III. TAX 1 COMPILATION - Case # 60-78

BLOCK 2A 2021 | TAXATION 1 | ATTY.
MONTERO
General Principles Case Digests (Cases 60-78) 2. It has been selling bibles and gospel portions throughout the
Philippines and translating the same into several Philippine
dialects.
60. American Bible Society v. City of Manila (Pamie)
3. The acting City Treasurer of the City of Manila informed
April 30, 1957 | FELIX, J | Taxation of Special Entities - Selling of
American Bible Society that it was conducting the business of
religious merchandise
general merchandise since November 1945, without the necessary
Mayor's permit and municipal license, in violation of Ordinance
PETITIONER: American Bible Society No. 3000 and 2529. It required American Bible Society to secure
RESPONDENTS: City of Manila the permit and license fees, together with compromise covering the
period from the 4th quarter of 1945 to the 2nd quarter of 1953.
SUMMARY: American Bible Society is engaged in the selling of bibles in the 4. American Bible Society paid under protest and filed a suit to
Philippines. The acting City Treasurer inform the Society that they were question the legality of the Ordinances, asking for a refund. It
operating without a Mayor’s permit and pay license fees, in violation of 2 argued that it never made any profit from the sale of its bibles.
Ordinances. The Society paid under protest and questioned the legality of the 5. City of Manila maintained that the ordinances were enacted by the
Ordinances. Issue: Are the Ordinances, requiring mayor’s permit and payment Municipal Board by virtue of the power granted to it by the
of license fees, applicable to American Bible Society? - NO. Revised Administrative Code. Also, it presented testimony that
The National Internal Revenue Code provides, that corporations or associations bibles bearing the price of 70 cents each are sold here at P1.30
organized and operated exclusively for religious, charitable, or educational each (meaning they profited from it).
purposes shall not be taxed in respect to income received by them. 6. The lower court dismissed American Bible Society’s case, denying
It may be true that the price asked was in some instances a bit higher than the the refund.
actual cost, but this cannot mean that it was engaged in the business of selling 7. Ordinance No. 3000: "SEC. 1. PERMITS NECESSARY. — It
said merchandise for profit. Thus, SC believes that the Ordinances cannot be shall be unlawful for any person or entity to conduct or engage in
applied for in doing so it would impair its free exercise and enjoyment of its any of the businesses […] for which a permit is required for the
religious profession and worship as well as its rights of dissemination of proper supervision and enforcement of existing laws without first
religious beliefs. having obtained a permit from the mayor and the necessary license
from the city treasurer."
DOCTRINE: The municipal ordinances imposing a tax on the sale of bibles
were declared unconstitutional as it would impair the free exercise and ISSUE: Are Ordinances 2529 and 3000, requiring American Bible Society
enjoyment of its religious profession and worship, as well as its rights of to secure permits and pay fees, valid and applicable to the business of
dissemination of religious beliefs. selling bibles? – NO
FACTS: RATIO:
1. American Bible Society is a foreign, non-stock, non-profit, 1. Article III, Section 1(7) of the Constitution: "No law shall be made
religious, missionary corporation duly registered and doing respecting an establishment of religion, or prohibiting the free
business in the Philippines. exercise thereof, and the free exercise and enjoyment of religious
BLOCK 2A 2021 | TAXATION 1 | ATTY. MONTERO
profession and worship, without discrimination or preference, shall operated exclusively for religious, charitable, or educational
forever be allowed." purposes”.
a. American Bible Society contends that the Ordinances are 5. In the case at bar the license fee involved is imposed for the
unconstitutional because they provide for religious distribution and sale of bibles and other religious literature. It may
censorship and restrain the free exercise and enjoyment of be true that the price asked was in some instances a little bit higher
its religious profession. than the actual cost of the same, but this cannot mean that it was
2. The constitutional guaranty of the free exercise and enjoyment of engaged in the business of selling said "merchandise" for profit.
religious profession and worship carries with it the right to 6. For this reason, SC believe that the provisions of Ordinance No.
disseminate religious information. 2529 cannot be applied to American Bible Society.
a. Any restraint of such right can only be justified on the 7. With respect to Ordinance No. 3000, which requires a Mayor's
grounds that there is a clear and present danger of any permit before any person can engage in any of the businesses,
substantive evil which the State has the right to prevent. trades or occupations enumerated, SC does not find that it imposes
3. In the case of Murdock v. Pennsylvania, it was held that an any charge upon the enjoyment of a right granted by the
ordinance requiring that a license be obtained before a person Constitution, nor tax the exercise of religious practices.
could solicit orders for goods cannot be made to apply to members a. Thus, Ordinance No. 3000 cannot be considered
of Jehovah's Witnesses who went about from door to door unconstitutional, even if applied to American Bible
distributing literature and soliciting people to 'purchase' certain Society.
religious books. 8. But as Ordinance No. 2529 is not applicable to American Bible
a. The SC held that it could not be said that petitioners there Society and the City of Manila is powerless to license or tax the
were engaged in commercial rather than a religious business involved as it would impair the right to the free exercise
venture. Their activities could not be described as and enjoyment of its religious profession and worship, as well as
embraced in the occupation of selling books and its rights of dissemination of religious beliefs, SC finds that
pamphlets. Ordinance No. 3000 is also inapplicable to said business, trade or
b. Those who can tax the privilege of engaging in this form occupation.
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. The power to impose a license tax on
the exercise of these freedoms is indeed as potent as the
power of censorship which this Court has repeatedly
struck down.
4. Furthermore, the National Internal Revenue Code provides, "SEC.
27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The
following organizations shall not be taxed in respect to income
received by them: Corporations or associations organized and
61. Commissioner of Internal Revenue vs. Bishop of the Missionary FACTS:

District of the Philippines (Anne) 1. Bishop of the Missionary District of the Philippines Islands of the
1965 | Regala, J. | Taxation of Special Entities Protestant, Episcopal Church in the U.S.A. is a corporation sole
duly registered with the Securities and Exchange Commission.
PETITIONER: Commissioner of Internal Revenue 2. On the other hand, the Missionary District of the Philippine Islands
RESPONDENTS: Bishop of the Missionary District of the Philippines Island of of the Protestant Episcopal Church the U.S.A. (hereinafter referred
the Protestant Episcopal Church in the U.S.A and the Court of Tax Appeals to as Missionary District) is a duly incorporated and established
religious society and owns and operates the St. Luke's Hospital in
SUMMARY: Bishop of the Missionary District of the Philippines Islands of the Quezon City, the Brent Hospital in Zamboanga City and the St.
Protestant, a corporation solde duly registered with SEC, which is in charge of Stephen's High School in Manila.
the administration of the temporalities and the management of the estates in the 3. In 1957 to 1959, the Missionary District received various
Philippines of the Missionary District. This Missionary District is a duly shipments of materials, supplies, equipment and other articles
incorporated and established religious society and owns and operates 3 hospitals, intended for use in the construction and operation of the new St.
including St. Luke’s Hospital in QC. In 1957 to 1959, the Missionary District Luke’s Hospital.
received various shipments of materials, supplies, equipment and other articles 4. On these shipments, the Commissioner collected compensation
intended for use in the construction and operation of the new St. Luke’s tax. The Missionary District filed claims for refund, but was denied
Hospital. On these shipments, the CIR collected compensation tax. The by the Commissioner on the ground that St. Luke’s Hospital was
Missionary District filed claims for refund, but was denied by the CIR on the not a charitable institution and therefore was not exempt from
ground that St. Luke’s Hospital was not a charitable institution and therefore was taxes because it admits pay patients.
not exempt from taxes because it admits pay patients.
ISSUES:
The main issue in this case is whether the shipments for St. Luke’s hospital 1. Whether the shipments for St. Luke’s hospital are tax-exempt?
are tax-exempt? The court held that the shipments are tax exempt. It falls under -YES
the requisites for exemption under the law. As the law does not distinguish or
qualify the enjoyment or the exemption, the admission of pay patients does not RATIO:
detract from the charitable character of a hospital, if its funds are devoted 1. The following requisites must concur in order that a taxpayer
exclusively to the maintenance of the institution. may claim exemption under the law:
(1) the imported articles must have been donated;
DOCTRINE: A hospital is a charitable institution and therefore exempt from (2) the donee must be a duly incorporated or established
the payment of compensating tax under RA. 1916. The admission of pay patients international civic organization, religious or charitable society,
does not detract from the charitable character of a hospital if its funds are or institution for civic religious or charitable purposes; and
devoted exclusively to the maintenance of the institution as a public charity. (3) the articles so imported must have been donated for the use of
the organization, society or institution or for free distribution and
not for barter, sale or hire.
2. As the law does not distinguish or qualify the enjoyment or the

exemption (as the Secretary of Finance did in Department Order
18, series of 1958), the admission of pay patients does not detract
from the charitable character of a hospital, if its funds are devoted
exclusively to the maintenance of the institution. Thus, the
shipments are tax exempt.
62. Lladoc vs. Commissioner of Internal Revenue (Rhald) to the church for religious purposes.
June 16, 1965 | Pareedes, J. | Limits on Tax Power: Taxation of Special
Entities
FACTS:
PETITIONER: REV. FR. CASIMIRO LLADOC 1. In 1957, the M.B. Estate, Inc., of Bacolod City, donated
RESPONDENTS: THE QUEZON CITY BOARD OF ASSESSMENT P10,000.00 in cash to Rev. Fr. Crispin Ruiz then parish priest of
APPEALS Victorias, Negros Occidental, and predecessor of herein petitioner,
for the construction of a new Catholic Church in the locality. The
SUMMARY: M.B. Estate Inc., donated Php. 10,000.00 to Fr. Ruiz in total amount was actually spent for the purpose intended
Victorias, Negros Occidental for the construction of the Catholic Church. 2. On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's
The entire amount was indeed used for said purpose. Sometime after, gift tax return.
M.B. Estate filed a tax return. CIR issued an assessment for donee’s gift 3. The respondent Commissioner of Internal Revenue issued as
tax against the Church in Victorias. The one required to pay was the assessment for donee's gift tax against the Catholic Parish of
incumbent priest, Fr. Lladoc. CIR and CTA both ruled that the Church be Victorias, Negros Occidental, of which petitioner was the priest.
taxed. ISSUE: (1) Is the tax due proper?; (2) Who shall pay? HELD: (1) 4. The tax amounted to P1,370.00 including surcharges, interest of
Proper; (2) Not Fr. Lladoc but the head of the Diocese. 1% monthly from May 15, 1958 to June 15, 1960, and the
compromise for the late filing of the return.
DOCTRINE: 5. Petitioner protested.
(1) Section 22 (3), Art. VI of the Constitution of the Philippines, 6. The protest and the motion for reconsideration presented to the
exempts from taxation cemeteries, churches and personages or Commissioner of Internal Revenue were denied.
convents, appurtenants thereto, and all lands, buildings, and 7. In the petition for Review, the Rev. Fr. Casimiro Lladoc, claimed
improvements used exclusively for religious purposes. The among others, that at the time of the donation, he was not the
exemption is only from the payment of taxes assessed on such parish priest in Victorias; that there is no legal entity or juridical
properties enumerated, as property taxes, as contra-distinguished person known as the "Catholic Parish Priest of Victorias," and
from excise taxes therefore, he should not be liable for the donee's gift tax.
(2) A gift tax is not an assessment on the properties themselves. It 8. It was also asserted that the assessment of the gift tax, even against
did not rest upon general ownership. Rather it is an excise upon the Roman Catholic Church, would not be valid, for such would be
the use made of the properties and upon the privilege of receiving a clear violation of the provisions of the Constitution.
them. It is not, therefore a property tax, but an excise tax imposed 9. CTA: Affirmed the judgment of CIR.
on the transfer of property by way of gift inter vivos, the RATIO OF CIR:
imposition of which a property used exclusively for religious a. The phrase `exempt from taxation' as employed in Section
purposes, does not constitute an impairment of the Constitution. 22(3), Article VI of the Constitution of the Philippines,
(3) The head of the diocese and not the parish priest is the real party should not be interpreted to mean exemption from all
in interest in the imposition of a donee's tax on property donated kinds of taxes.
b. Statutes exempting charitable and religious property from should not be interpreted to mean exemption from all kinds of
taxation should be construed fairly though strictly and in taxes. And there being no clear, positive or express grant of such
such manner as to give effect to the main intent of the privilege by law, in favor of the petitioner, the exemption herein
lawmakers. must be denied.
ISSUES: ISSUE # 2
1. Whether or not petitioner should be liable for the assessed 1. Petitioner postulates that he should not be liable, because at the
donee's gift tax on the P10,000.00 donated for the construction time of the donation he was not the priest of Victorias.
of the Victorias Parish Church? Yes. 2. This Court, in its Resolution of March 15, 1965, ordered the parties
2. If yes, then who should be called upon to pay the gift tax? Not to show cause why the Head of the Diocese to which the parish of
Fr. Lladoc. BUT the Head of the Diocese as he has substituted Fr. Victorias pertains, should not be substituted in lieu of petitioner
Lladoc. Rev. Fr. Casimiro Lladoc, it appearing that the Head of such
Diocese is the real party in interest.
RATIO: 3. The Solicitor General, in representation of the Commissioner of
ISSUE # 1 Internal Revenue, interposed no objection to such a substitution.
1. Section 22(3), Art. VI of the Constitution of the Philippines, 4. The Roman Catholic Bishop of Bacolod, manifested that it was
exempts from taxation cemeteries, churches and personages or submitting itself to the jurisdiction and orders of this Court and
convents, appurtenant thereto, and all lands, buildings, and that it was presenting, by reference, the brief of petitioner Rev. Fr.
improvements used exclusively for religious purposes Casimiro Lladoc, as its own and for all purposes.
2. The exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra-distinguished
from excise taxes.
3. In the present case, what the Collector assessed was a donee's gift
tax; the assessment was not on the properties themselves. It did
not rest upon general ownership; it was an excise upon the use
made of the properties, upon the exercise of the privilege of
receiving the properties.
4. Manifestly, gift tax is not within the exempting provisions of the
section just mentioned.
5. A gift tax is not a property tax, but an excise tax imposed on the
transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes, do not
constitute an impairment of the Constitution.
6. As well observed by the learned respondent Court, the phrase
"exempt from taxation," as employed in the Constitution supra
63. Herrera vs. Quezon City Board of Assessment Appeals (Marian) FACTS:
September 30, 1961 | J. Concepcion | Limits on Tax Power - Consti Limits, 1. This is an appeal by Jose & Ester Herrera (Herreras) from the
Taxation of Special Entities [Charitable Hospital] Court of Tax Appeals’ (CTA’s) decision affirming the Board of
Assessment Appeals of Quezon City (QC Board) declaring some
PETITIONER: JOSE V. HERRERA and ESTER OCHANGCO properties of the Herreras subject to assessment for real estate tax
HERRERA 2. Back in 1952, the Director of the Bureau of Hospitals authorized
RESPONDENTS: THE QUEZON CITY BOARD OF ASSESSMENT the Herreras to establish St. Catherine’s Hospital. The hospital
APPEALS was located at Sta. Mesa, QC.
3. In 1953, the Herreras requested to be exempt from payment of real
estate tax on the lot, building, and other improvements on the
SUMMARY: The Herreras established St. Catherine’s hospital which is
hospital because it was not for commercial gain but for charity
primarily a charitable hospital but admits paying patients to cover for the
a. The exemption was granted from 1953-1955
expenses accumulated for charity patients. The Herreras applied for tax
4. However, in 1955, the QC Assessor notified the Herreras that the
exemption on their lot, building, and improvements. This was initially
premises were reclassified from “exempt” to “taxable” from 1956
granted for years 1953-55 but in 1956 the QC assessor declared that the
onwards
properties were now taxable. Herreras appealed but the QC Board and the
CTA affirmed the taxability of the properties. The issue is WON St. a. Herreras appealed to the QC Board → QC Board
Catherine’s is exempt from real property tax. The SC held that it is exempt affirmed QC Assessor → Herreras MR-ed but this was
because charity is its primary object, and the mere fact that a profit has denied → Hence this appeal
been made will not deprive the hospital of its benevolent character. 5. [Some info about St. Catherine’s] The building is used as a
surgical & orthopedic hospital consisting of 90% obstetrical cases
DOCTRINE: a. 32 beds = 20 for charity patients + 12 for paying patients
1987 Constitution: Sec 28. (3) → Property Tax Exemption b. 2 kinds of charity patients:
“[...], and all lands, buildings, and improvements, actually, directly, and i. Out-charity → for consultation only
exclusively used for religious, charitable, or educational purposes shall be 1. The out-charity patients are given free
exempt from taxation.” This provision says that Congress may, if it deems consultation and prescription, although
fit to do so, impose taxes upon such "profits" of said institutions, but their sometimes they are furnished with free
"lands, buildings and improvements" are beyond its taxing power. medicines which are not costly like
Property Tax Exemption not limited to those actually used for charity aspirin, sulfatiazole, etc
The exemption in favor of property used exclusively for charitable or ii. Lying-in patients → remain for treatment
educational purposes is "not limited to property actually indispensable" 1. The charity lying-in- patients are given
but extends to facilities which are "incidental to and reasonably necessary free medical service and medicine
for" the accomplishment of said purposes. although the food served to the pay-
patients is very much better.
iii. *There are no conditions to being a charity Hospital, although primarily a charitable hospital, admits paying patients
patient but these patients usually donate to St. and maintains a school which garners material profits from its tuition
Catherine
fee. Are the properties of St. Catherine exempt from tax despite the
c. Pay-patients are required to pay for hospital services
profit gained from their incidental facilities? → St. Catherine is tax
ranging from the minimum charge of P5.00 to the
maximum of P40.00 for each day of stay in the hospital. exempt because the profits from incidental activities offset the expenses
i. The income realized from pay-patients is spent needed for its charitable activities.
for the improvement of the charity wards
d. The hospital personnel is composed of: RULING:
i. three nurses, WHEREFORE, CTA & QC Board’s Decision reversed. St. Catherine
ii. two graduate midwives, Hospital is exempt from real property tax.
iii. a resident physician receiving a salary of
P170.00 a month RATIO:
iv. Dr. Ester Ochangco Herrera, as directress who 1. CTA decided in that way (not exempt) because:
does not receive any salary. a. St. Catherine’s has a pay ward for profit
e. The hospital also has a 'St. Catherine's School of b. Herreras use a portion of the premises as their residence
Midwifery' with 200 students paying a tuition P300.00 c. Herreras’ claim that the properties used for school is also
(good for 1.5 years) + P50/month of lodging. The students used for hospital (thus exempt kasi for school) fails
practice at the St. Catherine’s and St. Mary’s (also owned because of the very fact that it is used for hospital
by Herreras). purposes (not tax exempt c/o of Ratio 1a). The problem
i. The school has a separate set of accounting here is that they cannot pinpoint exactly which is
books from the hospital but the Herreras failed to exclusive for school use to render it exempt.
submit the accounts of the school 2. The SC reverses the CTA because “where rendering charity is its
ii. Hospital account records show that St. Catherine primary object, and the funds derived from payments made by
has been operating on a deficit from 1954-56 patients able to pay are devoted to the benevolent purposes of the
6. [Miscellaneous Info about Herreras] Herreras also declared that institution, the mere fact that a profit has been made will not
they own lands and coconut plantations in Quezon Province and deprive the hospital of its benevolent character”
other real estate in Manila City which are for rent. Jose Herrera is a 3. Jurisprudence cited:
practicing architect. Case Main Point
UST Hospital Employees Assoc. v. UST hospital was not made for profit gain. The
ISSUE: Sto. Tomas University Hospital 140 paying beds was maintained to finance the free
The Constitution provides that “all lands, buildings, and improvements, wards consisting of 203 beds.
actually, directly, and exclusively used for religious, charitable, or Collector of Internal Revenue vs. St. St. Paul Hospital can not be considered for profit
educational purposes shall be exempt from taxation.” St. Catherine’s Paul's Hospital of Iloilo just because its pharmacy charges paying patients
their medicine. This is to offset the cost of
medicines supplied free of charge to charity

