similarly contends that it is entitled to a stay in the execution of the judgment of the Court of Tax Appeals due to a change in the situation of the parties that would make execution inequitable i.e., petitioner's subsequent entitlement to an exemption from the payment of compensating tax by virtue of the execution of the Memorandum of Agreement. In the leading case of Amor v. Jugo, (77 Phil. 703 (1946)] the Court said: The respondent court cannot refuse to issue a writ of execution upon a final and executory judgment, or quash it, or order its stay, for, as a general rule, the parties will not be allowed, after final judgment, to object to the execution by raising new issues of fact or of law, except when there had been a change in the situation of the parties which makes such execution inequitable (Warner, Barnes & Co. vs. Jaucian, 13 Phil. 4; Behn Meyer & Co. vs. McMicking, 1 1 Phil. 276; Molina vs. De la Riva, 8 Phil. 569; Espiritu vs. Crossfield and Guash, 14 Phil. 588; Flor Mata vs. Lichauco and Salinas, 36 Phil. 809; Chua A. H. Lee vs. Mapa, 51 Phil. 624); or when it appears that the controversy has never been submitted to the judgment of the court (Yulo and Sajo vs. Powell, 36 Phil. 732); or when it appears that the writ of execution has been improvidently issued, or that it is defective in substance, or is issued against the wrong party, or that the judgment debt has been paid or otherwise satisfied; or when the writ has been issued without authority (Wolfson vs. Del Rosario and Fajardo, 76 Phil. 143; Viuda de Dimayuga vs. Raymundo and Nable, 42 O.G. 2121). (Emphasis supplied.) The principle that when, after a judgment has become final and executory, facts and circumstances transpire which render its execution impossible or unjust, the interested party may ask a competent court to stay its execution or prevent its enforcement, was reiterated and applied in Nazal v. Belmonte (G.R. No. L-2441 0, May 23, 1968, 23 SCRA 700.] In this case, the Court, quoting extensively from earlier decisions with similar facts [i.e., Hernandez v. Clapis, 98 Phil. 684 (1956); Realiza v. Duarte, G.R. No. L20527 August 31, 1967, 20 SCRA 1264; De los Santos v. Rodriguez, G.R. No. L-23170, January 31, 1968, 22 SCRA 451 ] ruled that although the judgment of the Court of First Instance ordering a party to vacate the parcel of land he was occupying and remove the building he constructed thereon was final and executory, it may not be enforced because the land involved in the case was eventually sold by the Government to the party's successor-in-interest subsequent to the entry of judgment and an original certificate of title was issued in the latter's favor. In a later case, Luna v. Intermediate Appellate Court [G.R. No. 68374, June 18, 1985, 137 SCRA 7] the Court again applied the exception: The manifestation of the child Shirley that she would kill herself or run away from home if she should be taken away from the herein petitioners and forced to live with the private respondents, made during the hearings on petitioner's motion to set aside the writ of execution and reiterated in her letters to the members of the Court dated September 19, 1984 and January 2, 1985, and during the hearing of the case before this Court, is a circumstance that would make the execution of the judgment rendered in Spec. Proc. No. 9417 of the Court of First Instance of Rizal inequitable, unfair and unjust, if not illegal ...

In the instant case, after the Commissioner of Internal Revenue's motion for the issuance of the writ of execution was granted by the Court of Tax Appeals, but before execution could be effected, petitioner and the Reparations Commission entered into a Memorandum of Agreement restructuring petitioner's obligations. The question therefore is whether said Memorandum of Agreement may be considered as the renovated utilization contract requisite for the availment of the tax exemption as provided under the Reparations Law. To resolve this issue a review of the pertinent law and jurisprudence vis-a-vis the facts is warranted. Republic Act No. 1789, entitled "An Act Prescribing the National Policy in Procurement and Utilization of Reparations and Development Loans from Japan, Creating a Reparations Commission to Implement the Policy, Providing Funds Therefor, and for Other Purposes," took effect on June 21, 1957. It sought to implement the policy of the government "to utilize all reparations payments procured in whatever form from Japan under the terms of the Reparations Agreement between the Republic of the Philippines and Japan signed on May nine, nineteen hundred and fifty-six, in such manner as shall assure the maximum possible economic benefit to the Filipino people and in as equitable and widespread a manner as possible" [Sec. 1.] Thus, it gave preference to private productive projects in the procurement of reparations goods and services [Sec. 2(e).] Pursuant to the declared policy of encouraging the private sector to invest in ventures utilizing reparations goods, R.A. No. 1789, as amended, provided for tax exemptions. The original text of R.A. No. 1789 provided: Sec. 14. Exemption from tax. All reparations goods obtained by the government shall be exempt from the payment of all duties, fees and taxes. Reparations goods obtained by private parties shall be exempt only from the payment of customs duties, consular fees and the special import tax. However, in 1961, the above-quoted section was amended by R.A. No. 3079 by including among the exemptions the payment of compensating tax: Sec. 14. Exemption from tax. All reparations goods obtained by the government shall be exempt from the payment of all duties, fees and taxes. Reparations goods obtained by private parties shall be exempt from the payment of customs duties, compensating tax, consular fees and the special import tax. R.A. No. 3079 outlined the procedure through which the exemption from the payment of compensation tax can be availed of by existing end-users: Sec. 20. This Act shall take effect upon its approval, except that the amendment contained in Section seven hereof relating to the requirements for procurement orders including the requirement of down payment by private applicant end-users shall not apply to procurement orders already issued and verified at the time of the passage of this amendatory Act, and except further that the amendment contained in Section ten relating to the insurance of the reparations goods by the end- users upon delivery shall apply also to goods covered by contracts already entered into by the Commission and the end-user prior to the approval of the amendatory Act as well as goods already delivered to the enduser, and except further that the amendments contained in Sections eleven and twelve hereof relating to the terms of installment payments on capital goods disposed of to private parties, and the execution of a performance bond before delivery of reparations goods, shall not apply to contracts for the utilization of reparations goods already entered into by the Commission and the end-users prior to the approval of this amendatory Act: Provided, That any end-user may apply for the renovation of his utilization contract

with the Commission in order, to avail of any provision of this amendatory Act which is more favorable to an applicant end-user than has heretofore been granted in like manner and to the same extent as an end-user filing his application after the approval of this amendatory Act, and the Commission, may agree to such renovation on condition that the end-user shall voluntarily assume all the new obligations provided for in this amendatory Act. (Emphasis supplied.) Under R.A. No. 1789 reparations goods obtained by private parties were subject to compensating tax since Section 14 exempted them only from customs duties, consular fees and special import tax. With its amendment by R.A. No. 3079, which took effect on June 17, 1961, reparations goods obtained by private parties were also exempted from compensating tax. An end-user who obtained reparations goods before the effectivity of R.A. No. 3079 may avail of the exemption if his utilization contract is renovated and he voluntarily assumes all the new obligations provided for in said law. Interpreting the retroactive effect of this exemption, the Court, in Commissioner of Internal Revenue v. Botelho Shipping Corp. [G.R. Nos. L-21633-34, June 29, 1967, 20 SCRA 487] stated: It is true that Republic Act No. 3079 does not explicitly declare that those who purchased reparations goods prior to June 17, 1961 (the effectivity date of R.A. No. 3079), are exempt from the compensating tax. It does not say so, because they do not really enjoy such exemption, unless they comply with the proviso in Section 20 of said Act, by applying for the renovation of then respective utilization contracts, "in order to avail of any provision of the amendatory Act which is more favorable" to the applicant. In other words, it is manifest, from the language of said Section 20, that the same intended to give such buyers the opportunity to be treated "in like manner and to the same extent as an end-user filing his application after the approval of this amendatory Act." Like the "most-favored nation clause" in international agreements, the aforementioned Section 20 thus seeks, not to discriminate or to create an exemption or exception, but to abolish the discrimination, exemption or exception that would otherwise result, in favor of the end-user who bought after June 17, 1961 and against one who bought prior thereto. Indeed, it is difficult to find a substantial justification for the distinction between the one and the other. . . . The interpretation given Section 20 in relation to Section 14 was reiterated by the Court in Commissioner of Internal Revenue v. Philippine Ace Lines, Inc. [G.R. Nos. L-20960-61, October 31, 1968, 25 SCRA 912.] The Memorandum of Agreement, dated February 15, 1975, which restructured petitioner's delinquent account, was executed by petitioner and the Reparations Commission pursuant to P.D. No. 332, which amends R.A. No. 1789. The pertinent provision of P.D. No. 332 provides: Sec. 8. To section 12 of the same Act, there are hereby added paragraphs (a-1) and (a2) to read as follows: xxx xxx xxx (a-2) All private end-users with pending Accounts with the Commission shall be allowed to restructure then accounts beyond the maximum allowable period of amortization as provided for under this Act; Provided, That said end-users shall first be required to pay 10% of the total accrued accounts at the time of the issuance of this Decree: Provided, further, that interest at the rate of 12 per cent per annum shall be imposed on the restructured yearly amortization with an additional monthly interest of 1-1/2 per cent for delinquency and said end-users shall be required to put up additional collaterals sufficient

to cover the value of the restructured account, and in the case of corporations, the principal officers thereof shall be required to sign the contract of restructuring jointly and severally with the corporation: Provided, finally, That all delinquent private end-users of reparations goods and/or services are hereby given a period of three (3) months within which to restructure or update their accounts with the Commission. That the Memorandum of Agreement was executed pursuant to P.D. No. 332 for the purpose of restructuring petitioner's delinquent account, and for no other purpose, is clear from the agreement's text: WHEREAS, under the Contract of Conditional Purchase and Sale of Reparations Goods and/or Services entered into by the herein parties and identified as Doc. No. 443, Page No. 90, Book No. 11, Series of 1960 and Doc. No. 479, Page No. 97, Book No. 11, Series of 1960 of the Notarial Registry of Atty. Jose V. Roldan, a Notary Public for and in the City of Manila, Philippines, the herein Conditional Vendee has a pending account with the herein Conditional Vendor as of November 9, 1973, in the total amount of FOUR MILLION ONE HUNDRED TWENTY-SIX THOUSAND SIX HUNDRED SIXTY TWO PESOS AND NINETY CENTAVOS (P 4,126,662.90), ... WHEREAS, the herein Conditional Vendee has manifested its desire to re-structure the said pending account pursuant to and in accordance with Section 12 (a-2) of the Reparations Law, as last amended by Presidential Decree No. 332; NOW, THEREFORE, for and in consideration of the foregoing premises, and by way of implementing the foregoing desire of herein Conditional Vendee to re-structure the said pending account, the herein parties have agreed to execute this MEMORANDUM OF AGREEMENT re-structuring the said pending account under the following terms and conditions. . . . [Rollo, pp. 100- 101; Emphasis supplied.] Petitioner, after its applications for the renovation of its original utilization contracts were denied, now contends that the Memorandum of Agreement was the renovated utilization contract contemplated by Section 20 of R.A. No. 3079. In support of this contention, petitioner adverts to the dispositive portion of the assailed resolution of the Court of Tax Appeals, which apparently recognizes that the Memorandum of Agreement was the renovated contract: Considering that the renovation of the contracts for the purchase of the vessels in question was made after the decision of this Court has already become final and executory. The motion to quash the writ of execution is hereby denied. . . . [Rollo, p. 34; Emphasis supplied.] But was the Memorandum of Agreement really the renovated utilization contract contemplated by Sec. 20 of R.A. No. 3079? The Court holds that it was not. It may help to distinguish between renovation under R.A. No. 3079 and restructuring under P.D. No. 332 as to their purpose. Thus, while renovation is essential to availment of the benefits provided under R.A. No. 3079, among which is the exemption from the payment of compensating tax, restructuring under P.D. No. 332 is necessary in order to forestall the repossession by the Reparations Commission of the delinquent end-user's reparations goods and their sale at public auction. In this connection, it must be recalled that the Reparations Commission had already denied twice the request by petitioner for the renovation of its utilization contract for the reason that the vessels were utilized for a purpose other than that authorized by the agreement. Apparently the vessels were used for interisland shipping when they should have been used for overseas shipping. It was for this

failure to secure a renovation that the Court of Tax Appeals denied petitioner's petitions for review Since there was no factual basis for the exemption claimed. A review of the Memorandum of Agreement will reveal that it was in effect merely an amendment of the Contracts of Conditional Purchase and Sale, the original "utilization contracts", insofar as it restructured petitioner's delinquent account. It did not mention anything about, or even imply, a renovation under R.A. No. 3079. While petitioner previously requested for renovation of its contract, after its denial and after the promulgation of P.D. No. 332, petitioner contended itself with requesting a restructuring of its account. It did not pursue the renovation of its contract, although it knew fully well that its renovation was the key to its availment of the exemption from the payment of compensating tax under Sec. 20 of R.A. No. 1789, as amended by R.A. No. 3079. Resort to the theory that the Memorandum of Agreement was the renovated contract required by law as apparently made after all hope for the Reparation Commission's agreement to a renovation had vanished. Although the Court had in previous cases enjoined the execution of a final and executory judgment because of a change in the situation of the parties that would render execution inequitable, such change in situation must be proven as a fact. In this case, no renovated utilization contract was actually executed as petitioner's request was denied by the Reparations Commission. Thus, petitioner tried to prove its right to the exemption claimed by arguing that the Memorandum of Agreement may be considered as the renovated utilization contract required by law. The highest considerations of public policy dictate that claims for tax exemption be carefully scrutinized. As consistently declared by the Court, "taxes are the lifeblood of the government and their prompt and certain availability is an imperious need" [Commissioner of Internal Revenue v. Pineda, G.R. No. L22734, September 15, 1967, 21 SCRA 105; Vera v. Fernandez, G.R. No. L-31364, March 30, 1979, 89 SCRA 199; Atlas Consolidated Mining and Development Corp. v. Commissioner of Internal Revenue, G.R. No. L- 26911, January 27, 1981, 102 SCRA 246.] Consequently, the collection of taxes should not be enjoined except upon a clear showing of a right to an exemption. Unfortunately for petitioner, it had failed to pass this test. It had grasped at straws and espoused novel theories in an attempt to escape its tax liability, but all to no avail as the facts of the case afford them little support. In the end, the sovereign right of the State to tax its subjects must prevail. In summary, as petitioner has failed to show that it was qualified to avail of the exemption, there was, therefore, no bar to the execution of the judgment of the Court of Tax Appeals ordering petitioner to pay the amounts of P122,322.99 and P123,951.50 as compensating tax on the two vessels. Accordingly, the Court of Tax Appeals did not err in denying petitioner's motion to quash the writ of execution. WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit and the resolution of the Court of Tax Appeals dated August 4, 1975 in C.T.A. Cases Nos. 955 and 960 denying the petitioner's motion to quash the writ of execution is hereby AFFIRMED. SO ORDERED. Fernan (Chairman,), Feliciano and Bidin, JJ., concur. Gutierrez, Jr., J., is on leave.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-30232 July 29, 1988 LUZON STEVEDORING CORPORATION, petitioner-appellant, vs. COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE, respondents-appellees. H. San Luis & V.L. Simbulan for petitioner-appellant.

PARAS, J.: This is a petition for review of the October 21, 1968 Decision * of the Court of Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal Revenue", denying the various claims for tax refund; and the February 20, 1969 Resolution of the same court denying the motion for reconsideration. Herein petitioner-appellant, in 1961 and 1962, for the repair and maintenance of its tugboats, imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, on January 2, 1964, it filed a Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals, docketed therein as CTA Case No. 1484, praying among others, that it be granted the refund of the amount of P33,442.13. The Court of Tax Appeals, however, in a Decision dated October 21, 1969 ( Ibid., pp. 2227), denied the various claims for tax refund. The decretal portion of the said decision reads:
WHEREFORE, finding petitioner's various claims for refund amounting to P33,442.13 without sufficient legal justification, the said claims have to be, as they are hereby, denied. With costs against petitioner.

On January 24, 1969, petitioner-appellant filed a Motion for Reconsideration ( Ibid., pp. 28-34), but the same was denied in a Resolution dated February 20, 1969 ( Ibid., p. 35). Hence, the instant petition. This Court, in a Resolution dated March 13, 1969, gave due course to the petition ( Ibid., p. 40). Petitioner-appellant raised three (3) assignments of error, to wit:

I The lower court erred in holding that the petitioner-appellant is engaged in business as stevedore, the work of unloading and loading of a vessel in port, contrary to the evidence on record. II The lower court erred in not holding that the business in which petitioner-appellant is engaged, is part and parcel of the shipping industry. III The lower court erred in not allowing the refund sought by petitioner-appellant.

The instant petition is without merit. The pivotal issue in this case is whether or not petitioner's tugboats" can be interpreted to be included in the term "cargo vessels" for purposes of the tax exemption provided for in Section 190 of the National Internal Revenue Code, as amended by Republic Act No. 3176. Said law provides:
Sec. 190. Compensating tax. ... And Provided further, That the tax imposed in this section shall not apply to articles to be used by the importer himself in the manufacture or preparation of articles subject to specific tax or those for consignment abroad and are to form part thereof or to articles to be used by the importer himself as passenger and/or cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. ....

Petitioner contends that tugboats are embraced and included in the term cargo vessel under the tax exemption provisions of Section 190 of the Revenue Code, as amended by Republic Act. No. 3176. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax (Rollo, p. 23). On the other hand, respondents-appellees counter that petitioner-appellant's "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes. As such, it cannot be claimed that the tugboats in question are used in carrying and transporting passengers or cargoes as a common carrier by water, either coastwise or oceangoing and, therefore, not within the purview of Section 190 of the Tax Code, as amended by Republic Act No. 3176 (Brief for Respondents-Appellees, pp. 45).

This Court has laid down the rule that "as the power of taxation is a high prerogative of sovereignty, the relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be coached in clear and unmistakable terms in order that it may be applied." (84 C.J.S. pp. 659-800), More specifically stated, the general rule is that any claim for exemption from the tax statute should be strictly construed against the taxpayer (Acting Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 [1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., et al., 65 SCRA 142 [1975]). As correctly analyzed by the Court of Tax Appeals, in order that the importations in question may be declared exempt from the compensating tax, it is indispensable that the requirements of the amendatory law be complied with, namely: (1) the engines and spare parts must be used by the importer himself as a passenger and/or cargo, vessel; and (2) the said passenger and/or cargo vessel must be used in coastwise or oceangoing navigation (Decision, CTA Case No. 1484; Rollo, p. 24). As pointed out by the Court of Tax Appeals, the amendatory provisions of Republic Act No. 3176 limit tax exemption from the compensating tax to imported items to be used by the importer himself as operator of passenger and/or cargo vessel ( Ibid., p. 25). As quoted in the decision of the Court of Tax Appeals, a tugboat is defined as follows:
A tugboat is a strongly built, powerful steam or power vessel, used for towing and, now, also used for attendance on vessel. (Webster New International Dictionary, 2nd Ed.) A tugboat is a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. (Encyclopedia International Grolier, Vol. 18, p. 256). A tug is a steam vessel built for towing, synonymous with tugboat. (Bouvier's Law Dictionary.) (Rollo, p. 24).

Under the foregoing definitions, petitioner's tugboats clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretense being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms (Allied Brokerage Corp. v. Commissioner of Customs, L27641, 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270 [1970]). And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that statutes are to be construed in the light of purposes to be achieved and the evils sought to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA 544 [1978], it will be noted that the legislature in amending Section 190 of the Tax Code by Republic Act 3176, as appearing in the records, intended to provide incentives and inducements to bolster the shipping

industry and not the business of stevedoring, as manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p. 26). On analysis of petitioner-appellant's transactions, the Court of Tax Appeals found that no evidence was adduced by petitioner-appellant that tugboats are passenger and/or cargo vessels used in the shipping industry as an independent business. On the contrary, petitioner-appellant's own evidence supports the view that it is engaged as a stevedore, that is, the work of unloading and loading of a vessel in port; and towing of barges containing cargoes is a part of petitioner's undertaking as a stevedore. In fact, even its trade name is indicative that its sole and principal business is stevedoring and lighterage, taxed under Section 191 of the National Internal Revenue Code as a contractor, and not an entity which transports passengers or freight for hire which is taxed under Section 192 of the same Code as a common carrier by water (Decision, CTA Case No. 1484; Rollo, p. 25). Under the circumstances, there appears to be no plausible reason to disturb the findings and conclusion of the Court of Tax Appeals. As a matter of principle, this Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority (Reyes v. Commissioner of Internal Revenue, 24 SCRA 199 [1981]), which is not present in the instant case. PREMISES CONSIDERED, the instant petition is DISMISSED and the decision of the Court of Tax Appeals is AFFIRMED. SO ORDERED. Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-18080 April 22, 1963

TAN KIM KEE, petitioner, vs. THE COURT OF TAX APPEALS, ET AL., respondents. Rafael A. Lim, Oscar V. Breva and Benjamin V. Guiang for petitioner. Office of the Solicitor General for respondents.

REYES, J.B.L., J.: Appeal from the majority decision of the Court of Tax Appeals affirming the denial of a claim for refund of the fixed and sales taxes. The case was submitted before the tax court under a stipulation of facts, as follows: 1. The petitioner is a producer of copra exporters in Davao City. 2. Petitioner produces copra in two ways, namely, the sun-dried method and the kiln-dried method. 3. Under the sun-dried method employed by petitioner, the nuts are first split into halves and are dried under the sun to partly loosen the meat from the shell. After one or two days of drying in that state, the meat is removed from the shell with an instrument designed for the purpose. To facilitate drying and handling, the meat so removed is chopped into small pieces and the same is dried under the sun for at least three days or until its moisture content is reduced to a minimum acceptable in the market. 4. The processes involved in copra-making under the kiln-dried method employed by the petitioner are the same as the sun-dried method described above except that in the latter method, the nuts are first unhusked before being split into halves and the meat is dried in a kiln or oven heated with fuel. Further, the drying process (18-23 hours) under the kiln-dried method is shorter than the sun-dried method. 5. For the period from August 24, 1956 to December 31, 1956, petitioner's gross sales of copra produced by him amounted to P17,917.53 on which he paid to the treasurer of Davao City, on January 10, 1957, the sum of P1,254.24 as the 7% sales tax imposed by section 186 of the National Internal Revenue Code as amended by Republic Act No. 1612. 6. Petitioner paid also to the same official on the same date, fixed taxes(c-14) of P40.00 for the years 1956 and 1957, pursuant to section 182 of the said code. 7. For the payment of the above-mentioned sales and fixed taxes, BIR official receipts Nos. C146545, respectively, were issued to the petitioner. 8. On September 6, 1957, petitioner filed with respondent a claim for the aforesaid taxes which claim was denied by the latter on November 22, 1957. 9. On February 7, 1958, petitioner filed with respondent a request for reconsideration of the denial of his claim for refund but said request was denied on February 13, 1958. Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t 10. Petitioner filed on April 30, 1958 his second request for reconsideration which was denied on July 1, 1958. 11. On August 12, 1958 petitioner filed with his Honorable Court the present petition for review which was answered by respondent on September 26, 1958.

