G.R. No. 156 September 27, 1946 7.
1946 7. That in said income tax return for 1939, the plaintiff declared the results
MILTON GREENFIELD, plaintiff-appellant,
vs.
BIBIANO L. MEER, defendant-appellee.
FERIA, J.:
This is an appeal from the decision of the Court of First Instance of Manila which
dismisses the complaint of the plaintiff and appellant containing two causes of
action; one to recover the sum of P9,008.14 paid as income tax for the year 1939 by
plaintiff to defendant under protest, by reason of defendant having disallowed a
deduction of P67,307.80 alleged by plaintiff to be losses in his trade or business; and
the other to reclaim, in the event the first cause of action is dismissed, the sum of
P475 collected by defendant from plaintiff illegally according to the latter, because
the former has erroneously computed the tax on personal and additional exemptions.
The following are the pertinent facts stipulated and submitted by the parties to the
lower court:
2. That since the year 1933 up to the present time, the plaintiff has been
continuously engaged in the embroidery business located at 385 Cristobal,
City of Manila and carried on under his name;
3. That in 1935 the plaintiff began engaging in buying and selling mining
stocks and securities for his own exclusive account and not for the account
of others . . .;
4. That Exhibit A attached to the complaint and made a part hereof
represents plaintiff's purchases and sales of each class of stock and security
as well as the profits and losses resulting on each class during the year
1939;
5. That the plaintiff has not been a dealer in securities as defined in section
84 (t) of Commonwealth Act No. 466; that he has no established place of
business for the purchase and sale of mining stocks and securities; and that
he was never a member of any stock exchange;
6. That the plaintiff filed an income tax return for the calendar year 1939
showing that he made a net profit amounting to P52,449.29 on embroidery
business and P17,850 on dividends from various corporations; and that from
the purchase and sales of mining stocks and securities he made a profit of
P10,741.30 and incurred losses in the amount of P78,049.10, thereby
sustaining a net loss of P67,307.80, which income tax return is hereto
attached and marked Exhibit B;
of his stock transactions under Schedule B (Income from Business);but the
defendant ruled that they should be declared in the income tax return,
Exhibit B, under Schedule D (Gains and Losses from Sales or Exchanges of
Capital Assets, real or personal);
8. That in said income tax return, said plaintiff claims his deduction of
P67,307.80 representing the net loss sustained by him in mining stocks
securities during the year 1939; and that the defendant disallowed said item
of deduction on the ground that said losses were sustained by the plaintiff
from the sale of mining stocks and securities which are capital assets, and
that the loss arising from the sale of the same should be allowed only to the
extent of the gains from such sales, which gains were already taken into
consideration in the computation of the alleged net loss of P67,307.80;
9. That the defendant assessed plaintiff's income tax return for the year 1939
at P13,771.06 as shown in the following computation appearing in the audit
sheet of the defendant hereto attached and marked Exhibit C;
Net income as per return of plaintiff for 1939 P70,299.29
Add: Net Loss on sale of mining stocks and securities
disallowed in audit 67,307.80
P137,607.09
Total net income as per office audit =========
Amount of tax on net income as per office audit P13,821.06
Less: Tax on exemptions:
Personal exemption P2,500.00
Additional exemption 1,000.00
Total P3,500.00
Tax on exemption 50.00
P13,771.06
Net amount of tax due =========
10. That the defendant computed the graduated rate of income tax due on
the entire net income as per office audit, without first deducting therefrom
the amount of personal and additional exemptions to which the plaintiff is
 entitled, allowing said plaintiff a deduction from the assessed tax the
amount of P50 corresponding to the exemption of P3,500;
11. That the plaintiff, objecting and excepting to all the ruling of the
defendant above mentioned and in assessing plaintiff with P13,771.06,
claimed from the defendant the refund of P9,008.14 or in the alternative
case P475, which claim of plaintiff was overruled by the defendant;
The questions raised by appellant in his four (4) assignments of error may be reduced
into the following: (1) Whether the losses sustained by the plaintiff from the buying
and selling of mining securities during the year 1939 are losses incurred in trade and
business, deductible under section 30 (d) (1)(A) of Commonwealth Act No. 466 from
his gains in his embroidery business and other income; or whether they are capital
losses from sales of capital assets which shall be allowed only to the extent of the
gains from such sales under section 34 of the same Commonwealth Act No. 466.