c. Congress may, if it deems fit to do so, impose taxes upon
patients. such "profits", but said "lands, buildings and
improvements" are beyond its taxing power.
Collector of Internal Revenue vs. The amendment of the original articles of
University of Visayas incorporation of the University of Visayas to
convert it from a non-stock to a stock corporation SEPARATE OPINIONS:
in view of a gain of P200,000.00 in property does
not justify the inference that the corporation has
CONCURRING: Bengzon, C . J ., Padilla, Labrador, Reyes, J.B.L.,
become one for profit since none of its profits Paredes and De Leon, JJ ., concur.
inured to the benefit of any stockholder.
4. The exemption in favor of property used exclusively for charitable

or educational purposes is "not limited to property actually
indispensable" but extends to facilities which are "incidental to
and reasonably necessary for" the accomplishment of said
purposes.
a. Income derived by St. Catherine from paying patients
finance the charity patients which comprise ⅔ of their
total lying-in patient count
b. Existence of garage in the building was essential to the
operation of the school; thus, it did not affect the
charitable character of said hospital and the educational
nature of said school.
5. The existence of the school does not affect the exemption to which
St. Catherine's Hospital is entitled under our Constitution. On the
contrary, it furnishes another ground for exemption.
a. CTA was confused by the tuition fee paid by the students
(leading to material profits) which led them to conclude
that St. Catherine’s was a taxable entity
b. The Constitution itself says: "all lands, building and
improvements used exclusively for religious,
charitable or educational purposes shall be exempt
from taxation," regardless of whether or not material
profits are derived from the operation of the institutions in
question
64. Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte (Sel) (2) the lot which formerly was the cemetery with the portion where
1927 | Avacena | Taxation of Special Entities the tower stood.
4. The Church filed an action for the recovery of the sum paid
alleging that the tax is illegal.
5. The lower court absolved the Provincial Board of Ilocos Norte
PETITIONER: The Roman Catholic Bishop of Nueva Segovia
from the complaint in regard to the lot adjoining the convent and
RESPONDENTS: The Provincial Board of Ilocos Norte
declared that the tax collected on the lot, which formerly was the
cemetery and on the portion where the tower stood, was illegal.
SUMMARY: The Roman Catholic Church owns a parcel of land in Ilocos
6. Both parties appealed.
Norte. One side is where the convent and a vegetable garden is while the other
side is an old cemetery. As required by the provincial board of ilocos norte, the
ISSUES:
church paid under protest the land tax (1) lot adjoining the convent and (2) the
1. Whether the entire lot of the church is exempted from tax --
lot which formerly was the cemetery with the portion where the tower stood. The
YES
Church then filed for a refund. The issue is whether the entire lot of the church is
exempted from land tax and the SC said yes. The exemption in favor of the
RATIO:
convent in the payment of the land tax refers to the home of the priest who
presides over the church. It therefore must, in this sense, include not only the
1. The exemption in favor of the convent in the payment of the land
land actually occupied by the church but also the adjacent ground for the
tax refers to the home of the priest who presides over the church
incidental uses. With regard to the lot which was formerly a cemetery, it is now
and who has to take care of himself in order to discharge his duties.
being used as a lodging house by the people who participate in religious
2. It therefore must, in this sense, include not only the land actually
festivities. Which constitutes an incidental use in religious functions, which also
occupied by the church but also the adjacent ground for the
comes within the exemption. Thus, both lots are exempted.
incidental uses.
DOCTRINE: Tax exemption for the church must include not only the land
3. In regard to the lot which was formerly a cemetery, while it is no
actually occupied by the church but also the adjacent ground for the incidental
longer used as such, neither is it used for commercial purposes
uses.
and, according to the evidence, is now being used as a lodging
house by the people who participate in religious festivities. Which
FACTS:
constitutes an incidental use in religious functions, which also
1. The Roman Catholic Apostolic Church owns of a parcel of land in
comes within the exemption.
the Ilocos Norte (all four sides of which face on public streets).
4. Thus, both lots are exempted from land tax and the Provincial
2. On the south side is a part of the church yard, the convent and an
Board of Ilocos Norte is ordered to refund the Church.
adjacent lot used for a vegetable garden. In the center is a
remainder of the churchyard and the church. On the northside is an
old cemetery with two of its walls still standing, and a portion
SEPARATE OPINIONS: Malcom (Dissent)
where formerly stood a tower.
1. The Assessment Law exempts from taxation “cemeteries or burial
3. As required by the Province of Ilocos Norte, the Church paid,
grounds and all lands, buildings used exclusively for religious
under protest, the land tax on the (1) lot adjoining the convent and
purposes but this exemption shall not extend to property held for
investment or which produces income, even though the income be
devoted to some one or more of the purposes above specified.
2. The testimony and the inspection disclosed that the lot known as
“huerta” was not devoted to religious purposes, and that the old
cemetery had long since ceased to be used as such and had been
planted to corn.
3. The test to be applied to the combined law and facts must be the
actual use of the property. The property legally exempt from the
payment of taxesmust be devoted to some purpose specified in the
law.
4. A “huerta” not needed or used exclusively for religious purposes is
thus NOT EXEMPT. A cemetery no longer a cemtery is NOT
EXEMPT.
65. CIR v. CA and YMCA (MIKA) 1. Private Respondent YMCA is a non-stock, non-profit institution,
Oct. 14, 1998 | Panganiban, J| Taxation of Special Entities, Exemptions w/c conducts various programs and activities that are beneficial to
the public, especially the young people, pursuant to its religious,
educational and charitable objectives.
PETITIONER: Commissioner of Internal Revenue
RESPONDENTS: CA, and YMCA 2. YMCA earned:
1. P676,829.80 – from leasing out a portion of its premises
SUMMARY: YMCA is a non-stock, non-profit institution. It earned income to small shop owners (restaurants, canteen operators)
by leasing a portion of its premises to restaurant and canteen operators. It also 2. P44, 259 – from parking fees collected from non-
earned income from parking fees collected from non-members. CIR issued an members
assessment stating that YMCA had deficiency income tax. YMCA protested 3. CIR issued an assessment to YMCA. YMCA had deficiency
and filed with the CTA. CTA ruled in favor of YMCA. CIR appealed to CA. income tax, deficiency expanded withholding taxes on rentals and
CA eventually ruled in favor of YMCA. CIR filed a petition for review in the professional fees and deficiency withholding tax on wages.
SC. CIR argued that YMCA is not exempt from income taxes, as found in
4. YMCA protested and filed a petition for review at CTA. CTA
Sec. 27 of NIRC. (fact #7 for the law) YMCA argued that they are exempt
since their activities are not conducted for profit and as provided in ruled in favor of YMCA.
Constitution. 5. CIR appealed to CA. CA ruled in favor of CIR then reversed the
The issue is WON the rental income of YMCA is taxable and not exempt. SC decision and ruled in favor of YMCA.
ruled that YES it is taxable and not exempted from income tax. 6. CIR filed petition for review under Rule 45 with SC.
As Sec. 27 provides, income of the exempt organizations, such as YMCA, 7. Sec. 27 of NIRC (law found in their arguments):
from any of their real properties, be subject to the taxed imposed by NIRC. In 1. "SEC. 27. Exemptions from tax on corporations. — The
the Constitution, tax exemption covers property only.
following organizations shall not be taxed under this Title
DOCTRINE:
The income of exempt organizations (such as the YMCA) from any of in respect to income received by them as such —
their properties, real or personal, be subject to the tax imposed by the 2. (g) Civic league or organization not organized for profit
same Code. but operated exclusively for the promotion of social
The law does not make a distinction. The rental income is taxable welfare;
regardless of whence such income is derived and how it is used or 3. (h) Club organized and operated exclusively for pleasure,
disposed of. recreation, and other non-pro table purposes, no part of
For the YMCA to be granted the exemption it claims under the
aforecited provision (Art. XIV Sec. 4 (3) of the Constitution.), it must the net income of which inures to the benefit of any
prove with substantial evidence that: private stockholder or member;
a. it falls under the classification non-stock, non-profit educational 4. Notwithstanding the provisions in the preceding
institution; and paragraphs, the income of whatever kind and character of
b. the income it seeks to be exempted from taxation is used the foregoing organizations from any of their properties,
actually, directly, and exclusively for educational purposes. real or personal, or from any of their activities conducted
for profit, regardless of the disposition made of such
income, shall be subject to the tax imposed under this
FACTS: Code.
8.CIR’s contentions: 3. A reading of said paragraph ineludibly shows that the income
1. Exemption found in Sec. 27 (now Sec. 26) of NIRC does from any property of exempt organizations, as well as that
not apply to income derived from any of their properties arising from any activity it conducts for profit, is taxable. The
or activities conducted for profit phrase "any of their activities conducted for profit" does not
2. Rental income derived by a tax-exempt org from the lease qualify the word "properties." This makes income from the
of its properties is NOT exempt from income taxation property of the organization taxable, regardless of how that
even if such income is exclusively used for the income is used — whether for profit or for lofty non-profit
accomplishment of its objectives. purposes. (refer to fact #7)
9. YMCA’s contentions: 4. SC held that CA committed reversible error, when it allowed, the
1. Sec. 27 should be "subject to the qualification that the tax exemption claimed by YMCA on income it derived from
income from the properties must arise from activities renting out its real property, on the ground that the said income is
'conducted for profit before it may be considered taxable." not collected for profit is mere incidental to its operation. The law
2. Invoked Art. VI Sec. 28 (3) of Constitution, as charitable does not make a distinction. The rental income is taxable
institutions they are exempt from property and income regardless of whence such income is derived and how it is used
taxes or disposed of.
3. Also invoked Art. XIV Sec. 4 (3) of the Constitution. 5. SC held that the constitutional provisions cannot be invoked. What
Claims that they are a non-stock, non- profit educational is exempted is not the institution itself. Those exempted from
institution whose revenues are used actually, directly and real estate taxes are lands, buildings and improvements
exclusively for educational purposes so it is exempt from actually, directly and exclusively used for religious, charitable
property and income taxes or educational purposes. Tax exemption covers property taxes
ISSUES: only. The bare allegation alone that it is a non-stock, non-profit
1. WON the rental income of YMCA is taxable and not exempt. – educational institution is insufficient to justify its exemption
YES. Taxable and NOT exempted from income tax. from the payment of income tax.
6. Hence, for the YMCA to be granted the exemption it claims
RATIO: under the aforecited provision (Art. XIV Sec. 4 (3) of the
Constitution.), it must prove with substantial evidence that:
1. Taxes are the lifeblood of the nation, the Court has always 1. it falls under the classification non-stock, non-profit
applied the doctrine of strict interpretation in construing tax educational institution; and
exemptions. 2. the income it seeks to be exempted from taxation is
2. The exemption claimed by the YMCA is expressly disallowed by used actually, directly, and exclusively for educational
the very wording of the last paragraph of then Sec. 27 of the NIRC purposes.
which mandates that the income of exempt organizations (such 7. Court found no evidence that YMCA met the said requisites.
as the YMCA) from any of their properties, real or personal, Furthermore, SC does not consider YMCA an educational
be subject to the tax imposed by the same Code. institution. Also, YMCA did not submit proof of proportionate
amount of the subject income that was actually, directly and

exclusively used for educational purposes.
WHEREFORE, the petition is GRANTED.
DISSENTING OPINION by Bellosillo, J.:

1. A close reading of the last paragraph of Sec. 27 of the NIRC, in
relation to the whole section on tax exemption of the organizations
enumerated therein, shows that the phrase "conducted for profit" in the
last paragraph of Sec. 27 qualifies, limits and describes "the income of
whatever kind and character of the foregoing organizations from any of
their properties, real or personal, or from any of their activities" in
order to make such income taxable. It is the exception to Sec. 27 pars.
(g) and (h) providing for the tax exemptions of the income of said
organizations. Hence, if such income from property or any other
property is not conducted for profit, then it is not taxable.
2. There is no question that in leasing its facilities to small shop
owners and in operating parking spaces, YMCA does not engage in any
profit- making business. Both the CTA and CA in its resolution
categorically found that these activities conducted on YMCA's property
were aimed not only at fulfilling the needs and requirements of its
members as part of YMCA's youth program but, more importantly, at
raising funds to finance the multifarious projects of the Association.
3. In YMCA v. CIR, SC categorically held YMCA to be an education
institution exclusively devoted to educational and charitable purposes
not operated for profit. It previsouly held that YMCA is an institution
used exclusively for all three purposes (religious, charitable,
educational) and is entitled to be exempted from taxation.
66. LUNG CENTER OF THE PHILIPPINES v QUEZON CITY

(Jaya)
June 29, 2004 | CALLEJO, SR., J. | Taxation of special entities - Charitable 1. The Lung Center of the Philippines is a non-stock and non-profit
institutions entity established on January 16, 1981 by virtue of Presidential
Decree No. 1823.
PETITIONER: LUNG CENTER OF THE PHILIPPINES, 2. It is the registered owner of a lot in Quezon city where the hospital
is located. A big space at the ground floor is being leased to private
RESPONDENTS: QUEZON CITY and CONSTANTINO P. ROSAS, in his
parties,
capacity as City Assessor of Quezon City a. for canteen and small store spaces,
b. to medical or professional practitioners who use the same
SUMMARY: as their private clinics for their patients whom they charge
Lung Center of the Philippines is the registered owner of a lot in QC. The for their professional services.
hospital was erected in the middle of it but there were certain portions of the lot 3. Meanwhile the left side of the building is being leased for
which were leased to private entities. When the real property was assessed in commercial purposes to a private enterprise known as the Elliptical
Orchids and Garden Center.
1993, Lung Center claimed for exemption pursuant to Section 28, paragraph 3 of
4. In 1993, the hospital was assessed for real property taxes
the 1987 Constitution which exempts charitable institutions from property taxes. amounting to P4,554,860. It claimed for exemption based on
Section 28, paragraph 3 of the 1987 Constitution, which exempts
The court ruled that if the real property is used for one or more commercial charitable institutions from real property taxes.
purposes, it is deemed to be not exclusively used for the exempted purposes and 5. Lung Center averred that a minimum of 60% of its hospital beds
is therefore subject to taxation. Hence, the portions of the land which were are exclusively used for charity patients and that the major thrust
leased to private entities as well as those parts of the hospital leased to private of its hospital operation is to serve charity patients.
6. Such claim for exemption was dismissed by the Local Board of
individuals were not exempted from such taxes. Only the portions of the land
Assessment Appeals of Quezon City (QC-LBAA).
occupied by the hospital and portions of the hospital used for its patients,
whether paying or non-paying, were exempted from real property taxes.
ISSUES:
DOCTRINE: 1. Is the Lung Center a charitable institution? YES
What is meant by actual, direct and exclusive use of the property for charitable 2. Are the portions of real property leased to private entities
purposes is the direct and immediate and actual application of the property itself exempted from real property taxes? NO
to the purposes for which the charitable institution is organized. It is not the use
of the income from the real property that is determinative of whether the RATIO:
property is used for tax-exempt purposes. Issue #1
1. The test of a charity and a charitable organization are in law the
same. The test whether an enterprise is charitable or not is:
a. whether it exists to carry out a purpose reorganized in law
as charitable or
FACTS: b. whether it is maintained for gain, profit, or private
advantage.
estate taxes are lands, buildings and improvements actually,