Not stipulated but nevertheless admitted in the pleadings is the additional fact that the petitioner is a producer of copra out of his coconut plantation in Sta. Cruz, Davao. The petitioner ascribes the following errors against the lower court: I. The Tax Appeals Court erred in holding that the mere drying out process by which the coconuts produced from petitioner's plantation are converted into copra (dried coconut), constitutes manufacturing as defined in section 194(x) of the Tax Code. II. The Tax Appeals Court erred in failing to consider the absurd, illogical and mischievous results that would necessarily follow from its interpretation of section 194(x) of said code, contrary to the consistent legislative policy of encouraging farmers by exempting their products from taxation. This case involves an interpretation of Section 188(b) of the Tax Code, as amended by the shortlived revenue statute, Republic Act No. 1612, when applied to copra making. Said Act took effect on 24 August 1956 until it was superseded by Republic Act 1856 on 22 June 1957. This section, as it stood before and during the effectivity of Republic Act No. 1612, and after subsequent amendment by Republic Act 1856, provides (all emphasis supplied): Before effectivity of RA No. 1612 (b) Agricultural products and the ordinary salt when sold, bartered, or exchanged in this country by the producers or owner of the land where produced, as well as fish and its byproducts when sold, bartered, or exchanged by the fisherman or fishing operator, whether in their original state or not. During the eleven-month effectivity of RA No. 1612 (b) Agricultural products and the ordinary salt in their original form when sold, bartered, or exchanged by the producer or owner of the land where produced. The term "agricultural products" as used herein shall not include cultured fish and other products raised or produced in fishponds, and those which have undergone the process of manufacturing as defined in section one hundred ninety-four (x) of this Code. After repeal of RA No. 1612 by RA No. 1856 (b) Agricultural products and the ordinary salt whether in their original form or not when sold, bartered, or exchanged in this country by the producer or owner of the land where produced, as well as all kinds of fish and its by-products when sold, bartered or exchanged by the fisherman or fishing operator whether in their original state or not. The majority of the Tax Court was of the view that before the passage of Republic Act No. 1612, copra making was not taxable because the law then exempted agricultural products "whether in their original state or not" but that it became taxable during the effectivity of the Republic Act No. 1612 because the agricultural products that were exempted under it were those "in their original form", and said law excluded from the exemption "those which have undergone the process of manufacturing as defined in section one hundred ninety-four (x) of this Code", that provides: (x) "Manufacturer" includes every person (1) who by physical or chemical process alters the exterior texture or form of inner substance of any raw material or manufactured or partially manufactured product in such a manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or (2) who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to

marketable shape or prepare it for any of the uses of industry, or (3) who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished products of such process of manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and for his own use or consumption. The majority of the Tax Court further held that because of the unhusking and halving of the coconut fruit, removal and cutting into several pieces of its meat, and dehydrating by sun or kiln, the fruit in its original form underwent a process of manufacturing, and, therefore, became taxable; but after the repeal of Republic Act 1612 by Republic Act 1856, the exempt agricultural products included once more those products "whether in their original state or not". It decided, therefore, that the taxability of copra making under Republic Act No. 1612 is in accordance with the legislative intent to increase revenue by imposing taxes on "greater coverage of subjects of taxation", as expressed in the explanatory note of the House Bill 5809, the source of Republic Act 1612; and that the said section being an exempting provision, the same should be construed strictissimi juris against the party claiming exemption. Contrary to the above views of the respondents, the petitioner would consider copra as the agricultural product in its original form and the coconut fruit merely the crop of the producer and because copra is the only product that may be produced from coconut lands while the process of manufacture involved in the conversion of the coconut fruit to copra is a part of the genuine agricultural labor of the farmer. The petitioner adopted the dissenting opinion that the enactment of Republic Act 1612 did not change anything; because the processes that constitute manufacturing under Section 194 (x)have not been enlarged or extended, and that the ruling of the respondents would be a radical departure from the timehonored policy of Congress to give preferential treatment to farmers; furthermore, the respondents' interpretation would lead to absurd, illogical, and mischievous results, like the following: coconut planters, abaca planters and rice farmers would be liable for 7% tax while operators of coconut oil mills and dessicated coconut factories, rope factories, and rice mill operators are taxable only at 2% under Section 189 of the Code; likewise, the coconut planter is not taxable for producing coconuts, but the moment he unhusks them he is obliged to pay 7% on sales tax. The petitioner insists that the legislative intent in enacting Republic Act 1612 was to exclude copra making, as shown in the explanatory note of House Bill 6094, a bill intended to amend Republic Act 1612, and that this intention to exclude copra making is also reflected in the speeches and debates delivered in the floor of Congress in its session on 30 January 1957 (Congressional Records, Vol. IV, No. 3). The flaw in petitioner-appellant's argument is that it ignores the legislative change in the phraseology of the exemption of agricultural products. The original statute excepted from the tax "Agricultural products xxx whether in their original state or not", but under the shortlived R.A. No. 1612 it was altered and reduced to "agricultural products in their original form" exclusively. The change in scope was further emphasized by the qualification in the same Act that "agricultural products xxx shall not include cultured fish . . . and those which have undergone the process of manufacturing . . . ." Plainly, R.A. No. 1612 was intended to restrict the exemption and broaden the subject of taxation, in order to increase the state revenues; and this purpose becomes indubitable when we consider that ordinary salt and fish were also originally exempt, but the exemption was not restated in R.A. No. 1612. If, as contended by the petitioner, there was no intention to limit the exemption of agricultural products, then it may well be wondered why the Legislature found it necessary to change at all the terms of the exemption; and even further, it may be asked why, barely a year later, it was found proper to restore (by R.A. No. 1856) the primitive terms of the exemption of agricultural products "whether in their original form or not". It is not to be presumed that the Legislature, in making such changes, was indulging in mere semantic exercise. There must have been some purpose in making them, and the rational explantion is

that the coverage of the exemption was being broadened by R.A. No. 1612, as expressly stated in the original House Bill No. 5819 that later became said Act; and that the policy change was later found inadvisable, so that the statute was reworded by R.A. 1856 to corresponded to the original terminology so as to restore the original exemption.. Stress is laid on the explanatory note to House Bill No. 6094 that it was "never the intention of Congress to impose such heavy burden upon our agricultural producers"; but these statements did not go beyond a personal opinion of the proponents of House Bill No. 6094, since the true source of Republic Act 1856 (repealing R.A. No. 1612)was not Bill No. 6094, but House Bill No. 5819. We find no weight in the argument that under the interpretation given to Republic Act 1612 the planters and farmers would pay a higher tax than rice mills and coconut factories. The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. The legislative intent to increase revenue by widening the coverage of taxable subjects is evident under Republic Act 1612, and by it the exempt agricultural products were only those that remain in their original form, and have not undergone the process of manufacture. This Court has had occasion to observe that By the very nature of the changes made in the original statute, it is clear that the amendment is intended, not to clarify the doubtful meaning of the former law, xxx, but to withdraw from the scope of the former exemption the agricultural products that are no longer in their original form because they have undergone the process of manufacture." (Philippine Packing Corporation vs. Collector of Internal Revenue, L-9040, Res. of Jan. 22, 1957). WHEREFORE, the decision appealed from is affirmed, with costs against petitioner-appellant. Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Labrador, J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-22443 May 29, 1971 THE COMMISSIONER OF CUSTOMS, petitioner, vs. PHILIPPINE ACETYLENE COMPANY, and THE COURT OF TAX APPEALS, respondents. Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete and Solicitor Sumilang V. Bernardo for petitioner. Ponce Enrile, Siguion Reyna, Montecillo & Belo for respondent Philippine Acetylene Company.

MAKALINTAL, J.: This is a petition filed by the Commissioner of Customs for review of the decision of the Court of Tax Appeals in its Case No. 1147, ordering the herein petitioner to refund to the Philippine Acetylene Co., Inc. the amount of P3,683.00 which it had paid under protest as special import tax on one (1) custom built liquefied petroleum gas tank. The facts were stipulated by the parties as follows: 1. That the Philippine Acetylene Company is a corporation duly organized and existing under the laws of the Philippines; 2. That said company is engaged in the manufacture of oxygen, acetylene and nitrogen and packaging of liquefied petroleum gas in cylinders and tanks; 3. That sometime in 1957 the protestant imported from the United States one custombuilt liquefied petroleum gas tank which arrived via the S/S 'PLEASANT VILLE' under Register No. 1356, and declared in Import Entry No. 94060, series of 1957; and . 4. That the amount of P3,683.00 was assessed thereon as special import tax and which (sic) was paid under protest by the importer-protestant as evidenced by Official Receipt No. 12690 dated February 25, 1958. According to Charles L. Butler, manager of the Philippine Acetylene Co., Inc., the imported custom-built liquefied petroleum gas tank is simply a large cylinder which is used as container for liquefied petroleum gas obtained from the CALTEX Refinery in Bauan, Batangas and transported to the company's plant in Manila. The gas does not undergo any chemical change and is sold to consumers in the same state as when it was acquired from the refinery, except that before it is sold the gas is pumped into smaller cylinders, which are labeled with the company's trademark "Philigas." Under the foregoing facts the issue presented for resolution is purely one of law, namely, whether or not the Philippine Acetylene Co., Inc., insofar as its packaging operation of liquefied petroleum gas is concerned, may be considered engaged in an industry as contemplated in section 6 of Republic Act No. 1394 and therefore exempt from the payment of the special import tax in respect of the gas tank in question. Section 6 of Republic Act No. 1394, insofar as it is pertinent to the issue, provides: Section 6. The tax provided for in section one of this Act shall not be imposed against the importation into the Philippines of machinery and/or raw materials to be used by new and necessary industries as determined in accordance with Republic Act numbered Nine Hundred and One; ...; machinery, equipment, accessories and spare parts, for the use of industries, miners, mining enterprises planters and farmers; ... In finding that the Philippine Acetylene Co., Inc. is engaged in industry within the meaning of the abovequoted provision, the Tax Court held that the term industry should be understood in its ordinary and general definition, which is any enterprise employing relatively large amounts of capital and/or labor. On such premise the Tax Court concluded that inasmuch as the Philippine Acetylene Co., Inc. employs considerable labor and capital in packaging liquefied petroleum gas purchased by it and selling the same for profit, it is engaged in industry and hence is exempt from the payment of the special import tax in connection with the tank used as container. The following observations in the brief for the petitioner are apropos:

... in the exempting provisions of Republic Act No. 1394, the exempted items are divided into separate and specific enumerations. The term 'industries' is used in two distinct groups. The first group of exempted industries refers exclusively to those falling under the new and necessary industries as defined in Republic Act No. 901. In the second, the term "industries" is classed together with the terms miners, mining enterprises, planters and farmers. ... If Congress really intended to give the term "industries" its ordinary and general meaning and thus grant tax exemption to all ventures and trades falling under the said ordinary and general definition, it should have eliminated the words "new and necessary industries' and 'mining enterprises" since these two ventures are already covered by the term "industries" in its ordinary and general meaning. On the other hand, the fact that the language of the law specifically segregates new and necessary industries under Republic Act No. 901 among those entitled to the tax exemption, in effect, restricts the meaning and scope of the word "industries." The argument appears logical and reasonable. Since the term "industries" as used in the law for the second time is classified together with the terms "miners, mining enterprises, planters and farmers", the obvious legislative intent is to confine the meaning of the term to activities that tend to produce or create or manufacture, such as those of miners, mining enterprises, planters and farmers. The Tax Court's interpretation would lead to a Patent inconsistency, in that while the first part of the law confines the exemption to new and necessary industries, another part would extend the exemption to all other industries, regardless of their nature, as long as they employ labor and capital for profit-making purposes. In granting the exemption, it would have been illogical for Congress to specify importations needed by new and necessary industries -- as the term is defined by law and in the same breath allow a similar exemption to all other industries in general. The respondents make much of the interpretation of the term "industries" by the Secretary of Finance in his First Indorsement dated November 19, 1956, to wit: Any Productive enterprise which employs relatively large amounts of capital and/or labor falls under the term 'industries' as used in Section 6 of Republic Act No. 1394. Assuming ng the correctness of such interpretation, what should be noted is that it stresses the productive aspect of the enterprise. The operation for which the respondent company employs the gas tank in question does not involve manufacturing or production. It is nothing but packaging; the liquefied gas, when obtained from the refinery, has to be placed in some kind of container for transportation to Manila. When sold to consumers, it undergoes no change or transformation, but is merely placed in smaller cylinders for convenience. The process is certainly not production in any sense. The phrasing of Section 6 of Republic Act No. 1394, to be sure, is rather vague and infelicitious, particularly in the repetition of the word "industries." It is such lack of precision in the law that gives rise to litigious controversies concerning its proper application. One of the established rules of statutory construction, however, is that tax exemptions are held strictly against the taxpayer, and if not expressly mentioned in the law must be within its purview by clear legislative intent. In the present case the construction adhered to by the respondents in reference to the scope of the term "industries" as employed for the second time in Section 6 of Republic Act No. 1394 is contrary to such rule. For if the term were all inclusive, and meant industries in general, that is, those which involve relatively large amounts of capital and/or labor regardless of their productive or nonproductive nature, there would be no point in making a separate classification with respect to "new and necessary industries" for purposes of the tax exemption. We hold, therefore, that to be entitled to exemption under the second classification in the statute the industry concerned, in connection with the activity for which the importation is made, must be engaged in some productive enterprise, not in merely packaging an already finished product to facilitate its transportation. In a comparable case this Court has held that the tax exemption in connection with the

processing of gasoline and the manufacture of lubricating oil does not extend to pump parts imported by the processor and leased to gasoline stations for their use in servicing customers' vehicles, overruling the argument of the petitioner therein that the marketing of its gasoline product "is corollary to or incidental to its industrial operations." (ESSO Standard, Eastern, Inc. vs. Acting Commissioner of Customs, 18 SCRA 488). WHEREFORE, the decision of the Court of Tax Appeals is reversed and that of the Collector of Customs of Manila and the Commissioner of Customs upheld. Costs against respondent Philippine Acetylene Co., Inc. Concepcion, C.J., Reyes, J.B.L., Dizon, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ., concur. Castro and Teehankee, JJ., took no part.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-29987 October 22, 1975 MANILA ELECTRIC COMPANY, petitioner, vs. MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, respondent. G.R. No. L-23847 October 22, 1975 MANILA ELECTRIC COMPANY, petitioner, vs. BENJAMIN. TABIOS, as Commissioner of Internal Revenue, respondent. Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner. Office of the Solicitor General for respondents.

MUOZ PALMA, J.: Manila Electric Company, petitioner in these two cases, poses a single before Us: is Manila Electric Company (MERALCO for short) exempt from payment of a compensating tax on poles, wires, transformers, and insulators imported by it for use in

the operation of its electric light, heat, and power system? MERALCO answers the query in the affirmative while the Commissioner of Internal Revenue asserts the contrary. MERALCO is the holder of a franchise to construct, maintain, and operate an electric light, heat, and power system in the City of Manila and its suburbs. 1 In 1962, MERALCO imported and received from abroad on various dates copper wires, transformers, and insulators for use in the operation of its business on which, the Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax amounting to a total of P62,335.00. A claim for refund of said amount was presented by MERALCO and because no action was taken by the Commissioner of Internal Revenue on its claim, it appealed to the Court of Tax Appeals by filing a petition for review on February 25, 1964 (CTA Case No. 1495). On November 28, 1968, the Court of Tax Appeals denied MERALCO claim, forthwith, the case was elevated to the Court on appeal (L-29987). Again in 1963, MERALCO imported certain quantities of copper wires, transformers and insulators also to be used in its business and again a compensating tax of P6,587.00 on said purchases was collected. Its claim for refund of the amount having been denied by the Commissioner of Internal Revenue on January 23, 1964, MERALCO riled with the Court of Tax Appeals CTA Case No. 1493. On September 23, 1964 the Court of Tax Appeals decided against petitioner, and the latter filed with this Court the corresponding Petition for Review of said decision docketed herein as G.R. No. L-23847. Inasmuch as the two appeals raise the same issue, they are consolidated in this Decision. The law under which the Commissioner of Internal Revenue, respondent in these two cases, assessed and collected the corresponding compensating taxes in 1962 and 1963 was found in Section 190 of the National Internal Revenue Code(Commonwealth Act No. 466, as amended) the pertinent provision of which read at the time as follows:
Sec. 190. Compensating Tax. All persons residing or doing business in the Philippines, who purchase or receive from without the Philippines any commodities, goods, wares, or merchandise, excepting those subject to specific taxes under Title IV of this Code, shall pay on the total value thereof at the time they are received by such persons, including freight, postage, insurance, commission and all similar charges, a compensating tax equivalent to the percentage taxes imposed under this Title on original transactions effected by merchants, importers, or manufacturers, such tax to be paid before the withdrawal or removal of said commodities, goods, wares, or merchandise from the customhouse or the post office: ... 2

In deciding against petitioner, the Court of Tax Appeals held that following the ruling of the Supreme Court in the case of Panay Electric Co. vs. Collector of Internal Revenue, G.R. No. L-6753, July 30, 1955, Manila Gas Corp. vs. Collector of Internal Revenue, G.R. No. L-11784, October 24, 1958, and Borja vs. Collector of Internal Revenue, G.R. No. L-12134, November 30,1961, MERALCO is not exempt from paying the compensating tax provided for in Section 190 of the National Internal Revenue Code, the purpose of which is to "place casual importers, who are not merchants on equal putting with established merchants who pay sales tax on articles imported by them." The court further stated that MERALCO's claim for exemption from the payment of the compensating tax is not clear or expressed, contrary to the cardinal rule in taxation that "exemptions from taxation are highly disfavored in law, and he who claims exemption must be able to justify his claim by the clearest grant of organic or statute law. (pp. 10-11, L23847, rollo) Petitioner, on the other hand, bases its claim for exemption from the compensating tax on poles, wires, transformers and insulators purchased by it from abroad on paragraph 9 of its franchise which We quote from its brief:
PARAGRAPH 9. The grantee shall be liable to pay the same taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and insulators), machinery, and personal property as other persons are or may be hereafter by law to pay. Inconsideration of Part Two of the franchise herein granted, to wit, the right to build and maintain in the City of Manila and its suburbs a plant for the conveying and furnishing of electric current for light, heat, and power, and to charge for the same, the grantee shall pay to the City of Manila a five per centum of the gross earnings received form its business under this franchise in the City and its suburbs: PROVIDED, That two and one-half per centum of the gross earnings received from the business of the line to Malabon shall be paid to the Province of Rizal. Said percentage shall be due and payable at the times stated in paragraph nineteen of Part One hereof, and after an audit, like that provided in paragraph twenty of Part One hereof, and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted. (Petitioner's brief, p. 4, G.R. No. L-29987; see also pp. 3-4, petitioner's brief, L23847)

Petitioner argues that the abovequoted provision in plain and unambiguous terms makes two references to the exemption of the articles in question from all taxes except the franchise tax. Thus, after prescribing in the opening sentence that "the grantee shall be liable to pay the said taxes upon its real estate buildings, plant (not including poles, wires, transformers and insulators ), machinery and personal property as other persons are or may be hereinafter required by law to pay," par. 9, specifically provides that the percentage tax payable by petitioner as fixed therein "shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers and insulators of the grantee from which taxes and assessments the grantee is

hereby expressly exempted." Petitioner further states that while par. 9 does not specifically mention the compensating tax for the obvious reason that petitioner's original franchise was an earlier enactment, the words "in lieu of all taxes and assessments of whatsoever nature and by whatsoever authority" are broad and sweeping enough to include the compensating tax. (p. 5, petitioner's brief, L29987; pp, 4-5, ibid, L-23847) Petitioner also contends that the ruling of this Court in the cases of Panay Electric Co., Manila Gas Corporation, and Borja (supra) are not applicable to its situation. We find no merit in petitioner's cause. 1. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer, they being highly disfavored and may almost be said "to be odious to the law." He who claims an exemption must be able to print to some positive provision of law creating the right; it cannot be allowed to exist upon a mere vague implication or inference. 3 The right of taxation will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard, 416), for the state cannot strip itself of the most essential power of taxation by doubtful words; it cannot, by ambiguous language, be deprived of this highest attribute of sovereignty (Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace 492, 499). So, when exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a wellfounded doubt is fatal to the claim (Farrington vs. Tennessee & County of Shelby, 95 U.S. 679, 686). 4 2. Petitioner's submission that its right to exemption is supported by the "plain and unambiguous" term of paragraph 9 of its franchise is positively without basis. First, the Court cannot overlook the tax court's finding that, and We quote:
At the outset it should be noted that the franchise by the Municipal Board of the City of Manila to Mr. Charles M. Swift and later assumed and taken over by petitioner (see Rep. Act No. 150, CTA rec. p. 84), is a municipal franchise and not a legal franchise. While it is true that Section 1 of Act No. 484 of the Philippine Commission of 1902 authorizes the Municipal Board of the City of Manila to grant a franchise to the person making the most favorable bid for the construction and maintenance of an electric street railway and the construction, maintenance, and operation of an electric light, heat, and power system in Manila and its suburbs, Section 2 of the same Act authorize the said Municipal Board to make necessary amendments to be fixed by the terms of the successful bid; otherwise, the form of the franchise to be granted shall be in the words and figures appearing in Act No. 484 of the Philippine Commission, which includes Par. 9. Part Two, thereof, supra. This Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of Act No. 484 of the Philippine Commission of 1902 was

incorporated in the municipal franchise granted to Mr. Charles M. Swift by the Municipal Board of the City of Manila and later assumed and taken over by petitioner because no admissible copy of Ordinance No. 44 of the said Board was ever presented in evidence by the herein petitioner. Neither is this Court aware of any amendment to the terms of this franchise granted by the aforesaid Municipal Board to the successful bidder in the absence of Ordinance No. 44 and the amendment thereto, if any. In the circumstances, we are at a Las to interpret and apply the tax exemption provisions relied upon by petitioner. (pp. 11-13, rollo, L29987)

Second, and this is the controlling reason for the denial of petitioner's claim in these cases, We do not see in paragraph 9 of its petitioner's franchise, on the assumption that it does exist as worded, what may be considered as "plain and unambiguous terms" declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles, wires, transformers, and insulators. What MERALCO really wants Us to do, but which We cannot under the principles enumerated earlier, is to infer and imply that there is such an exemption from the following phrase: "... the grantee shall pay to the City of Manila five per centum of the gross earnings received from its business ... and shall be in lieu of all taxes and assessments of whatsoever nature, and by whatsoever authority upon the privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted." Note that what the above provision exempts petitioner from, is the payment of property, tax on its poles, wires, transformers, and insulators; it does not exempt it from payment of taxes like the one in question which, by mere necessity or consequence alone, fall upon property. The first sentence of paragraph 9 of petitioner's franchise expressly states that the grantee like any other taxpayer shall pay taxes upon its real estate, buildings, plant (not including poles, wires, transformers, and insulators),machinery, and personal property. These are direct taxes imposed upon the thing or property itself. Thus, while the grantee is to pay tax on its plant, its poles, wires, transformers, and insulators as forming part of the plant or installation(significantly the enumeration is in parenthesis and follows the word "plant") are exempt and as such are not to be included in the assessment of the property tax to be paid. The ending clause of paragraph 9 providing in effect that the percentage tax imposed upon petitioner shall be in lieu of "all taxes and assessments of what and by whatsoever authority" cannot be said to have granted it exemption from payment of compensating tax. The phrase "all taxes and assessments of whatsoever nature and by whatsoever authority" is not so broad and sweeping, as petitioner would have Us think, as to include the tax in question because there is an immediately succeeding phrase which limits the scope of exemption to taxes and assessments "upon the privileges earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee." The last clause of paragraph 9 merely reaffirms, with regards to poles, wires, transformers, and insulators, what has been expressed in the that first sentence of the same

paragraph namely, exemption of petitioner from payment of property tax. It is a principle of statutory construction that general terms may be restricted by specific words, with the result that the general language will be limited by the specific language which indicates the statute's object and purpose. (Statutory Construction by Crawford, 1940 ed. p. 324-325) 3. It is a well-settled rule or principle in taxation that a compensating tax is not a property tax but is an excise tax. 5 Generally stated, an excise tax is one that is imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege.6 A tax upon property because of its ownership its a direct tax, whereas one levied upon property because of its use is an excise duty. (Manufacturer's Trust Co. vs. United States, Ct. Cl., 32 F. Supp. 289, 296) Thus, where a tax which is not on the property as such, is upon certain kinds of property, having reference to their origin and their intended use, that is an excise tax. (State v. Wynne, 133 S.W. 2d 951, 956,957, 133 Tex. 622) The compensating tax being imposed upon petitioner herein, MERALCO, is an impost on its use of imported articles and is not in the nature of a direct tax on the articles themselves, the latter tax falling within the exemption. Thus, in International Business Machine Corp. vs. Collector of Internal Revenue , 1956, 98 Phil. Reports 595, 593, which involved the collection of a compensating tax from the plaintiff-petitioner on business machines imported by it, this Court stated in unequivocal terms that "it is not the act of importation that is taxed under section 190, but the use of imported goods not subjected to sales tax " because "the compensating tax was expressly designed as a substitute to make up or compensate for the revenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad. ..." It is true that upon the collection of a compensating tax on petitioner's poles, wires, transformers, and insulators purchased from abroad, the tax falls on the goods themselves; this fact leads petitioner to claim that what is being imposed upon it is a property tax. But petitioner loses sight of the principle that "every excise necessarily must finally fall upon and be paid by property, and so may be indirectly a tax upon property; but if it is really imposed upon the performance of an act, the enjoyment of a privilege, or the engaging in an occupation, it will be considered an excise." (51 Am. Jur. 1d, Taxation, Sec. 34, emphasis supplied) And so, to reiterate, what is being taxed here is the use of goods purchased from out of the country, and the imposition is in the nature of an excise tax. 4. There is no valid reason for Us not to apply to petitioner the ruling of the Court in Panay Electric Co. and Borja, supra, for MERALCO is similarly situated. Panay Electric Co. sought exemption from payment of a compensating tax on equipments purchased abroad for use in its electric plant. A provision in its franchise reads:

Sec 8. ... Said percentage shall be due and payable quarterly and shall be lieu of all taxes of any kind levied, established, or collected by any authority whatsoever, now or in the future, on its poles, wires, insulators, switches, transformers and other structures, installations, conductors, and accessories, placed in and over the public streets, avenues, roads, thoroughfares, squares, bridges, and other places on its franchise, from which taxes the grantee is hereby expressly exempted. (113 Phil. 570)

This Court rejected the exemption sought by Panay Electric and held that the cited provision in its franchise exempts from taxation those rights and privileges which are not enjoyed by the public in general but only by the grantee of a franchise, but do not include the common right or privileges of every citizen to make purchases anywhere; and that we must bear in mind the purpose for the imposition of compensating tax which as explained in the report of the Tax Commission is as follows:
The purpose of this proposal is to place persons purchasing goods from dealers doing business in the Philippines on an equal footing, for tax purposes, with those who purchase goods directly from without the Philippines. Under the present tax law, the former bear the burden of the local sales tax because it is shifted to them as part of the selling price demanded by the local merchants, while the latter do not. The proposed tax will do away with this inequality and render justice to merchants and firms of all nationalities who are in legitimate business here, paying taxes and giving employment to a large number of people. (113 Phil. 571)

In Borja, petitioner Consuelo P. Borja, a grantee of a legislative franchise, also claimed to be free from paying the compensating tax imposed on the materials and equipment such as wires, insulators, transformers, conductors, etc. imported from Japan, on the basis of Sec. 10 of Act No. 3636 (Model Electric Light and Power Franchise Act) which has been incorporated by reference in franchise under Act No. 3810. Section 10 provides:
The grantee shall pay the same taxes as are now or may "hereafter be required by law from other individuals, co-partnerships, private, public or quasi-public associations, corporations, or joint-stock companies, on his (its) real estate, buildings, plants, machinery; and other personal property, except property section. In consideration of the franchise and rights hereby granted, the grantee shall pay into the municipal treasury of the (of each) municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross earnings from electric current sold or supplied under this franchise in said (each) municipality. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial or insular, now or in the future, on its poles, wires, insulators, switches; transformers and structures, installations, conductors, and accessories, placed in and over and under all public property, including public streets and highways, provincial roads, bridges and public squares, and on its franchise, rights, privileges, receipts, revenues and profits, from which taxes the grantee is hereby expressly exempted. (113 Phil. 569570)

The Court applying the ruling in Panay Electric denied the exemption with the added statement that

Considering, therefore, the fact that section 190 of the Tax Code is a sort of an equalizer, to place casual importers, who are not merchants on equal footing with established merchants who pay sales tax on articles imported by them ... We may conclude that it was not the intention of the law to exempt the payment of compensating tax on the personal properties in question. The principle and legal philosophy underlying the imposition of compensating tax, as enunciated in the above case (referring to Borja), are fundamentally correct, and no plausible reason is advanced for their non-application to the case at bar. (p. 572, ibid.)