And (2) whether, under the present law, the personal and additional exemptions
granted by section 23 of the same Act, should be considered as a credit against or be
deducted from the net income, or whether it is the tax on such exemptions that
should be deducted from the tax on the total net income.
1. As to the first question, it is agreed in the above-quoted stipulation of facts that the
plaintiff was not a dealer in securities or share of stock as defined in section 84 (t) of
Commonwealth Act No. 466. The question for determination is whether appellant,
though not a dealer in mining securities, may be considered as engaged in the
business of buying and selling them under section 30 (d), (1) (A) of said Act No.
466.
It is evident that, taking into consideration the nature of mining securities, which
may be bought or sold either as a business or for speculation purposes only, the
National Assembly of the Philippines has deemed it necessary to define or determine
beforehand in section 84 (t) of Commonwealth Act No. 466 who may be considered
as persons engaged in the trade or business of buying and selling securities within the
meaning of the phrase "incurred in trade or business" used in section 30 (d) (1) (A)
of the same Act, in order to avoid any question or doubt as to deductibility of all
losses incurred by a merchant in securities from his net income from whatever
source. The definition of dealer or merchant in securities given in said section 84 (t)
includes persons, natural or juridical, who are engaged in the purchase and sale of
securities whether for his their own account or for others, provided they have a place
of business and are regularly engaged therein. There was formerly some doubt or
question as to whether a person engaged in buying or selling securities for his own
account might be considered as engaged in that trade or business, and several cases
involving such question had been submitted to the United States Federal Courts for
ruling, and to the Income Tax Units of the United States Bureau of Internal Revenue
for opinion. But with the inclusive definition of the term "dealer" or merchant of
securities given in section 84 (t) of Act No. 466, such doubt can no longer arise.
Said section 84 (t) reads as follows:
(t) The term "dealer in securities" means a merchant of stocks or securities,
whether an individual, partnership, or corporation, with an established place
of business, regularly engaged in the purchase of securities and their resale
of customers; that is, one who as a merchant buys securities and sells them
to customers with a view to the gains and profits that may be derived
therefrom.
Appellant assumes, however, that the above-quoted definition does not cover or
include all persons engaged in the trade or business of buying and selling securities
within the meaning of said section 30 (d) (1) (A). He contends that, although he is
not a dealer in mining securities, he may be considered as having been engaged in
the trade or business of buying and selling securities. And in support of his
contention appellant quotes Opinion No. 1818 of the Income Tax Unit of the United
States Bureau of Internal Revenue(I.T. No. 1818, C.B. II, pp. 39-41), in which
opinion the following was said:
The taxpayer is not a member of any stock exchange, has no place of
business, and does not make purchase and sales of securities for customers.
Much of his trading is done on margin. He devotes the greater part of the
time in his broker's office keeping in touch with the market. He has no other
trade or business, his income consisting entirely of interest bonds, dividends
on stocks, and profits from the sale or disposition of securities.
Advice is requested (1) whether this taxpayer is entitled to the benefit of
section 204 of the Revenue Act of 1921, with reference to a net loss
incurred in 1921, from the sale of stocks; (2) whether he is entitled to the
benefit of section 206 of the Revenue Act of 1921, with regard to gains
derived in 1922 from the sale of two blocks of stock held more than two
years.
1. Section 204 (a) provides in part:
That as used in this section the term "net loss" means only net losses
resulting from the operation of any trade or business regularly carried on by
the taxpayer . . .
The question is, than, whether the taxpayer was regularly engaged in the
trade or business of buying and selling securities.