2. A charitable institution does not lose its character as such and its directly and exclusively used for religious, charitable or
exemption from taxes simply because it derives income from educational purposes.
paying patients, whether out-patient, or confined in the hospital, or 6. Lung Center must have proved that it is
receives subsidies from the government, so long as the money a. a charitable institution; and
received is devoted or used altogether to the charitable object b. its real properties are ACTUALLY, DIRECTLY and
which it is intended to achieve; and no money inures to the private EXCLUSIVELY used for charitable purposes.
benefit of the persons managing or operating the institution. 7. Exclusive is defined as possessed and enjoyed to the exclusion of
3. Hence, Lung Center is a charitable institution since it renders others; debarred from participation or enjoyment; and exclusively
medical services to the public in general who may be subjects of is defined, in a manner to exclude; as enjoying a privilege
charity. exclusively
8. If real property is used for one or more commercial purposes,
Issue #2 it is not exclusively used for the exempted purposes and is
1. The portions of the hospital’s real property that are leased to therefore subject to taxation.
private entities are not exempt from real property taxes as these are 9. Lung Center failed to discharge its burden to prove that the entirety
not actually, directly and exclusively used for charitable of its real property is actually, directly and exclusively used for
purposes. charitable purposes.
2. Section 2 of Presidential Decree No. 1823 which provides for the 10. Thus, the court held
tax exemption of Lung Center says that “the Lung Center, shall be a. That the portions of the land leased to private entities as
exempt from income and gift taxes...from the payment of taxes, well as those parts of the hospital leased to private
charges and fees imposed by the Government or any political individuals are not exempt from such taxes; and
subdivision or instrumentality thereof with respect to equipment b. That only the portions of the land occupied by the hospital
purchases made by, or for the Lung Center”. and portions of the hospital used for its patients, whether
4. There is nothing in PD 1823 which grants Lung Center any paying or non-paying, are exempt from real property
property tax exemption privileges for its real properties as well as taxes.
the building constructed thereon since its enumeration of tax
exempt privileges does not provide for it.
5. Furthermore, while Section 28(3), Article VI of the 1987 67. CIR v. St. Luke's Medical Center, Inc. (Cla)
Philippine Constitution provides that “(3) Charitable institutions, September 26, 2012 | Carpio, J. | Taxation of Special Entities
churches and parsonages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, PETITIONER: Commissioner of Internal Revenue
charitable or educational purposes shall be exempt from taxation”, RESPONDENTS: St. Luke’s Medical Center Inc.
the same provision will not apply in this case because what is
exempted is not the institution itself. What is exempted from real
SUMMARY: 4. Before the CTA BIR argued that Section 27 (B) of the NIRC,
St. Luke’s is a hospital organized as a non-stock and non-profit corporation. BIR which imposes a 10% preferential tax rate on the income
assessed St. Luke’s deficiency taxes amounting to P76, 063,116.06 comprised of proprietary non-profit hospitals should be applicable to St. Luke’s.
deficiency income tax, value-added tax, withholding tax on compensation and 5. According to the BIR:
expanded withholding tax. The BIR reduced the amount to P63, 935, 351.57 a. Section 27 (B) introduced in 1997 is a new provision
during trial in the First Division of CTA. St. Luke’s filed an administrative intended to amend the exemption on non-profit hospitals
protest with the BIR against the deficiency tax assessments. BIR argued that that were previously categorized as non-stock, non-profit
Section 27 (B) of the NIRC, which imposes a 10% preferential tax rate on the corporations.
income proprietary non-profit hospitals should be applicable to St. Luke’s. b. SECTION 27 (B) prevails over the general exemption on
Issue: W/N St. Luke’s is liable for deficiency income tax on 1998 under Section income tax granted under Section 30 (E) and (G) for non-
27 (B) of the NIRC which imposes a preferential tax rate of 10% on the income stock, non-profit charitable institutions and civic
of proprietary non-profit hospitals? Yes. The Court finds that St. Luke’s is a organizations promoting social welfare.
corporation that is not “operated exclusively” for charitable or social welfare c. St Luke’s was actually operating for profit in 1998
purposes insofar as its revenues from paying patients are concerned. because 13% of its revenues came from charitable
purposes
DOCTRINE: d. St. Luke’s board of trustees, officer and employees
To be exempt from income taxes, Section 30 (E) of the NIRC requires that a directly benefit from its profits and assets. St. Luke;s had
charitable institution must be "organized and operated exclusively" for charitable total revenues of P1,730,367,965 or approx. P1.73 billion
purposes. Likewise, to be exempt from income taxes, Section 30 (G) of the from patient services 1998.
NIRC requires that the institution be "operated exclusively" for social welfare. 6. St. Luke’s contended:
a. That the BIR should not consider its total revenues
because its free services to patients was P218,187,498 or
65.20% of its operating income of P334,642,615.
FACTS: b. Its income does not inure to the benefit of any individual.
1. St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized c. It is a non-stock and non-profit institution for charitable
as a non-stock and non-profit corporation. and social welfare purposes under Section 30 (E) and (G)
2. BIR assessed St. Luke’s deficiency taxes amounting to P76, of the NIRC. It argued that the making of profit does not
063,116.06 comprised of deficiency income tax, value-added tax, destroy its income tax exemption.
withholding tax on compensation and expanded withholding tax. 7. CTA held that Section 27 (B) of NIRC does not apply to St.
The BIR reduced the amount to P63, 935, 351.57 during trial in the Luke’s.
First Division of CTA. a. The deficiency income tax of P5,496,963.54, ordered by
3. St. Luke’s filed an administrative protest with the BIR against the the CTA En Banc to be paid, arose from the failure of St.
deficiency tax assessments. BIR did not act on the protest within Luke's to prove that part of its income in 1998 came from
the 180 day period under NIRC. St. Luke’s appealed to the CTA. charitable activities. The CTA cancelled the remainder of
the P63,113,952.79 deficiency assessed by the BIR based
on the 10% tax rate under Section 27 (B) of the NIRC, 2. The effect of the introduction of Section 27(B) is to subject the
which the CTA En Banc held was not applicable to St. taxable income of two specific institutions, namely, proprietary
Luke's. non-profit educational institutions and proprietary non-profit
ISSUES: hospitals, among the institutions covered by Section 30, to the 10%
1. W/N St. Luke’s is liable for deficiency income tax on 1998 under preferential rate under Section 27(B) instead of the ordinary 30%
Section 27 (B) of the NIRC which imposes a preferential tax rate corporate rate.
of 10% on the income of proprietary non-profit hospitals? Yes. 3. The only qualifications for hospitals are that they must be
proprietary and non-profit.
RATIO: 4. “Proprietary” means private, following the definition of a
“proprietary educational institution” as “any private school
Section 27 (B) of the NIRC of 1997 provides that Proprietary educational maintained and administered by private individuals or groups”
institutions and hospitals which are non-pro􏰅􏰅t shall pay a tax of ten with a government permit.
percent (10%) on their taxable income. 5. “Non-profit” means no net income or asset accrues to or benefits
any member or specific person, with all the net income or asset
Section 30 provides that the following organizations shall not be taxed: devoted to the institution’s purposes and all its activities conducted
not for profit.
30 (E) Nonstock corporation or association organized and operated 6. “Non-profit” does not necessarily mean “charitable.”
exclusively for religious, charitable, scienti􏰅c, athletic, or cultural 7. In Lung Center v. QC, the Court defined “charity” as a gift to be
purposes, or for the rehabilitation of veterans, no part of its net income or applied consistently with existing laws for the benefit of an
asset shall belong to or inure to the benefit of any member, organizer, indefinite number of persons either by bringing their minds and
officer or any specific person hearts under the influence of education or religion, by assisting
them to establish themselves in life or by otherwise lessening the
30 (G) league or organization not organized for pro􏰅t but operated burden of government.”
exclusively for the promotion of social welfare; 8. Charitable institutions provide for free goods and services to the
public which would otherwise fall on the shoulders of government.
The income of whatever kind and character of the foregoing Thus, as a matter of efficiency, the government forgoes taxes
organizations from any of their properties, real or personal, or from any of which should have been spent to address public needs, because
their activities conducted for pro􏰅􏰅fit regardless of the disposition certain private entities already assume a part of the burden.
made of such income, shall be subject to tax imposed under this Code. 9. Charitable institutions, however, are not ipso facto are not entitled
1. The Court held that Section 27 (B) of the NIRC does not remove to a tax exemption. The requirements for a tax exemption are
the income tax exemption of proprietary non-pro􏰅t hospitals under specified by the law granting it. The requirements for a tax
Section 30 (E) and (G). Section 27 (B) on one hand, and Section exemption are strictly construed against the taxpayer because an
30 (E) and (G) on the other hand, can be construed together exemption restricts the collection of taxes necessary for the
without the removal of such tax exemption. existence of the government.
10. There is no dispute that St. Luke's is organized as a non-stock and Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires
non-pro􏰅fit charitable institution. However, this does not that an institution be “operated exclusively” for charitable or social
automatically exempt St. Luke’s from paying taxes. welfare purposes to be completely exempt from income tax.
11. To be exempt from real property taxes, Section 28 (3), Article VI
of the Constitution requires that a charitable institution use the
property "actually, directly and exclusively" for charitable
purposes.
12. To be exempt from income taxes, Section 30 (E) of the NIRC
requires that a charitable institution must be "organized and
operated exclusively" for charitable purposes. Likewise, to be
exempt from income taxes, Section 30 (G) of the NIRC requires
that the institution be "operated exclusively" for social welfare.
13. However, the last paragraph of Sec. 30 of NIRC qualifies the
words “organized and operated exclusively”. The paragraph of
Sec. 30 of NIRC provides that
Notwithstanding the provisions in the preceding

paragraphs, the income of whatever kind and character
of the foregoing organizations from any of their
properties, real or personal, or from any of their activities
conducted for prfio􏰅􏰅t regardless of the disposition
made of such income, shall be subject to tax imposed
under this Code.
14. In 1998, St. Luke’s had total revenues of P1,730,367,965 from

services to paying patients. It cannot be disputed that a hospital
which receives approximately P1.73 billion from paying
patients is not an institution “operated exclusively” for
charitable purposes. Clearly, revenues from paying patients are
income received from “activities conducted for profit.” Indeed, St.
Luke’s admits that it derived profits from its paying patients. St.
Luke’s declared P1,730,367,965 as “Revenues from Services to
Patients” in contrast to its “Free Services” expenditure of
P218,187,498.
15. The Court finds that St. Luke’s is a corporation that is not
“operated exclusively” for charitable or social welfare purposes
insofar as its revenues from paying patients are concerned. This
ruling is based not only on a strict interpretation of a provision
granting tax exemption, but also on the clear and plain text of
68. CIR v. DLSU (Charlie) 1. Sometime in 2004, the Bureau of Internal Revenue (BIR) issued to
November 9, 2016 | Brion, J. | Constitutional Limitations- Taxation of DLSU Letter of Authority (LOA) No. 2794 authorizing its revenue
Special Entities officers to examine DLSU’s books of accounts and other
accounting records for all internal revenue taxes for Fiscal Year
PETITIONER: Commissioner of Internal Revenue Ending 2003 and Unverified Prior Years.
RESPONDENTS: De La Salle University, Inc. 2. On Aug. 18, 2004, BIR assessed DLSU the following deficiency
taxes:
SUMMARY: In 2004, the BIR issued a Letter of Authority to DLSU to a. Income tax on rental earnings from restaurants/canteens
examine its books of accounts and accounting records. It assessed it for and bookstores operating within the campus
deficiency income tax on rental earnings from restaurants/canteens and b. Value-added tax (VAT) on business income
bookstores; VAT on business income; and documentary stamp tax on c. Documentary stamp tax (DST) on loans and lease
loans and lease contracts. DLSU protested the assessment, relying on Art. contracts.
XIV Sec. 4(3) of the Constitution which provides that “All revenues and The BIR demanded payment of P17,303,001.12 for taxable years
assets of non-stock, non-profit educational institutions used actually, 2001, 2002 and 2003.
directly, and exclusively for educational purposes shall be exempt from 3. DLSU protested the assessment, and filed a petition with the CTA
taxes and duties...” The CIR argued that DLSU’s rental income is taxable Division. It relied on Art. XIV Sec. 4(3) of the Constitution
regardless of how such income is derived, used, or disposed of, based on which provides that “All revenues and assets of non-stock, non-
Sec. 30 (H) of the Tax Code. The issue is whether DLSU’s income and profit educational institutions used actually, directly, and
revenues proved to have been actually, directly, and exclusively used for exclusively for educational purposes shall be exempt from taxes
educational purposes are exempt from duties and taxes. The Court held and duties...”
that the Tax Code does not qualify the constitutionally-granted exemption 4. CTA Division partially granted DLSU’s petition for review. The
to NSNP educational institutions, and it is conditioned only on the actual, DST assessment on the loan transactions of DLSU was cancelled,
direct and exclusive use of their assets, revenues and income for but it was still ordered to pay deficiency income tax, VAT, and
educational purposes. DST on lease contracts plus 25% surcharge for FYs 2001, 2002
and 2003, totalling around P18M, as well as 20% delinquency
DOCTRINE: When a non-stock, non-profit educational institution proves interest.
that it uses its revenues actually, directly, and exclusively for educational 5. Both the Commissioner and DLSU moved for reconsideration.
purposes, it shall be exempted from income tax, VAT, and local business CTA Division denied CIR’s MR and held in abeyance DLSU’s
tax. On the other hand, when it also shows that it uses its assets in the MR. CIR appealed to the CTA En Banc arguing that DLSU’s use
form of real property for educational purposes, it shall be exempted from of revenues and assets for non-educational or commercial purposes
real property tax. removed these items from the exemption coverage under the
Constitution.
6. DLSU offered supplemental evidence to the CTA Division to
prove that its rental income was used actually, directly, and
exclusively for educational purposes. CTA Division admitted the
FACTS:
additional evidence and reduced the amount of DLSU’s tax exclusively for educational purposes are exempt from
deficiencies to around P5.5M. Dissatisfied with the partial taxes and duties.
reduction, DLSU filed a separate petition for review with the CTA b. The tax exemption is novel to the 1987 Constitution and
En Banc. Sec. 30 (H) of the Tax Code cannot amend the
7. CTA En Banc’s rulings: Constitution. The particular section is a replica of Sec 26
a. Dismissed CIR’s petition. DLSU was able to prove that a of the 1977 Tax Code which was promulgated when the
portion of its rental income was actually, directly, and 1973 Constitution was in place. In the 1973 Const. the
exclusively used for educational purposes (it was used to exemption was only for real property tax, while in the
pay the loan it obtained to build the university’s Physical 1987 Const. it applied to all assets and revenues.
Education Sports Complex). Therefore Sec. 30 (H) of the Tax Code should be declared
b. Partially granted DLSU’s petition and reduced its tax without force and effect.
liabilities to ~P2.5M.
c. Both filed a petition with the SC. ISSUE:
8. CIR’s arguments re: tax exemption: 1. Whether DLSU’s incomes and revenues proved to have been used
a. DLSU’s rental income is taxable regardless of how such actually, directly, and exclusively for educational purposes are
income is derived, used, or disposed of. Art. XIV Sec. 4 exempt from duties and taxes - YES.
(3) must be harmonized with Sec. 30 (H) of the Tax
Code which provides that the income of whatever kind RATIO:
and character of [a non-stock and non-profit educational 1. The revenues and assets of non-stock, non-profit educational
institution] from any of [its] properties, real or personal, institutions proved to have been used actually, directly, and
or from any of [its] activities conducted for profit exclusively for educational purposes are exempt from duties and
regardless of the disposition made of such income, shall taxes.
be subject to tax. 2. DLSU rests it case on Article XIV, Section 4 (3) of the 1987
Constitution, which reads:
b. CTA En Banc misapplied the case of CIR v. YMCA,
where it was held that revenues were tax exempt provided
All revenues and assets of non-stock, non-profit educational
that they would be used for educational purposes. A tax- institutions used actually, directly, and exclusively for educational
exempt organization like DLSU is exempt only from purposes shall be exempt from taxes and duties. Upon the
property tax but not from income tax on the rentals earned dissolution or cessation of the corporate existence of such
from the property. Thus DLSU’s income from leases is institutions, their assets shall be disposed of in the manner
not exempt even if it will be used for educational provided by law.
purposes.
9. DLSU’s arguments: Proprietary educational institutions, including those cooperatively
a. Art. XIV Sec. 4(3) is clear that all assets and revenues of owned, may likewise be entitled to such exemptions subject to the
NSNP educational institutions used actually, directly, and limitations provided by law including restrictions on dividends and
provisions for reinvestment
8. Further, a plain reading of the Constitution would show that