Petitioner claims that there exists a difference between paragraph 9 of its franchise and the corresponding provisions of the franchise of Panay Electric and Borja in that in the latter, unlike in the former, there is no statement that the grantee is exempt from "all taxes of whatsoever nature and whatsoever authority." In addition, petitioner points out, the franchise of Panay Electric and Borja contains a qualifying phrase, to wit: "placed in and over the public streets, avenues, roads, thoroughfares, etc." A comparison of the pertinent provisions mentioned by petitioner and which are quoted in the preceding pages reveals no substantial or fundamental distinction as to remove petitioner MERALCO from the ambit of the Panay Electric and Borja ruling. There may be differences in the phraseology used, but the intent to exempt the grantee from the payment only of property tax on its poles, wires, transformers, and insulators is evidently common to the three; withal, in all the franchises in question there is no specific mention of exemption of the grantee from the payment of compensating tax. Petitioner disputes, however, the applicability of the stare decisis principle to its case claiming that this Court should not blindly follow the doctrine of Panay Electric and Borja, and that in Philippine Trust Co. et al. vs. Mitchell, 59 Phil. 30, 36, the Court had occasion to state: ,the rule of stare decisis is entitled to respect. Stability in the law, particularly in the business field, is desirable. But idolatrous reverence for precedent, simply as precedent, no longer rules. More important than anything else is that the court should be right." (pp. 18-19, petitioner's brief, L-29987) But what possible ground can there be for deviating from the decisions of this Court in these two cases? A doctrine buttressed by the law, reason, and logic is not to be simply brushed aside to suit the convenience of a particular party or interest or to avoid hardship to one. As We view this legal problem, no justification can be found for giving petitioner herein preferential treatment by reading into its franchise an exemption from a particular kind of tax which is not there. If it had been the legislative intent to exempt MERALCO from paying a tax on the use of imported equipments, the legislative body could have easily done so by expanding the provision of paragraph 9 and adding to the exemption such words as "compensating tax" or "purchases from abroad for use in its business," and the like. We cannot ignore the principle that express mention in a statute of one exemption precludes reading others into it. (Hoard vs. Sears, Roebuck & Co., 122 Conn. 185, 193, 188 A. 269)

On this point, the Government correctly argues that the provision in petitioner's franchise that the payment of the percentage tax on the gross earnings shall be "in lieu of all taxes and assessments of whatsoever nature, and whatsoever authority" is not to be given a literal meaning as to preclude the imposition of the compensating tax in this particular case, and cites for its authority the Opinion of the Supreme Court of Connecticut rendered in Connecticut Light & Power Co., et al. vs. Walsh, 1948, which involved the construction of a statute imposing a sales and use tax, and which inter alia held:
The broad statement that the tax upon the gross earning of telephone companies shall be "in lieu of all other taxation" upon them is not necessarily to be given a literal meaning. "In construing the act it is our duty to seek the real intent of the legislature, even though by so doing we may limit the literal meaning of the broad language used." Greenwich Trust Co. v. Tyson, 129 Conn. 211, 222, 27 A. 2d 166, 172. It is not reasonable to assume that the General Assembly intended by the provisions we have quoted that the tax on gross earnings should take the place of taxes of a kind not then anywhere imposed and entire outside its knowledge . ... ." (57 A.R., 2d S, pp. 129, 133-134, emphasis supplied)

In 1902 when Act 484 of the Philippine Commission was enacted, "compensating tax' was certainly not generally known or in use, hence, to paraphrase the abovementioned Connecticut decision, the Court cannot assume that the Philippine Commission in providing that the gross earnings taxes imposed on the grantee of the electric light franchise shall be in lieu of all taxes and assessments, meant to include impositions in the nature of a compensating tax which came into use in this country only upon the enactment of Commonwealth Act 466 in 1939. 5. One last argument of petitioner to support its cause is that just as a new and necessary industry was held to be exempt from paying a compensating tax on its imports under the tax exemption provision of Republic Act 901, so should MERALCO be exempt from such a tax under the general clause in its franchise, to wit: "... in lieu of all taxes and assessments of whatsoever nature and whatsoever authority upon poles, wires, etc." We agree with the court below that there can be no analogy between MERALCO and what is considered as a new and necessary industry under Republic Act 35 now superseded by Republic Act 901. The rationale of Republic Act 901 is "to encourage the establishment or exploitation of new and necessary industries to promote the economic growth of the country," and because "an entrepreneur engaging in a new and necessary industry faces uncertainty and assumes a risk bigger than one engaging in a venture already known and developed ... the law grants him tax exemption to lighten onerous financial burdens and reduce losses." (Marcelo Steel Corporation vs. Collector of Internal Revenue, 109 Phil. 921, 926) This intendment of the legislature in enacting Republic Act 901 is not the motivation behind the tax exemption clause found in petitioner MERALCO's franchise; consequently, there can be no analogy between the two.

IN VIEW OF THE FOREGOING, We find no merit in these Petitions for Review and We hereby AFFIRM the decision of the Court of Tax Appeals in these two cases, with costs against petitioner in both instances. So Ordered. Castro (Actg. C.J.), Teehankee, Aquino and Martin, JJ., concur. Makasiar, J., took no part.

Footnotes
1 Act No. 484 of the Philippine Commission enacted on October 20, 1902, granted to the Municipal Board of the City of Manila authority to award to the person or persons making the most favorable bid a franchise to construct and maintain in the streets of Manila and its suburbs an electric street railway and a franchise to construct, maintain, and operate an electric light, heat, and power system in the city of Manila and its subsurbs. (Sec. 1) Pursuant to this authority, the Municipal Board of Manila in its Ordinance No. 44 granted the franchise to Charles M. Swift who on March 27, 1903 transferred said franchise to Manila Railway and Light Company now known as the Manila Electric Company. (see Sec. 1, Act No. 1112 of the Philippine Commission, Vol. IV, Public Laws Annotated, Guevara, p. 101) The franchise of the Manila Electric Company was extended for a period of twenty years under Republic Act 150, and was further extended for another thirty years under Republic Act 4159, approved on June 20, 1964. 2 The original text of Sec. 190 of Commonwealth Act 466 was amended by: CA 503 section 4 and 6 effective October 1, 1939; RA 48 sections 8 and 14 effective October 1, 1946; RA 253 sections 2 and 4 effective July 1, 1948; RA 361 sections 1 and 2 effective June 9, 1949; RA 1511 sections 2 and 3 effective June 16, 1956; RA 1612 sections 11 and 21 effective August 24, 1956; RA 2362 sections 1 and 2 effective June 20, 1959; RA 3176 sections 1 and 2 effective June 17, 1961; RA 4103 sections 1 and 2 effective June 19, 1964. After the proclamation of martial law, Sec. 190 saw several changes under Presidential Decrees Nos. 69, 237, and 413. 3 Asiatic Petroleum vs. Llanes, 49 Phil. 466, 471; Union Garment Co., Inc. vs. Court of Tax Appeals, L-16809, January 31, 1962, 4 SCRA 304; Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue, L-19707, August 17, 1967, 20 SCRA 1056; Republic Flour Mills, Inc. vs Commissioner of Internal Revenue, L-25602, February 18, 1970, 31 SCRA 520; Commissioner of Customs vs. Philippine Acetylene Co. & CTA, L-22443, May 29, 1971, 39 SCRA 71; Davao Light and Power Co., Inc. vs. Commissioner of Customs, L-28902, March 29, 1972, 44 SCRA 122. 4 see Asiatic Petroleum Co. vs. Llanes, supra, wherein all the above mentioned American doctrines are cited and quoted with approval.

5 129 A.L.R. p. 223, 230; 103 A.L.R. 93; Hennefored v. Silas Mason Co., 81 L Ed 814; Connecticut Light and Power Co. v. Walsh, 1 A.L.R. 2d 453; Watson Industries v. Shaw, 69 SE 2d 505, 510; Northern P.R. Co. v. Hennefored [1936; DC], 15 F Supp 302. 6 State vs. Brown, 148 N.E. 95, 112 Ohio St. 590; Buckstaff BathHouse Co. vs. McKinley, 127 S.W. 2d 802, 806, 198 Ark. 91; State vs. Fields, Ohio App., 35 N.E. 2d 744, 747.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-55236 December 12, 1986 PHILIPPINE TELEGRAPH AND TELEPHONE CORPORATION, petitioner, vs. THE COMMISSION ON AUDIT and HON. FRANCISCO S. TANTUICO, JR., Acting Chairman, Commission on Audit, respondents. Quiason, De Guzman, Makalintal and Barot Law Office for petitioner.

PARAS, J.: Petitioner Philippine Telegraph and Telephone Corporation (PT & T, for short) was granted on June 20, 1964, under Republic Act No. 4161, a franchise "to establish, install maintain and operate wire and/or wireless telecommunication systems, lines, circuits and stations throughout the Philippines for public, domestic and international communications. " Under the said franchise, the petitioner is required to pay a franchise tax of one and one-half per cent (1-1/2 %) on all gross receipts from business transacted thereunder. Under the provisions of a subsequent law, Republic Act No. 5048, in the event of "any competing individual, partnership or corporation, receiving a similar permit or franchise with terms and/or provisions more favorable than those granted under Republic Act No. 4161, or tending to place PT & T at any disadvantage, then such term or terms and/or provisions shall ipso facto become part of the terms and/or provisions of Republic Act No. 4161, and shall operate equally in favor of petitioner PT & T as in the case of said competing individual, partnership or corporation. " On June 17, 1976, Domestic Satellite Philippines, Inc. (DOMSAT for short) was granted by Presidential Decree No. 947 a franchise to operate "as a carrier's carrier, any and all types of telecommunications services available through the use of space relay and repeater stations for domestic public communications with authority to receive and transmit messages, impressions, pictures, music, entertainment, advertising, and signals throughout the Philippines and between the Philippines and ships at sea, airplanes and other conveyances, contract with and furnish channels of communication, both satellite and terrestial to authorized users" (Sec. 1). Under its franchise, DOMSAT is required to pay a franchise tax of only one-half percent (1/2%) on all gross receipts from business transacted thereunder.

Subsequently, respondent Commission on Audit (Commission, for short) in its examination of the books of petitioner, found that PT & T had a franchise tax deficiency of P387,370.50 for the year 1979. This amount was computed at 1-1/2% of petitioner's gross receipts from business transacted under its franchise. Accordingly, in its letter dated June 4, 1980, the Conunission informed petitioner of its liability for said amount. On July 29, 1980, petitioner took exception to the Commission's finding on the ground that under the "most favored treatment clause" of Republic Act No. 4161, as amended by Republic Act 5048, its franchise tax liability should no longer be at the rate of 1-1/2% of its gross receipts but only 1/2%, and if the latter percentage were used as basis for computation, it has clearly fully settled its franchise tax liability. In a letter dated August 26, 1980, the Commission found petitioner's contention without merit and reiterated its previous stand that petitioner's franchise tax should be computed at the rate of 1-1/2 %. Hence, the instant petition which seeks the review of the letter dated June 4, 1980 and the letter dated August 26, 1980 of respondent Commission. We find the instant petition devoid of merit. The letters dated June 4, 1980 and August 26, 1980 of respondent Commission are not proper subjects of appeal and/or review by this Court. Section 1 Rule 44 of the Rules of Court provides: SECTION 1. How appeal taken. An appeal from a final award, order or decision of the Public Service Commission, the Court of Tax Appeals, and the General Auditing Office, shall be perfected by filing with said bodies a notice of appeal and with the Supreme Court twelve (12) copies of a petition for review of the award, order or ruling complained of, within a period of thirty (30) days from notice of such award, order or decision. A cursory examination of the two (2) letters in question shows that the same are not a "final award, order or decision" within the meaning of the aforequoted provisions. Respondent Commission in the said letters did not decide the issue. It did not render a decision, order or final award. It merely expressed an opinion. This is obvious from the letter dated May 13, 1980 of Auditors Virginia A. Geronimo, Carmelita M. Agullana Maria M. Bautista and Lilia S. Perez to the Acting Chairman of the Commission (Annex 'A' of the Petition) the pertinent portion of which states: In view of the foregoing, we respectfully recommend that the franchise tax deficiency of the company in the amount of P387,370.50, exclusive of surcharge and penalty thereon, for the year 1979 as well as the franchise tax liabilities for 1975, 1976, 1977 and 1978 in the amounts of P8,637.63, P4,275.71, P369,902.19 and P292,949.28, respectively, likewise exclusive of surcharge and penalties thereon, be brought to the attention of the Bureau of Internal revenue for immediate assessment and/or collection This conclusion is likewise obvious from the letter dated August 26, 1980 of respondent Acting Chairman to petitioner (Annex 'B' of the petition) which states: May we, therefore, reiterate our opinion that there being no business competition between PT & T and DOMSAT "as the customers of one are not necessarily the customers of the other and viceversa", the rate of franchise tax of PT & T should be one and one half (1-1/2%) percent as provided under Republic Act No. 4161.

Then too, respondent Commission cannot render a "final order, decision or award" on the question of whether petitioner should pay 1-1/2% or 1/2% of franchise tax. This is not a matter falling under its jurisdiction. Rather, it is a matter for resolution by the Bureau of Internal Revenue whose decision may be appealed to the Court of Tax Appeals. The two (2) letters of respondent Commission, being a mere "opinion," the same cannot be brought to this Court for review. Even assuming that the "opinion" of respondent Commission expressed in its two (2) letters is proper subject for review, the same is in accordance with the law. In construing the "most favored treatment clause" of Republic Act No. 5048, it has been held that the principle behind such provision is that of "fair play" "to place both competing groups or entities on equal footing and not to give one an advantage over the other." (Davao Light and Power Co., Inc. vs. The Commissioner of Customs, 44 SCRA 127).An examination of the franchises of petitioner PT & T and DOMSAT discloses that while they are both engaged in telecommunication activities, they are not necessarily in competition with each other. DOMSAT is a "carrier's carrier". It is a communications outfit that provides services to other communication petitions outfits. It was formed for the exploitation of the benefits of the communications satellite system. It is principally a "middleman" between the operators of the communications satellite system and the domestic carriers such as petitioner. Thus, its franchise states that petitioner shall have "the right and authority ... to construct, maintain and operate such ground and other facilities, as needed to deliver telecommunications services to and from the communications satellite system and the telephone, telegraph, telex and other networks and terminals of specialized telecommunications network of government and/or private persons and/or corporations such as computer-data communications systems and point-to-point or switched voice networks. On the other hand, petitioner was granted a franchise to render communications services to end users. It was not licensed to operate as a "carrier's carrier." Thus, its franchise states that it has authority to install and operate facilities for "international and domestic public communications." Therefore, since DOMSAT caters to other carriers while petitioner caters to end users, they are not competitors. Stated otherwise, there can be no business rivalry between the two firms inasmuch as the customers of one are not the customers of the other and vice-versa. Another reason why DOMSAT and petitioner cannot be considered competing firms is the fact that the former principally provides communications services through the communications-satellite system, while the latter-does so principally through its own facilities. Since petitioner and DOMSAT are not competitors, petitioner cannot avail itself of the privilege of paying its franchise tax at the rate of 1/2% instead of 1-1/2% as provided in its franchise. Moreover, what petitioner is claiming in effect, is a reduction of its taxes due the Government. The rule is that, as the power of taxation is a high prerogative of sovereignty, its relinquishment is never presumed and any reduction or dimunition thereof with respect to its mode or its rate must be strictly construed and the same must be couched in clear and unmistakable terms in order that it may be applied. (84 C.J.S. pp. 659-800). WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur. ****

Republic of the Philippines SUPREME COURT Manila

EN BANC [G.R. No. L-9408. October 31, 1956.] EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, Respondents. DECISION BAUTISTA ANGELO, J.: On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance On the basis of said return, an assessment notice demanding the payment of P9,419 was sent to Petitioner, who paid the tax in monthly installments, the last payment having been made on January 2, 1953. Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his general Circular No. V- 123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. As a consequence, the amount of P12,837.65 was disallowed as a deduction from the gross income of Petitioner for 1951 and the Collector of Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency income tax for said year. When the petition for reconsideration filed by Petitioner was denied, he filed a petition for review with the Court of Tax Appeals. In due time, this court rendered decision affirming the assessment made by Respondent Collector of Internal Revenue. This is an appeal from said decision. It appears that Petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a business asset within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951. This claim is untenable. To begin with, assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to Petitioner, the last installment he received from the War Damage Commission, together with

the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a business asset which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was absolutely no law under which Petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, All findings of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be reviewable by any court. (section 113). It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused the issuance of General Circular No. V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which the amount of P12,837.65 was allowed to be deducted in the year the last installment was received with notice that no further payment would be made until the United States Congress makes further appropriation therefor, but such circular was found later to be wrong and was revoked. Thus, when doubts arose as to the soundness or validity of such circular, the Secretary of Finance sought the advice of the Secretary of Justice who, accordingly, gave his opinion the pertinent portion of which reads as follows:
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Yet it might be argued that war losses were not included as deductions for the year when they were sustained because the taxpayers had prospects that losses would be compensated for by the United States Government; that since only uncompensated losses are deductible, they had to wait until after the determination by the Philippine War Damage Commission as to the compensability in part or in whole of their war losses so that they could exclude from the deductions those compensated for by the said Commission; and that, of necessity, such determination could be complete only much later than in the year when the loss was sustained. This contention falls to the ground when it is considered that the Philippine Rehabilitation Act which authorized the payment by the United States Government of war losses suffered by property owners in the Philippines was passed only on August 30, 1946, long after the losses were sustained. It cannot be said therefore, that the property owners had any conclusive assurance during the years said losses were sustained, that the compensation was to be paid therefor. Whatever assurance they could have had, could have been based only on some information less reliable and less conclusive than the passage of the Act itself. Hence, as diligent property owners, they should adopt the safest alternative by considering such losses deductible during the year when they were sustained.
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In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his previous Circular No. V 123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. We can hardly argue against this opinion.

Since we have already stated that the amount claimed does not represent a business asset that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within the corresponding taxable year. Petitioners contention that during the last war and as a consequence of enemy occupation in the Philippines there was no taxable year within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy. Furthermore, it is a legal maxim, that excepting that of a political nature, Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty. (Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the same author says, in his Treatise on the Conflict of Laws (Cambridge, 1916, section 131): There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so forever. Conquest or colonization is impotent to bring law to an end; inspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change. (Co Kim Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.)
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It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is vested exclusively in our courts in view of the principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in revoking it and approving in lieu thereof General Circular No. V-139. It cannot be denied, however, that the Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given. [Association of Clerical Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.] When the Commissioner determined in 1937 that the Petitioner was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the Petitioner from tax, This same point was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; affd., 83 Fed. (2d) 710. (Southern Maryland Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554).
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With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by Petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a

taxpayer. The reason is obvious: a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration. It seems too clear for serious argument that an administrative officer cannot change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due. (Ben Stocker, et al., 12 B. T. A., 1351.) Art. 2254. No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others. (Article 2254, New Civil Code.) 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.

Republic of the Philippines Supreme Court Manila

EN BANC [G.R. No. L-9141. September 25, 1956.] Testate Estate of OLIMPIO FERNANDEZ, deceased. REPUBLIC OF THE PHILIPPINES, claimant-Appellee, vs. ANGELINA OASAN VDA DE FERNANDEZ, PRISCILLA O. FERNANDEZ, and ESTELA O. FERNANDEZ, Oppositors-Appellants. DECISION LABRADOR, J.: Appeal from a decision of the Court of Tax Appeals sustaining the validity of a tax amounting to P7,614.60 against the estate of Olimpio Fernandez under the War Profits Tax Law (Republic Act No. 55). Olimpio Fernandez and his wife Angelina Oasan had a net worth of P8,600 on December 8, 1941. During the Japanese occupation the spouses acquired several real properties, and at the time of his death on February 11, 1945 he had a net worth of P31,489. The Collector of Internal Revenue assessed a war profits tax on the estate of the deceased at P7,614.60, which his administratrix refused to pay. The case was brought to the Court of Tax Appeals which sustained the validity and legality of the assessment. The administratrix has appealed this decision to this Court.

The most important questions raised by the Appellant are: (a) the unconstitutionality of the war profits tax law for the reason that it is retroactive; (b) the inapplicability of said law to the estate of the deceased Olimpio Fernandez, because the law taxes individuals; and (c) the separate taxation of the estate of the deceased Olimpio Fernandez from that of his wifes, because Olimpio Fernandez died before the law was passed.
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Appellants contention that the law is invalid or unconstitutional because it acts retroactively, thus violating the due process of law clause, is not supported by reason or authority. The tax, insofar as applicable to the estate of the deceased Olimpio Fernandez, is both a property tax and a tax on income. It is a property tax in relation to the properties that Fernandez had in December, 1941; and it is an income tax in relation to the properties which he purchased during the Japanese occupation. In both cases, however, the war profits tax may not be considered as unconstitutional.
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The doctrine of unconstitutionality raised by Appellant is based on the prohibition against ex post facto laws. But this prohibition applies only to criminal or penal matters, and not to laws which concern civil matters or proceedings generally, or which affect or regulate civil or private rights (Ex parte Garland, 18 Law Ed., 366; 16 C.J. S., 889-891).
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At an early day it was settled by authoritative decisions, in opposition to what might seem the more natural and obvious meaning of the term ex post facto, that in their scope and purpose these provisions were confined to laws respecting criminal punishments, and had no relation whatever to retrospective legislation of any other description. And it has, therefore, been repeatedly held, that retrospective laws, when not of a criminal nature, do not come in conflict with the national Constitution, unless obnoxious to its provisions on other grounds than their respective character. (1 Cooley, Constitutional Limitations, 544-545.) We have applied the above principle in the cases of Mekin vs. Wolf, 2 Phil. 74 and Ongsiako vs. Gamboa, 47 Off. Gaz., No. 11, 5613, 5616. It has also been held that property taxes and benefit assessments on real estate, retroactively applied, are not open to the objection that they infringe upon the due process of law clause of the Constitution (Wagner vs. Baltimore, 239 U. S. 207, 60 L. Ed. 230); that taxes on income are not subject to the constitutional objection because of their retroactivity . The universal practice has been to increase taxes on incomes already earned; yet notwithstanding this retroactive operation, income taxes have not been successfully assailed as invalid. The uniform ruling of the courts in the United States has been to reject the contention that the retroactive application of revenue acts is a denial of the due process guaranteed by the Fifth Amendment (Welch vs. Henry, 305 U. S. 134, 83 L. Ed. 87).
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It has also been held that in order to declare a tax as transgressing the constitutional limitation, it must be so harsh and oppressive in its retroactive application (Idem.). But we hold that far from being unjust or harsh and oppressive our war profits tax is both wise and just. The last Pacific war and the Japanese occupation of the Islands have wrought divergent effects upon the different sectors of the population. The quiet and the timid, who were afraid to go out of their homes or who refused to have any dealings with the enemy, stopped from exercising their callings or professions, losing their incomes; and they supported themselves with properties they already owned, selling these from time to time to raise funds with which to purchase their daily needs. These were reduced to penury and want. But the bold and the daring, as well as those who were callous to the criticism of being collaborators, engaged in trading in all
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forms or sorts of commodities, from foodstuffs to war materials, earning fabulous incomes and acquiring properties with their earnings. Those who were able to retain their properties found themselves possessed of increased wealth because inflation set in, the currency dropped in value and properties soared in prices. It would have been unrealistic for the legislature to have ignored all these facts and circumstances. After the war it could not, with justice to all concerned, apportion the expenses of government equally on all the people irrespective of the vicissitudes of war, equally on those who had their properties decimated as on those who had become fabulously rich after the war. Those who were fortunate to increase their wealth during the troubulous period of the war were made to contribute a portion of their newly-acquired wealth for the maintenance of the government and defray its expenses. Those who in turn were reduced to penury or whose incomes suffered reductions could not be compelled to share in the expenses to the same extent as those who grew rich. This in effect is what the legislature did when it enacted the War Profits Tax Law. The law may not be considered harsh and oppressive because the force of its impact fell on those who had amassed wealth or increased their wealth during the war, but did not touch the less fortunate. The policy followed is the same as that which underlies the Income Tax Law, imposing the burden upon those who have and relieving those who have not. No one can dare challenge the law as harsh and oppressive. We declare it to be just and sound and overrule the objection thereto on the ground of unconstitutionality. The contention that the deceased Olimpio Fernandez or his estate should not be responsible because he died in 1945 and was no longer living when the law was enacted at a later date, in 1946, is absolutely without merit. Fernandez died immediately before the liberation and the actual cessation of hostilities. He profited by the war; there is no reason why the incident of his death should relieve his estate from the tax. On this matter we agree with the Court of Tax Appeals that the provisions of section 18 of the Internal Revenue Code have been incorporated in Republic Act No. 55 by virtue of Section 9 thereof, which provides:
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SEC. 9. Administrative remedies. All administrative, special and general provisions of law, including the laws in relation to the assessment, remission, collection and refund of national internal revenue taxes, not inconsistent with the provisions of the Act, are hereby extended and made applicable to all the provisions of this law, and to the tax herein imposed. Under section 84 of the National Internal Revenue Code, the term person means an individual, a trust, estate, corporation, or a duly registered general co-partnership. If the individual is already dead, property or estate left by him should be subject to the tax in the same manner as if he were alive. The last contention is also without merit. The property which Olimpio Fernandez was possessed of in December, 1941 is presumed to be conjugal property and so are the properties which were acquired by him during the war, because at that time he was married. There is no claim or evidence to support the claim that any of the properties were paraphernal properties of the wife; so the presumption stands that they were conjugal properties of the husband and wife. Under these circumstances they cannot be considered as properties belonging to two individuals, each of which shall be subject to the tax independently of the other.
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For the foregoing considerations, the judgment appealed from is hereby affirmed, with costs against the Appellants.