The interpretation placed upon the term "business or trade" by the courts
and the department may be indicated by a few illustrative decisions. In two
early cases (In re Marson [1871], Fed. Cas. No. 9142, and In re Woodward
[1876], Fed. Cas. No. 18001) it was held that a speculator in stocks was not
a "merchant or tradesman" within the meaning of the Bankruptcy Act of
1867. It was said in the former case:
"The only business he was engaged in was what is called speculating in
stocks, that is, buying and selling them, with a view to his own profit, to be
made by the excess of the selling price over the buying price . . . The fact
that the bankrupt was engaged in no other business can not have the effect
to make him a merchant or a tradesman, because he carried on the business
he did carry on in the way which he carried it on."
That is, although his business was buying and selling, since this business
was simply with a view to his own profit and not for others, has was not a
merchant or tradesman. Compare In re Surety Guarantee & Trust Co.
([1902], 121 Fed., 73) and In re H.R. Leighton & Co. ([1906], 147 Fed.,
311).
With this background, the Department, in Treasury Decisions 1989, 2005,
2090, and 2135 (not published in Bulletin service), held that the provision
of paragraph B of the 1913 Act, allowing as a deduction for the purpose of
the normal tax "losses actually sustained during the year, incurred in trade . .
.", did not include losses from isolated transactions; for instance, in stocks
and bonds. In Mente vs. Eisner ([1920], 266 Fed., 161) (certiorari denied,
254 U.S., 635), these rulings were upheld in a case in which a manufacturer
of bagging was denied deductions for losses in buying and selling cotton on
the cotton exchange for his individual account, not connected with his
manufacturing business. (Cf. Black vs. Bolen [1920], 268 Fed., 427.)
Likewise, in L.O. 601 (not published in Bulletin service), it was held that
"losses sustained by a person in buying and selling securities in his own
account, he not being a licensed stock and bond broker buying and selling
for others as well as for himself, are not deductible as losses in trade within
the meaning of paragraph B of the Act of October 3, 1913." The basis of
these opinions is thus seen to be (1) that dealing in securities on one's own
account is not technically a "trade"; (2) that isolated transactions in
securities, not connected with the tax payer's regular business do not
constitute a "trade."
In the Act of September 8, 1916, the wording of the 1913 Act was slightly
changed (section 5 [a], fourth) to permit a deduction of "losses actually
sustained during the year, incurred in his business or trade . . ." Under this
more liberal provision, it has been uniformly held that where a taxpayer
devoted all his time, or the major portion of it, to buying and selling
securities on his own account, this occupation was his "business"; and
therefore he was permitted to deduct losses sustained in such dealings as
being "incurred in his business." A. R. R. 404 (C.B. 4, p. 157); semble L.
O.601. These rulings are inferentially supported by the definitions of trade
or business to comprehend "all his activities for gain, profit, or livelihood,
entered into with sufficient frequency, or occupying such portion of his time
or attention as to constitute a vocation," contained in article 8 of
Regulations 41, relative to the war excess-profits tax (approved in
Woods vs. Lewellyn [1921], 289 Fed., 498). . .
It is submitted that these decisions are a sound interpretation of the accepted
definition of business: "Business is a very comprehensive term and
embraces everything about which a person can be employed." Black's Law
Dictionary, 158, citing People vs. Commissioners of Taxes (23 New York,
242, 244). "That which occupies the time, attention and labor of men for the
purpose of a livelihood or profit." Bouvier's Law Dictionary, Vol. 1, p. 273.
Fling vs. Stone Tracy Co. (1910), 220 U. S., 107 at 171; 31 Sup Ct., 342; 55
Law. ed., 389; Ann. Cas. 1912-B, 1312; cited with approval in Von
Baumbach vs. Sargent Land Company (1916), 242 U. S., 503, at 515. If
they are sound, the facts of the instant case require a ruling that the taxpayer
was regularly engaged in the business of buying and selling securities on his
own account and was, therefore, entitled to the benefit of the provisions of
section 204(a). (I. T. No. 1818; C. B. II-2, pp. 39-41.)
But, assuming arguendo that the above-quoted opinion may be applied to the present
case, it is evident that the appellant can not be considered as having been engaged in
the business of buying and selling securities within the meaning of section 30 (d) (1)
(A) of Act No. 466 According to said opinion, in order that he may so be considered,
it is necessary that he must devote all his time or at least a major portion thereof to
said business and that the latter must be regularly carried on by him.