3. The tax exemption granted to NSNP educational institutions is Article XIV, Section 4 (3) does not require that the revenues and
conditioned only on the actual, direct and exclusive use of their income must have also been sourced from educational activities or
revenues and assets for educational purposes. While tax activities related to the purposes of an educational institution. The
exemptions may also be granted to proprietary educational phrase all revenues is unqualified by any reference to the source of
institutions, these exemptions may be subject to limitations revenues. Thus, so long as the revenues and income are used
imposed by Congress. actually, directly and exclusively for educational purposes, then
4. The Commissioner posits that the 1997 Tax Code qualified the tax said revenues and income shall be exempt from taxes and duties.
exemption granted to non-stock, non-profit educational institutions 9. Taxation of revenues vs. the taxation of assets:
such that the revenues and income they derived from their assets, a. Revenues consist of the amounts earned from the
or from any of their activities conducted for profit, are taxable conduct of business operations. It may refer to the sale
even if these revenues and income are used for educational of goods, rendition of services, or the return of an
purposes. investment. Revenue is a component of the tax base in
5. The Court held that the Tax Code did not qualify the exemption income tax, VAT, and local business tax (LBT).
constitutionally-granted to NSNP educational institutions. It relied b. Assets are the tangible and intangible properties
on the YMCA case doctrine, where it was held that the requisites owned by a person or entity. It may refer to real estate,
for availing the tax exemption under Art. XIV are: (1) the taxpayer cash deposit in a bank, investment in the stocks of a
is a NSNP educational institution, and (2) the income is actually, corporation, inventory of goods, or any property from
directly, and exclusively used for educational purposes. which the person or entity may derive income or use to
6. The tax exemption granted by the Constitution to NSNP generate the same. In Philippine taxation, the fair market
educational institutions is conditioned only on the actual, direct value of real property is a component of the tax base
and exclusive use of their assets, revenues and income for in real property tax (RPT). Also, the landed cost of
educational purposes. Unlike Article VI, Section 28 (3) of the imported goods is a component of the tax base in VAT on
Constitution (pertaining to charitable institutions, churches, importation and tariff duties.
parsonages or convents, mosques, and non-profit cemeteries), 10. Thus, when a NSNP educational institution proves that it uses its
which exempts from tax only the assets, i.e., "all lands, buildings, revenues actually, directly, and exclusively for educational
and improvements, actually, directly, and exclusively used for purposes, it shall be exempted from income tax, VAT, and LBT.
religious, charitable, or educational purposes...," Article XIV, On the other hand, when it also shows that it uses its assets in the
Section 4 (3) categorically states that "[a]ll revenues and assets... form of real property for educational purposes, it shall be
used actually, directly, and exclusively for educational purposes exempted from RPT.
shall be exempt from taxes and duties." 11. Proving the actual use of the taxable item will result in an
7. The text demonstrates the policy of the 1987 Constitution to exemption, but the specific tax from which the entity shall be
provide broader tax privilege to non-stock, non-profit educational exempted from shall depend on whether the item is an item of
institutions as recognition of their role in assisting the State revenue or asset (i.e. if a university leases a portion of its school
provide a public good. The tax exemption was seen as beneficial to building to a bookstore or cafeteria, the leased portion is not
students who may otherwise be charged unreasonable tuition fees actually, directly and exclusively used for educational purposes,
if not for the tax exemption extended to all revenues and assets of even if the bookstore or canteen caters only to university students,
NSNP educational institutions. faculty and staff).
12. The leased portion of the building may be subject to real property
tax, as held in Abra Valley College case. The lease of a portion of a
school building for commercial purposes, removes such asset from
the property tax exemption granted under the Constitution. The
commercial use of the property is also not incidental to and
reasonably necessary for the accomplishment of the main purpose
of a university, which is to educate its students.
13. However, if the university actually, directly and exclusively uses
for educational purposes the revenues earned from the lease of its
school building, such revenues shall be exempt from taxes and
duties. The tax exemption no longer hinges on the use of the asset
from which the revenues were earned, but on the actual, direct and
exclusive use of the revenues for educational purposes.
14. The tax exemption granted to NSNP educational institutions,
unlike proprietary educational institutions, are not subject to
limitations imposed by law. While a NSNP educational
institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the Tax Code, a
proprietary educational institution is covered by Section 27 (Rates
of Income Tax on Domestic Corporations).
15. A proprietary educational institution is entitled only to the reduced
rate of 10% corporate income tax. The reduced rate is applicable
only if: (1) the proprietary educational institution is non profit and
(2) its gross income from unrelated trade, business or activity does
not exceed 50% of its total gross income.
69. Republic Bank v. CTA (YEN) a. 6 October 1971 - Republic Bank requested
2 September 1992| Nocon, J.| Situs of Taxation and Double Taxation reconsideration of the assessment through a letter but the
Commissioner denied it in a letter dated 26 Feb 1973.
2. On 5 April 1973, the CIR assessed Republic bank the amount of
PETITIONER: Republic Bank about P15M plus 25% surcharge, or a total of about 1.9M, as 1%
RESPONDENTS: CTA and CIR reserve deficiency tax for taxable year 1970.
a. Republic Bank again requested a reconsideration of the
assessment in a letter dated 16 May 1973, to whcih the
SUMMARY: Republic Bank was assessed a 1% monthly bank reserve
Commissioner denied in a letter dated 6 May 1974.
deficiency on 1969 and 1970 with 25% surcharge. Both assessments were
3. Republic Bank’s contention: Sec. 249 of the Tax Code is no onger
requested to be reconsidered but both were denied. Republic Bank
enforceable because Sec. 126 of Act 1459, the alleged basis for the
contends that Sec. 249 of the Tax Code is no longer enforceable, because
imposition of the 1% reserve deficiency tax, was repealed by Sec.
Sec. 126 of Act 1459 (the alleged basis for the imposition of the 1%
90 of RA 337 (the General Banking Act), and by Secs. 100 and
reserve deficiency tax) was repealed by Sec. 90 of the General Banking
101 of RA 265.
Act and by Secs. 100 and 101 of RA 265. Hence, 2 separate petrevs were
4. On 28 March 173, Republic Bank filed a petrev with the Tax
filed with CTA contesting the assessments. These were consolidated and
Court, contesting the assessment for the taxable year 1969. And
the CTA dismissed the petition and upheld the validity of the assessments.
another similar petition contesting the assessment for the taxable
Unsatisfied, Republic Bank filed a petrev with SC.
year 1970.
a. The two were consolidated and the petitions were
The issue to resolved relevant to the class is w/n there was double taxation
dismissed by CTA which upheld the validity of the
to which the court held no, since one was a penalty, the other a tax.
assessments.
5. Hence this petrev.
DOCTRINE: The Court has upheld the validity of double taxation. The
a. Republic Bank’s arguments:
payment of 1/10 of 1% for incurring reserve deficiencies is a penalty as
i. Sec. 126 has been expressly repealed by Sec. 90
the primary purpose involved is regulation, while the payment of 1% for
of the General Banking Act (express repeal).
the same violation is a tax for the generation of revenue which is the
ii. Sec. 49 of the Tax Code can no longer be
primary purpose in this instance.
enforced as the basis for which the tax is to be
computed because Sec. 126, Act 1459 is no
longer in force. The Central Bank Act’s Secs.
100 101, 105, and 106, provided a whole new set
FACTS:
of rules in regard to reserve requirements and
1. On 14 September 1971, the CIR assessed Republic Bank the
reserve deficiencies of banks clearly showing
amount of about 1.06M plus 25% surcharge, or a total of about
that it was the legislative intent to remove the
P1.3M as 1% monthly bank reserve deficiency tax for taxable year
regulation of the operations of banks under the
1969.
ambit of the Corporation Law and to place them
under the purview of the Central Bank Act and on Sec. 26 of RA 337 (General Banking Acts and Secs. 100, 101
the General Banking Act. and 106 of RA 265 (Central bank Act) - al providing for the
iii. In case of a reserve deficiency, the violating reserve requirements on banking operations.
bank would be liable at the same time for a 2. While Sec. 126 of Act 1459 (The Corporation Law) reads:
tax of 1% a month payable to the BIR as well “Whenever the reserve as defined in the last preceding
as a penalty of 1/10 of% a day payable to the section of any commercial banking corporation shall be below
Central Bank. the amount required in that section such commercial banking
1. They argued that the text of the second corporation shall not diminish the amount of such reserve by
paragraph of Sec. 249 of the Tax Code making any new loans or discounts, or declare any dividend
indicates that the imposition is only a out of its profits until the required proportion between the
penalty, and not a tax. aggregate amount of its deposits and its reserve has been
b. But both Republic Bank and CIR agree that: restored. Reserve deficiencies shall be penalized at the rate of
i. The requirements on the maintenance of bank one per centum per month upon the amount of the
reserves, preiously found in Sec. 126 of Act deficiencies and for the periods of their duration in
1459 (Corporation Law), remained prescribed, accordance with the regulation to be issued by the Bank
after its repeal in another of other laws, i.e. RA Commissioner. The penalty assessed shall be collected by the
3374, RA 2655, and RA 265 Collector of Internal Revenue in accordance with the rules,
c. CIR’s arguments: regulations and procedure to be determined by him. In the
i. Sec.249 of the then Tax Code is deemed to have case of any commercial banking corporation whose reserve is
ipso facto incorporated by reference the new continuously deficient for a period of thirty days, the business
legislations on bank reserves after the repeal of of such corporation may be wound up by the Bank
Sec.126, Act 1459. Commissioner in accordance with section sixteen hundred and
thirty-nine of Act numbered twenty seven hundred and eleven,
as amended, known as the Administrative Code.
ISSUES: 3. The Court said that they found Republic Bank’s act of quoting out
1. W/N there is double taxation - NO of context the questioned provision in the Tax Code unfortunate
{Refer to Fact No. 5(a)(iii)(1)}. If Republic Bank were cadid and
RULING: Petition DENIED. honest enough, it would have stated under what title and chapter of
the Tax Code the second paragrah of Sec. 249 falls, i.e. under Title
RATIO: VII - Miscellaneous Taxes. It is clear from this then, that a tax,
1. The second paragraph of Sec. 249 of the Tax Code of 1970, the and not a penalty was to be collected.
provision invoked in making the assessment, provides for the 4. As the law stood during the years Republic Bank was assessed for
collection upon the amount of reserve deficiencies incurred by the taxes on reserve deficiencies (1969 & 1970), Republic Bank had to
bank and for the period of their duration, as provided in Sec. 126 pay twice: the first, a penalty to the Central Bank by virtue of Sec.
of Act 3610, one per centum per month. This paragraph was based
106 for violation of Secs. 100 and 101 of the Central Bank Act, government’s sugar production and procurementprogram as the
and the second, a tax to the BIR for incurring a reserve deficiency. financil arm of the sugar industry. This was issued 1983. But even
5. As correctly analyzed by both parties, the new legislations on bank if this were applicable, one of the impositions was just a penalty,
reserves merely provide the basis for computation of the reserve hence, the LOI does not cover it.
deficiency of Republic Bank. Republic Bank argued that it was not SEPARATE OPINIONS: None
the legislative intention that banks with reserve deficiencies would CONCURRING: None
pay twice since the Tax Code did not contain such a provision, but
SC held that while Republic Bank may have a point, the wisdom
of legislation is not the province of the Court. It is clear from the
statutes then in force that there was no double taxation involved
- one was a penalty and the other was a tax. At any rate, the SC
had upheld the validity of double taxation.
a. The payment of 1/10 of 1% for incurring reserve
deficiencies (Sec. 106, Central bank Act) is a penalty as
the primary purpose involved is regltion, while the
payment of 1% for the same violation (Sec. 249(2),
NIRC) is a tax for the generation of revenue which is the
primary purpose in this instance.
6. Republic Bank should not complain that it is being asked to pay
twice for incurring reserve deficiencies. It can always avoid this
predicamen by not having reserve deficiencies.
7. Republic Bank’s case is covered by 2 special laws - one a
banking law and the other, a tax law. These two laws should
receive such construction as to make them harmonize with
each other and with the other body of pre-existing laws.
Additional Info:
1. There was a discussion on the proper mathematical computation
for the monthl average of the daily reserve deficiencies. It was held
that CIR was right in following the law.
2. There was also an issue on Republic Bank’s exemption but SC
held that the Letter of Instruction issued by then President Marcos
providing for Republic Bank’s exemption does not apply to the
taxable years 1969 and 1970, the years at issue, since the Letter
was issued with respect to Republi Bank’s role in the
70. Procter & Gamble Philippine Manufacturing Corp. in defendant Municipality where it stores copra purchased in the
vs. Municipality of Jagna (Jen) municipality and therefrom ships the same for its manufacturing
December 28, 1979 | Melencio-Herrera, J | Suits of Taxation and and other operations.
Double Taxation 4. Municipal Council of Jagna enacted Municipal Ordinance No.
4, Series of 1957
a. AN ORDINANCE IMPOSING STORAGE FEES OF
PETITIONER: Procter & Gamble Philippine Manufacturing Corp.
ALL EXPORTABLE COPRA DEPOSITED IN THE
RESPONDENT: Municipality of Jagna
BODEGA WITHIN THE JURISDICTION OF THE
MUNICIPALITY OF JAGNA, BOHOL
SUMMARY: b. "SECTION 1. Any person, firm or corporation having a
Municipality of Jagana enacted Ordinance No. 4 which imposed storage deposit of exportable copra in the bodega, within the
fees on all exportable copra deposited in the bodega within the jurisdiction of the Municipality of Jagna, Bohol, shall pay
Municipality. Procter & Gamble, which is engaged in the manufacture of to the Municipal Treasury a storage fee of TEN (P0.10)
soap, edible oil, margarine and other similar products maintains a bodega CENTAVOS FOR EVERY HUNDRED (100) kilos;
where it stores its copra. For 6 years, it paid the Municipality storage fees c. "SECTION 2. All exportable copra deposited in the
in the total sum of 42,265.13. Procter is assailing the validity of the bodega, is part of the surveillance and lookout of the
Ordinance. ISSUES: 1) Whether the Ordinance constitutes double Municipal Authorities
taxation. - NO. Procter’s payment of storage fees imposed by the 5. For a period of six years, from 1958 to 1963, plaintiff paid
Ordinance in question does not amount to double taxation. A tax on defendant Municipality, allegedly under protest, storage fees in
plaintiff's products is different from a tax on the privilege of storing copra the total sum of P42,265.13
in a bodega situated within the territorial boundary of defendant 6. Procter filed this suit in CFI Manila, where it prayed:
municipality. a. Ordinance No. 4 inapplicable; be pronounced as ultra
vires and void for being beyond the power of
Municipality to enact
DOCTRINE: b. Municipality be ordered to refund.
For Double taxation to exist, the same property must be taxed twice, 7. Trial Court
when it should be taxed but once. Double taxation has also been defined a. Upheld Municipality’s power to enact Ordinance under
as taxing the same person twice by the same jurisdiction for the same General Welfare Clause
thing. b. Procter’s right of action had prescribed under the 5 year
period provided by Art. 1149 of CC.
FACTS:
1. A direct appeal by Procter & Gamble from the judgement of CFI
Manila, upholding the validity of Ordinance No. 4, Series of ISSUE:
1957, enacted by defendant Municipality, which imposed "storage 1. Whether the Municipality was authorized to impose and collect
fees on all exportable copra deposited in the bodega within the storage fee provided in Ordinance No. 4, series of 1957 - YES.
jurisdiction of the Municipality of Jagna, Bohol. 2. Whether the Ordinance constitutes double taxation - NO.
2. Procter & Gamble is a domestic corporation with principal offices
in Manila. RATIO:
3. It is engaged in the manufacture of soap, edible oil, margarine and 1. Procter’s submission that the Ordinance is inapplicable since:
other similar products, and for this purpose maintains a "bodega"
a. as it is not engaged in the business or trade of storing For the term "license tax" has not acquired a fixed meaning. It is
copra for others for compensation or profit and that the often used indiscriminately to designate impositions exacted for
only copra it stores is for its exclusive use in connection the exercise of various privileges. In many instances, it refers to
with its business "revenue-raising exactions on privileges or activities."
b. levy is intended as an "export tax" as it is collected on 6. business of buying and selling and storing copra is properly the
"exportable copra", and, therefore, beyond the power of subject of regulation within the police power granted to
the Municipality to enact; municipalities under section 2238 of the Revised
c. fee of P0.10 for every 100 kilos of copra stored in the Administrative Code or the "general welfare clause".
bodega is excessive, unreasonable and oppressive and is 7. a warehouse used for keeping or storing copra is an establishment
imposed more for revenue than as a regulatory fee. likely to endanger the public safety or likely to give rise to
2. validity of the Ordinance must be upheld pursuant to the conflagration because the oil content of the copra when ignited is
broad authority conferred upon municipalities by difficult to put under control by water and the use of chemicals is
Commonwealth Act No. 472, which was the prevailing law when necessary to put out the fire. And as the Ordinance itself states, all
the Ordinance was enacted exportable copra deposited within the municipality is "part of the
a. "Section 1. A municipal council or municipal district surveillance and lookout of municipal authorities."
council shall have the authority to impose municipal 8. Procter’s argument that the imposition of P0.10 per 100 kilos
license taxes upon persons engaged in any occupation or of copra stored in a bodega within defendant's territory is
business, or exercising privileges in the municipality or beyond the cost of regulation and surveillance is not well taken.
municipal district, by requiring them to secure licenses at 9. Victorias Milling Co. v. Municipality of Victorias
rates fixed by the municipal council, or municipal district a. The cost of regulation cannot be taken as a gauge, if the
council, and to collect fees and charges for services municipality really intended to enact a revenue ordinance.
rendered by the municipality or municipal district and For, 'if the charge exceeds the expense of issuance of a
shall otherwise have power to levy for public local license and costs of regulation, it is a tax'. And if it is,
purposes, and for school purposes, including teachers' and it is validly imposed, 'the rule that license fees for
salaries, just and uniform taxes other than percentage regulation must bear a reasonable relation to the expense
taxes and taxes on specified articles. of the regulation has no application'
3. Under the foregoing provision, a municipality is authorized to 10. Municipal corporations are allowed wide discretion in
impose three kinds of licenses: (1) a license for regulation of determining the rates of imposable license fees even in cases of
useful occupation or enterprises; (2) license for restriction or purely police power measures. In the absence of proof as to
regulation of non-useful occupations or enterprises; and (3) license municipal conditions and the nature of the business being taxed as
for revenue. well as other factors relevant to the issue of arbitrariness or
4. It is thus unnecessary, to determine whether the subject unreasonableness of the questioned rates, Courts will go slow in
storage fee is a tax for revenue purposes or a license fee to writing off an Ordinance.
reimburse defendant Municipality for service of supervision 11. In the case at bar, appellant has not sufficiently shown that the
because defendant Municipality is authorized not only to rate imposed by the questioned Ordinance is oppressive,
impose a license fee but also to tax for revenue purposes. excessive and prohibitive.
5. storage fee imposed under the questioned Ordinance is 12. Plaintiff's averment that the Ordinance, even if presumed valid, is
actually a municipal license tax or fee on persons, firms and inapplicable to it because it is not engaged in the business or
corporations, like plaintiff, exercising the privilege of storing occupation of buying or selling of copra but is only storing copra
copra in a bodega within the Municipality's territorial jurisdiction. in connection with its main business of manufacturing soap and
other similar products, and that to be compelled to pay the storage WHEREFORE, affirming the judgment appealed from, we sustain the
fees would amount to double taxation, does not inspire assent. validity of Ordinance No. 4, Series of 1957, of defendant Municipality of
13. The question of whether appellant is engaged in that business or Jagna, Bohol, under the laws then prevailing.
not is irrelevant because the storage fee, as previously mentioned,
is an imposition on the privilege of storing copra in a bodega
14. Section 1 of the Ordinance in question does not state that said
persons, firms or corporations should be engaged in the business or
occupation of buying or selling copra.
15. Procter’s payment of storage fees imposed by the Ordinance in
question does not amount to double taxation.
16. For double taxation to exist, the same property must be taxed
twice, when it should be taxed but once. Double taxation has also
been defined as taxing the same person twice by the same
jurisdiction for the same thing.[9] Surely, a tax on plaintiff's
products is different from a tax on the privilege of storing copra in
a bodega situated within the territorial boundary of defendant
municipality.
17. Plaintiff's further contention that the storage fee imposed by the
Ordinance is actually intended to be an export tax, which is
expressly prohibited by section 2287 of the Revised Administrative
Code, is without merit.
18. We have held that only where there is a clear showing that what is
being taxed is an export to any foreign country would the
prohibition come into play. When the Ordinance itself speaks of
"exportable" copra, the meaning conveyed is not exclusively
export to a foreign country but shipment out of the municipality.
The storage fee impugned is not a tax on export because it is
imposed not only upon copra to be exported but also upon copra
sold and to be used for domestic purposes if stored in any
warehouse in the Municipality and the weight thereof is 100 kilos
or more.
19. The action has not yet prescribed since in the case of Municipality
of Opon vs. Caltex Phil., is authority for the view that the period 71. Pepsi-Cola Bottling Company v. Municipality of Tanauan (Feli)
for prescription of actions to recover municipal license taxes is six February 27, 1976 | J. Martin | General Principles - Situs of Taxation and
years under Article 1145(2) of the Civil Code. Thus, plaintiff's Double Taxation
action brought within six years from the time the right of action
first accrued in 1958 has not yet prescribed
PETITIONER: Pepsi-Cola Bottling Company of the Philippines