Paras, C.J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-43082 June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant, vs. JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant. Pablo Lorenzo and Delfin Joven for plaintiff-appellant. Office of the Solicitor-General Hilado for defendant-appellant. LAUREL, J.: On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when the aforesaid tax was paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to be interest due on the tax in question and which was not included in the original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court. It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for the probate of his will and the settlement and distribution of his estate were begun in the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides, among other things, as follows: 4. I direct that any money left by me be given to my nephew Matthew Hanley. 5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of for a period of ten (10) years after my death, and that the same be handled and managed by the executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only for the education of my brother's children and their descendants. 6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew Hanley to be disposed of in the way he thinks most advantageous. xxx xxx xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew Hanley, is a son of my said brother, Malachi Hanley. The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead. During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the testamentary proceedings pending before the Court of First Instance of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that unless the amount was promptly refunded suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court with the result herein above indicated. In his appeal, plaintiff contends that the lower court erred: I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew Hanley, from the moment of the death of the former, and that from the time, the latter became the owner thereof. II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of said deceased. III. In holding that the inheritance tax in question be based upon the value of the estate upon the death of the testator, and not, as it should have been held, upon the value thereof at the expiration of the period of ten years after which, according to the testator's will, the property could be and was to be delivered to the instituted heir. IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to said tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the decedent's estate. V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial. The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides: The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate of Thomas Hanley. The following are the principal questions to be decided by this court in this appeal: (a) When does the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the compensation due to

trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate? Other points of incidental importance, raised by the parties in their briefs, will be touched upon in the course of this opinion. (a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a person are transmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no distinction between different classes of heirs. That article does not speak of forced heirs; it does not even use the word "heir". It speaks of the rights of succession and the transmission thereof from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the authentication and probate of a will as a necessary condition to effect transmission of property does not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its due execution but once probated and allowed the transmission is effective as of the death of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission of the inheritance takes place, succession takes place in any event at the moment of the decedent's death. The time when the heirs legally succeed to the inheritance may differ from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax accrued as of the date. From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the same Code. The two sections follow: SEC. 1543. Exemption of certain acquisitions and transmissions. The following shall not be taxed: (a) The merger of the usufruct in the owner of the naked title. (b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the trustees. (c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid by the first, the former must pay the difference. SEC. 1544. When tax to be paid. The tax fixed in this article shall be paid: (a) In the second and third cases of the next preceding section, before entrance into possession of the property. (b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the payment shall be made by the executor or administrator before delivering to each beneficiary his share. If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the collector, there shall be further added a surcharge of twenty-five per centum. A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal Revenue by the Clerk of Court within thirty days after their issuance. It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543, should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation from the Spanish to the English version. The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March 10, 1924. (b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax should be based on the value of the estate in 1932, or ten years after the testator's death. The plaintiff introduced evidence tending to show that in 1932 the real properties in question had a reasonable value of only P5,787. This amount added to the value of the personal property left by the deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and surcharge, would amount only to about P169.52. If death is the generating source from which the power of the estate to impose inheritance taxes takes its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency value of any subsequent increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.) Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests in possession or the contingency is settled. This rule was formerly followed in New York and has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p.

231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and authorities that New York has varied and now requires the immediate appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343). But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time regardless of its appreciation or depreciation. (c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum represents the expenses and disbursements of the executors until March 10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate proceedings, . . . ." A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the Philippines which requires trustees' commissions to be deducted in determining the net value of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been created, it does not appear that the testator intended that the duties of his executors and trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed the desire that his real estate be handled and managed by his executors until the expiration of the period of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration of the estate, but in the management thereof for the benefit of the legatees or devises, does not come properly within the class or reason for exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary creation, and intended for the preservation of the estate. No sound reason is given to support the contention that such expenses should be taken into consideration in fixing the value of the estate for the purpose of this tax." (d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended by Act No. 3031, which took effect on March 9, 1922. It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee and ought not to be required to guess the outcome of pending measures. Of course, a

tax statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute by this court. The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only as required by the old law. Properly speaking, a statute is penal when it imposes punishment for an offense committed against the state which, under the Constitution, the Executive has the power to pardon. In common use, however, this sense has been enlarged to include within the term "penal statutes" all status which command or prohibit certain acts, and establish penalties for their violation, and even those which, without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No. 3606 a retroactive effect. (e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may be paid within another given time. As stated by this court, "the mere failure to pay one's tax does not render one delinqent until and unless the entire period has eplased within which the taxpayer is authorized by law to make such payment without being subjected to the payment of penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.) The defendant maintains that it was the duty of the executor to pay the inheritance tax before the delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words "trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator must indicate in the will his intention so to do by using language sufficient to separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the purpose or object of the trust, and the property or subject matter thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C.

J., pp. 705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil Procedure). P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson of the trust estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p. 542). The highest considerations of public policy also justify the conclusion we have reached. Were we to hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period which does not offend the rule against petuities. The collection of the tax would then be left to the will of a private individual. The mere suggestion of this result is a sufficient warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so loose a construction as to permit evasions on merely fanciful and insubstantial distinctions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government. That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It held that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time and by mutual agreement closed their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the operations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.) It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases. The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The interest due should be computed from that date and it is error on the part of the defendant to compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease such interest, no matter how heavily it may burden the taxpayer. To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate became liable for the payment of the surcharge. In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff in his brief. We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas Hanley inaccordance with the conclusions we have reached. At the time of his death, the deceased left real properties valued at P27,920 and personal properties worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as the net value of the estate subject to inheritance tax. The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24. To the primary tax thus computed should be added the sums collectible under section 1544 of the Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25 per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand total of P3,634.43. As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both instances. So ordered. Avancea, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur. Villa-Real, J., concurs.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-10431 July 31, 1962

COLLECTOR OF INTERNAL REVENUE, petitioner, vs. LA TONDEA INC., and THE COURT OF TAX APPEALS, respondents. Office of the Solicitor General for petitioner. Manuel V. San Jose for respondents. PAREDES, J.: The respondent "La Tondea, Inc." a duly licensed rectifier, has been engaged in the business of manufacturing wines, and liquors, with a distillery at 1068 Velasquez, Tondo, Manila. The principal products of the respondent are "Ginebra San Miguel", "Manila Rum", "Oak Barrel Rum", "Mallorca Wine", "Anizado", "Creme de Mente", "Creme de Cacao", etc. Since 1929, respondent has been purchasing the alcohol used in the manufacture of its products, principally from Binalbagan Isabela Sugar Central, Negros Occidental and Central Azcarera Don Pedro in Nasugbu, Batangas, and has been removing this alcohol from the centrals to respondent's distillery under joint bonds, without prepayment of specific taxes, with the express permission and approval of the petitioner Collector of Internal Revenue. The quantity of alcohol purchased and received by the respondent from the centrals are recorded and entered in the BIR Official Register Books of "La Tondea, Inc. A-Account", under the column "CRUDE spirit" (Exhs. A, A-1, G, G-1), attested by the Inspector of the Bureau assigned to respondent's distillery. In the manufacture of "Manila Rum", respondent uses as basic materials low test alcohol, purchased in crude form from the suppliers, which it re-rectifies or subjects to further distillation, in order to suit the purpose of respondent in producing only high quality products. In the process of further rectification or distillation, losses thru evaporation had necessarily been incurred, for which the petitioner in the past had given the respondent allowance of not exceeding 7% for said losses. Respondent stated that the process adopted by it in the manufacture of its "Manila Rum", has now made this product the largest selling rum in the Philippines and the specific taxes that it had been paying the government, had steadily increased from P3,172,515.30 in 1950 to P4,973,123.40 in 1954. On May 8, 1954, petitioner wrote a demand letter to respondent for the payment of specific taxes, in the total amount of P154,663.10 on alcohol lost by evaporation, thru re-rectification or re-redistillation, covering the period from June 7, 1950 to February 7, 1954 . A first extension of 30 days within which to reply was granted the respondent by the petitioner. On July 26, 1954, it asked for another 30-day extension to reply (Exh. I-3). On August 2, 1954, petitioner granted 5 days only, from August 2, 1954 (Exh. I-f), or until August 7, 1954. On August 6, 1954, respondent answered the demand letter dated May 8, 1954 (Exh. I), protesting against the said assessment (Exhs. 15 and 1-b). In a letter dated August 26, 1954, the petitioner made manifest its refusal to reconsider the assessment and urged the respondent to pay within 3 days from receipt, the amount of the assessment,

which communication was received by the respondent on August 31, 1954 (Exh. I-7). On September 1, 1954, the respondent appealed the decision to the Conference Staff in the same Bureau (Exh. I-8). On September 3, 1954, the Conference Staff gave the appeal due course (Exh. I-9). Before any hearing could be had in the Conference Staff, on January 8, 1955, the respondent received a letter from the petitioner dated December 22, 1954, requiring it to comply with Department of Finance Order No. 213, to deposit one-half of the amount of assessment in cash and the balance guaranteed by a surety bond (Exh. 1-11). Respondent requested for reconsideration of this requirement (Exh. I-1a) on January 10, 1955, which was denied on February 10, 1955 (Exh. I-13). A second motion for reconsideration presented on February 15, 1955 (Exh. I-14), followed by a supplementary letter (Exh. I15) dated February 17, 1955 was denied, same having been received by respondent on March 16, 1955, and gave the respondent 5 days from receipt thereof, within which to comply with the said Order. Not satisfied with the said rulings, the La Tondea, Inc. presented an action with the respondent Court of Tax Appeals on March 18, 1955. The Tax Court on December 7, 1955, rendered the following judgment IN VIEW OF THE FOREGOING CONSIDERATION, the decision of respondent Collector of Internal Revenue, dated May 8, 1954, is hereby modified, and petitioner La Tondea, Inc., is hereby ordered to pay the respondent Collector of Internal Revenue the sum of P672.15, by way of specific tax. However, with respect to the balance of the assessment amounting to P153,990.95, which corresponds to the period after January 1, 1951 and up to February 27, 1954, pursuant to Republic Act No. 592, the petitioner is declared exempt from liability for the specific taxes assessed therefor. Without pronouncement as to costs. On appeal to this Court, the petitioner alleges that the Court of Tax Appeals erred (1) In exempting the respondent La Tondea, Inc. from the payment of the specific tax on rectified alcohol lost in process of further rectification, during the period from January 1, 1951 to February 27, 1954; and (2) In assuming jurisdiction over the case. It appears that the specific taxes in question were assessed by the petitioner "in accordance with section 133 the Tax Code". Up to December 31, 1950, said section reads: SEC 133. Specific tax on distilled spirits. On distilled spirits there shall be collected, except as hereinafter provided, specific taxes as follows: (a) If produced from sap of the nipa, coconut, casava, camote, or buri palm, or from the juice syrup, or sugar of the cane, per proof liter, forty-five centavo. (b) If produced from any other material, per proof liter, one peso and seventy centavos. This tax shall be proportionately increased for any strength of the spirits taxed over proof spirits. "Distilled spirits", as here used, includes all substances known as ethyl alcohol, dehydrated oxide of ethyl, or spirits of wine, which are commonly produced by the fermentation and subsequent distillation of grain starch, molasses, or sugar, or of some syrup of sap, including all dilutions or mixtures; and the tax shall attach to this substance as soon as it is in existence as such, whether it be subsequently separated as pure or impure spirits, or be immediately or at any subsequent time transformed into any other substance either in process of original production or by any subsequent process. Pursuant to the above provision of law, therefore, "the tax shall attach to this substance as soon is it is in existence as such" etc. However, on January 1, 1951, Republic Act No. 592 took effect, amending section 133 and the clause underlined above had been eliminated. The evident intention of the law maker in deleting the all embracing underlined clauses, was to subject to specific tax not all kinds of alcoholic substances, but only distilled spirits as finished products, actually

removed from the factory or bonded warehouse. The said amendment could not mean anything else; it is in harmony with section 129, of the same Tax Code which provides SEC 129. Removal of spirits or cigar under bond. Spirits requiring rectification may be removed from the place of their manufacture to some other establishment for the purpose of rectification without the prepayment of the specific tax, provided the distiller removing such spirits and the rectifier receiving them shall file with the Collector of Internal Revenue their joint bond conditioned upon the future payment by the rectifier of the specific tax that may be due on any finished product. . . . . And if one would consider that the Tax Code does not prohibit further rectification or distillation and defines in section 194 thereof, a rectifier as a person who rectifies, purifies or refines distilled spirits, the conclusion is logical that when alcohol, even if already distilled (as in the present case) or rectified, is again rectified, purified or refined, the specific tax should be based on the finished product, and not on the evaporated alcohol. The intention not to subject to specific tax all kinds of alcoholic substances but only distilled spirits as finished products , is reflected in former Senator Garcia's observation on the floor of the Senate, during the discussion of House Bill No. 1443 (now Rep. Act No. 592), when he proposed the elimination of the phrase "and the tax shall attach to this substances as soon as it is in existence as such, etc." He said xxx xxx xxx

That is why, Mr. President, in Section 1 of this Bill now under consideration. I have some serious objections to the provision where all kinds of alcoholic substance which falls under the definition of proof spirits in the last paragraph of the same Section I of the proposed measure are taxable because this is one of those that I consider of deterrent effect to the industrialization of this country . . . (Senate Diario No. 6, Jan. 15, 1951, Original 4th Special Session; Emphasis supplied.) And on August 23, 1956, upon the recommendation of the Bureau of Internal Revenue itself, Rep. Act No. 1608 was passed, amending section 133 of the Tax Code, as amended by R. A. No. 592, restoring the very same clause which was eliminated (Sec. 7, R.A. No. 1608). The inference, therefore, is clear that from January 1, 1951, when Rep. Act No. 592, took effect, until August 23, 1956, when R.A. No. 1608 became a law, the tax on alcohol did not attach as soon as it was in existence as such, but on the finished product. And this must be so, otherwise a great injustice would be caused upon a duly licensed rectifier, who, like the respondent herein, will be made to pay the specific tax on the alcohol lost thru evaporation, from which no one has been benefited, based on the provision of laws then extant, of doubtful application. In every case of doubt, tax statutes are construed most strongly against the government and in favor of the citizens, because burdens are not to be imposed beyond what the statutes expressly and clearly import (MRR Co. v. Coll. of Customs, 52 Phil. 950 Luzon Stev. Co. v. Trinidad, 43 Phil. 803, 809). It should be pointed out also that said section 129 was amended adding the following And provided, further, That in cases where alcohol has already been rectified either by original and continuous distillation or by redistillation is further rectified, no loss for rectification and handling shall be allowed and the rectifier thereof shall pay the specific tax due on such losses (Sec. 5, Rep. Act No. 1608). which obviously reveals that the purpose of the amendment is to tax, only now, alcohol lost, in further distillation or rectification. This law certainly should not be given retroactive effect, so as to cover the period in question (January 1, 1951 to February 27, 1954). It is only after August 23, 1956 that the government woke up from its lethargy and hastened to fill the hiatus.

The second assignment of error is predicated upon the proposition, that the respondent Court of Tax Appeals had no jurisdiction over the case, because the petition for review was not filed within the 30-day period as provided by section 11 of Rep. Act No. 1125 (Law creating the CTA), which states SEC. 11. Who may appeal; effect of appeal. Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs . . . or any provincial or city Board of Assessment Appeals, may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling . . . Conceding for the purpose of argument that the ruling appealable was the letter-assessment dated May 1, 1954, still We believe that the petition for review to the Tax Court was filed within the time. The intraoffice arrangement in the Bureau of Internal Revenue allowed a taxpayer to appeal from the ruling of the Collector to a Conference Staff of the same Bureau. The appeal made on September 1, 1954, to the Conference Staff, from said letter-assessment dated May 8, 1954 (received by the respondent on May 28, 1954), which was reiterated in petitioner's letter of August 26, 1954, (received by the respondent on August 31, 1954), had suspended the period because it was a remedy prescribed by the petitioner himself, made available to the respondent (Collector of Int. Rev. v. Suyoc Consolidated Mining Co., L11527, Nov. 25, 1958). When the Conference Staff gave due course to the appeal on September 3, 1954, the petitioner gave the impression that his letter-assessments of May 8 and August 26, 1954, were still subject to review by his Conference Staff. And when the Conference Staff finally refused to reconsider its ruling requiring respondent to deposit of the amount of the tax in cash, and payment of the balance or guaranteed by a surety bond, after the submission of two requests for reconsideration, the second denial having been received by respondent only on March 16, 1955 (Exh. I-16), said it was then only, that the petitioner may or can be said to have rejected the administrative appeal and gave finality to his letter of August 26, 1954. We believe that petitioner did not create the Conference Staff and permitted a taxpayer to appeal to it from his ruling, as a mere administrative expediency, to delay the taxpayer from appealing to the Tax Court, and thus allow the period of his appeal to lapse. We should presume that this injurious result was not intended by the Government. This being the case, as it is the case, when respondent lodged its petition for review with the Tax Court on March 18, 1955, only three (3) days in all, had elapsed, out of the period. The period within which the review must be sought, should be counted from the denial of the motion for reconsideration because of the principle that all administrative remedies must be exhausted before recourse to the courts can be had against orders or decisions of administrative bodies (Sec. of Agriculture, etc., et al. v. Hora, et al., G.R. No. L-7752, May 27, 1955). If, as it should be, the final appealable ruling of the petitioner, was that received by respondent on March 16, 1955, then only two (2) days had been consumed by the respondent of the statutory period. In either case, the appeal to the Tax Court was presented on time and the latter has jurisdiction to take cognizance of the case. WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to costs. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Barrera, Dizon, Regala and Makalintal, JJ., concur. Padilla, J., took no part. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-34526 August 9, 1988 HIJO PLANTATION INC., DAVAO FRUITS CORPORATION, TWIN RIVERS PLANTATION, INC. and MARSMAN & CO., INC., for themselves and in behalf of other persons and entities similarly situated, petitioners,

vs. CENTRAL BANK OF THE PHILIPPINES, respondent.

PARAS, J.: This is a petition for certiorari and prohibition which seeks: (1) to declare Monetary Board Resolution No. 1995, series of 1971, as null and void; (2) to prohibit the Central Bank from collecting the stabilization tax on banana exports shipped during the period January 1, 1972 to June 30, 1982; and (3) a refund of the amount collected as stabilization tax from the Central Bank. The facts of this case as culled from the records are as follows: Hijo Plantation, Inc., Davao Fruits Corporation, Twin Rivers Plantation, Inc. and Marsman Plantation (Manifestation, Rollo, P. 18), collectively referred to herein as petitioners, are domestic corporations duly organized and existing under the laws of the Philippines, all of which are engaged in the production and exportation of bananas in and from Mindanao. Owing to the difficulty of determining the exchange rate of the peso to the dollar because of the floating rate and the promulgation of Central Bank Circular No. 289 which imposes an 80% retention scheme on all dollar earners, Congress passed Republic Act No. 6125 entitled "an act imposing STABILIZATION TAX ON CONSIGNMENTS ABROAD TO ACCELERATE THE ECONOMIC DEVELOPMENT OF THE PHILIPPINES AND FOR OTHER PURPOSES," approved and made effective on May 1, 1970 (Comment on Petition, Rollo, p, 32), to eliminate the necessity for said circular and to stabilize the peso. Among others, it provides as follows: SECTION 1. There shall be imposed, assessed and collected a stabilization tax on the gross F.O.B. peso proceeds, based on the rate of exchange prevailing at the time of receipt of such proceeds, whether partial or total, of any exportation of the following products in accordance with the following schedule: a. In the case of logs, copra, centrifugal sugar, and copper ore and concentrates: Ten per centum of the F.O.B. peso proceeds of exports received on or after the date of effectivity of this Act to June thirty, nineteen hundred seventy one; Eight per centum of the F.O.B. peso proceeds of exports received from July first, nineteen hundred seventy-one to June thirty, nineteen hundred seventy-two; Six per centum of the F.O.B. peso proceeds of exports received from July first, nineteen hundred seventy two to June thirty, nineteen hundred seventy- three; and Four per centum of the F.O.B. peso proceeds of exports received from July first, nineteen hundred seventy-three to June thirty, nineteen hundred seventy-four. b. In the case of molasses, coconut oil, dessicated coconut, iron ore and concentrates, chromite ore and concentrates, copra meal or cake,

unmanufactured abaca, unmanufactured tobacco, veneer core and sheets, plywood (including plywood panels faced with plastics), lumber, canned pineapples, and bunker fuel oil; Eight per centum of the F.O.B. peso proceeds of exports shipped on or after the date of effectivity of this Act to June thirty, nineteen hundred seventy-one; Six per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy one to June thirty nineteen hundred seventy- two; Four per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy-two to June thirty nineteen hundred seventy-three; and Two per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy three to June thirty nineteen hundred seventy-four. Any export product the aggregate annual F.O.B. value of which shall exceed five million United States dollars in any one calendar year during the effectivity of this Act shall likewise be subject to the rates of tax in force during the fiscal years following its reaching the said aggregate value. (Emphasis supplied). During the first nine (9) months of calendar year 1971, the total banana export amounted to an annual aggregate F.O.B. value of P8,949,000.00 (Answer, Rollo, p. 73) thus exceeding the aggregate F.O.B. value of five million United States Dollar, bringing it within the ambit of Republic Act No. 6125. Consequently, the banana industry was in a dilemma as to when the stabilization tax was to become due and collectible from it and under what schedule of Section 1 (b) of Republic Act 6125 should said tax be collected. Accordingly, petitioners through their counsel, by letter dated November 5, 1971, sought the authoritative pronouncement of the Central Bank (herein referred to as respondent), therein advancing the opinion that the stabilization tax does not become due and collectible from the petitioners until July 1, 1972 at the rate of 4% of the F.O.B. peso proceeds of the exports shipped from July 1, 1972 to June 30,1973. Replying by letter dated December 17,1971 (Rollo, p. 11), the Central Bank called attention to Monetary Board Resolution No. 1995 dated December 3, 1971 which clarified that: 1) For exports of bananas shipped during the period from January 1, 1972 to June 30, 1972; the stabilization tax shall be at the rate of 6%; 2) For exports of bananas shipped during the period from July 1, 1972 to June 30, 1973, the stabilization tax shall be at the rate of 4%; and 3) For exports of bananas shipped during the period from July 1, 1973, to June 30, 1974, the stabilization tax shall be at the rate of 2%." Contending that said Board Resolution No. 1995 was manifestly contrary to the legislative intent, petitioners sought a reconsideration of said Board Resolution by letter dated December 27, 1971 (Rollo, p. 12) which request for reconsideration was denied by the respondent, also by letter dated January 20, 1972 (Rollo, p. 24). With the denial of petitioners' request for reconsideration, respondent thru its agent Bank, Rizal Commercial Banking Corporation has been collecting from the petitioners who have been forced to pay under protest, such stabilization tax.