RESPONDENTS: Municipality of Tanauan, Leyte centavo per gallon is also NOT percentage tax on sales, because the
volume capacity determines the tax rate (no ratio between volume of sales
SUMMARY: and amount of tax). Finally, a Tax of 1 centavo per gallon is NOT unjust
Pepsi-Cola Bottling Company of the Philippines (Pepsi) filed a complaint and unfair because an increase in tax does not make tax oppressive or
with preliminary injunction before the CFI of Leyte to declare Section 2 of unjust. Municipal corporations are allowed discretion in determining the
RA 2264 (Local Autonomy Act) unconstitutional for undue delegation of rates of taxes. This is in line with the constitutional policy of giving
taxing authority, as well as to declare Ordinances No. 23 and 27 of the autonomy to local governments with regard to taxation.
Municipality of Tanauan, Leyte, void. In Ordinance No. 23, Municipal
gov’t collects a tax of 1/16th of a centavo for every bottle of soft drink (See Concurring Opinion)
corked, while in Ordinance No. 27, Municipal gov’t collects on soft
drinks produced/manufactured within the territorial jurisdiction of the DOCTRINE:
municipality a tax of 1 centavo on each gallon of volume capacity..Pepsi
argued that Ordinances 23 and 27 embrace the same subject matter and the Double taxation is NOT forbidden by the Constitution. Double taxation
production tax rates are the same, thus constituting double taxation. The only becomes unjust when the taxpayer is taxed twice for the benefit of
CFI dismissed the complaint and upheld the constitutionality of Section 2, the same government entity or by the same jurisdiction for the same
RA 2264, as well as the two ordinances. It also ordered Pepsi to pay the purpose, BUT NOT in a case where one tax is imposed by the State and
taxes due. Pepsi appealed to the CA, who elevated the case to the SC. the other by the city/municipality.
The issues are WON Section 2, RA 2264 is an undue delegation of power, Municipalities may be permitted to tax subjects which, for reasons of
confiscatory and oppressive, WON Ordinances 23 and 27 constitute public policy, the State has not deemed wise to tax for more general
double taxation and impose percentage or specific taxes, and WON purposes.
Ordinances 23 and 27 are unjust and unfair. The SC held that Section 2,
RA 2264 is NOT an undue delegation of power because although taxing Municipal corporations are allowed discretion in determining the rates of
powers are purely legislative, legislative powers may be delegated to taxes. This is in line with the constitutional policy of giving autonomy to
LOCAL GOVERNMENTS in respect to matters of local concern. These local governments with regard to taxation.
include the power to confer to local governments the power to tax.
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. The ordinances also are not unconstitutional because of double FACTS:
taxation because Double taxation is NOT forbidden by the Constitution. 1. Pepsi-Cola Bottling Company of the Philippines (Pepsi) filed a
Double taxation only becomes unjust when the taxpayer is taxed twice for complaint with preliminary injunction before the CFI of Leyte to
the benefit of the same government entity or by the same jurisdiction for declare Section 2 of RA 2264 (Local Autonomy Act)
the same purpose, BUT NOT in a case where one tax is imposed by the unconstitutional for undue delegation of taxing authority, as well
State and the other by the city/municipality. The imposition of a tax of 1 as to declare Ordinances No. 23 and 26 of the Municipality of
Tanauan, Leyte, void.
a. [FOR REFERENCE] Section 2. Any provision of law (d) Taxes on persons operating waterworks,
to the contrary notwithstanding, all chartered cities, irrigation and other public utilities except electric light,
municipalities and municipal district shall have heat and power;
authority to impose municipal license taxes or fees (e) Taxes on forest products and forest
upon persons engaged in any occupation or business, concessions;
or exercising privileges in chartered cities, (f) Taxes on estates, inheritances, gifts, legacies,
municipalities or municipal districts by requiring them and other acquisitions mortis causa;
to secure licenses at rates fixed by the municipal board (g) Taxes on income of any kind whatsoever;
or city council of the city, the municipal council of the (h) Taxes or fees for the registration of motor
municipality, or the municipal district council of the vehicles and for the issuance of all kinds of licenses or
municipal district; to collect fees and charges for permits for the driving thereof;
services rendered by the city, municipality or (i) Customs duties registration, wharfage on
municipal district; to regulate and impose reasonable wharves owned by the national government, tonnage,
fees for services rendered in connection with any and all other kinds of customs fees, charges and dues;
business, profession or occupation being conducted (j) Taxes of any kind on banks, insurance
within the city, municipality or municipal district and companies, and persons paying franchise tax; and
otherwise to levy for public purposes, just and uniform (k) Taxes on premiums paid by owners of
taxes, licenses or fees: Provided, That municipalities property who obtain insurance directly with foreign
and municipal districts shall, in no case, impose any insurance companies.
percentage tax on sales or other taxes in any form 2. Ordinance No. 23: Municipal gov’t collects a tax of 1/16th of a
based thereon nor imposed taxes on articles subject to centavo for every bottle of soft drink corked. For the purpose of
specific tax, except gasoline, under the provisions of computing tax, the person/company producing the soft drinks will
the national internal revenue code: Provided, however, submit to the Treasurer a monthly report of the total number of
That no city, municipality or municipal district may bottles produced and corked during the month.
levy or impose any of the following: 3. Ordinance No. 27: Municipal gov’t collects on soft drinks
(a) Residence tax; produced/manufactured within the territorial jurisdiction of the
municipality a tax of 1 centavo on each gallon of volume capacity.
(b) Documentary stamp tax;
For the purpose of computing tax, the person/company producing
(c) Taxes on the business of persons engaged in
the soft drinks will submit to the Treasurer a monthly report of the
the printing and publication of any newspaper,
total number of gallons produced or manufactured during the
magazine, review or bulletin appearing at regular
month.
intervals and having fixed prices for subscription and
4. Pepsi argued that Ordinances 23 and 27 embrace the same subject
sale, and which is not published primarily for the matter and the production tax rates are the same, thus constituting
purpose of publishing advertisements;
double taxation. It was also stipulated that the Municipal Treasurer a. Municipalities may be permitted to tax subjects which, for
sought to enforce compliance by Pepsi of Ordinance No. 27. reasons of public policy, the State has not deemed wise to
5. The CFI dismissed the complaint and upheld the constitutionality tax for more general purposes.
of Section 2, RA 2264, as well as the two ordinances. It also b. Due process can be violated:
ordered Pepsi to pay the taxes due. Pepsi appealed to the CA, who i. When the tax imposed is for a private purpose
elevated the case to the SC. instead of a public one
ii. When arbitrary or oppressive methods are used
ISSUES: in assessing and collecting taxes.
1. WON Section 2, RA 2264 is an undue delegation of power, c. Due process is NOT Violated when then taking of
confiscatory and oppressive - NO property is in the lawful exercise of taxing power
2. WON Ordinances 23 and 27 constitute double taxation and impose i. tax is for a public purpose
percentage or specific taxes - NO ii. rule on uniformity of taxation is observed
3. WON Ordinances 23 and 27 are unjust and unfair - NO iii. either the person or property taxed is within the
jurisdiction of the government
RATIO: iv. in assessment and collection of certain taxes,
notice and hearing are provided)
Issue #1 d. Due process does not require that the property subject to
the tax should be determined by judicial inquiry, and
1. The power of taxation is an essential and inherent attribute of notice and hearing as to the amount of tax are not
sovereignty, belonging as a matter of right to every independent necessary.
government.
a. Power that is PURELY LEGISLATIVE, and cannot be Issue #2
delegated to the executive or judicial department.
2. EXCEPTION: Legislative powers may be delegated to LOCAL 1. The delegated authority of local governments to tax is NOT
GOVERNMENTS in respect to matters of local concern. These UNCONSTITUTIONAL because of double taxation.
include the power to confer to local governments the power to tax a. The delegating authority specifies the limitations and
a. 1973 Constitution. Art. XI, Sec. 5: “Each local enumerates the taxes over which local taxation may not
government unit shall have the power to create its sources be exercised.
of revenue and to levy taxes, subject to such limitations as b. Double taxation is NOT forbidden by the Constitution.
may be provided by law.” Double taxation only becomes unjust when the taxpayer
b. It cannot be said that Section 2 emanated from beyond the is taxed twice for the benefit of the same government
sphere of legislative power to enact and vest in local entity or by the same jurisdiction for the same purpose,
governments the power of taxation. BUT NOT in a case where one tax is imposed by the State
3. The plenary nature of taxing power does not make RA 2264 and the other by the city/municipality.
confiscatory and oppressive. 2. Ordinance No. 27 REPEALED Ordinance No. 23.
a. Legislative intent in enacting Ordinance No. 27 was to constitutional policy of giving autonomy to local
replace the tax rate based on the volume of the contents of governments with regard to taxation.
the bottle, instead of the number of bottles corked b. Unless the amount is so excessive as to be prohibitive,
(because it was discovered that the manufacturer can courts will not immediately rule an ordinance to be
increase the volume content of the bottle and still pay the unreasonable.
same tax rate) 2. The municipal license tax of P1,000 per corking machine with five
b. The stipulation of facts confirms and Pepsi admits that the but not more than 10 crowners/P 2,000 with 10 but not more than
Treasurer sought compliance of Ordinance No. 27 only. 20 crowners does not affect validity of Ordinance No. 27.
3. Ordinance No. 27 DOES NOT impose a percentage/specific tax. a. Municipalities are empowered to impose not only
a. The taxing authority conferred to local governments is municipal license taxes upon persons engaged in any
broad enough to extend to almost everything, except those business/occupation, but also to levy for public purposes,
mentioned. just and uniform taxes.
b. Limitation applies particularly to the prohibition against
municipalities to impose any percentage tax on sales nor SEPARATE OPINIONS:
impose taxes on articles subject to specific tax, except
gasoline. J. Fernando, concurring
i. Ex. a municipal ordinance that prescribes a ratio
between the amount of tax and the volume of 1. 1935 Constitution: Local governments were NOT allowed the
sales imposes a sales tax and is VOID power to tax.
c. The imposition of a tax of 1 centavo per gallon is NOT a. President could only exercise general supervision over all
percentage tax on sales, because the volume capacity local governments
determines the tax rate (no ratio between volume of sales b. As far as legislative power over local government was
and amount of tax) concerned, no restriction was placed. The extent of the
d. The tax is also NOT specific tax, because specific taxes taxing power was solely for the legislative body to decide.
are imposed on specified articles (like distilled spirits, c. Even after the enactment of the Local Autonomy Act, the
wines, liquors, tobacco products other than cigars and SC affirmed in Golden Ribbon Lumber Co. v. City of
cigarettes, etc.) and soft drinks are not part. Butuan that “municipal corporations are clothed with no
power of taxation; that its charter or a statute must clearly
Issue #3 show an intent to confer that power or the municipal
corporation cannot assume and exercise it.
1. Tax of 1 centavo per gallon is NOT unjust and unfair. d. Tan v. Municipality of Pagbilao: “Taxation is an attribute
a. An increase in tax does not make tax oppressive or unjust. of sovereignty which municipal corporations do not
Municipal corporations are allowed discretion in enjoy”
determining the rates of taxes. This is in line with the 2. City of Baguio v. De Leon (on Double Taxation)
a. Even though American law forbids double taxation, it is

only persuasive in Philippine law. Where Congress has
clearly expressed its intention [to tax], the statute must be
sustained even though double taxation results.
72. Villanueva v. City of Iloilo (Lex) taxing district, during the same taxing period, and they must be the same kind or
December 28, 1968 | Castro, J. | Situs of Taxation and Double Taxation character of tax. It has been shown that a real estate tax and the tenement tax
imposed by the ordinance, although imposed by the same taxing authority, are
PETITIONER: Eusebio Villanueva, et. al. not of the same kind or character. At all events, there is no constitutional
RESPONDENTS: City of Iloilo prohibition against double taxation in the Philippines. It is something not
favored, but is permissible, provided some other constitutional requirement is
SUMMARY: Eusebio Villanueva and Remedios S. Villanueva are owners of not thereby violated, such as the requirement that taxes must be uniform.
five tenement1 houses, aggregately containing 43 apartments. The municipal
board of Iloilo City enacted Ordinance 11, “An Ordinance Imposing Municipal DOCTRINE: In order to constitute double taxation in the objectionable or
License Tax on Persons Engaged in the Business of Operating Tenement prohibited sense the same property must be taxed twice when it should be
Houses”. Eusebio Villanueva has been paying real estate taxes on his property. taxed but once; both taxes must be imposed on the same property or
However, by virtue of the ordinance in question, the City collected from spouses subject-matter, for the same purpose, by the same State, Government, or
Villanueva, for the years 1960-1964, the sum of P5,824.30 and from the other taxing authority, within the same jurisdiction or taxing district, during the
appellants the sum of P1,317.00. Thus, Villanueva et. al. filed a complaint same taxing period, and they must be the same kind or character of tax.
against the City of Iloilo, praying that Ordinance 11 be declared "invalid” for
constituting double taxation. Villanueva et.al contents is that they are doubly FACTS:
taxed because they are paying the real estate taxes and the tenement tax imposed 1. CFI Iloilo appealed the decision of the CFI of Iloilo which
by the ordinance in question. declared illegal Ordinance 11, series of 1960 which was entitled
“An Ordinance Imposing Municipal License Tax on persons
The issue is WON Ordinance 11 is illegal for imposing double taxation. The SC Engaged in the Business of Operating Tenement Houses.
said that while it is true that they are taxable as real estate dealers (income tax) 2. September 30 1946 (before the enactment of the local Autonomy
and still taxable under the ordinance, the argument against double taxation may Act), the municipal board of Iloilo City enacted Ordinance 86,
not be invoked. The same tax may be imposed by the national government as imposing license tax fees, which was declared by the court in 1959
well as by the local government. There is nothing inherently obnoxious in the as invalid as it was ultra vires, :” it not appearing that the power to
exaction of license fees or taxes with respect to the same occupation, calling or tax owners of tenement houses is one among those clearly and
activity by both the State and a political subdivision thereof. It is a well-settled expressly granted to the City of Iloilo by its charter”
rule that a license tax may be levied upon a business or occupation although the 3. January 15, 1960-the municipal board of Iloilo City, believing that
land or property used in connection therewith is subject to property tax. In order with passage of the Local Autonomy Act, it had acquired the
to constitute double taxation in the objectionable or prohibited sense the same authority or power to enact an ordinance similar to that previously
property must be taxed twice when it should be taxed but once; both taxes must declare by this Court as ultra vires, enacted Ordinance 11.
be imposed on the same property or subject-matter, for the same purpose, by the 4. A municipal license tax is imposed on tenement houses in
same State, Government, or taxing authority, within the same jurisdiction or accordance with the schedule of payment:
a. Tenement houses:
1 a type of apartment building, esp. one with many small apartments that is i. Apartment house made of strong material-
in a poor area P20/per door
ii. Apartment house made of mixed materials- P10 2. WON Ordinance 11 violated the rule on uniformity of taxation?
per door NO
iii. Rooming house of strong materials- P10 per
door RATIO:
iv. Rooming house of mixed materials- P5 per door
b. Tenement houses partly or wholly engaged in or I. Ordinance 11 does not constitute double taxation
dedicated to business in the ff streets: JM basa, Iznart, 1. The same tax may be imposed by the national government as well
Aldeguer, Guanco and Ledesma from Plazoleto Gay to as by the local government. There is nothing inherently obnoxious
Valeria St- P30 per door in the exaction of license fees or taxes with respect to eh same
c. Tenement houses partly or wholly engaged in or occupation, calling or activity by both the State and a political
dedicated to business in any other street –P12 per door subdivision thereof.
d. Tenement houses at the street surrounding the 2. It is a well-settled rule that license tax may be levied upon a
supermarket as soon as said place is declared commercial- business or occupation although the land or property used in
P24 per door connection therewith is subject to property tax.
5. By virtue of the ordinance in question, the appellant City collected 3. The State may collect an ad valorem tax on property used in a
form spouses Villanueva for the years 1960-1964 the sum of calling and at the same impose a license tax on the calling, the
P5,824.30 and from Pio Melliza, Teresita Topacio, and Remedios imposition of that latter kind of tax being in no sense a double tax.
ViIlanueva for the years 1960-1964 the sum of Php 1,317.00. 4. In order to constitute double taxation in the objectionable or
6. On July 11, 1962 and April 24, 1964, the plaintffs-appelless filed a prohibited sense, the same property must be:
complaint and an amended complaint, against the City of Iloilo a. Taxed twice when it should be taxed but once
praying that Ordinance 11, series of 1960: b. Both taxes must be imposed on the same property or
a. Be declared invalid for being beyond the power of the subject-matter
Municipal Council of the City of Iloilo to enact c. For the same purpose
b. And unconstitutional for being violative of the rule as to d. By the same State, Government or taxing authority
the uniformity of taxation and for depriving said plaintiffs e. Within the same jurisdiction or taxing district
of the equal protection clause of the Constitution f. During the same taxing period
c. And that the City be ordered to refund the amounts g. They must be the same kind of character of tax
collected form them under the said ordinance. 5. It has been shown that real estate tax and the tenement tax imposed
7. CFI: Ordinance is illegal because RA 2264 does not empower by the ordinance, although imposed by the same taxing authroity
cities to impose apartment taxes, that the same is oppressive and are not of the same kind or character.
unreasonable, and it violates uniformity of taxation 6. There is no constitutional prohibition against double taxation in the
8. CA: Reversed the ruling of the CFI Philippines
7. It is something not favored, but is permissible, provided some
ISSUES: other constitutional requirement is not thereby violated, such as
1. WON Ordinacne 11 constitutes double taxation? NO uniformity of taxation
II. Ordinance 11 does not violate the rule on uniformity of taxation.

1. This court has already ruled that tenement houses constitute a
distinct class of property
2. 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
3. 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 equity of the
tax imposition
4. Neither is the rule of equality and uniformity violated by the fact
that tenement taxes are 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
5. 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
6. 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.\
Accordingly, The judgment a quo is reversed and the ordinance in question

being valid, the complaint is hereby dismissed.
SEPARATE OPINIONS:
CONCURRING:
73. Compania General de Tabacos de Filipinas vs. City of Manila

June 29, 1963 | Dizon, J. | Situs of Taxation and Double Taxation FACTS:
1. Compania General de Tabacos de Filipinas (Tabacalera), filed the
present action in the CFI of Manila to recover from City of Manila
PETITIONER: Compania General de Tabacos de Filipinas and its Treasurer, Marcelino Sarmiento, the sum of 15,280 php
RESPONDENTS: City of Manila allegedly overpaid as taxies on its wholesale and retail sales of
liquor from 1954-1957 under 2 ordinances.
2. Tabacalera, as a duly licensed first class wholesale and retail liquor
SUMMARY:
dealer, paid the City the fixed license fees prescribed by Ordinance
Tabacalera, a duly licensed first class wholesale and retail liquor dealer,
No. 3358 for 1954-1957, and as a wholesale and retail dealer of
paid the City of Manila the license fees for taxable years 1954-1957
general merchandise, it also paid the sales taxes required under
pursuant to a City Ordinance. As prescribed by another City Ordinance,
Ordinances Nos. 3634, 3301, and 3816.
Tabacalera also paid the City of Manila sales taxes. It appears that in the
3. Tabacalera's action for refund is based on the theory that, in
year 1954, the City, through its treasurer, addressed a letter to SGV & Co.,
connection with its liquor sales, it should pay the license fees
an accounting firm, expressing the view that liquor dealers paying the
prescribed by Ordinance No. 3358 but not the municipal sales
annual wholesale and retail fixed tax are not subject to the wholesale and
taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and
retail dealers' taxes. Upon learning of said opinion, Tabacalera was
since it already paid the license fees aforesaid, the sales taxes
demanding refund of the alleged overpayment. As the claim was
paid by it — amounting to the sum of P15,280.00 — under the
disallowed, the present action was instituted.
three ordinances mentioned heretofore is an overpayment
made by mistake, and therefore refundable. (Basically, isa lang
ISSUE: WON Tabacalera is entitled to a refund. NO. WON there is
daw ung babayaran dapat ni koya. License fees lang daw).
double taxation. NO.
4. But syempre, City of Manila is saying that Tabacalera is subject to
pay both the license fees and the sales taxes imposed by the
Supreme Court held that both a license fee and a tax may be imposed on
ordinances.
the same business and occupation and such as not a violation of the rule
5. That, even assuming that Tabacalera is not subject to the payment
against double taxation. The impositions are of a different character. The
of the sales taxes prescribed by the said three ordinances as regards
first is a license fee for the privilege of engaging in the sale of liquor in the
its liquor sales, it is not entitled to the refund demanded for the
exercise of police power while the other is imposed for revenue purposes
following reasons: (copy pasted from the origs)
based on the sales made.
(a) The said amount was paid by the plaintiff voluntarily
and without protest:
DOCTRINE:
(b) If at all the alleged overpayment was made by
Both a licensee fee and a tax may be imposed on the same business or
mistake, such mistake was one of law and arose from the
occupation, or for selling the same article this not being a violation of the
plaintiff's neglect of duty;
rule against double taxation.
(c) The said amount had been added by the plaintiff to the for purposes of regulation, while the latter is imposed
selling price of the liquor sold by it and passed to the under the taxing power for the purpose of raising
consumers; and revenues
(d) The said amount had been already expended by the II. WON Double Taxation Exists? NO.
defendant City for public improvements and essential A. On the other hand, it is clear that the second ordinance
services of the City government, the bene ts of which are impose taxes on the sales of general merchandise,
enjoyed, and being enjoyed, by the plaintiff. wholesale or retail, and are revenue measures enacted by
ISSUES: the Municipal Board of Manila by virtue of its power to
1. WON Tabacalera is entitled to a refund? NO. tax dealers for the sale of such merchandise. (Section 10
2. WON Double Taxation Exists? NO. [o], Republic Act No. 409, as amended.).
B. What the three ordinances mentioned heretofore impose is
RATIO: a tax for revenue purposes based on the sales made of the
same article or merchandise. It is already settled in this
I. WON Tabacalera is entitled to a refund? NO. connection that both a license fee and a tax may be
A. NO. The first ordinance is clearly one that prescribes imposed on the same business or occupation, or for
municipal license fees for the privilege to engage in the selling the same article, this not being in violation of the
business of selling liquor or alcoholic beverages, having rule against double taxation (Bentley Gray Dry Goods
been enacted by the Municipal Board of Manila pursuant Co., vs. City of Tampa 137)
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, WHEREFORE, the decision appealed from is reversed, with the result that
as amended). The license fees imposed by it are this case should be, as it is hereby dismissed, with costs.
essentially for purposes of regulation, and are justified,
considering that the sale of intoxicating liquor is, SEPARATE OPINIONS:
potentially at least, harmful to public health and morals, CONCURRING:
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.)
B. 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
74. BULACAN v. CA (BAM) streams, creeks and other public waters within its territorial
27 November 1998 | Romero, J. | Situs and Double Taxation jurisdiction.
PETITIONER: Province of Bulacan, Roberto Pagdanganan (Provincial (NOTE: The ordinance levies it on those extracted from public
Governor), Florence Chavez (Provincial Treasurer), and Manuel Siayngco lands, only the assessment involves extraction from private lands)
(Provincial Legal Advise) 3. The Provincial Treasurer of Bulacan then provided an assessment
RESPONDENTS: Court of Appeals and Republic Cement Corporation to Republic Cement Corporation amounting to P 2,524,692.13 for
extracting limestone, shale, and silica from its private lands in the
province.
SUMMARY:
4. Republic Cement formally contested but it was denied by the
The province of Bulacan, based on its ordinance, issued an assessment against
Provincial Treasurer. It filed a petition for declaratory relief with
Republic Cement Corporation amounting to P 2,524,692.13. The assessment was
the RTC but it was dismissed allegedly due to Republic Cement’s
for taxes on the extraction of quarry resources on several of its private land.
breach of the ordinance.
Republic Corporation then contested the assessment claiming that it was issued
5. Republic Cement filed a petition for certiorari before the SC and it
without authority. The issue is whether the province can levy taxes on quarry
was referred to the CA. In the interim, the province issued a
resources extracted from private lands.
warrant of levy for its unpaid tax liabilities.
6. Republic Cement agreed to pay the taxes under protest. The
The SC held that a province has no authority to impose taxes on stones, sand,
corporation and the Province then entered into a join manifestation
gravel, earth and other quarry resources extracted on private land. It is clearly
limiting the issue before the CA to whether the province can
apparent that the National Internal Revenue Code levies a tax on all quarry
impose taxes on those extracted in private lands.
resources, regardless of origin, whether extracted from public or private land.
7. CA ruled against the province.
Section 131 of the LGC prohibits the imposition of excise taxes on articles
enumerated under the NIRC.
ISSUES:
DOCTRINE:
1. Whether the province can levy taxes on on stones, sand, gravel,
A province may not ordinarily impose taxes on stones, sand, gravel, earth and
earth and other quarry resources extracted from private lands. - NO
other quarry resources, as the same are already taxed under the NIRC.
FACTS:
RULING: WHEREFORE, premises considered, the instant petition is
1. The Sangguniang Panlalawigan of Bulacan passed Provincial
DISMISSED for lack of merit and the decision of the Court of Appeals is
Ordinance No. 3, known as "An ordinance Enacting the Revenue
hereby AFFIRMED in toto.
Code of the Bulacan Province.”
2. Section 21 of the ordinance levies a 10% tax on the fair market
RATIO:
value in the locality per cubic meter of ordinary stones, sand,
gravel, earth and other quarry resources, such, but not limited to
1. A province has no authority to impose taxes on stones, sand,
marble, granite, volcanic cinders, basalt, tuff and rock phosphate,
gravel, earth and other quarry resources extracted from private
extracted from public lands or from beds of seas, lakes, rivers,
lands.
2. Under the Local Government Code: gravel, earth and other quarry resources, as the same are already
Sec. 134. Scope of Taxing Powers. - Except as otherwise provided taxed under the National Internal Revenue Code.
in this Code, the province may levy only the taxes, fees, and 8. Lastly, the legality of the ordinance was never questioned by the
charges as provided in this Article. Court of Appeals. Rather, what the appellate court questioned was
petitioners' assessment of taxes on Republic Cement on the basis
Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The of Provincial Ordinance No. 3, not the ordinance itself.
province may levy and collect not more than ten percent (10%) of
fair market value in the locality per cubic meter of ordinary SEPARATE OPINIONS: None.
stones, sand, gravel, earth, and other quarry resources, as defined
under the National Internal Revenue Code, as amended, extracted
from public lands or from the beds of seas, lakes, rivers, streams,
creeks, and other public waters within its territorial jurisdiction.
3. Section 21 of Provincial Ordinance No. 3 is practically only a
reproduction of Section 138 of the LGC.
4. Nevertheless, petitioners are still prohibited from imposing
taxes on stones, sand, gravel, earth and other quarry resources
extracted from private lands. The tax imposed by the Province of
Bulacan is an excise tax, being a tax upon the performance,
carrying on, or exercise of an activity.
5. Under Section 133 of the LGC, it is prohibited to levy excise
taxes on articles enumerated under the National Internal
Revenue Code (NIRC), as amended, and taxes, fees or charges on
petroleum products.
6. Under Sec. 151 of the NIRC, excise taxes of two percent (2%)
based on the actual market value of the gross output thereof at the
time of removal, or the values used by the Bureau of Customs in
determining tariff and customs duties, net of excise tax and value-
added tax, in the case of importation, on all quarry resources,
regardless of origin, whether extracted from public or private
lands.
7. It is clearly apparent from the above provision that the National
Internal Revenue Code levies a tax on all quarry resources,
regardless of origin, whether extracted from public or private land.
Thus, a province may not ordinarily impose taxes on stones, sand,
75. Swedish Match Philippines, Inc. vs. Treasurer of the City of Manila
(Jacky) FACTS:
Jul 3, 2013 | CJ Sereno | Situs of Taxation and Double Taxation 1. This is a Petition for Refund of Taxes with the RTC of Manila in
accordance with Section 196 of the Local Government Code
PETITIONER: Swedish Match Philippines, Inc. (LGC) of 1991. Swedish Match says that it had been religiously
RESPONDENTS: Treasurer of the City of Manila paying its taxes based on Section 14 of Ordinance No. 7794 or the
Manila Revenue Code (as amended by Ordinance Nos. 7988 and
8011). However, it was still taxed based on Section 21 of the same
SUMMARY:
code.
Swedish Match paid business taxes based on Sec. 14 and Sec. 21 of
2. RTC denied the petition because of the failure of Swedish Match
Manila Revenue Code. After, it filed for Refund of business taxes paid
to plead the latter’s capacity to sue and to state the authority of Ms.
under Sec. 21 on the ground of double taxation. RTC and CTA dismissed
Beleno (company Finance Manager), who had executed the
Petition for Refund.
Verification and Certification of Non-Forum Shopping.
The SC ruled that payment of tax under Sec. 21 constitutes double
3. It also denied it on the ground that Section 14 and 21 pertained to
taxation in view of tax paid under Sec. 14. Six requisites were satisfied.
taxes of a different nature and, thus the elements of double taxation
There is indeed double taxation if respondent is subjected to the taxes
were wanting in this case.
under both Sections 14 and 21 of Manila Revenue Code, since these are
4. CTA affirmed the decision.
being imposed:
5. Swedish Match points out that Section 21 is not in itself invalid,
1. on the same subject matter – the privilege of doing business in
but the enforcement of this provision would constitute double
the City of Manila;
taxation if business taxes have already been paid under Section 14
2. for the same purpose – to make persons conducting business
of the same revenue code.
within the City of Manila contribute to city revenues;
6. Swedish Match further argues that since Ordinance Nos. 7988 and
3. by the same taxing authority – petitioner City of Manila;
8011 have already been declared null and void in Coca-Cola
4. within the same taxing jurisdiction – within the territorial
Bottlers Philippines, Inc. v. City of Manila, all taxes collected and
jurisdiction of the City of Manila;
paid on the basis of these ordinances should be refunded.
5. for the same taxing periods – per calendar year; and
7. The City also argues that Sections 14 and 21 pertain to two
6. of the same kind or character – a local business tax imposed on
different objects of tax; thus, they are not of the same kind and
gross sales or receipts of the business
character so as to constitute double taxation. “Section 14 is a tax
Swedish Match gets a refund.
on manufacturers, assemblers and other processors, while Section
21 applies to business subject to excise, value-added, or percentage
DOCTRINE:
tax. Respondent posits that under Section 21, petitioner is merely a
Double taxation means taxing the same property twice when it should be
withholding tax agent of the City of Manila.”
taxed only once; that is, "taxing the same person twice by the same
jurisdiction for the same thing."
ISSUES:
1. Whether the imposition of tax under Sec. 21 of Manila