Petitioners view respondent's act as a clear violation of the provision of Republic Act No. 6125, and as an act in excess of its jurisdiction, hence, this petition. The sole issue in this case is whether or not respondent acted with grave abuse of discretion amounting to lack of jurisdiction when it issued Monetary Board Resolution No. 1995, series of 1971 which in effect reaffirmed Central Bank Circular No. 309, enacted pursuant to Monetary Board Resolution No. 1179. There is here no dispute that the banana industry is liable to pay the stabilization tax prescribed under Republic Act No. 1995, it being the admission of both parties, that the Industry has indeed reached and for the first time in the calendar year 1971, a total banana export exceeding the aggregate annual F.O.B. value of five million United States dollars. The crux of the controversy, however, is the manner of implementation of Republic Act No. 6125. Section 1 of R.A. 6125 clearly provides as follows: An export product the aggregate annual F.O.B. value of which shall exceed five million US dollars in any one calendar year during the effectivity of the act shall likewise be subject to the rates of tax in force during the fiscal year following its reaching the said aggregate value." Petitioners contend that the stabilization tax to be collected from the banana industry does not become due and collectible until July 1, 1972 at the rate of 4% of the F.O.B. peso proceeds of the export shipped from July 1, 1972 to June 30,1973. They further contend that respondent gave retroactive effect to the law (RA 6125) by ruling in Monetary Board Resolution No. 1995 dated December 3, 1 971, that the export stabilization tax on banana industry would start to accrue on January 1, 1972 at the rate of 6% of the F.O.B. peso proceeds of export shipped from July 1, 1971 to June 30, 1972 (Rollo, pp. 3-4). Respondent, on the other hand, contends that the aforecited provision of RA 6125 merely prescribes the rates that may be imposed but does not provide when the tax shall be collected and makes no reference to any definite fixed period when the tax shall begin to be collected (Rollo, pp. 77-78). There is merit in this petition. In the very nature of things, in many cases it becomes impracticable for the legislative department of the Government to provide general regulations for the various and varying details for the management of a particular department of the Government. It therefore becomes convenient for the legislative department of the government, by law, in a most general way, to provide for the conduct, control, and management of the work of the particular department of the government; to authorize certain persons, in charge of the management and control of such department (United States v. Tupasi Molina, 29 Phil. 119 [19141). Such is the case in RA 6125, which provided in its Section 6, as follows: All rules and regulations for the purpose of carrying out the provisions of the act shall be promulgated by the Central Bank of the Philippines and shall take effect fifteen days after publication in three newspapers of general circulation throughout the Philippines, one of which shall be in the national language. Such regulations have uniformly been held to have the force of law, whenever they are found to be in consonance and in harmony with the general purposes and objects of the law. Such regulations once established and found to be in conformity with the general purposes of the law, are just as binding upon all the parties, as if the regulation had been written in the original law

itself (29 Phil. 119, Ibid). Upon the other hand, should the regulation conflict with the law, the validity of the regulation cannot be sustained (Director of Forestry vs. Muroz 23 SCRA 1183). Pursuant to the aforecited provision, the Monetary Board issued Resolution No. 1179 which contained the rules and regulations for the implementation of said provision which Board resolution was subsequently embodied in Central Bank Circular No. 309, dated August 10, 1970 (duly published in the Official Gazette, Vol. 66, No. 34, August 24, 1940, p. 7855 and in three newspapers of general circulation throughout the Philippines namely, the Manila Times, Manila Chronicle and Manila Daily Bulletin). Section 3 of Central Bank Circular No. 309, "provides that the stabilization tax shall begin to apply on January first following the calendar year during which such export products shall have reached the aggregate annual F.O.B. value of more than $5 million and the applicable tax rates shall be the rates prescribed in schedule (b) of Section 1 of RA No. 6125 for the fiscal year following the reaching of the said aggregate value." Central Bank Circular No. 309 was subsequently reaffirmed in Monetary Board Resolution No. 1995 herein assailed by petitioners for being null and void (Rollo, pp. 97- 98). In its comment (Rollo, p. 40), respondent argues that the request for authoritative pronouncement of petitioners was made because there was no express provision in Section 1 of RA 6125 which categorically states, when the stabilization tax shall begin to accrue on those aggregate annual F.O.B. values exceeding five (5) million United States dollars in any one calendar year during the effectivity of said act. For which reason, the law itself authorized it under Section 7 to promulgate rules and regulations to carry out the provisions of said law. In petitioner's reply (Rollo, p. 154) they argue that since the Banana Exports reached the aggregate annual F.O.B. value of US $5 million in August 1971, the stabilization tax on banana should be imposed only on July 1, 1972, the fiscal year following the calendar year during which the industry attained the $5 million mark. Their argument finds support in the very language of the law and upon congressional record where a clarification on the applicability of the law was categorically made by the then Senator Aytona who stated that the tax shall be applicable only after the $5 million aggregate value is reached, making such tax prospective in application and for a period of one yearreferring to the fiscal year (Annex 8, Comment of Respondent; Rollo, p. 60). Clearly such clarification was indicative of the legislative intent. Further, they argue that respondent bank through the Monetary Board clearly overstepped RA 6125 which empowered it to promulgate rules and regulations for the purpose of carrying out the provisions of said act, because while Section 1 of the law authorizes it to levy a stabilization tax on petitioners only in the fiscal year following their reaching the aggregate annual F.O.B. value of US $5 million, that is, the fiscal year July 1, 1972 to June 30, 1973, at a tax rate of 4% of the F.O.B. peso proceeds, respondent in gross violation of the law, instead issued Resolution No. 1995 which impose a 6% stabilization tax for the calendar year January 1, 1972 to June 30, 1972, which obviously is in excess of its jurisdiction. It was further argued that in directing its agent bank to collect the stabilization tax in accordance with Monetary Board Resolution No. 1995, it acted whimsically and capriciously. (Rollo, p. 155). It will be observed that while Monetary Board Resolution No. 1995 cannot be said to be the product of grave abuse of discretion but rather the result of respondent's overzealous desire to carry into effect the provisions of RA 6125, it is evident that the Board acted beyond its authority under the law and the Constitution. Hence, the petition for certiorari and prohibition in the case at bar, is proper. Moreover, there is no dispute that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law (People vs. Lim, 108 Phil. 1091). Rules that subvert the statute cannot be sanctioned (University of Sto. Tomas v. Board of Tax Appeals, 93 Phil. 376; Del Mar v. Phil. Veterans Administration, 51 SCRA 340). Except for constitutional officials who can trace their competence to act to the fundamental law itself, a public official must locate to the statute relied upon a grant of power before he can exercise it. Department zeal may not be permitted to outrun the authority conferred by statute (Radio Communications of the Philippines, Inc. v. Santiago L-29236, August 21,

1974, 58 SCRA 493; cited in Tayug Rural Bank v. Central Bank, L-46158, November 28,1986,146 SCRA 120,130). PREMISES CONSIDERED, this petition is hereby GRANTED. SO ORDERED. Melencio-Herrera (Chairperson), Padilla and Sarmiento JJ., concur. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-69136 September 30, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MEGA GENERAL MERCHANDISING CORPORATION and THE COURT OF TAX APPEALS, respondents. The Solicitor General for petitioner. Fortunato S. Rivera for respondents.

PARAS, J.: This is a petition for review of the decision of the Court of Tax Appeals, promulgated on May 21, 1984, in CTA Case No. 3078 entitled "Mega General Merchandising Corporation vs. Commissioner of Internal Revenue," holding that respondent corporation is not liable for specific tax in the sum of P275,652.00 on its importations of crude paraffin wax on June 21 and August 17, 1977 under Section 142(i) of the Tax Code, as amended by P.D. No. 392, but to 7% advance sales tax, (now Section 197 II) in relation to Section 186 (now Section 200 of the Tax Code) and further ordering the Commissioner of Internal Revenue to refund or credit to petitioner the said assessment (Rollo, Annex "C", pp. 38-47). The antecedent facts of this case are as follows: Prior to the promulgation of P.D. No. 392 on February 18, 1974, all importations of paraffin wax, irrespective of kind and nature, were subject to 7% advance sales tax on landed costs plus 25% mark up pursuant to Section 183(b) now Section 197(II) in relation to Section 186 (now Section 200) of the Tax Code. With the promulgation of P.D. No. 392, a new provision for the imposition of specific tax was added to Section 142 of the Tax Code, that is, sub- section (i) which reads: Section 142. Specific tax on manufactured oils and other fuels.On refined and manufactured mineral oils and other motor fuels, there shall be collected the following taxes:

xxx xxx xxx (i) Greases, waxes and petroleum, per kilogram, thirty-five centavos ; ... Therefore, beginning February 18,1974, the date of effectivity of P.D. No. 392, all importations of paraffin wax were subject to the specific tax imposed under Section 142(i) of the Tax Code, instead of the former 7% sales tax. Hence, respondent corporation paid the corresponding specific tax thereon in the total amount of P177,750.00 which applies to its total importation of crude paraffin on April 18, 1975, or exactly 1 year and 2 months after the effectivity of P.D. No. 392. On April 22, 1975, the respondent corporation wrote the Commissioner of Internal Revenue for clarification as to whether imported crude paraffin wax is subject to specific tax under Section 142 (i) of the Tax Code, as amended by P.D. No. 392, or to the 7% advance sales tax. Former Commissioner Misael P. Vera in his reply to said query dated May 14, 1975 ruled that only wax used as high pressure lubricant and micro crystallin is subject to specific tax; that paraffin which was used as raw material in the manufacture of candles, wax paper, matches, crayons, drugs, appointments etc., is subject to the 7% advance sales tax, the tax to be based on the landed cost thereof, plus 25% mark-up. Due to Commissioner Vera's ruling of May 14, 1975, several importers including respondent corporation filed several claims for tax refund or tax credit of specific tax paid by them on importation of crude paraffin wax. Considering that respondent corporation had paid the amount of P477,750.00 as specific tax pursuant to Section 142(i) of the Tax Code on its importation of crude paraffin wax on April 18, 1975 (an amount bigger than the 7% advance sales tax prescribed under Section 183(b) (now Section 197 II) in relation to Section 186 (now Sec. 200 of the Tax Code) respondent corporation in a letter, dated November 27, 1975, requested for a refund or tax credit of the amount of P321,436.79 representing the difference between the amount paid as specific tax and the 7% advance sales tax. Since the law (Section 142(i) of the Tax Code, amended by P.D. No. 392) does not make any distinction as to the kind of wax subject to specific tax, then Acting Commissioner of Internal Revenue Efren I. Plana, on January 28, 1977 denied respondent Corporation's claim for refund or tax credit of the amount of P321,436,79. On this ruling, respondent corporation filed a request for reconsideration. This was denied by petitioner. During the pendency of respondent corporation's request for reconsideration, an investigation was conducted by the Bureau of Internal Revenue in connection with the importations of wax and petroleum that arrived in the country on or subsequent to the date of the ruling of January 28, 1977 and it was ascertained that respondent Corporation owes the government specific tax for importation of 1,214,400 kilograms of paraffin wax on June 21, 1977 and August 17, 1977 which gave rise to the letter of assessment dated May 8, 1978 for P275,652.00 re the subject matter in this case. Prior, however, to the issuance of the said letter of assessment of May 8, 1978, petitioner in a letter dated January 11, 1978, granted respondent corporation's claim for refund or tax credit of the amount of P321,436.79 since the importation which had arrived in Manila on April 18, 1975 was covered by the ruling of May 14, 1975 (before its revocation by the ruling of January 28, 1977). Respondent corporation protested the tax assessment of May 8,1978 in the amount of P275,652.00 in a letter dated June 5, 1978 alleging that crude paraffin wax is subject to 7% advance sales tax pursuant to

petitioner's ruling of May 14, 1975. The protest was denied by petitioner in a letter dated February 15, 1980. During the pendency of the request of respondent corporation for reconsideration, it appealed to respondent Court of Tax Appeals (Annex "A", Rollo, pp. 26-35) and petitioner filed his answer on September 10, 1980 (Annex "B", Rollo, pp. 3647). On May 21,1984, respondent Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows: WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from is hereby reversed. Petitioner is not liable for specific tax on its importation of crude paraffin wax in the sum of P275,652.00 imposed against petitioner, but only subject to the 7% advance sales tax which petitioner had already paid. Accordingly, respondent is hereby ordered to refund or credit petitioner specific tax it paid in the sum of P275,652.00. Without pronouncement as to costs. SO ORDERED. (p. 9, Decision; p. 46, Rollo) This was later amended to read: WHEREFORE the decision of the Commissioner of Internal Revenue appealed from is hereby reversed. Petitioner is not liable for specific tax on its importation of crude paraffin wax in the sum of P275,652.00 imposed against petitioner but only subject to the 7% D advance sales tax which petitioner had already paid. Without pro- announcement as to costs. SO ORDERED. Hence, this petition filed on January 15, 1984 (Rollo, pp. 824). The sole issue raised by petitioner is whether or not respondent corporation's importation of crude paraffin wax on June 21 and August 17, 1977 are subject to specific tax under Section 142(i) of the Tax Code, as amended by P.D. No. 392, promulgated on February 18, 1974. Petitioner contends that the controlling interpretation is that given by Commissioner Plana and not that of Commissioner Vera. Petitioner further argues that respondent corporation's request for refund of the amount of P321,436.79 was granted in the letter of petitioner dated January 11, 1978 because the importation of private respondent was made on April 18,1975 wherein petitioner made clear that all importation of crude paraffin wax only after the ruling of January 28, 1977, is subject to specific tax prescribed in Section 142(i) of the Tax Code as amended by P.D. No. 392. Moreover, the importation which gave rise to the assessment in the amount of P275,652.00 subject of this case, was made on June 27, 1977 and August 17, 1977 and that the petitioner's ruling of January 28,1977 was not revoked or overruled by his letter of January 11, 1978 granting respondent corporation's request for refund of the amount of P321,436.79. Petitioner's contention is completely meritorious.

The Court of Tax Appeals' decision aptly stated: It will be starkly noted that in a ruling of respondent Commissioner of Internal Revenue dated January 11, 1978 (p. 204, BIR Rec.), the request for reconsideration of petitioner of the ruling holding it liable for specific tax and for the tax credit of the sum of P321,436.79 paid as specific tax was granted by the Commissioner of Internal Revenue. In effect, this ruling overrules that of January 28, 1977 holding petitioner liable for specific tax on its importations of crude paraffin wax . The ruling of January 11, 1978 having overruled that of January 28, 1977, the importations of crude paraffin made on June 21 and August 17, 1977 ostensibly became once more subject to the ruling of May 14, 1975 which held such importation of crude paraffin wax as not liable to specific tax under the provisions of Section 142(i) of the National Internal Revenue Code, as amended by PD 392. In other words, there was no other ruling which is prior to or was made to apply to the importations of petitioner of crude paraffin wax on June 21 and August 17, 1977, except only that ruling of the Commissioner of Internal Revenue of May 14, 1975 which applied Section 142(i), as amended by PD 392, of the National Revenue Code, which took effect on February 18, 1974, and that this provision of Section 142(i), as amended, has remained unchanged since then. It is clearly and legally justified to conclude that this ruling of the Commissioner of Internal Revenue of May 14, 1975 shall prospectively apply in favor of the importations of crude paraffin wax on June 21 and August 17, 1977 in question. This is the ruling which assured the taxpayer, Mega General Merchandising Corporation, that for its importations of crude paraffin wax, it shall only be liable to 7% advance sales tax and no more. To make petitioner liable for specific tax after it has made the importations, would surely prejudice petitioner as it would be subject to a tax liability of which the Bureau of Internal Revenue has not made it fully aware. As a result, the rulings of May 8, 1978 and February 15, 1980 having been issued long after the importations on June 21 and August 1 7, 1977 in question cannot be applied with legal effect in this case because to do so will violate the prohibition against retroactive application of the rulings of executive bodies. Rulings or circulars promulgated by the Commissioner of Internal Revenue, such as the rulings of January 28, 1977 and those of May 8, 1978 and February 15, 1980, can not have any retroactive application, where to do so, as it did in the case at bar, would prejudice the taxpayer. (ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals & Com. of Int. Revenue, G.R. No. L-523b6, October 23, 1981). Also, the re-enactment of Section 142(i) of the National Internal Revenue Code, as amended by PD 392, which provision of law has substantially remained unchanged is a clear indication that Congress has adopted its prior executive construction and which means that imported crude paraffin wax is not subject to specific tax thereunder pursuant to the BIR ruling dated May 14, 1975. (Alexander Howden & Co., Ltd. vs. Coll. of Int. Rev., 13 SCRA 601). (pp. 11-13, Petition; pp. 18-20, Rollo) Contrary to the Court of Tax Appeals' ruling, We believe that the letter of Commissioner Plana dated January 11, 1978 did not in any way revoke his ruling dated January 28,1977 which ruling applied the specific tax to wax (without distinction). The reason he removed in 1978 private respondent's liability for the specific tax was NOT (as erroneously pointed out by the Court of Tax Appeals) because he wanted to revoke, expressly or implicitly, his ruling of January 28, 1977 but because the P321,436.79 tax referred to importation BEFORE January 28, 1977 and hence still covered by the ruling of Commissioner Vera, and not by the January 28,1977 ruling of Commissioner Plana. PREMISES CONSIDERED, the decision of the Court of Tax Appeals is hereby REVERSED and SET ASIDE, and the private respondent is ordered to pay the tax as assessed by the Commissioner of Internal Revenue, together with interest. No costs. SO ORDERED.

Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-14880 April 29, 1960

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. FILIPINAS COMPAIA DE SEGUROS, respondent. Assistant Solicitor General Jose P. Alejandro and Special Attorney Jaime M. Maza for petitioner. Ramon T. Garcia for respondent. BARRERA, J.: Respondent Filipinas Compaia de Seguros, an insurance company, is also engaged in business as a real estate dealer. On January 4, 1956, respondent, in accordance with the single rate then prescribed under Section 182 of the National Internal Revenue Code. 1 paid the amount of P150.00 as real estate dealer's fixed annual tax for the year 1956. Subsequently said Section 182 of the Code was amended by Republic Act No. 1612, which took effect on August 24, 1956, by providing a small of graduated rates: P150 if the annual income of the real estate dealer from his business as such is P4,000, but does not exceed P10,000; P300, if such annual income exceeds P10,000 but does not exceed P30,000; and P500 if such annual income exceeds P30,000. On June 17, 1957, petitioner Commissioner of Internal Revenue assessed and demanded from respondent (whose annual income exceeded P30,000.00) the amount of P350.00 as additional real estate dealer's fixed annual tax for the year 1956. On July 16, 1957, respondent wrote a letter to petitioner stating that the "records will show that the real estate dealer's fixed tax for 1956 of this Company was fully paid by us prior to the effectivity of Republic Act No. 1612 which amended, among other things, Sections 178 and 192 of the National Internal Revenue Code." And, as to the retroactive effect of said Republic Act No. 1612, respondent added that the Republic Act No. 1856 which, among other things, amended Section 182 of the National Internal Revenue Code, Congress has clearly shown its intention when it provided that the increase in rates of taxes envisioned by Republic Act No. 1612 is to be made effective as of 1 January 1957". On October 23, 1957, petitioner informed respondent that "Republic Act No. 1856 which took effect June 22, 1957 amended the date of effectivity of Republic Act 1612 to January 1, 1957. However, the said amendment applies only to fixed taxes on occupation and not to fixed taxes on business." Hence, petitioner insisted that respondent should pay the amount of P350.00 as additional real estate dealer's fixed annual tax for the year 1956.

On November 20, 1957, respondent filed with the Court of Tax Appeals a petition for review. To this petition, petitioner filed his answer on December 6, 1957. As petitioner practically admitted the material factual allegations in the petition for review, the case was submitted for judgment on the pleadings. On November 22, 1958, the Court of Tax Appeals rendered a decision sustaining the contention of respondent company and ordering the petitioner Commissioner of Internal Revenue to desist from collecting the P350.00 additional assessment. From this decision, petitioner appealed to us. As a rule, laws have no retroactive effect, unless the contrary is provided. (Art. 4, Civil Code of the Philippines; Manila Trading and Supply Co. vs. Santos, et al., 66 Phil., 237; La Provisora Filipina vs. Ledda, 66 Ph 573.) Otherwise stated, a state shou!d be consider as prospective in its operation whether it enacts, amends or repeals a tax, unless the language of the statute clearly demands or expresses that it shall have a retroactive effect (61 C. J. 1602, cited in Loremo vs. Posadas, 64 Phi 353.) The rule applies with greater force to the case bar, considering that Republic Act No. 1612, which imposes the new and higher rates of real estate dealer's annual fixed tax, expressly provides in Section 21 thereof the said Act "shall take effect upon its approval" on August 24, 1956. The instant case involves the fixed annual real estat dealer's tax for 1956. There is no dispute that before the enactment of Republic Act No. 1612 on August 2 1956, the uniform fixed annual real estate dealer's was P150.00 for all owners of rental properties receiving an aggregate amount of P3,000.00 or more a year in the form of rentals2 and that. "the yearly fixed taxes are due on the first of January of each year" unless tendered in semi-annual or quarterly installments. 3 Since the petitioner indisputably paid in full on January 4, 1956, the total annual tax then prescribed for the year 1956, require it to pay an additional sum of P350.00 to complete the P500.00 provided in Republic Act No. 1612 which became effective by its very terms only on August 24 1956, would, in the language of the Court of Tax Appeals result in the imposition upon respondent of a tax burden to which it was not liable before the enactment of said amendatory act, thus rendering its operation retroactive rather than prospective, which cannot be done, as it would contravene the aforecited Section 21 of Republic Act No. 1612 as well as the established rule regarding prospectivity of operation of statutes. The view that Congress did intend to impose said increased rates of real estate dealer's annual tax prospectively and not retroactively, finds some affirmation in Republic Act No. 1856, approved on June 22, 1957, which fixed the effective date of said new rates under Republic Act No. 1612 by inserting the following proviso in Section 182 of the National Internal Revenue Code: Provided, further, That any amount collected in excess of the rates in effect prior to January one, nineteen hundred and fifty-seven, shall be refunded or credited to the taxpayer concerned subject to the provisions of section three hundred and nine of this Code. (Sec. 182 (b) (2) (1).) Petitioner, however, contends that the above-quoted provision refers only to fixed taxes on occupation and does not cover fixed taxes on business, such as the real estate dealer's fixed tax herein involved. This is technically correct, but we note from the deliberations in the Senate, where the proviso in question was introduced as an amendment, that said House Bill No. 5919 which became Republic Act No. 1856 was considered, amended, and enacted into law, in order precisely that the "iniquitous effects" which were then being felt by taxpayers. in general, on account of the approval of Republic Act No. 1612, Which was being given retroactive effect by the Bureau of Internal Revenue by collecting these taxes retroactively from January 1, 1956, be eliminated and complaints against such action be finally settled. (See Senate Congressional Record, May 4, 1957, pp. 10321033.) It is also to be observed that said House Bill No. 5819 as originally presented, was expressly intended to amend certain provisions of the National Internal Revenue Code dealing on fixed taxes on business. The provisions in respect of fixed tax on occupation were merely subsequently added. This would seem to

indicate that the proviso in question was intended to cover not only fixed taxes on occupation, but also fixed taxes on business. (Senate Congressional Record, March 7, 1957, p. 444.)The fact that said proviso was placed only at the end of paragraph "(B) On occupation" is not, therefore, view of the circumstances, decisive and unmistakable indication that Congress limited the proviso to occupation taxes. Even though the primary purpose of the proviso is to limit restrain the general language of a statute, the legislature, unfotunately, does not always use it with technical correctness; consequently, where its use creates an ambiguity, it is the duty of the court to ascertain the legislative intention, through resort to usual rules of construction applicable to statutes, generally an give it effect even though the statute is thereby enlarged, or the proviso made to assume the force of an independent enactment and although a proviso as such has no existence apart from provision which it is designed to limit or to qualify. (Statutory Construction by E. T. Crawford, pp. 604-605.) . . . When construing a statute, the reason for its enactment should be kept in mind, and the statute should be construed with reference to its intended scope and purpose. (Id. at p. 249.) On the general principle of prospectivity of statute on the language of Republic Act 1612 itself, especially Section 21 thereof, and on the basis of its intended scope and purpose as disclosed in the Congressional Record we find ourselves in agreement with the Court of Tax Appeals. Wherefore, the decision appealed from is hereby affirmed without costs. So ordered. Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia and Gutierrez David, JJ. concur.

Footnotes
1

In relation to Republic Act No. 588. Republic Act No. 588.

See Section 180, Com. Act No. 466, before its amendment on June22, 1957 by Republic Act No. 2025.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20563 October 29, 1968

CEBU PORTLAND CEMENT COMPANY, petitioner, vs. COLLECTOR (Now COMMISSIONER) OF INTERNAL REVENUE, respondent. Office of the Government Corporate Counsel for petitioner. Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong, Special Attorney Priscila R. Gonzales and Balbino Gatdula, Jr. for respondent. ANGELES, J.: This case involves petitioner's claim for refund of P458,241.45 sales tax paid from November 1, 1954 to March, 1955, and P427,552.95 ad valorem tax paid from April, 1955 to September 30, 1956 from the sale of APO portland cement produced by the petitioner. Prior to the effectivity of Republic Act No. 1299 on June 16, 1955, 1 the petitioner had been paying the sales tax (known also as percentage tax) of APO Portland cement produced by it, 2 computed at 7% of the gross selling price inclusive of the cost of the bag containers of cement and the gypsum3 used in the manufacture of said product. After the approval of the amendment of the law petitioner stopped paying sales tax on its gross sales and instead paid the ad valorem tax4 on the selling price of the product after deducting therefrom the corresponding cost of the containers thereof. It appears, however, that since 1952, petitioner had been protesting the imposition of the sales tax on its APO portland cement, and on January 16, 1953, it also protested the payment of ad valorem taxes. A written claim for refund of sales and ad valorem taxes paid by petitioner was filed two years later (September 1955) which was reiterated on July 26, 1956. Without awaiting respondent's ruling on said claims for refund, petitioner, on January 24, 1957, filed with the Court of Tax Appeals a petition for review "of the action of the Collector of Internal Revenue in refusing to entertain petitioner's claim for refund of the percentage tax on sales of its APO cement." It was alleged in the petition that the percentage taxes collected by respondent are refundable since under Republic Act 1299, producers of cement are exempt from the payment of said tax. The petition was amended on October 24, 1959, and again amended on June 23, 1961, to include a claim for refund of ad valorem taxes alleged to have been overpaid through double payments. After hearing and consideration of the evidence submitted in connection therewith, the Court of Tax Appeals rendered judgment dismissing the petition for review, holding: (1) that petitioner was not exempt from payment of the sales taxes on its APO portland cement prior to the effectivity of Republic Act No. 1299, it being then considered a manufactured product; (2) that petitioner is not entitled to deduction from the gross selling price of the cost of raw materials, the value of the bag containers and gypsum in the absence of evidence that they had been previously subjected to the 7% tax imposed by sections 186 and 190 of the Tax Code; (3) that for so much of the sales taxes that were billed, charged to, and paid for by its customers, the petitioner is not the proper party to claim for refund; and (4) that the right to claim for refund of taxes alleged to have been erroneously paid thru wrong computation, double payment, or otherwise, is already barred by prescription. Dissatisfied with the findings of the Tax Court, the petitioner elevated the case to the Supreme Court on a petition for review of the decision, assigning as errors the conclusions as above enumerated. The first assigned error calls for a ruling on the prospective or retrospective application of Republic Act No. 1299, which became effective upon its approval on June 16, 1955, amending section 246 of the National Internal Revenue Code, as follows: SEC. 246. Definitions of the terms "gross output", "minerals" and "mineral products" disposition of royalties and ad valorem taxes. The term "gross output" shall be interpreted as the actual

market value of minerals or products, or of bullion from each mine or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, That if the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.K.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claims shall not be subdivided. The word "Minerals" shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term "mineral products" shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the mines are situated, and eighty per centum to the national treasury. The only change brought about by said amendment is the incorporation of the definition of the word "minerals" and the term "mineral products". It is urged by petitioner that since the purpose of the amendment was merely to clarify the meaning of said terms, the section should be construed as if it had been originally passed in its amended form, so that cement should be considered as "mineral product" even before the enactment of Republic Act 1299, 5 and therefore exempt from the sales or percentage tax, pursuant to the provision of section 188(c) of the National Internal Revenue Code.6 We cannot subscribe to this view. It is a settled rule in statutory construction that a statute operates prospectively only and never retroactively, unless the legislative intent to the contrary is made manifest either by the express terms of the statute or by necessary implication. 7 In every case of doubt, the doubt must be resolved against the retrospective effect. 8 There is nothing in the context of the provision in question that would manifest the Legislature's intention to have the provision apply to taxes due in the past. On the other hand, the use of the word, "shall" gives the unmistakable impression that the lawmakers intended this enactment to be effective only in futuro. Quite recently, in Central Azucarera Don Pedro vs. Court of Tax Appeals,9 this Court sustained the holding of the respondent Court that section 51(d) of the Tax Code, as amended, which imposes the collection of interest on a deficiency income tax assessment, became effective only on the approval of the amendment, observing that the provision uses the phrase "shall be assessed at the same time." Furthermore, careful perusal of the explanatory note to House Bill No. 3251, which was later approved as Republic Act No. 1299, and the portions of the record of the discussions in Congress relative thereto, reveals nothing that would suggest that the amendment was enacted to operate retrospectively. While the purpose of the amendment, as mentioned in the explanatory note to the bill, was not only to "accelerate the collection of mining royalties and ad valorem taxes but also clarify the doubt of the tax-paying public on the interpretative scope of the two terms," it, certainly, could not have been the intention of the lawmakers to unsettle previously consumated transactions between the taxpayer and the Government, no matter in what manner the meaning of the terms were construed in the past. No mention was made, in the deliberations, about the taxes previously collected or on the sales of cement, although Congress must have been aware of these assessments due to an admitted confusion as to the meaning of the terms defined in the amendment. Indeed, like other statutes, tax laws operate prospectively, whether they enact, amend or repeal, unless, as aforesaid, the purpose of the Legislature to give retrospective effect is expressly declared or may clearly be implied from the language used. 10 It thus results that before the enactment of the amendment to section 246 of the Tax Code, when cement was not yet placed under the category of either "minerals" or "mineral products" it was not exempt from the percentage tax imposed by section 186 of said Code, and was, therefore, taxable as a manufactured product. 11

However, We agree with the petitioner that the gypsum and bag containers used in the production and sale of cement are deductible from the gross selling price in computing the 7% compensating tax levied on the sale of cement before Republic Act 1299. In the absence of any showing that the petitioner itself manufactured the bag containers, the inference is that these bags were bought from others from whom taxes had been levied for the original sale thereof. The same holds true with the gypsum used in the process of the manufacture of cement, considering that said component is imported, 12 and subject to compensating tax.13 Again, We agree with the petitioner in assigning as error of the respondent Court its conclusion that for so much of the sales taxes that were billed, charged, and paid for by the petitioner's customers, the petitioner is not the proper party to claim refund. The first paragraph of section 186 of the Tax Code, pursuant to which the 7% sales taxes were collected from the petitioner, reads: SEC. 186. Percentage tax on sales of other articles. There shall be levied, assessed and collected once only on every original sale, barter, exchange, and similar transaction either for nominal or valuable considerations intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-four, and one hundred and eighty-five a tax equivalent to seven per centum of the gross selling price or grass value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or producer: Provided, That where the articles subject to tax under this section are manufactured out of materials likewise subject to tax under this section, and section one hundred and eighty-nine, the total cost of such materials, as duly established shall be deductible from the gross selling price or gross value in money of such manufactured articles. The tax provided under this section of the Code is imposed upon the manufacturer or producer and not on the purchaser. On this matter of who bears the burden of the sales tax, this Court, after an extensive research on the subject, said:14 We begin with an analysis on the nature of the percentage (sales) tax imposed by section 186 of the Code. Is it a tax on the producer or on the purchaser? Statutes of the type under consideration, which impose a tax on sales, have been described as "act(s) with schizophrenic symptoms" as they apparently have two faces one that of a vendor tax, and the other, a vendee tax. Fortunately, for us, the provisions of the Code throw some light on the problem. The Code states that the sales tax "shall be paid by the manufacturer or producer," who must make a true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within twenty days after the end of each month, pay the tax due thereon. xxx xxx xxx

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays, or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser.

It follows that it is petitioner, and not its customers, that may ask for a refund of whatever amounts it is entitled for the percentage or sales taxes it paid before the amendment of section 246 of the Tax Code. Petitioner finally disputes the ruling of the respondent Court that the action for refund has prescribed. Its contention is that the defense of prescription was belated in that it was raised for the first time in the answer of respondent when the original petition was amended to incorporate more explicitly petitioner's claim for refund of ad valorem taxes paid on cement produced during the period from April 1, 1955 to September 30, 1956. In analyzing this issue, We need to first have a complete perspective of the original and amended pleadings filed by the parties in the Court of Tax Appeals, thus On January 24, 1957, the petitioner filed its petition for review, claiming refund of sales or percentage taxes amounting to P448,893.63. In its answer of February 27, 1957, respondent did not raise the defense of prescription. On September 3, 1959, respondent filed an amended answer but again said defense was not included. On October 24, 1959 the petitioner asked for leave to file an amended petition for review in which amendment it added the sum of P400,499.99 representing overpaid ad valorem taxes, in its claim for refund. On December 28, 1959, the amended petition was deemed admitted as of the date of its filing on October 24, 1959, and respondent was given time to file his answer. The respondent filed his answer on February 26, 1960, this time pleading prescription as a defense insofar as portion of the sales tax sought to be refunded was paid more than two years from the date the petition for review was filed with the Tax Court. On June 23, 1961, the petitioner re-amended its petition with said court praying, finally, that respondent be ordered to refund the amount of P458,241.45 paid as percentage taxes, and the amount of P427,552.95, representing overpayments of ad valorem taxes; or alternatively, the amount of P590,649.92, or P854,619.89, depending on the correct basis for the computation of the ad valorem tax. Section 306 of the Tax Code provides: Recovery of tax erroneously or illegally collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty. Construing the above provision, this Court has ruled that the two requirements (1) filing of a written claim for refund with the Commissioner of Internal Revenue; and (2) institution of a suit or proceeding in court within two years from the date of payment are mandatory and noncompliance therewith is fatal. 15 As there appears to be no dispute on the written claims filed with the Commissioner of Internal Revenue, We shall proceed to analyze the effect of the prescriptive period in relation to the pleadings filed with the Court of Tax Appeals. For the refund of the 7% sales or percentage taxes covering the period from November 1, 1954, to March, 1955, amounting to P446,898.63, as shown in Annex A of the Amended Petition, the suit is deemed to have been instituted on January 24, 1957, when the original petition was filed. Counting two years back, that is to January 25, 1955, all taxes paid after this date may still be properly refunded, speaking from the prescription angle. As to the allegedly overpaid ad valorem taxes of 1-1/2% for the period from April, 1955 to September, 1956 amounting to P400,499.99, the suit should be deemed to have been instituted only with the filing of the amended petition on October 24, 1959, which added as a new cause of action the recovery of said overpaid ad valorem taxes. Again, counting two years back from October 24, 1959, when the amended complaint was filed, to October 25, 1957 all taxes paid thereafter may still be recovered. It is not claimed, however, nor is there any showing, that among the alleged over payments of ad valorem taxes were remitted after October 25, 1957.

Petitioner's claim that the defense of prescription had been waived, for failure of the respondent Commissioner to raise it in his original answer, does not hold water. Respondent's answer to the amended petition for review, dated February 26, 1960, wherein it was pleaded the defense of prescription, superseded the answers filed February 27, 1957 and September 3, 1959, respectively, so that any defense or defenses raised in his latest answer would be considered as though contained in his original answer. For the rule is that "an amended complaint and the answer thereto, when filed, take the place of the originals. The latter are then regarded as abandoned and cease to perform any further functions as pleadings."16 Anent the contention that "with respect to the ad valorem taxes paid for the period from April 1, 1955 though not explicitly included in the original petition, was actually mentioned therein and should therefore be deemed filed on the date of the original petition," We note that the aforesaid ad valorem taxes were only mentioned in Annex "A" to the petition as part of the tabulation of taxes paid by petitioner to the respondent, but in the body of the petition itself, the refund of said payments was not sought. All the allegations in said original petition pertain to and are in support of petitioner's claim for refund of the sales taxes in question. In recapitulation, We hold: 1. That before the effectivity of Republic Act No. 1299, amending section 246 of the National Internal Revenue Code, cement was taxable as a manufactured product under section 186, in connection with section 194 (x) of said Code; 2. That in computing the gross selling price, of the cement as basis for the 7% percentage tax levied in pursuance to section 186, the cost of the bag containers used in the sale, and the gypsum used in the manufacture, of cement should be deducted; 3. That the petitioner, and not its customers, is the proper party to seek refund of taxes erroneously paid under section 186 of the Tax Code; 4. That the action for refund has not prescribed in so far as concerns the sales or percentage taxes paid after January 25, 1953; 5. That action for refund has prescribed for sales or percentage taxes paid before January 25, 1955, and for all ad valorem taxes alleged in the amended petition, which were paid more than two years back from October 24, 1959, when said taxes were sought to be refunded for the first time. PREMISES CONSIDERED, the decision appealed from is modified as hereby above-stated, and as thus modified, the decision is affirmed. Concepcion, CJ., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Castro, Fernando and Capistrano, JJ., concur. Zaldivar, J., is on leave.

Footnotes
1

An Act amending further section 246 of The Internal Revenue Code, as amended, by defining the words "minerals" and "mineral products".
2

Pursuant to sec. 196 of the Tax Code.

A constituent of cement, imported from abroad. See Sec. 243, Tax Code.

But see Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, G.R. No. L-18649, decision of Feb. 27, 1965 and resolution of Dec. 29, 1967; see also another case between the same parties, G.R. No. L-22603, Jan. 17, 1968. In both cases, it was held that for purposes of Sec. 243 of the Tax Code, what is taxable are the quarried minerals used in producing cement, in which case cement is not considered as mineral product.
6

which provides: In computing the tax imposed in sections 184, 185 and 186, transactions in the following commodities shall be excluded: ... (c) Minerals and mineral products when sold, bartered, or exchanged by the lessee, concessionaire or owner of the mineral land from which removed.
7

Universal Corn Products, Inc., et al. vs. Rice & Corn Board, G.R. L-21013, Aug. 17, 1967, quoting Segovia vs. Noel, 47 Phil. 543, 546.
8

Ibid, citing Montilla vs. Agustinian Corp., 24 Phil, 220, 222. G.R. Nos. L-23236 and L-23254, May 31, 1967.

10

Lorenzo v. Posadas, 64 Phil. 353; Commissioner of Internal Revenue v. Filipinas Compaia de Seguros, 58 O.G. 3, p. 460; Pacific Oxygen & Acetylene Co. v. Commissioner of Internal Revenue, G R. No. L-17708, April 30, 1965.
11

See Sec. 194 (x), National Int. Rev. Code.

12

As stated in Cebu Portland Cement Co. vs. Commissioner of Int. Rev., G. R. No. L-22603, supra.
13

The compensating tax is the equivalent of the sales tax. Their difference is that the former is levied on products coming from abroad, while the littter is levied on products manufactured locally. Sec. 190 of the Tax Code requires that the compensating tax to be paid in pursuance thereof be "equivalent to the percentage taxes imposed under this Title on original transactions affected merchants, importers, or manufacturers, such tax to be paid before the withdrawal or removal of said commodities, goods, wares, or merchandise from the customhouse or the post office."
14

In Philippine Acetylene Co., Inc. vs. Commissioner of Internal Revenue & Court of Tax Appeals, G.R. No. L-19707, August 17, 1967.
15

Johnston Lumber Co., Inc. v. Court of Tax Appeals, G. R. No. L-9292, April 23, 1957; Guagua Electric Light Plant Co, Inc. v. Collector of Internal Revenue, et al., G.R. No. L-14421, April 29, 1961.
16

Reynes v. La Compania General de Tabacos de Filipinas, et al., 21 Phil. 416. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-52306 October 12, 1981 ABS-CBN BROADCASTING CORPORATION, petitioner, vs. COURT OF TAX APPEALS and THE COMMISSIONER OF INTERNAL REVENUE, respondents.

MELENCIO-HERRERA, J.: This is a Petition for Review on certiorari of the Decision of the Court of Tax Appeals in C.T.A. Case No. 2809, dated November 29, 1979, which affirmed the assessment by the Commissioner of Internal Revenue, dated April 16, 1971, of a deficiency withholding income tax against petitioner, ABS-CBN Broadcasting Corporation, for the years 1965, 1966, 1967 and 1968 in the respective amounts of P75,895.24, P99,239.18, P128,502.00 and P222, 260.64, or a total of P525,897.06. During the period pertinent to this case, petitioner corporation was engaged in the business of telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or business within the Philippines. for which petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals. In so far as the income tax on non-resident corporations is concerned, section 24 (b) of the National Internal Revenue Code, as amended by Republic Act No. 2343 dated June 20, 1959, used to provide: (b) Tax on foreign corporations.(1) Non-resident corporations. There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from an sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax equal to thirty per centum of such amount. (Emphasis supplied) On April 12, 1961, in implementation of the aforequoted provision, the Commissioner of Internal Revenue issued General Circular No. V-334 reading thus: In connection with Section 24 (b) of Tax Code, the amendment introduced by Republic Act No. 2343, under which an income tax equal to 30% is levied upon the amount received by every foreign corporation not engaged in trade or business within the Philippines from all sources within this country as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, it has been determined that the tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic principle of income taxation (Sec. 39, Income Tax Regulations), and that a mere return of capital or investment is not income (Par. 5,06, 1 Mertens Law of Federal 'Taxation). Since according to the findings of the Special Team who inquired into business of the non-resident foreign film distributors, the distribution or exhibition right on a film is invariably acquired for a consideration, either for a lump sum or a percentage of the film rentals, whether from a parent company or an independent outside producer, apart of the receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of investment. xxx xxx xxx

4. The local distributor should withhold 30% of one-half of the film rentals paid to the nonresident foreign film distributor and pay the same to this office in accordance with law unless the non- resident foreign film distributor makes a prior settlement of its income tax liability. (Emphasis ours). Pursuant to the foregoing, petitioner dutifully withheld and turned over to the Bureau of Internal Revenue the amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines. The last year that petitioner withheld taxes pursuant to the foregoing Circular was in 1968. On June 27, 1968, Republic Act No. 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30 % to 35 % and revising the tax basis from "such amount" referring to rents, etc. to "gross income," as follows: (b) Tax on foreign corporations.(1) Non-resident corporations.A foreign corporation not engaged in trade or business in the Philippines including a foreign life insurance company not engaged in the life insurance business in the Philippines shall pay a tax equal to thirty-five per cent of the gross income received during each taxable year from all sources within the Philippines, as interests, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations for technical services or otherwise, emoluments or other fixed or determinable annual, periodical or casual gains, profits, and income, and capital gains, Provided however, That premiums shall not include reinsurance premiums. (Emphasis supplied) On February 8, 1971, the Commissioner of Internal Revenue issued Revenue Memorandum Circular No. 4-71, revoking General Circular No. V-334, and holding that the latter was "erroneous for lack of legal basis," because "the tax therein prescribed should be based on gross income without deduction whatever," thus: After a restudy and analysis of Section 24 (b) of the National Internal Revenue Code, as amended by Republic Act No. 5431, and guided by the interpretation given by tax authorities to a similar provision in the Internal Revenue Code of the United States, on which the aforementioned provision of our Tax Code was patterned, this Office has come to the conclusion that the tax therein prescribed should be based on gross income without deduction whatever. Consequently, the ruling in General Circular No. V-334, dated April 12, 1961, allowing the deduction of the proportionate cost of production or exhibition of motion picture films from the rental income of non- resident foreign corporations, is erroneous for lack of legal basis. In view thereof, General Circular No. V-334, dated April 12, 1961, is hereby revoked and henceforth, local films distributors and exhibitors shall deduct and withhold 35% of the entire amount payable by them to non-resident foreign corporations, as film rental or royalty, or whatever such payment may be denominated, without any deduction whatever, pursuant to Section 24 (b), and pay the withheld taxes in accordance with Section 54 of the Tax Code, as amended. All rulings inconsistent with this Circular is likewise revoked. (Emphasis ours) On the basis of this new Circular, respondent Commissioner of Internal Revenue issued against petitioner a letter of assessment and demand dated April 15, 1971, but allegedly released by it and received by petitioner on April 12, 1971, requiring them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through 1968 and film royalty as of the end of 1968 in the total amount of P525,897.06 computed as follows:

1965

Total amount remitted Withholding tax due thereon Less: Amount already assessed Balance Add: 1/2% mo. int. fr. 4-1666 to 4-16-69 Total amount due & collectible 1966

P 511,059.48 153,318.00

89,000.00

P64,318.00 11,577.24

P 75,895.24

Total amount remitted Withholding tax due thereon Less: Amount already assessed Balance Add: 11/2%mo. int. fr. 416-67 to 4-116-70 Total amount due & collectible 1967

P373,492.24 112,048.00

27,947.00

84,101.00 15,138.18

P99,239.18

Total amount remitted Withholding tax due thereon Less: Amount already assessed Balance Add: 1/2% mo. int. fr. 4-16-68 to 4-16-71 Total amount due & collectible 1968

P601,160.65

180,348.00

71,448.00

108,900.00 19,602.00

P128,502.00

Total amount remitted Withholding tax due thereon Less: Amount already assessed Balance Add: 1/2% mo. int. fr. 416-69 to 4-29-71 Total amount due & collectible

P881,816.92 291,283.00

92,886.00

P198,447.00 23,813.64

P222,260.44
1

On May 5, 1971, petitioner requested for a reconsideration and withdrawal of the assessment. However, without acting thereon, respondent, on April 6, 1976, issued a warrant of distraint and levy over petitioner's personal as well as real properties. The petitioner then filed its Petition for Review with the Court of Tax Appeals whose Decision, dated November 29, 1979, is, in turn, the subject of this review. The Tax Court held:

For the reasons given, the Court finds the assessment issued by respondent on April 16, 1971 against petitioner in the amounts of P75,895.24, P 99,239.18, P128,502.00 and P222,260.64 or a total of P525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968, respectively, in accordance with law. As prayed for, the petition for review filed in this case is dismissed, and petitioner ABS-CBN Broadcasting Corporation is hereby ordered to pay the sum of P525,897.06 to respondent Commissioner of Internal Revenue as deficiency withholding income tax for the taxable years 1965 thru 1968, plus the surcharge and interest which have accrued thereon incident to delinquency pursuant to Section 51 (e) of the National Internal Revenue Code, as amended. WHEREFORE, the decision appealed from is hereby affirmed at petitioner's cost. SO ORDERED. 2 The issues raised are two-fold: I. Whether or not respondent can apply General Circular No. 4-71 retroactively and issue a deficiency assessment against petitioner in the amount of P 525,897.06 as deficiency withholding income tax for the years 1965, 1966, 1967 and 1968. II. Whether or not the right of the Commissioner of Internal Revenue to assess the deficiency withholding income tax for the year 1965 has prescribed. 3 Upon the facts and circumstances of the case, review is warranted. In point is Sec. 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on August 9, 1969, it provides: Sec. 338-A. Non-retroactivity of rulings. Any revocation, modification, or reversal of and of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return or any document required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. (italics for emphasis) It is clear from the foregoing that rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive application where to so apply them would be prejudicial to taxpayers. The prejudice to petitioner of the retroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated exceptions are concerned, admittedly, petitioner does not fall under any of them. Respondent claims, however, that the provision on non-retroactivity is inapplicable in the present case in that General Circular No. V-334 is a nullity because in effect, it changed the law on the matter. The Court of Tax Appeals sustained this position holding that: "Deductions are wholly and exclusively within the power of Congress or the law-making body to grant, condition or deny; and where the statute imposes a

tax equal to a specified rate or percentage of the gross or entire amount received by the taxpayer, the authority of some administrative officials to modify or change, much less reduce, the basis or measure of the tax should not be read into law." 4 Therefore, the Tax Court concluded, petitioner did not acquire any vested right thereunder as the same was a nullity. The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha(d) been determined that the tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic principle of income taxation ...and that a mere return of capital or investment is not income ... ." "A part of the receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of investment." The Circular thus fixed the return of capital at 50% to simplify the administrative chore of determining the portion of the rentals covering the return of capital." 5 Were the "gross income" base clear from Sec. 24 (b), perhaps, the ratiocination of the Tax Court could be upheld. It should be noted, however, that said Section was not too plain and simple to understand. The fact that the issuance of the General Circular in question was rendered necessary leads to no other conclusion than that it was not easy of comprehension and could be subjected to different interpretations. In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular No. V-334, was just one in a series of enactments regarding Sec. 24 (b) of the Tax Code. Republic Act No. 3825 came next on June 22, 1963 without changing the basis but merely adding a proviso (in bold letters). (b) Tax on foreign corporation.(1) Non-resident corporations. There shall be levied, collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits, and income, a tax equal to thirty per centum of such amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL NOT INCLUDE REINSURANCE PREMIUMS. (double emphasis ours). Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and inserting some words (also in bold letters). (b) Tax on foreign corporations.(1) Non-resident corporations.There shall be levied, collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical OR CASUAL gains, profits and income, AND CAPITAL GAINS, a tax equal to thirty per centum of such amount. 6 (double emphasis supplied) The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction. 7 Note should be taken of the fact that this case involves not a mere opinion of the Commissioner or ruling rendered on a mere query, but a Circular formally issued to "all internal revenue officials" by the then Commissioner of Internal Revenue. It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of Revenue Memorandum Circular No. 4-71, that Sec. 24 (b) was amended to refer specifically to 35% of the "gross income."