Revenue Code constitutes double taxation in view of the tax SEPARATE OPINIONS: NONE
collected and paid under Section 14 of the same code. - YES CONCURRING: NONE
RATIO:
1. The imposition of tax under Sec. 21 of Manila Revenue Code

constitutes double taxation in view of the tax collected and paid
under Sec. 14 of the same code.
2. Double taxation means taxing the same property twice when it
should be taxed only once; that is, "taxing the same person twice
by the same jurisdiction for the same thing." (City of Manila v.
Coca-Cola Bottlers Philippines Inc).
3. Requisites to raise double taxation: Using the aforementioned
test, the Court finds that there is indeed double taxation if
respondent is subjected to the taxes under both Sections 14 and 21
of Manila Revenue Code, since these are being imposed:
a. on the same subject matter – the privilege of doing
business in the City of Manila;
b. for the same purpose – to make persons conducting
business within the City of Manila contribute to city
revenues;
c. by the same taxing authority – petitioner City of Manila;
d. within the same taxing jurisdiction – within the territorial
jurisdiction of the City of Manila;
e. for the same taxing periods – per calendar year; and
f. of the same kind or character – a local business tax
imposed on gross sales or receipts of the business.
4. Based on the foregoing reasons, Swedish Match should not have
been subjected to taxes under Sec. 21 of the Manila Revenue Code
for the fourth quarter of 2001, considering that it had already been
paying local business tax under Sec. 14 of the same ordinance.
5. Hence, payments made under Sec. 21 must be refunded in favor of
Swedish Match Philippines.
76. Delpher Trades v. IAC

January 26, 1988 | Gutierrez, Jr., J. | Forms of Escape from Taxation (Liz) FACTS:
1. In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the
Petitioners: DELPHER TRADES CORPORATION (Delphin)and owners of 27,169 square meters of real estate Identified as Lot. No.
DELPHIN PACHECO 1095, Malinta Estate, in the Municipality of Polo (now
Respondents: IAC and HYDRO PIPES PHILIPPINES, INC (Hydro) Valenzuela), Province of Bulacan (now Metro Manila) which is
covered by Transfer Certificate of Title No. T-4240 of the Bulacan
Summary: land registry.
Delfin Pacheco and Pelagia Pacheco, were the owners of 27,169 square 2. On April 3, 1974, the said co-owners leased to Construction
meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Components International Inc. the same property and providing
Municipality of Polo. Said co-owners leased to Construction Components that during the existence or after the term of this lease the lessor
International Inc. the same property and providing that during the should he decide to sell the property leased shall first offer the
existence or after the term of this lease the lessor should he decide to sell same to the lessee and the letter has the priority to buy under
the property leased shall first offer the same to the lessee. Lessee similar conditions.
Construction Components International, Inc. assigned its rights and 3. On August 3, 1974, lessee Construction Components International,
obligations under the contract of lease in favor of Hydro Pipes Inc. assigned its rights and obligations under the contract of lease
Philippines, Inc. A deed of exchange was executed between lessors in favor of Hydro Pipes Philippines, Inc. with the signed
Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation conformity and consent of lessors Delfin Pacheco and Pelagia
whereby the former conveyed to the latter the leased property together Pacheco.
with another parcel of land also located in Malinta Estate, Valenzuela, 4. On January 3, 1976, a deed of exchange was executed between
Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
corporation with a total value of P1,500,000.00. Hydro Pipes Philippines, Corporation whereby the former conveyed to the latter the leased
Inc., filed an amended complaint for reconveyance of Lot. Our issue is property (TCT No.T-4240) together with another parcel of land
Whether or not the series of transactions that have happened in the case also located in Malinta Estate, Valenzuela, Metro Manila (TCT
involves a strategy to escape taxes? YES. In effect, the Delpher Trades No. 4273) for 2,500 shares of stock of defendant corporation with
Corporation is a business conduit of the Pachecos. What they really did a total value of P1,500,000.00.
was to invest their properties and change the nature of their ownership 5. On the ground that it was not given the first option to buy the
from unincorporated to incorporated form by organizing Delpher Trades leased property pursuant to the proviso in the lease agreement,
Corporation to take control of their properties and at the same time save respondent Hydro Pipes Philippines, Inc., filed an amended
on inheritance taxes. complaint for reconveyance of Lot. No. 1095 in its favor under
conditions similar to those whereby Delpher Trades Corporation
Doctrine: acquired the property from Pelagia Pacheco and Delphin Pacheco.
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 ISSUE:
altogether avoid them, by means of which the law permits, cannot be 1. Whether or not the series of transactions that have happened in the case
doubted. What they did was merely change the form of their ownership involves a strategy to escape taxes? YES
form unincorporated to incorporated, to take control of their properties
and save on inheritance taxes.
HELD: In reality, petitioner corporation is a mere alter ego or conduit of

WHEREFORE, the instant petition is hereby GRANTED, The questioned the Pacheco co-owners; hence the corporation and the co-owners
decision and resolution of the then Intermediate Appellate Court are should be deemed to be the same, there being in substance and in
effect an Identity of interest.”
REVERSED and SET ASIDE. The amended complaint in Civil Case No.
4. The petitioners maintain that the Pachecos did not sell the
885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No property. They argue that there was no sale and that they
costs. exchanged the land for shares of stocks in their own corporation.
"Hence, such transfer is not within the letter, or even spirit of the
RATIO: contract. There is a sale when ownership is transferred for a price
PETITIONER’S CONTENTION certain in money or its equivalent (Art. 1468, Civil Code) while
there is a barter or exchange when one thing is given in
1. Eduardo Neria, a certified public accountant and son-in-law of the consideration of another thing (Art. 1638, Civil Code)."
late Pelagia Pacheco testified that Delpher Trades Corporation is a
family corporation; that the corporation was organized by the RESPONDENT’S CONTENTION
children of the two spouses (spouses Pelagia Pacheco and
Benjamin Hernandez and spouses Delfin Pacheco and Pilar 1. On the other hand, the private respondent argues that Delpher
Angeles) who owned in common the parcel of land leased to Trades Corporation is a corporate entity separate and distinct from
Hydro Pipes Philippines in order to perpetuate their control over the Pachecos. Thus, it contends that it cannot be said that Delpher
the property through the corporation and to avoid taxes; that in Trades Corporation is the Pacheco's same alter ego or conduit; that
order to accomplish this end, two pieces of real estate, including petitioner Delfin Pacheco, having treated Delpher Trades
Lot No. 1095 which had been leased to Hydro Pipes Philippines, Corporation as such a separate and distinct corporate entity, is not
were transferred to the corporation; that the leased property was a party who may allege that this separate corporate existence
transferred to the corporation by virtue of a deed of exchange of should be disregarded. It maintains that there was actual transfer of
property; that in exchange for these properties, Pelagia and Delfin ownership interests over the leased property when the same was
acquired 2,500 unissued no par value shares of stock which are transferred to Delpher Trades Corporation in exchange for the
equivalent to a 55% majority in the corporation because the other latter's shares of stock.
owners only owned 2,000 shares; and that at the time of
incorporation, he knew all about the contract of lease of Lot. No.
RULING OF THE SC:
1095 to Hydro Pipes Philippines.
2. In the petitioners' motion for reconsideration, they refer to this THE COURT RULED FOR THE PETITIONERS!
scheme as “estate planning”.
3. Under this factual backdrop, the petitioners contend that there was 1. After incorporation, one becomes a stockholder of a corporation by
actually no transfer of ownership of the subject parcel of land since subscription or by purchasing stock directly from the corporation
the Pachecos remained in control of the property. Thus, the or from individual owners thereof.
petitioners allege: "Considering that the beneficial ownership and 2. In the case at bar, in exchange for their properties, the Pachecos
control of petitioner corporation remained in the hands of the acquired 2,500 original unissued no par value shares of stocks of
original co-owners, there was no transfer of actual ownership the Delpher Trades Corporation. Consequently, the Pachecos
interests over the land when the same was transferred to petitioner became stockholders of the corporation by subscription
corporation in exchange for the latter's shares of stock. The transfer 3. "The essence of the stock subscription is an agreement to take and
of ownership, if anything, was merely in form but not in substance. pay for original unissued shares of a corporation, formed or to be
formed." It is significant that the Pachecos took no par value shares corporation? What are these benefits to the spouses of this deed of
in exchange for their properties. exchange?
4. A no-par value share does not purport to represent any stated A: Continuous control of the property, tax exemption benefits, and other
proportionate interest in the capital stock measured by value, but
inherent benefits in a corporation.
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 Q: What are these advantages to the said spouses from the point of view of
certificate itself that he is only an aliquot sharer in the assets of the taxation in entering in the deed of exchange?
corporation. But this character of proportionate interest is not A: Having fulfilled the conditions in the income tax law, providing for tax
hidden beneath a false appearance of a given sum in money, as in free exchange of property, they were able to execute the deed of exchange
the case of par value shares. free from income tax and acquire a corporation.
5. The capital stock of a corporation issuing only no-par value shares Q: What provision in the income tax law are you referring to?
is not set forth by a stated amount of money, but instead is
A: I refer to Section 35 of the National Internal Revenue Code under par. C-
expressed to be divided into a stated number of shares, such as,
1,000 shares. This indicates that a shareholder of 100 such shares sub-par. (2) Exceptions regarding the provision which I quote: "No gain or
is an aliquot sharer in the assets of the corporation, no matter what loss shall also be recognized if a person exchanges his property for stock in
value they may have, to the extent of 100/1,000 or 1/10. Thus, by a corporation of which as a result of such exchange said person alone or
removing the par value of shares, the attention of persons together with others not exceeding four persons gains control of said
interested in the financial condition of a corporation is focused corporation."
upon the value of assets and the amount of its debts. Q: Did you explain to the spouses this benefit at the time you executed the
6. Moreover, there was no attempt to state the true or current market
deed of exchange?
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 A: Yes, sir
meter. Q: You also, testified during the last hearing that the decision to have no par
7. It is to be stressed that by their ownership of the 2,500 no par value share in the defendant corporation was for the purpose of flexibility.
shares of stock, the Pachecos have control of the corporation. Their Can you explain flexibility in connection with the ownership of the property
equity capital is 55% as against 45% of the other stockholders, in question?
who also belong to the same family group. A: There is flexibility in using no par value shares as the value is
8. In effect, the Delpher Trades Corporation is a business conduit of
determined by the board of directors in increasing capitalization. The board
the Pachecos. What they really did was to invest their properties
and change the nature of their ownership from unincorporated to can fix the value of the shares equivalent to the capital requirements of the
incorporated form by organizing Delpher Trades Corporation to corporation.
take control of their properties and at the same time save on Q: Now also from the point of taxation, is there any flexibility in the
inheritance taxes. 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
As explained by Eduardo Neria (CPA):
property indefinitely for a period of at least 50 years. On the other hand, if
ATTY. LINSANGAN:
the property is held by the spouse the property will be tied up in succession
Q: Mr. Neria, from the point of view of taxation, is there any benefit to the
proceedings and the consequential payments of estate and inheritance taxes
spouses Hernandez and Pacheco in connection with their execution of a
when an owner dies.
deed of exchange on the properties for no par value shares of the defendant
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.
9. 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."
10. The "Deed of Exchange" of property between the Pachecos and Delpher
Trades Corporation cannot be considered a contract of sale. There was no 77. Heng Tong Textiles Co., Inc. v. CIR (KARA)
transfer of actual ownership interests by the Pachecos to a third party. The August 26, 1968 | Makalintal, J. | Forms of Escape from Taxation
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. PETITIONER: Heng Tong Textiles Co., Inc. (before), Philip Manufacturing
Corporation (now)
RESPONDENTS: Commissioner of Internal Revenue and Court of Tax
Appeals
SUMMARY: CIR assessed against the petitioner for deficiency sales tax and
surcharges. The Petitioner argued that he was the importer and that he is not
guilty of fraud as to warrant the imposition of 50% on the deficiency. The
issue is whether or not there was fraud. An attempt to minimize one’s tax
does not constitute fraud. Pan-Asiatic and Heng Tong had a private
agreement. Heng-Tong shall be the importer and shall only pay at cost.
Paying the sales tax on sales of imported articles upon the removal of the
goods from Customs by Pan-Asiatic allowed Heng Tong to minimize tax. The
goods were taxed at cost and not at gross selling price.
DOCTRINE: An attempt to minimize one’s tax does not necessarily

constitute fraud. A taxpayer may diminish his liability by any means which
the law permits. a. The importation paper were placed in the name of Heng
Tong only for the purpose of accommodation, to
introduce it to textile suppliers abroad
b. Heng Tong was not in financial position to make the peso
FACTS:
importations in question, valued at over a million pesos,
1. Collector of Internal Revenue Assessed against the petitioner
its capital was only 30k
deficiency sales taxes and surcharges for the year 1949 and the
first four months of 1950 in the aggregate sum of P89,123.58
ISSUES:
2. This was appealed to the Board of Tax Appeals, hence the case
1. WON the petitioner was the importer of the goods; and
was transferred to the Courts of Tax Appeals upon its organization
2. WON it was guilty of fraud so as to warrant the imposition of a
in 1954, and there was affirmed in its decision dated Feb 28, 1952.
penalty of 50% on the deficiency
The matter was thereafter elevated to this Court for review.
3. The deficiency taxes in question were assessed on importations of
RATIO:
textiles from abroad
1. YES, Heng Tong was the importer. There was a private
4. The goods were withdrawn from Customs by Pan-Asiatic
arrangement between Heng Tong and Pan-Asiatic
Commercial Co., Inc., which paid, in the name of the petitioner,
2. NO, there was no fraud. The set-up was an arrangement to
the corresponding advance sales tax under Section 183(b) of the
minimize the tax due. Tax was minimized by the advance sales tax
Internal Revenue Code.
(paid upon removal of the goods from Customs) being credited
5. The assessment for deficiency, however, was made against the
against the tax on the actual gross selling price paid by the
petitioner, Heng Tong Textiles Co., Inc. (now Philip
importer Heng Tong.
Manufacturing Corporation) on the ground that it was the real
a. NIRC Sec. 183 as amended by RA 253 mandates that the
importer of the goods and did not pay the taxes due on the basis of
sales tax on sales of imported articles is based is based on
the gross selling prices thereto.
the gross selling price of the goods (they paid the sales tax
6. CTA: affirmed assessment based on the finding that Heng Tong
upon removal of the goods from Customs)
was the importer of the goods from the following:
b. Pan-Asiatic, as indorsee of the goods, withdrew them
a. Heng Tong and Pan-Asiatic Commercial were sister
from Customs upon payment of the advance sales tax and
corporations
then executed a sale to Heng Tong Textiles at cost.
b. That the commercial documents covering the importations
c. The goods were made to appear as having been sold so
were all in the name of of Heng Tong
that Heng Tong paid no sales tax upon the sale of such
c. That in connection with advance sales tax, Pan-Asiatic
goods to the market. Neither was any sales tax paid on the
wrote Heng Tong a letter which states that Pan-Asiatic
supposed sales between Pan-Asiatic to Heng Tong as the
paid the 5% Sales Tax in compliance with Heng Tong’s
sales were made at cost
Request
d. An attempt to minimize one’s tax does not constitute
d. That there are documentary and testimonial evidence that
fraud. So far as the right of government to collect taxes is
Pan-Asiatic acted merely as an indentor
7. Heng Tong:
concerned, the petitioner was the real importer and hence

mus shoulder the tax burden.
3. The CTA decision is modified, by eliminating therefrom the
penalty of 50% on the amount of deficiency sales tax imposed, and
is affirmed in all other aspects.
SEPARATE OPINIONS:
CONCURRING:
78. Commissioner of Internal Revenue vs. Toda The sale to him was merely a tax ploy. The scheme resorted to by CIC in making
(Billy) it appear that there were two sales of the subject properties, i.e., from CIC to
September 14 2004 | Davide JR | Forms of Escape from Taxation Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax
- Tax Evasion planning. Such scheme is tainted with fraud. the intermediary transaction, i.e.,
the sale of Altonaga, which was prompted more on the mitigation of tax
PETITIONER: Commissioner of Internal Revenue liabilities than for legitimate business purposes constitutes one of tax evasion.
RESPONDENTS: The Estate of Benigno Toda JR. Represented by Special CO-
Administrators Lorna Kapunan And Maria Luz Bautista DOCTRINE: Tax evasion connotes the integration of three factors: (1) the
SUMMARY: end to be achieved, i.e., the payment of less than that known by the taxpayer
On 2 March 1989, CIC (Cibeles Insurance Corporation) authorized Benigno P. to be legally due, or the non-payment of tax when it is shown that a tax is
Toda, Jr., President and owner of 99.991% of its issued and outstanding capital due; (2) an accompanying state of mind which is described as being evil, in
stock, to sell the Cibeles Building and the 2 parcels of land on which the bad faith, willfull,or deliberate and not accidental; and (3) a course of action
building stands for an amount of not less than P90 million. Toda purportedly
or failure of action which is unlawful.
sold the property for P100 million to Rafael Altonaga, who, in turn, sold the
same property on the same day to Royal Match Inc. (RMI) for P200 million. For
the sale of the property to RMI, Altonaga paid P10 million in capital gains tax. The transaction must be viewed as a whole, and each step from the
Toda then died. On 29 March 1994, the Bureau of Internal Revenue (BIR) sent commencement of negotiations to the consummation of the sale is relevant.
an assessment notice and demand letter to the CIC for deficiency income tax for A sale by one person cannot be transformed for tax purposes into a sale by
the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., received another by using the latter as a conduit through which to pass title. To
a Notice of Assessment dated 9 January 1995 from the CIR for deficiency permit the true nature of the transaction to be disguised by mere
income tax for the year 1989 in the amount of P79,099,999.22,. The Estate formalisms, which exist solely to alter tax liabilities, would seriously impair
thereafter filed a letter of protest. The CTA held that the CIR failed to prove that the effective administration of the tax policies of Congress.
CIC committed fraud to deprive the government of the taxes due it. The CA
affirmed the decision of the CTA, reasoning that the CTA, being more
advantageously situated and having the necessary expertise in matters of FACTS:
taxation, is better situated to determine the correctness, propriety, and legality of
1. The case at bar stemmed from a Notice of Assessment sent to CIC
the income tax assessments assailed by the Toda Estate.
by the Commissioner of Internal Revenue for deficiency income tax arising
from an alleged simulated sale of a 16-storey commercial building known
The Issue in this case is WoN the schemes by Toda and CIC amounted to Tax
as Cibeles Building, situated on 2 parcels of land on Ayala Avenue, Makati
Evasion. The court ruled YES.
City.
2. On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President
The execution of the two sales was calculated to mislead the BIR with the end in
and owner of 99.991% of its issued and outstanding capital stock, to sell the
view of reducing the consequent income tax liability. it is obvious that the
Cibeles Building and the 2 parcels of land on which the building stands for
objective of the sale to Altonaga was to reduce the amount of tax to be paid
an amount of not less than P90 million.
especially that the transfer from him to RMI would then subject the income to
3. Toda purportedly sold the property for P100 million to Rafael A.
only 5% individual capital gains tax, and not the 35% corporate income tax.
Altonaga, who, in turn, sold the same property on the same day to Royal
Altonagas sole purpose of acquiring and transferring title of the subject
Match Inc. (RMI) for P200 million. (These two were evidenced by Deeds
properties on the same day was to create a tax shelter. Altonaga never controlled
of Absolute Sale notarized on the same day by the same notary public).
the property and did not enjoy the normal benefits and burdens of ownership.
4. For the sale of the property to RMI, Altonaga paid P10 million in
capital gains tax corporate income tax of CIC.