This Court is not unaware of the well-entrenched principle that the Government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. 8 In fact, utmost caution should be taken in this regard. 9 But, like other principles of law, this also admits of exceptions in the interest of justice and fairplay. The insertion of Sec. 338-A into the National Internal Revenue Code, as held in the case of Tuason, Jr. vs. Lingad, 10 is indicative of legislative intention to support the principle of good faith. In fact, in the United States, from where Sec. 24 (b) was patterned, it has been held that the Commissioner of Collector is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom, 11 or where there has been a misrepresentation to the taxpayer. 12 We have also noted that in its Decision, the Court of Tax Appeals further required the petitioner to pay interest and surcharge as provided for in Sec. 51 (e) of the Tax Code in addition to the deficiency withholding tax of P 525,897.06. This additional requirement is much less called for because the petitioner relied in good faith and religiously complied with no less than a Circular issued "to all internal revenue officials" by the highest official of the Bureau of Internal Revenue and approved by the then Secretary of Finance. 13 With the foregoing conclusions arrived at, resolution of the issue of prescription becomes unnecessary. WHEREFORE, the judgment of the Court of Tax Appeals is hereby reversed, and the questioned assessment set aside. No costs. SO ORDERED. Makasiar (Acting Chairman), Fernandez, Guerrero and De Castro, * JJ., concur.

Footnotes 1 Comment of Respondents, Rollo, pp. 73-74. 2 Decision, Annex "A", Rollo, pp. 53-,54. 3 Memorandum of Petitioner, Rollo. p. 97. 4 Decision, Annex "A", Rollo, p. 41 5 Comment of Commissioner of Internal Revenue, p. 3. 6 The omission of the proviso "Provided, however, That premiums shall not include reinsurance premiums" appears to be due to oversight as the purpose of the amendment was to include capital gains in gross income of foreign non-resident corporations. See footnote 13, Filipinas Life Assurance Co. vs. Court of Tax Appeals, 21 SCRA 622 (1967). 7 Biddle vs. Commissioner, 302 U.S., 573 (1938); Alexander Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601 (1965). 8 Visayan Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue, 13 SCRA 357 (1965); Zamora vs. Court of Tax Appeals, 36 SCRA 77 (1970); Balmaceda vs. Corominas & Co., Inc. 66 SCRA 555 (1975).

9 Senator James Couzens 11 BTA 1040 (1928), 48 Harvard Law Review 1281, 1300, cited in 10A Metens Law of Federal Income Taxation, Sec. 60.13, p. 189. 10 58 SCRA 170 (1974). 11 Ford Motor Co..vs.U.S.,9 F.Supp.590(1935). 12 J. W. Carter Music Co. vs. Bass, 20 F. 2d 390 (1927). 13 Tuason, Jr. vs. Lingad, 58 SCRA 170 (1974); Connel Bros. Co. Phil. vs. Collector of Internal Revenue, 10 SCRA 470 (1964). * Justice Pacifico P. de Castro was designated to sit in the First Division, Justice Claudio Teehankee being on official leave.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-12182 March 27, 1918

VIUDA E HIJOS DE PEDRO P. ROXAS, plaintiffs-appellees, vs. JAMES J. RAFFERTY, Collector of Internal Revenue, ex officio city assessor and collector of Manila, defendant-appellant. City Fiscal Paredes for appellant. Gilbert, Cohn and Fisher for appellees. MALCOLM, J.: This appeal presents the question of whether or not taxes can be collected on the Roxas Building in the city of Manila for the year 1915. FACTS. Plaintiffs own a parcel of land located on the Escolta in the city of Manila. In the latter part of 1913, the improvements of this land were demolished, and the construction of a reinforced concrete building was begun. No taxes on the improvements were levied or paid for the year 1914. Accepting the findings of fact by the trial court, the Roxas building in December, 1914, when the city assessor and collector attempted to assess it for taxation, still lacked the pavement of the entrances, the floors of some of the stores the dividing partitions between the stores, the dividing partitions between the greater part of the rooms in the upper stories, sanitary installation, the elevators, electrical installation, the roof of the building, the concrete covering and towers of the elevator shaft, and the doors and windows of many rooms. It was finished in all respects on February 15, 1915.

The city assessor and collector of Manila, under the date of December 1, 1914, sent plaintiffs notice, received by them on December 25, 1914, requiring them to declare the new improvements for assessments for the year 1915. Prior to this, in November, the city assessor and collector had the building inspected and had assessed the new improvements for taxation for 1915 at P300,000. On January 15, 1915, plaintiffs were notified of this assessment. Plaintiffs paid the amount of the taxes, which amounted to P3,000, under protest on June 30, 1915. Suit was begun in the Court of First Instance of Manila to recover this sum with interest at the legal rate from the date of payment. The court, the Honorable Simplicio del Rosario, found with plaintiffs without express finding as to costs. Defendant, by the city attorney of Manila, appealed, making five assignments of error which we combine for purposes of convenience into three issues. LEGAL ISSUES. 1. Jurisdiction. The first assignment of error, concerning the jurisdiction of the lower court, presents a question of primary importance for obviously if the lower court had no right to take cognizance of this case, we should not burden ourselves with the consideration of its merits. This question appellee emphasizes, is argued for the first time on appeal. In the trial court, defendant appeared, demurred, and answered without assailing jurisdiction. However, as jurisdiction is the power of a court to act at all, we should even now resolve the question. Objection for want of jurisdiction may be raised for the first time on appeal. The local law, as elsewhere, provides an administrative procedure for the assessment of realty. An assessor to fix the value of the property in the first instance, and a board of tax appeals to review the action of the assessor in the second instance are constituted. Proceedings before this board are quasijudicial in nature. To it the citizen must apply for relief against excessive and irregular taxation. Here must be aggrieved party go for the correction of errors in assessments. Administrative remedies must be exhausted before resort can be had to the courts. It is a condition precedent to the exercise of the taxpayer's right of action in a court of justice that previous and timely effort shall have been made on his part to have the board of tax appeals correct an alleged error while the matter was yet in their hands and under their control. Even when the courts assume jurisdiction, they will not presume to interfere with the intelligent exercise of the judgement of men specially trained in appraising property. (See Stanley vs. Supervisors of Albany [1887], 121 U. S., 535) This is hardly our case. We do not have before us merely a dispute as to an excessive or unequal assessment. The assessment is claimed to be wholly void. The contention is that the assessor has attempted to levy a tax upon property, which is by law exempt, and that in this attempt the assessor has violated the provisions of law which exist for the protection of the taxpayer. Not the correctness of the assessment, but the legality of the assessment is involved. The rule of taxation is that where there tax is illegal, the taxpayer may bring an action directly in the courts to recover back the tax. (Roman Catholic Church vs. Cooley on Taxation, 3rd ed., p. 1382, and Stanley vs. Supervisors of Albany, supra.) This court has taken cognizance of questions concerning assessments of and improvements on reality in a number of cases. (See Fernandez vs. Shearer [1911], 19 Phil., 75; Ayala de Roxas vs. City of Manila [1914], 27 Phil., 336; Young Men's Christians Association of Manila vs. Collector of Internal Revenue [1916], 33 Phil. Rep., 217.) The distinction is between a void and an erroneous tax. The first identifies the existing situation and gives jurisdiction to the courts. The situation in its simplest terms may be described as follows: The citizen is forced to pay the alleged tax. As will hereafter appear, he had no appropriate opportunity to present his grievance to the board of tax appeals. He did all that was required by protesting at the time of paying the tax. The citizen can therefore in turn be permitted to bring suit to recover the amount which he claims was unlawfully collected. Appeal to the board of tax appeals is not a necessary prequisite. Nor is the decision of the assessor as to the right to tax property of such a judicial or discretionary character as to be free from collateral attack. When the state (here the city of Manila) makes the assessment, and when the citizen

stand on reasonably equal terms. The power of the state and the remedy of the citizen are and should be reciprocal. It is for the courts to arbitrate the controversy between the state and the citizen. The Court of First Instance of the city of Manila had jurisdiction over this suit and the Supreme Court of the Philippine Islands now possesses similar appellate jurisdiction. 2. Legality of assessment. The second, third, and fourth assignment of error concern the point of when an improvement can be said to be completed within the meaning of the Manila Charter. We feel it unnecessary to decide this question for even more basic in aspect is the point raised by the fifth assignment of error concerning the legality of the assessment, particularly as relating to notification. The exact situation can be more vividly pictured by quoting the provisions of the law and then applying these provisions to the facts. The Manila Charter provides: "It shall be the duty of each person who at any time acquires real estate in the city,, and of any person who constructs or adds to any improvement on real estate owned by him within the city, to prepare and present to the city assessor and collector, within a period of sixty days next succeeding the completion of such acquisition, construction or addition, a sworn declaration setting forth the value of the real estate acquired or the improvement constructed or addition made by him and containing a description of such property sufficient to enable the city assessor and collector readily to identify the same. . . ." (Section 2484, Administrative Code of 1917.) Plaintiffs were under obligation too present a declaration of their improvements within sixty days succeeding completion, i. e. on or before April 15, 1915. Under an attempted assessment in November and December, 1914, the plaintiffs had and could have had no opportunity to comply with the law. The Charter continues: "The city assessor and collector shall, during the first fifteen days of December of each year, add to his list of taxable real estate in the city the value of the improvements placed upon such property during the preceding year, and any property which is taxable and which has therefore escaped taxation. . . ." (Sec. 2487, Administrative Code of 1917.) Between December 1 and December 15, 1915, the city assessor and collector was under the obligation and adding the improvements on the Roxas property to the assessment list. Between December 1 and December 15, 1914, the city assessor and collector could not prematurely and by anticipation perform this duty on improvements not yet completed. There may be doubt as to the exact meaning which should be given to the words "during the preceding year." The common sense construction would be that the phrase includes December of the previous year and the current year to December. The city assessor and collector perforce could not in 1914 levy a tax on incomplete improvements made during the current year, when the statute only authorized him to make such levy upon completed improvements made during the year. The Charter continues: "He (the city assessor and collector) shall give notice by publication for ten days prior to December first in two newspapers of general circulation published in the city, one printed in English and one in Spanish, that he will be present in his office for that purpose on said days, and he shall further notify in writing each person the amount of whose tax will be changed by such action or such proposed change, by delivering or mailing such notification to such person or his authorized agent at the last known address of such owner or agent in the Philippine Islands some time in the month of November." (Sec. 2487, Administrative Code of 1917.) And finally the Charter provides that, "No court shall entertain any suit assailing the validity of a tax assessed under this article until the taxpayer shall have paid, under protest, the taxes assessed against him, nor shall any court declare any tax invalid by reason of irregularities or informalities in the proceedings of the officer in charged with the assessment or collection of taxes, or of failure to perform their duties within the times herein specified for their performance, unless such irregularities, informalities, or failures shall have impaired the substantial rights of the taxpayer; nor shall any court declare any tax assessed under the provisions of article invalid except upon condition that the taxpayer shall pay the just amount of his tax as determined by the court in the pending proceeding." (Sec. 2504, Administrative Code of 1917.) It is a general rule that those provisions of a statute relating to the assessment of taxes, which are intended for the security of the citizen, or to insure the equality of taxation, or certainty as to the nature and amount of each person's tax, are mandatory; but those designed merely for the information or direction of officers

or to secure methodical and systematic modes of proceedings are merely directory. In the language of the United States Supreme Court, "When the regulations prescribed are intended for the protection of the citizen and to prevent a sacrifice of his property, and by a disregard of which his right might be, and generally would be, injuriously affected, they are not directory but mandatory." (French vs. Edwards [1871], 13 Wall., 506.) Sometimes statutes requiring the assessor to notify the taxpayer have been held merely directory. But in the majority of jurisdictions this requirement is held to be mandatory, so that the assessor cannot make a valid assessment unless he has given proper notice. (37 Cyc., pp. 988, 991, citing cases.) Applied to our facts, the assessor should have notified the plaintiffs during November, 1915. His attempted notification on December 25, 1914, was not given during the time fixed by statute and was no more than a reminder to plaintiffs to present a sworn declaration of the value of the new improvements on their property. In this instance there was no such substantial compliance with the law as amounts to due process of law. There was no legal assessment of the Roxas Building for the year 1915. 3. Interest. To narrow our discussion and to avoid misunderstanding, let us set down a few principles which every one knows. The United States of America, a State of the Islands cannot be sued without their consent. Whether interest could bee adjudged to a taxpayer against any of these entities, is beside the our question. But what is of moment is that the city of Manila is not sovereign but is a public corporation with certain delegated powers, including that of suing and being sued. Turning to the American authorities, which are controlling, we find the following: The basic case is Erskine vs. Van Arsdale ([1872], 15 Wall., 68-75). Suit as brought against a collecting officer to recover back certain taxes claimed to be exempt under a Federal statute. Interest was added to the judgment for the plaintiff. The United States Supreme Court, through the Chief Justice, said that "Where an illegal tax has been collected, the citizen who has paid it, and has been obliged to bring suit against the collector, is, we think, entitled too interest in the event of recovery, from time of the illegal exaction." This case should not be confused with others which hold that the United States cannot be subjected to the payment of interest unless there be an authorized engagement to pay it, or a statute permitting its recovery. (Angarica vs. Bayard [1888] 127 U. S., 251; United States vs. State of North Carolina [1890], 136 U. S., 211; National Home for Disabled Volunteer Soldiers vs. Parrish [1912], 229 U. S., 494.) The distinction appears to be between suits to recover moneys illegally exacted as taxes and paid under protest, brought against collectors, although the judgment is not to be paid by the collector but directly from the Treasury, and suits against the United States. A late decision of the United States Supreme Court (National Home for Disabled Volunteer Soldiers vs. Parrish, supra), which reviews the previous cases, held that the National Home for Disabled Volunteer Soldiers was not exempt from the payment of interest on a judgment for the recovery of taxes. The court said that the exemption in favor of the United States "has never as yet been applied to subordinate governmental agencies." Some States hold that a municipal corporation is not liable for interest unless so required by special contract or by statute. In other States, however, it is held that notwithstanding a municipal corporation has delegated to it certain powers of government, it is to be regarded as a private person with respect to its contracts, which are to be considered in the manner and with a like effect as those of natural persons. (See 15 R. C. L., 18.) Even where the stricter rule is observed, as Illinois, it is nevertheless settled that a municipal corporation which wrongfully exacts money and holds the same without just claim or right is liable for the interest thereon. (City of Chicago vs. N. W. Mutual Ins. Co. [1905], 218 Ill., 40. See also In re O'Berry [1904], 179 N. Y., 285.) Laches on the part of the plaintiff would, of course, defeat the right to recover interest. (Redfield vs. Ystefera Iron Co. [1884], 110 U. S., 174.) The city of Manila, a public corporation, even in the absence of statute, is liable to pay interest at the legal rate, from the date of exaction, in the amount of taxes illegally collected. CONCLUSION.

In conclusion, as an authority which is on all fours with the prominent issues before us, we invite attention to the decision of a United States Circuit Court, in Powder River Cattle Co. vs. Board of Commissioners of Custer County ([1891], 45 Fed., 232). The Revised Statutes of Montana provided that the assessor shall demand of each taxpayer in the district a list of his personal property and on his refusing to give it, the assessor shall list his property on information and belief. The assessor listed the property of the defendant without demanding a list from the taxpayer. The court held that the taxpayer may recover the illegal taxes paid under compulsion and is not required to apply to the board of equalization for an abatement. The court, finally adjudged legal interest on the sum illegally exacted from the date collection was made. We think the court below took the correct view of the case, and, while resolving the appeal on somewhat different grounds, believe that the judgment should stand. Accordingly, the judgment is affirmed, without special finding as to costs. So ordered. Arellano, C.J., Torres, Carson, Araullo, Street and Avancea, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-2678 December 29, 1949

ANTONIO C. ARAGON, petitioner-appellant, vs. MARCOS JORGE, Provincial Treasurer of Zambales, respondent-appellee. Antonio C. Aragon in his own behalf. Office of the Solicitor General Felix Bautista Angelo and Solicitor Francisco Carreon for appellee.

OZAETA, J.: This is an appeal from a judgment of the Court of First Instance of Zambales denying appellant's petition for mandamus to compel the respondent provincial treasurer to issue final bills of sale covering numerous parcels of land situated in the municipalities of Santa Cruz and Candelaria, Zambales , which the petitioner alleged to have purchased at auction sales made by the respective municipal treasurers of said municipalities for tax delinquencies and which had not been redeemed by the owners within one year. The provincial treasurer, supported by an opinion of the provincial fiscal, held the sales void for irregularities and refused to issue the final bills of sale, but in his answer he alleged that he had offered to refund the purchase price but that the petitioner thru his counsel refused to accept it. The trial court sustained the opinion of the fiscal and the provincial treasurer.

The real properties located in the municipality of Santa Cruz were advertised for sale "at public auction to be held at the main entrance of the municipal building of said municipality from March 24, 1947, at 10 a.m. until all sold, to satisfy all taxes and penalties due thereon and the cost of the sale, pursuant to the provisions of section 35 of Commonwealth Act No. 470, subject to the conditions provided in section 36 of said Act." The sale did not take place on the date above fixed but on May 12, 13, 14, and 15, 1947, without a new advertisement and without a new notice to the owners concerned . On the dates last mentioned 253 parcels with an aggregate assessed value of P67, 150 were sold for only P1,471.lawphi1.net The real properties located in the municipality of Candelaria were originally advertised for sale "at public auction to be held at the main entrance of the municipal building of said municipality from May 5, 1947, at 10 A. M. until sold, to satisfy all taxes and penalties due thereon and the cost of sale, pursuant to the provisions of section 35 of Commonwealth Act No. 470, subject to the conditions provided in section 36 of said Act." Likewise the sale did not take place on the date above fixed but on June 12, 1947, without a new advertisement and without a new notice to the owners concerned. On said date 71 lots with an aggregate assessed value of P32,250 were sold for only P820.19. It was not the petitioner who bid at both auction sales but one Pedro Porras; and it was not the latter who paid the purchase price but Public Defender Moises Ma. Buhain, who caused the official receipts to be issued in the name of the herein petitioner Antonio c. Aragon. The latter is a Manila resident who had no house and no interest any kind in Zambales. Public defender Buhain was the one who appeared in the trial court as counsel and attorney-in-fact of the petitioner. The trial court intimated that the petitioner was a dummy of the public defender, who as a public official was prohibited by section 579 of the revised Administrative Code "from purchasing, directly or indirectly, from the Government, any property sold by the Government for the nonpayment of any public tax. Any such purchase by a public official or employee shall be void." While there is ground for suspension that said provision of the revised Administrative Code may have been violated, in the absence of categorical finding by the trial court on that point we must decide this case on the alleged nullity of sale for lack of notice. Notice of such sale to the delinquent taxpayers and landowners in particular and to the public in general is an essential and indispensable requirement of the law, the nonfulfilment of which vitiates and nullifies the sale. (Section 35, Commonwealth Act No. 470, known as the Assessment Law; Cabrera vs. Provincial Treasurer of Tayabas, 42 O. G. 1492.) 1 The sale should have been made on a fixed date as originally advertised, or if that was not practicable and if it was desired to postpone the sale indefinitely "to give a chance to the taxpayers to pay their delinquent taxes," as was done in this case, new notices to the taxpayers and to the public should have been made. The sales in question being void for lack of due notice, the respondent provincial treasurer cannot be compelled to issue the final bills of sale demanded by the petitioner. The judgment is affirmed, with costs against the appellants. Moran, C.J., Paras, Pablo, Bengzon, Padilla, Tuason, Montemayor, Reyes and Torres, JJ., concur. Footnotes 1 75 Phil., 780. Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION G.R. No. L-67649 June 28, 1988 ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.: The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name. The antecedent facts are as follows: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering: (a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the defendant Ho Fernandez over the parcel

of land including the improvements thereon, subject to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795) cancelled. (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30, Record on Appeal) The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review. Francia prefaced his arguments with the following assignments of grave errors of law: I RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER. II RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00. III RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo) We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due process of law. A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss it. Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15, 1977. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit:

(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; xxx xxx xxx (3) that the two debts be due. xxx xxx xxx This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-off or compensation. We stated that: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule based on grounds of public policy is wellsettled that no set-off admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the personal consent of individual taxpayers is not required. ..." We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction sale without reading it. Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed. ... Since defendant Ho

Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied) We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was compliance with all the prescribed requisites for a tax sale. The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that: xxx xxx xxx ... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale. (emphasis supplied) There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that: [T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale. Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the requirements of the notice, the validity of the auction sale can not be assailed ... . We quote the following testimony of the petitioner on cross-examination, to wit: Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the property in question shall be sold at public auction to the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this letter? A. I just signed it because I was not able to read the same. It was just sent by mail carrier. Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but you did not read the contents of it? A. Yes, sir, as I was in a hurry. Q. After you received that original where did you place it? A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force. Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held: ... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale." The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290): If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369). In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555): Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve, but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those who have invited it by their own neglect. We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which answer the petitioner's claims lead us to deny the petition. And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment

deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed. SO ORDERED. Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-41631 December 17, 1976 HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. GARGANTIEL, as Secretary to the Mayor; THE MARKET ADMINISTRATOR; and THE MUNICIPAL BOARD OF MANILA, petitioners, vs. HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of First Instance of Manila, Branch XXX and the FEDERATION OF MANILA MARKET VENDORS, INC., respondents. Santiago F. Alidio and Restituto R. Villanueva for petitioners. Antonio H. Abad, Jr. for private respondent. Federico A. Blay for petitioner for intervention.

MARTIN, J.: The chief question to be decided in this case is what law shall govern the publication of a tax ordinance enacted by the Municipal Board of Manila, the Revised City Charter (R.A. 409, as amended), which requires publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which only demands publication after approval. On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974. On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced Civil Case 96787 before the Court of First Instance of Manila presided over by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the enactment of the ordinance, as envisioned by Republic Act 6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; and (d) the ordinance would violate

Presidential Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on livestock and animal products. Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code. After due hearing on the merits, respondent Judge rendered its decision on August 29, 1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the requirement of publication under the Revised City Charter. Respondent Judge ruled: There is, therefore, no question that the ordinance in question was not published at all in two daily newspapers of general circulation in the City of Manila before its enactment. Neither was it published in the same manner after approval, although it was posted in the legislative hall and in all city public markets and city public libraries. There being no compliance with the mandatory requirement of publication before and after approval, the ordinance in question is invalid and, therefore, null and void. Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before instituting an action in court. On September 26, 1975, respondent Judge denied the motion. Forthwith, petitioners brought the matter to Us through the present petition for review on certiorari. We find the petition impressed with merits. 1. The nexus of the present controversy is the apparent conflict between the Revised Charter of the City of Manila and the Local Tax Code on the manner of publishing a tax ordinance enacted by the Municipal Board of Manila. For, while Section 17 of the Revised Charter provides: Each proposed ordinance shall be published in two daily newspapers of general circulation in the city, and shall not be discussed or enacted by the Board until after the third day following such publication. * * * Each approved ordinance * * * shall be published in two daily newspapers of general circulation in the city, within ten days after its approval; and shall take effect and be in force on and after the twentieth day following its publication, if no date is fixed in the ordinance. Section 43 of the Local Tax Code directs: Within ten days after their approval, certified true copies of all provincial, city, municipal and barrio ordinances levying or imposing taxes, fees or other charges shall be published for three consecutive days in a newspaper or publication widely circulated within the jurisdiction of the local government, or posted in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. In either case, copies of all provincial, city, municipal and barrio ordinances shall be furnished the treasurers of the respective component and mother units of a local government for dissemination. In other words, while the Revised Charter of the City of Manila requires publication before the enactment of the ordinance and after the approval thereof in two daily newspapers of general

circulation in the city, the Local Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. Petitioners' compliance with the Local Tax Code rather than with the Revised Charter of the City spawned this litigation. There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local governments. Blackstone defines general law as a universal rule affecting the entire community and special law as one relating to particular persons or things of a class. 1 And the rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception of the general, one as a general law of the land, the other as the law of a particular case. 2 However, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute treats in particular. This exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular provision. 3 Special provision governs. 4 This is especially true where the law containing the particular provision was enacted later than the one containing the general provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The law-making power cannot be said to have intended the establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of a prior law by which the new will of the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and Idle ceremony, and subject the law to the reproach of uncertainty and unintelligibility. 5 The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City of Manila for damages arising from the injuries he suffered when he fell inside an uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City of Manila denied liability on the basis of the City Charter (R.A. 409) exempting the City of Manila from any liability for damages or injury to persons or property arising from the failure of the city officers to enforce the provisions of the charter or any other law or ordinance, or from negligence of the City Mayor, Municipal Board, or other officers while enforcing or attempting to enforce the provisions of the charter or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code makes cities liable for damages for the death of, or injury suffered by any persons by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under their control or supervision. On review, the Court held the Civil Code controlling. It is true that, insofar as its territorial application is concerned, the Revised City Charter is a special law and the subject matter of the two laws, the Revised City Charter establishes a general rule of liability arising from negligence in general, regardless of the object thereof, whereas the Civil Code constitutes a particular prescription for liability due to defective streets in particular. In the same manner, the Revised Charter of the City prescribes a rule for the publication of "ordinance" in general, while the Local Tax Code establishes a rule for the publication of "ordinance levying or imposing taxes fees or other charges in particular. In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or broad one. 7 A charter provision may be impliedly modified or superseded by a later statute, and where a statute is controlling, it must be read into the charter notwithstanding any particular charter provision. 8 A subsequent general law similarly applicable to all cities prevails over any conflicting charter provision, for the reason that a charter must not be inconsistent with the general laws and public policy of the state. 9 A chartered city is not an independent sovereignty. The state remains supreme in all matters not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read into it that general law which governs the municipal corporation and which the corporation

cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its charter general law of such character. 10 2. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been violated by private respondent in bringing a direct suit in court. This is because Section 47 of the Local Tax Code provides that any question or issue raised against the legality of any tax ordinance, or portion thereof, shall be referred for opinion to the city fiscal in the case of tax ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice, whose decision shall be final and executory unless contested before a competent court within thirty (30) days. But, the petition below plainly shows that the controversy between the parties is deeply rooted in a pure question of law: whether it is the Revised Charter of the City of Manila or the Local Tax Code that should govern the publication of the tax ordinance. In other words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue, and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the question litigated upon is purely a legal one, the rule does not apply. 11 The principle may also be disregarded when it does not provide a plain, speedy and adequate remedy. It may and should be relaxed when its application may cause great and irreparable damage. 12 3. It is maintained by private respondent that the subject ordinance is not a "tax ordinance," because the imposition of rentals, permit fees, tolls and other fees is not strictly a taxing power but a revenue-raising function, so that the procedure for publication under the Local Tax Code finds no application. The pretense bears its own marks of fallacy. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be provided by law." 13 And one of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancy or use of public markets and premises * * *." 14 They can provide for and regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15 It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, dated September 30, 1972, insofar as it affects livestock and animal products, because the said decree prescribes the collection of other fees and charges thereon "with the exception of ante-mortem and post-mortem inspection fees, as well as the delivery, stockyard and slaughter fees as may be authorized by the Secretary of Agriculture and Natural Resources." 16 Clearly, even the exception clause of the decree itself permits the collection of the proper fees for livestock. And the Local Tax Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may collect fees for the slaughter of animals and the use of corrals * * * " 4. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the market committee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and approval of the mayor, policies and rules or regulation repealing or maneding existing provisions of the market code" does not infect the ordinance with any germ of invalidity. 17 The function of the committee is purely recommendatory as the underscored phrase suggests, its recommendation is without binding effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate remains undisturbed even in the slightest degree. It can move in its own initiative and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of the necessary data, studies and the collection of consensus for the proposal of ordinances regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market Committee the adoption of regulatory measures for the operation and administration of the city markets. Potestas delegata non delegare potest.

5. Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a "Management and Operating Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation. 18 Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft and Corrupt Practices Act because the increased rates of market stall fees as levied by the ordinance will necessarily inure to the unwarranted benefit and advantage of the corporation. 19 We are concerned only with the issue whether the ordinance in question is intra vires. Once determined in the affirmative, the measure may not be invalidated because of consequences that may arise from its enforcement. 20 ACCORDINGLY, the decision of the court below is hereby reversed and set aside. Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to have been validly enacted . No. costs. SO ORDERED. Castro, C.J., Barredo, Makasiar, Antonio, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur. Teehankee, J., reserves his vote.

Separate Opinions

FERNANDO, J., concurring: But qualifies his assent as to an ordinance intra vires not being open to question "because of consequences that may arise from its enforcement."

Separate Opinions FERNANDO, J., concurring: But qualifies his assent as to an ordinance intra vires not being open to question "because of consequences that may arise from its enforcement."

Footnotes 1 Cooley, The Law of Taxation, Vol. 2, 4th ed. 2 Butuan Sawmill, Inc. vs. City of Butuan, L-21516, April 29, 1966, 16 SCRA 758, citing State v. Stoll, 17 Wall. 425. 3 Lichauco & Co. v. Apostol, 44 Phil. 145 (1922). 4 Crawford, Construction of Statutes, 265, citing U.S. v. Jackson, 143 Fed. 783. 5 See Separate Opinion of Justice Johns in Lichauco, fn. 3, citing Lewis' Sutherland Statutory Construction, at 161. 6 L-23052, January 29, 1968, 22 SCRA 270. 7 See 73 Am Jur 2d 521. 8 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 223. 9 See Bowyer v. Camden, 11 Atl. 137. 10 McQuillin, Municipal Corporation, Vol. 6, 3rd ed., 229-230. 11 Tapales v. President and Board of Regents of the U.P., L-17523, March 30, 1963, 7 SCRA 553; C.N. Hodges v. Municipal Board of the City of Iloilo, L-18276, January 12, 1967, 19 SCRA 32-33; Aguilar v. Valencia, L-30396, July 30, 1971, 40 SCRA 214;. Mendoza v. SSC, L-29189, April 11, 1972, 44 SCRA 380. 12 Cipriano v. Marcelino, L-27793, February 28, 1972, 43 SCRA 291; Del Mar v. PVA, L27299, June 27, 1973, 51 SCRA 346, citing cases. 13 See City of Bacolod v. Enriquez, L-27408, July 25, 1975, Second Division, per Fernando, J., 65 SCRA 384-85. 14 Article 5, Section 30, Chapter II. 15 McQuillin, Municipal Corporations, Vol. 7, 3rd ed., 275. 16 P.D. 7 was amended by P.D. 45 on November 10, 1972, so as to allow local governments to charge the ordinary fee for the issuance of certificate of ownership and one peso for the issuance of transfer certificate for livestock. 17 The market committee is composed of the market administrator as chairman, and a representative of each of the city treasurer, the municipal board, the Chamber of Filipino Retailers, Inc. and the Manila Market Vendors Association Inc. as members. 18 Cooley, The Law of Taxation, Vol. 1, 394-95. 19 Section 3 (e) causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the

discharge of his official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence.* * * 20 Willoughby, The Constitutional Law of the United States, 668 et seq. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-36130 January 17, 1985 LA SUERTE CIGAR AND CIGARETTE FACTORY, BATAAN CIGAR AND CIGARETTE FACTORY, INC., LA PERLA INDUSTRIES, INC., PIONEER TOBACCO CORPORATION, INSULAR-YEBANA TOBACCO CORPORATION, LAS BUENAS FABRICA DE CIGARILLOS, INC., LA DICHA CIGAR & CIGARETTE FACTORY, CONSOLIDATED TOBACCO INDUSTRIES OF THE PHILIPPINES, INC., LA CAMPANA FABRICA DE TABACOS, INC., ASSOCIATED ANGLO-AMERICAN TOBACCO CORPORATION, FORTUNE TOBACCO CORPORATION, BAGUMBUHAY CIGAR AND CIGARETTE FACTORY, STANDARD CIGARETTE MANUFACTURING CO., INC., and D.L. TERUEL TOBACCO CO., INC., petitioners, vs. COURT OF TAX APPEALS and HON. MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, respondents. G.R. No. L-36131 January 17, 1985 ALHAMBRA INDUSTRIES, INC., LA FLOR DE LA ISABELA, INCORPORADA and COLUMBIA TOBACCO COMPANY, INC., petitioners, vs. COURT OF TAX APPEALS and HON. MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, respondents. Jose Araas for petitioners. The Solicitor General for respondents,

CUEVAS, J.: Petition for Review on certiorari of the decisions 1 of the Court of Tax Appeals in CTA Cases Nos. 2048 and 2031, denying petitioners' claims for the refund of P1,606,509.83 imposed and collected by respondent Commissioner of Internal Revenue as tobacco inspection fees on cigars and cigarettes manufactured for domestic sale and/or consumption. These two cases were heard jointly by the Court of Tax Appeals the parties being represented by one and the same counsel and involving as they do, the same legal issues. The amounts involved are not disputed. On August 22, 1967, respondent Commissioner of Internal Revenue issued Memorandum Circular No. 30-67 2 requiring the inspection of (a) all locally produced leaf tobacco and partially manufactured tobacco intended for domestic sale, for factory use or for export; (b) all manufactured products of tobacco

contemplated in Sec. 194(m) of the Tax Code intended for domestic sale; and (c) all imported foreign leaf tobacco and partially manufactured tobacco for domestic sale or factory use, and the collection of the corresponding inspection fees. Pursuant to said Memorandum respondent collected from petitioners, over the latter's vehement protests, the following inspection fees: (a) 199,632.19 during the period from September 1967 to April 1969, in CTA Case No. 2031; (b) 1,406,877.64 during the period from September 1967 to August 1969, in CTA Case No. 2048. Petitioners in two separate cases, sought the refund of the aforementioned inspection fees collected from them CTA Case No. 2031 was submitted by petitioners for summary judgment. In a decision dated November 28, 1970, CTA denied the claim for the refund of the amount of P199,632.19. Before the finality of the said decision, however, petitioners moved for a reconsideration thereby praying that in case of a denial, CTA Case No. 2031 be reopened for the reception of evidence in support of their argument that there was no inspection made by the BIR nor were inspection labels affixed to the boxes and packages containing the cigars and cigarettes which would warrant the imposition and collection of the disputed tobacco inspection fees. On September 28, 1971, the CTA granted petitioners' motion to reopen but denied the motion for reconsideration. Said court likewise ordered that CTA Cases Nos. 2048 and 2031 be heard jointly. After hearing, the CTA on December 15, 1972 denied both claims. Petitioners contend that the CTA erred: I IN REACHING A CONCLUSION CONTRARY TO PETITIONERS' POSITION THAT INSPECTION FEES COLLECTED FROM THEM BY RESPONDENT ON THE CIGARS AND CIGARETTES MANUFACTURED BY THEM FOR DOMESTIC SALE OR CONSUMPTION WERE SO COLLECTED ILLEGALLY AND HENCE, SHOULD BE REFUNDED TO THEM; II IN REFUSING TO HOLD THAT RESPONDENT COMMISSIONER'S REVENUE MEMORANDUM CIRCULAR WHICH PURPORTS TO DECLARE PETITIONERS LIABLE FOR THE AFORESAID INSPECTION FEES, AND IN VIRTUE OF WHICH, THE SAID FEES WERE COLLECTED, IS WITHOUT ANY BINDING FORCE AND EFFECT ON THE LATTER, BECAUSE OF THE ADMITTED FACT THAT IT IS NOT A REGULATION PROMULGATED BY THE SECRETARY OF FINANCE, AS REQUIRED BY SECTION 4(j) AND 338 OF THE NIRC, AND FURTHER, BECAUSE OF THE EQUALLY ADMITTED FACT THAT IT HAS NEVER BEEN PUBLISHED IN THE OFFICIAL GAZETTE, AS REQUIRED NOT ONLY BY ART. 2 OF THE CIVIL CODE, BUT ALSO BY SEC. 79(b) OF THE REVISED ADMINISTRATIVE CODE; III

IN DISREGARDING THE FACT BORNE OUT BY UNDISPUTED EVIDENCE THAT NO INSPECTION OF THE CIGARS AND CIGARETTES AFOREMENTIONED WAS ACTUALLY CONDUCTED FOR WHICH REASON NO COLLECTION OF INSPECTION FEES WAS LEGALLY WARRANTED; and IV IN FAILING TO HOLD THAT THE PROVISIONS OF THE TOBACCO INSPECTION LAW (SEC. 6[c]) UNDER WHICH THE SAID REVENUE MEMORANDUM CIRCULAR PURPORTS TO DECLARE PETITIONERS' CIGAR AND CIGARETTES FOR DOMESTIC SALE OR CONSUMPTION SUBJECT TO INSPECTION AND THE PAYMENT OF INSPECTION FEES, REFER ALONE TO LEAF TOBACCO FOR DOMESTIC SALE OR FACTORY USE, NOT TO CIGARS AND CIGARETTES FOR DOMESTIC CONSUMPTION, AND HENCE, THE SAID MEMORANDUM CIRCULAR IS ULTRA VIRES AND VOID. Section 6(c) of Act 2613 (Tobacco Inspection Law), before its amendment by Republic Act No. 3 1, provides: Sec. 6. The Commissioner of Internal Revenue shall have the power and it shall be his duty: ... xxx xxx xxx (c) To require, whenever it shall be deemed expedient, the inspection of and affixture of inspection labels to tobacco removed from the province before such removal or to tobacco for domestic sale or factory use. As amended, (by RA 31) said Section 6, Republic Act No. 31 (October 1, 1946) now reads: Sec. 6. The Commissioner of Internal Revenue shall have the power and it shall be his duty: xxx xxx xxx (c) To require, whenever it shall be deemed expedient, the inspection of and affixture of inspection labels to tobacco removed from province of its origin to another or other provinces before such removal or to tobacco for domestic sale or factory use. (Emphasis supplied) The amendatory bill (House Bill No. 735) which later on became Republic Act No. 31, carried the following explanatory note: EXPLANATORY NOTE Under Section 6 of the Tobacco Inspection Law (Act No. 2613), the Collector of Internal Revenue is authorized to promulgate rules relative to the classification, marking and packaging of leaf tobacco for domestic sale or for exportation in order to insure the use of leaf tobacco of good quality and its handling under sanitary conditions. Section 1 of the attached bill seeks to extend this regulatory power of the Collector of Internal Revenue to leaf tobacco intended for factory use. xxx xxx xxx

xxx xxx xxx Under the present law only leaf and manufactured tobacco for export to the United States are subject to inspection. Under the proposed amendment, the standard type and packing of all leaf and manufactured tobacco for export to any foreign country will come under the regulatory power of the Collector of Internal Revenue. (Emphasis supplied) It was petitioners' contention that the amendatory portion reading "or to tobacco for domestic sale or factory use" in Sec. 6(c) of Act 2613, refers to leaf tobacco whether for local sale or factory use and does not include cigars and cigarettes for domestic sale or consumption. We do not agree. Prior to the amendment of said Act, Sec. 6 and 7 thereof, already covered the inspection of leaf tobacco, partially manufactured tobacco or local sale and leaf tobacco and its products for export. If the intention of Congress was to apply the amendment to those items already covered by Act 2613, then the word "leaf" should have been easily included to modify the term "tobacco". The omission of the word "leaf" is a clear indication that Congress intended to include within the purview of the law a new item; namely, manufactured tobacco products for domestic sale and imported tobacco for factory use. As aptly held by the CTA: xxx xxx xxx Petitioners' contention that the phrase 'tobacco for domestic sale' refers to leaf tobacco alone is restrictive, misleading, and against sound statutory construction. Webster's New International Dictionary 2nd Edition, p. 2653 defines tobacco as the leaves of the tobacco plant, prepared by drying and various manufacturing processes, and use either for smoking or chewing, or as snuff, or the manufactured products from tobacco leave smoking or chewing tobacco cigar cigarette etc. collectively From the above definition, it is clear that the word "tobacco" refers both to leaf and manufactured tobacco such as cigars, and cigarettes It is to be noted that either Section 6(c) of Act No. 2613 or the amendatory law does not make a distinction as to the meaning of the word "tobacco". Since our legislative body used the word tobacco in the general sense without any qualification, this Court is powerless to give it a restrictive meaning. xxx xxx xxx If Congress of the Philippines really intended to restrict the meaning of the word 'tobacco' under Republic Act No. 31, which took effect on October 1, 1946, in order to limit the scope of the term tobacco under the law originally passed in 1916 and its implementing Regulations Nos. 17 and 47, it could have easily inserted the word "leaf" to modify "tobacco" contained in the amendatory law. An examination of Sections 6(a), 6(b) and 7, supra, reveals that, if our lawmaking body intended to limit the coverage of said sections to either leaf or manufactured tobacco, it qualified the word 'tobacco' with such antecedent words. In Section 6(c) of Act 2613, as amended, no such qualification was made by Congress, thereby showing the broad scope and meaning of the word tobacco. For the Court to adopt petitioners' construction that tobacco means 'leaf tobacco' would be engaging in unauthorized judicial legislation by rewriting the law and inserting words and phrases not found in it.

xxx xxx xxx Settled is the rule that where the law does not distinguish, we should not distinguish.
3

The validity and efficacy of Revenue Memorandum Circular No. 30-67 is now being assailed by petitioners on the ground that it is not a regulation promulgated by the Secretary of Finance (now Minister of Finance) and that it has never been published in the Official Gazette as required by the Civil Code and the Revised Administrative Code. As herein earlier mentioned, the word "leaf", although used to modify the term "tobacco" only in the Explanatory Note to then House Bill No. 735 was omitted when the Bill was signed into law (RA 31). However, when General Circular No. V-27 dated October 29, 1946 was issued by then Collector of Internal Revenue Bibiano L. Meer to implement the provisions of Sections 6, 7 and 14 of Act 2613 (Tobacco Inspection Law), the word "leaf" was erroneously included therein, causing damage to the financial stability of the Government as the inspection fees due on cigars and cigarettes for domestic sale and imported leaf and partially manufactured tobacco for factory use were not collected for more than twenty (20) years. Such error was only discovered when an Assistant Chief of the Tobacco Inspection Service of the BIR appeared in a public hearing of the Joint Legislative-Executive Tax Commission. As a result thereof, the Philippine Tobacco Board, a policy making body of the National Government on Tobacco Authority, adopted Resolution No. 2-67 interpreting the phrase "tobacco for domestic sale" as referring to wholesale disposal of tobacco products by cigar and cigarettes factories to its dealers while the phrase "tobacco for factory use" meant "imported leaf tobacco" intended for use by cigar and cigarette factories in the manufacture of tobacco products. The approval of this Resolution on May 31, 1967 prompted respondent Commissioner to promulgate Memorandum Circular No. 30-67 which was approved by then Secretary of Finance Eduardo Z. Romualdez and the effectivity of which is specifically dated September 1, 1967 and not contingent on its publication in the Official Gazette. Thus, the assailed Revenue Memorandum Circular was issued to rectify the error in General Circular No. V-27 and to interpret the phrase "tobacco for domestic sale or factory use" with the view of arresting huge losses of tobacco inspection fees which were not collected and imposed since the said Circular (No. V27) took effect. Furthermore, the questioned Revenue Memorandum Circular was also issued to apprise those concerned of the construction and interpretation which should be accorded to Act No. 2613, as amended, and which respondent is duty bound to enforce. It is an opinion on how the law should be construed and there was no attempt whatsoever to enlarge or restrict the meaning of the law. The basis for the issuance of said Memorandum Circular was so stated in Resolution No. 2-67 of the Tobacco Board, wherein petitioners as members of the Manila Tobacco Association, Inc. were duly represented, the pertinent portions of which read: xxx xxx xxx WHEREAS, tills original recommendation of Mr. Hernandez was perfectly in accordance with eating law, more particularly Sec. 1 of Republic Act No. 31 which took effect since September 25, 1946, but perhaps thru oversight by the former Commissioners and officers of the Tobacco Inspection Service the property and legality of effecting the inspection of tobacco products for local sales and imported leaf tobacco for factory use might have overlooked resulting in huge losses of tobacco inspection fees ... (Emphasis supplied) As admitted by counsel for petitioners, the latter were each furnished with a copy of the Revenue Memorandum Circular in question and the purpose of the law, that is to inform or notify those who may be affected, has been substantially complied with. Since it was further admitted by petitioners that said Memorandum is but a "Memorandum Circular for purposes of the internal administration of the BIR and not a regulation within the contemplation of Sections 4 and 338 of the NIRC and Section 79(b) of the

Revised Administrative Code", said circular needs no publication in the Official Gazette as erroneously argued by the petitioners. Section 79(b) of the Revised Administrative Code so provides: Chiefs, of bureaus or offices, may, however, be authorized to promulgate circulars or information or instructions for the government of the officers and employees in the interior administration of the business of each bureau or office, and in such case said circular shall not be required to be published. When an administrative agency renders an opinion by means of a circular or Memorandum, it merely interprets a pre-existing law, and no publication is necessary for its validity. 4 Construction by an executive branch of government of a particular law although not binding upon courts must be given weight as the construction come from the branch of the government called upon to implement the law. 5 The promulgation of Revenue Memorandum Circular No. 30-67 being in accordance with the Revised Administrative Code, having been issued by the Commissioner of Internal Revenue with the approval of the Secretary (now Minister) of Finance for the implementation of the Tobacco Inspection Law, has therefore the force and effect of law. Tobacco Inspection fees are undoubtedly National Internal Revenue taxes, they being one of the miscellaneous taxes provided for under the Tax Code. Section 228 (formerly Section 302) of Chapter VII of the Code specifically provides for the collection and manner of payment of the said inspection fees . It is within the power and duty of the Commissioner to collect the same, even without inspection, should tobacco products be removed clandestinely or surreptitiously from the establishment of the wholesaler, manufacturer or redrying plant and from the customs custody in case of imported leaf tobacco. Errors, omissions or flaws committed by BIR inspectors and representatives while in the performance of their duties cannot be set up as estoppel nor estop the Government from collecting a tax legally due. 6 Tobacco inspection fees are levied and collected for purposes of regulation and control and also as a source of revenue since fifty percentum (50%) of said fees shall accrue to the Tobacco Inspection Fee Fund created by Sec. 12 of Act No. 2613, as amended and the other fifty percentum to the Cultural Center of the Philippines. (Sec. 88, Chapter VII, NIRC) Under the circumstances, a refund of the tobacco inspection fees collected from petitioners is not legally warranted. As disclosed by the records, the party-litigants agreed that Mr. Vicente Chua's, (Production Manager of La Suerte Cigar & Cigarette Factory) testimony shall be considered as the Procedure of inspection followed in all factories of petitioners, thus: 7 ... before the cigarettes were removed from the factory, they were invoiced by the revenue agents assigned there to check on the number of cases of cigarettes to be removed; revenue agents checked the quantity of cigarettes manufactured, quantity of cigarettes removed, strip stamps affixed; and early in the morning before the start of the operation, the revenue agents checked the cigarette bobbins strip stamps and saw to it that cigarettes removed were properly recorded in the books. From the testimonies of other witnesses for petitioners, it was shown that revenue agents and tobacco inspectors "saw to it that an raw materials for use in the manufacture of the finished products were duly recorded; and in the process of manufacture, all tobacco products found unfit for sales were segregated by the factory employees thru the supervision of the revenue agents."

The CTA held that the foregoing belie petitioners' assertions that no actual inspection was conducted to justify the collection of the tobacco inspection fees. The findings of the Tax Court are duly supported by evidence. We find no cogent reason to disturb the same. They are therefore binding on this Court. Accordingly, the petition for review is hereby DISMISSED. Costs against petitioners. SO ORDERED. Makasiar (Chairman), Aquino, Concepcion, Jr., Abad Santos and Escolin, JJ., concur.

Footnotes 1 CTA Decision, pages 40-60, Rollo. 2 Pages, 61-62, Rollo. 3 Colgate-Palmolive (Phils.), Inc. vs. Gimenez, 1 SCRA 267. 4 Romualdez vs. Arca, 27 SCRA 828. 5 Salaria vs. Buenviaje 81 SCRA 722. 6 Phil. American Drug Co. vs. Collector of BIR, 106 Phil. 161. 7 Pages 57-58, Rollo. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. L-66653 June 19, 1986 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents. Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.: Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner of Internal Revenue" which ordered petitioner Commissioner of Internal Revenue to grant in favor of private respondent Burroughs Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid branch profit remittance tax.

Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village, Makati, Metro Manila. Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 computed as follows: Amount applied for remittance................................ P7,647,058.00 Deduct: 15% branch profit remittance tax ..............................................1,147,058.70 Net amount actually remitted.................................. P6,499,999.30 Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax, computed as follows: Profits actually remitted .........................................P6,499,999.30 Remittance tax rate .......................................................15% Branch profit remittance taxdue thereon ......................................................P 974,999.89 Branch profit remittance tax paid .............................................................Pl,147,058.70 Less: Branch profit remittance tax as above computed................................................. 974,999.89 Total amount refundable........................................... P172,058.81 On February 24, 1981, private respondent filed with respondent court, a petition for review, docketed as C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81. On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a tax credit in favor of petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncement as to costs. SO ORDERED.

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petition before this Court with the prayers as herein earlier stated upon the sole issue of whether the tax base upon which the 15% branch profit remittance tax shall be imposed under the provisions of section 24(b) of the Tax Code, as amended, is the amount applied for remittance on the profit actually remitted after deducting the 15% profit remittance tax. Stated differently is private respondent Burroughs Limited legally entitled to a refund of the aforementioned amount of P172,058.90. We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states: Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. " The said ruling is hereinbelow quoted as follows: In reply to your letter of November 3, 1978, relative to your query as to the tax base upon which the 15% branch profits remittance tax provided for under Section 24 (b) (2) of the 1977 Tax Code shall be imposed, please be advised that the 15% branch profit tax shall be imposed on the branch profits actually remitted abroad and not on the total branch profits out of which the remittance is to be made. Please be guided accordingly. Applying, therefore, the aforequoted ruling, the claim of private respondent that it made an overpayment in the amount of P172,058.90 which is the difference between the remittance tax actually paid of Pl,147,058.70 and the remittance tax that should have been paid of P974,999,89, computed as follows Profits actually remitted......................................... P6,499,999.30 Remittance tax rate.............................................................. 15% Remittance tax due................................................... P974,999.89 is well-taken. As correctly held by respondent Court in its assailed decisionRespondent concedes at least that in his ruling dated January 21, 1980 he held that under Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shall be imposed on the profit actually remitted abroad and not on the total branch profit out of which the remittance is to be made. Based on such ruling petitioner should have paid only the amount of P974,999.89 in remittance tax computed by taking the 15% of the profits of P6,499,999.89 in remittance tax actually remitted to its head office in the United States, instead of Pl,147,058.70, on its net profits of P7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance tax in the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad. Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which providesSec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151152) The prejudice that would result to private respondent Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them. WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Feria, Fernan, Alampay and Gutierrez, Jr., JJ., concur.