5. On 16 April 1990, CIC filed its corporate annual income tax 14. The income tax return filed by CIC for 1989 with intent to evade
returnfor 1989, declaring its gain from the sale of real property in the payment of the tax was thus false or fraudulent. Since such falsity was
amount of P75,728.021. After crediting withholding taxes of P254,497.00, discovered only on 8 March 1991, the assessment issued on 9 January 1995
it paid P26,341,207 for its net taxable income of P75,987,725. was within the prescriptive period prescribed by Section 223 (a) of the
6. On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le National Internal Revenue Code of 1986, which provides that tax may be
Hun T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of assessed within ten years from the discovery of the falsity or fraud.
Stocks. Three and a half years later, or on 16 January 1994, Toda died. 15. With the sale tainted with fraud, the separate corporate personality
7. On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an of CIC should be disregarded. Toda, being the registered owner of the
assessment notice and demand letter to the CIC for deficiency income tax 99.991% shares of stock of CIC and the beneficial owner of the remaining
for the year 1989 in the amount of P79,099,999.22. 0.009% shares registered in the name of the individual directors of CIC,
8. The new CIC asked for a reconsideration, asserting that the should be held liable for the deficiency income tax, especially because the
assessment should be directed against the old CIC, and not against the new gains realized from the sale were withdrawn by him as cash advances or
CIC, which is owned by an entirely different set of stockholders; moreover, paid to him as cash dividends. Since he is already dead, his estate shall
Toda had undertaken to hold the buyer of his stockholdings and the CIC answer for his liability.
free from all tax liabilities for the fiscal years 1987-1989. 16. the CTA held that the Commissioner failed to prove that CIC
9. On 27 January 1995, the Estate of Benigno P. Toda, Jr., committed fraud to deprive the government of the taxes due it. It ruled that
represented by special co-administrators Lorna Kapunan and Mario Luza even assuming that a pre-conceived scheme was adopted by CIC, the same
Bautista, received a Notice of Assessment dated 9 January 1995 from the constituted mere tax avoidance, and not tax evasion. There being no proof
Commissioner of Internal Revenue for deficiency income tax for the year of fraudulent transaction, the applicable period for the BIR to assess CIC is
1989 in the amount of P79,099,999.22, that prescribed in Section 203 of the NIRC of 1986, which is 3 years after
10. The Estate thereafter filed a letter of protest. the last day prescribed by law for the filing of the return. Thus, the
11. The Commissioner dismissed the protest, stating that a fraudulent governments right to assess CIC prescribed on 15 April 1993. The
scheme was deliberately perpetuated by the CIC wholly owned and assessment issued on 9 January 1995 was, therefore, no longer valid. The
controlled by Toda by covering up the additional gain of P100 million, CTA also ruled that the mere ownership by Toda of 99.991% of the capital
which resulted in the change in the income structure of the proceeds of the stock of CIC was not in itself sufficient ground for piercing the separate
sale of the two parcels of land and the building thereon to an individual corporate personality of CIC. Hence, the CTA declared that the Estate is not
capital gains, thus evading the higher corporate income tax rate of 35%. liable for deficiency income tax of P79,099,999.22 and, accordingly,
12. On 15 February 1996, the Estate filed a petition for review with the cancelled and set aside the assessment issued by the Commissioner on 9
CTA alleging that the Commissioner erred in holding the Estate liable for January 1995.
income tax deficiency; that the inference of fraud of the sale of the 17. In its MR, the Commissioner insisted that the sale of the property
properties is unreasonable and unsupported; and that the right of the owned by CIC was the result of the connivance between Toda and
Commissioner to assess CIC had already prescribed. Altonaga. She further alleged that the latter was a representative, dummy,
13. The Commissioner argued that the two transactions actually and a close business associate of the former, having held his office in a
constituted a single sale of the property by CIC to RMI, and that Altonaga property owned by CIC and derived his salary from a foreign corporation
was neither the buyer of the property from CIC nor the seller of the same (Aerobin, Inc.) duly owned by Toda for representation services rendered.
property to RMI. The additional gain of P100 million (the difference The CTA denied the motion for reconsideration, prompting the
between the second simulated sale for P200 million and the first simulated Commissioner to file a petition for review with the Court of Appeals.
sale for P100 million) realized by CIC was taxed at the rate of only 5% 18. The Court of Appeals affirmed the decision of the CTA, reasoning
purportedly as capital gains tax of Altonaga, instead of at the rate of 35% as that the CTA, being more advantageously situated and having the necessary
expertise in matters of taxation, is better situated to determine the

correctness, propriety, and legality of the income tax assessments assailed A. Is this a case of tax evasion
by the Toda Estate. or tax avoidance?
Unsatisfied with the decision of the Court of Appeals, the 1. Tax avoidance and tax evasion are the two most common ways
Commissioner filed the present petition invoking the following grounds: used by taxpayers in escaping from taxation. Tax avoidance is the tax
saving device within the means sanctioned by law. This method should be
ISSUES: used by the taxpayer in good faith and at arms length.
1. WoN The scheme was for tax evasion - Yes 2. Tax evasion, on the other hand, is a scheme used outside of those
2. WoN the penalty has prescribed - no lawful means and when availed of, it usually subjects the taxpayer to further
3. WoN The Estate is liable - Yes or additional civil or criminal liabilities.
HELD; 3. Tax evasion connotes the integration of three factors: (1) the
WHEREFORE, in view of all the foregoing, the petition is hereby end to be achieved, i.e., the payment of less than that known by the
GRANTED. The decision of the Court of Appeals of 31 January 2001 in taxpayer to be legally due, or the non-payment of tax when it is shown
CA-G.R. SP No. 57799 is REVERSED and SET ASIDE, and another one is that a tax is due; (2) an accompanying state of mind which is described
hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to as being evil, in bad faith, willfull,or deliberate and not accidental; and
pay P79,099,999.22 as deficiency income tax of Cibeles Insurance (3) a course of action or failure of action which is unlawful.
Corporation for the year 1989, plus legal interest from 1 May 1994 until the 4. All the factors for tax evasion are present in this case. It is
amount is fully paid. significant to note that as early as 4 May 1989, prior to the purported sale of
the Cibeles property by CIC to Altonaga on 30 August 1989, CIC
RATIO: received P40 million from RMI, and not from Altonaga. That P40 million
was debited by RMI and reflected in its trial balance as other inv. Cibeles
1. The Commissioner insists that the sale by CIC of the Cibeles
Bldg. Also, as of 31 July 1989, another P40 million was debited and
property was in connivance with its dummy Rafael Altonaga, who was
reflected in RMIs trial balance as other inv. Cibeles Bldg. This would show
financially incapable of purchasing it. She further points out that the
that the real buyer of the properties was RMI, and not the intermediary
documents themselves prove the fact of fraud in that (1) the two sales were
Altonaga.
done simultaneously on the same date, 30 August 1989; (2) the Deed of
5. The investigation conducted by the BIR disclosed that Altonaga
Absolute Sale between Altonaga and RMI was notarized ahead of the
was a close business associate and one of the many trusted corporate
alleged sale between CIC and Altonaga, with the former registered in the
executives of Toda. This information was revealed by Mr. Boy Prieto, the
Notarial Register of Jocelyn H. Arreza Pabelana as Doc. 91, Page 20, Book
assistant accountant of CIC and an old timer in the company. But Mr. Prieto
I, Series of 1989; and the latter, as Doc. No. 92, Page 20, Book I, Series of
did not testify on this matter, hence, that information remains to be hearsay
1989, of the same Notary Public; (3) as early as 4 May 1989, CIC
and is thus inadmissible in evidence. It was not verified either, since the
received P40 million from RMI, and not from Altonaga. The said amount
letter-request for investigation of Altonaga was unserved,
was debited by RMI in its trial balance as of 30 June 1989 as investment in
6. The scheme resorted to by CIC in making it appear that there were
Cibeles Building. The substantial portion of P40 million was withdrawn by
two sales of the subject properties, i.e., from CIC to Altonaga, and then
Toda through the declaration of cash dividends to all its stockholders.
from Altonaga to RMI cannot be considered a legitimate tax planning. Such
2. Respondent Estate asserts that the Commissioner failed to present
scheme is tainted with fraud.
the income tax return of Altonaga to prove that the latter is financially
7. Fraud in its general sense, is deemed to comprise anything
incapable of purchasing the Cibeles property.
calculated to deceive, including all acts, omissions, and concealment
To resolve the grounds raised by the Commissioner, the following
involving a breach of legal or equitable duty, trust or confidence justly
questions are pertinent:
reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another. organized in, or existing under the laws of the Philippines, and partnerships,
8. It is obvious that the objective of the sale to Altonaga was to no matter how created or organized but not including general professional
reduce the amount of tax to be paid especially that the transfer from him to partnerships, in accordance with the following: 25% upon the amount by
RMI would then subject the income to only 5% individual capital gains tax, which the taxable net income does not exceed one 100,000 php; and 35%
and not the 35% corporate income tax. Altonagas sole purpose of acquiring upon the amount by which the taxable net income exceeds 100,000 php CIC
and transferring title of the subject properties on the same day was to create is therefore liable to pay a 35% corporate tax for its taxable net income in
a tax shelter. Altonaga never controlled the property and did not enjoy the 1989. The 5% individual capital gains tax provided for in Section 34 (h) of
normal benefits and burdens of ownership. The sale to him was merely a tax the NIRC of 1986 (now 6% under Section 24 (D) (1) of the Tax Reform Act
ploy, a sham, and without business purpose and economic substance. The of 1997) is inapplicable. Hence, the assessment for the deficiency income
execution of the two sales was calculated to mislead the BIR with the end in tax issued by the BIR must be upheld.
view of reducing the consequent income tax liability.
9. In a nutshell, the intermediary transaction, i.e., the sale of B. Has the period of
Altonaga, which was prompted more on the mitigation of tax liabilities than assessment prescribed?
for legitimate business purposes constitutes one of tax evasion. 1. No. Section 269 of the NIRC of 1986 (now Section 222 of the Tax
10. Generally, a sale or exchange of assets will have an income tax Reform Act of 1997) read: Sec. 269. Exceptions as to period of limitation
incidence only when it is consummated. of assessment and collection of taxes.-(a) In the case of a false or
11. The incidence of taxation depends upon the substance of a fraudulent return with intent to evade tax or of failure to file a return, the tax
transaction. The tax consequences arising from gains from a sale of may be assessed, or a proceeding in court after the collection of such tax
property are not finally to be determined solely by the means employed to may be begun without assessment, at any time within ten years after the
transfer legal title. discovery of the falsity, fraud or omission: Provided, That in a fraud
12. The transaction must be viewed as a whole, and each step from assessment which has become final and executory, the fact of fraud shall be
the commencement of negotiations to the consummation of the sale is judicially taken cognizance of in the civil or criminal action for collection
relevant. A sale by one person cannot be transformed for tax purposes thereof .
into a sale by another by using the latter as a conduit through which to 2. In cases of (1) fraudulent returns; (2) false returns with intent to
pass title. To permit the true nature of the transaction to be disguised evade tax; and (3) failure to file a return, the period within which to assess
by mere formalisms, which exist solely to alter tax liabilities, would tax is ten years from discovery of the fraud, falsification or omission, as the
seriously impair the effective administration of the tax policies of case may be.
Congress. 3. Thus, the BIR was amply informed of the transactions even prior
13. To allow a taxpayer to deny tax liability on the ground that the sale to the execution of the necessary documents to effect the transfer.
was made through another and distinct entity when it is proved that the 4. As earlier discussed those two transactions were tainted with fraud.
latter was merely a conduit is to sanction a circumvention of our tax laws. And even assuming arguendo that there was no fraud, we find that the
14. Hence, the sale to Altonaga should be disregarded for income tax income tax return filed by CIC for the year 1989 was false. It did not reflect
purposes.The two sale transactions should be treated as a single direct sale the true or actual amount gained from the sale of the Cibeles property.
by CIC to RMI. Obviously, such was done with intent to evade or reduce tax liability.
15. Accordingly, the tax liability of CIC is governed by then Section 5. The prescriptive period to assess the correct taxes in case of false
24 of the NIRC of 1986, as amended (now 27 (A) of the Tax Reform Act of returns is 10 years from the discovery of the falsity. The false return was
1997), which stated as follows: filed on 15 April 1990, and the falsity was claimed to have been discovered
16. Sec. 24. Rates of tax on corporations. (a) Tax on domestic only on 8 March 199. The assessment for the 1989 deficiency income tax of
corporations.- A tax is hereby imposed upon the taxable net income CIC was issued on 9 January 1995. Clearly, the issuance of the correct
received during each taxable year from all sources by every corporation assessment for deficiency income tax was well within the prescriptive
period.
Is respondent Estate liable
for the 1989 deficiency
income tax of Cibeles
Insurance Corporation?
1. A corporation has a juridical personality distinct and separate from
the persons owning or composing it. Thus, the owners or stockholders of a
corporation may not generally be made to answer for the liabilities of a
corporation and vice versa.
2. There are, however, certain instances in which personal liability
may arise. It has been held in a number of cases that personal liability of a
corporate director, trustee, or officer along, albeit not necessarily, with the
corporation may validly attach
3. When the late Toda sold his shares of stock to Le Hun T. Choa, he
knowingly and voluntarily held himself personally liable for all the tax
liabilities of CIC and the buyer for the years 1987, 1988, and 1989.
4. When the late Toda undertook and agreed to hold the BUYER and
Cibeles free from any all income tax liabilities of Cibeles for the fiscal years
1987, 1988, and 1989, he thereby voluntarily held himself personally liable.
5. Respondent estate cannot, therefore, deny liability for CICs
deficiency income tax for the year 1989 by invoking the separate corporate
personality of CIC, since its obligation arose from Todas contractual
undertaking, as contained in the Deed of Sale of Shares of Stock.
SEPARATE OPINIONS: CONCURRING: NONE

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BLOCK 2A 2021 | TAXATION 1 | ATTY.

61. Commissioner of Internal Revenue vs. Bishop of the Missionary FACTS:

2. As the law does not distinguish or qualify the enjoyment or the

medicines supplied free of charge to charity

4. The exemption in favor of property used exclusively for charitable

amount of the subject income that was actually, directly and

WHEREFORE, the petition is GRANTED.

DISSENTING OPINION by Bellosillo, J.:

66. LUNG CENTER OF THE PHILIPPINES v QUEZON CITY

estate taxes are lands, buildings and improvements actually,

Notwithstanding the provisions in the preceding

14. In 1998, St. Luke’s had total revenues of P1,730,367,965 from

8. Further, a plain reading of the Constitution would show that

PETITIONER: Pepsi-Cola Bottling Company of the Philippines

a. Even though American law forbids double taxation, it is

II. Ordinance 11 does not violate the rule on uniformity of taxation.

Accordingly, The judgment a quo is reversed and the ordinance in question

73. Compania General de Tabacos de Filipinas vs. City of Manila

1. Whether the imposition of tax under Sec. 21 of Manila

1. The imposition of tax under Sec. 21 of Manila Revenue Code

76. Delpher Trades v. IAC

HELD: In reality, petitioner corporation is a mere alter ego or conduit of

Q: Now what advantage is this continuity in relation to ownership by a

9. The records do not point to anything wrong or objectionable about this

DOCTRINE: An attempt to minimize one’s tax does not necessarily

concerned, the petitioner was the real importer and hence

capital gains tax corporate income tax of CIC.

expertise in matters of taxation, is better situated to determine the

SEPARATE OPINIONS: CONCURRING: NONE

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