In the stipulation of facts presented in this case it is agreed that "since the year 1933
up to the present time, the plaintiff has been continuously engaged in the embroidery
business," and that "in 1935, the plaintiff began engaging in buying and
selling mining stocks and securities for his own exclusive account." There is nothing
therein to show that plaintiff and appellant has regularly devoted all his time or the
major portion thereof to the business of buying and selling mining securities for his
own account. On the contrary, it having been stipulated that he has been
continuously engaged in the embroidery business during the same time, it necessarily
follows that he has not and could not have devoted regularly all his time or a major
portion thereof to the buying and selling of mining securities.
Furthermore, from Exhibit A attached to the complaint and made a part of said
stipulation of facts, which represents plaintiff's purchases and sales of each class of
stocks and securities as well as the profits and losses resulting therefrom during the
year 1939, it appears that he made purchases and sales of securities only on several
days of some months and nothing on others. As shown in said exhibit, during the
month of January, 1939, appellant purchased shares of stock of different mining
corporations on January 2, 3, 4, 6, 13, 19, 20, 25, 30, and sold some of them on
January 4, 10, 13 and 31. During February he made purchases on the dates 1, 8, 13,
14, 25, and 27; and sales on 6, 9, 10, 16, 22, and 30, and sold some on March 9 only.
During April he made two purchases on April 3 and 5, and one sale on April 4.
During May he purchased mining shares of stock on May 9, 10, 13, 19, 24, and 25;
and sold some of them on May 9, 10, 12, 13, and 31. During June appellant made
purchases on 1, 3, 5, 8, 13, 15, and 17, and sales on 22, 23, 24, and 28. During July,
purchases on 1, 3, 6, 19; and sales on July 24, 25, 26, and 27. During August he
purchased shares of stock on some mining corporations on 5,7, 16, and 18 and sold
shares of one mining corporation on August 10 only. During September appellant did
not purchase or sell any securities. During October he sold securities only on the
12th of said month, and he made no purchase at all. And during November and
December he did not purchase or sell any.
Appellant contends that as from Exhibit A it appears that the mining securities were
inventoried in order to arrive at his profits and losses, they cannot be considered as
capital assets, because, according to section 34, the term capital assets does not
include property which would properly be included in the inventory. But it is to be
observed that the law refers not to property merely included, but to that which would
be properly included in the inventory. Section 148 of the Income Tax Regulations
No. 2 of February 10, 1940 (39 Off. Gaz., 325), provides that "the securities (to be)
inventoried as here provided may include only those held for purposes of resale and
not for investment," and that "the taxpayers who buy and sell or hold securities for
investment or speculation, . . . are not dealers insecurities within the meaning of this
rule." And the General Counsel of the Federal Bureau of Internal Revenue, after
quoting Article 105 of United States Regulations 74 from which said section 148 of
our Income Tax Regulations was taken, said that a person not a dealer in securities is
precluded from the use of inventories in computing his net income."(C. B. X-2, p.
128, G. C. M., 9656.)
The lower court has not therefore erred in dismissing appellant's first cause of action,
on the ground that the losses sustained by appellant from the buying and selling of
mining securities are not losses incurred in business or trade but are capital losses
from sales of capital assets, as contended by appellee.
2. With regard to the second point, the lower court held that, as the new law does not
provide that the personal exemptions shall be allowed in the nature of a deduction
from the net income, as prescribed in the old law, and there is a distinction between
exemption and deduction, the tax due on said exemptions must be deducted from the
tax due on the whole net income, instead of deducting the total amount of the
exemptions from the net income.
The argument of the appellee in support of the lower court's decision is that the
omission in section 23 of Act No. 466 of the phrase "in the nature of a deduction"
found in section 7 of the old law, shows that it was the intention of the National
Assembly to adopt the innovation proposed by the Tax Commission which prepared
the draft of the new law, an innovation based on what is known as the "Wisconsin
Plan" now in operation in several American states. Under said plan, the cumulative
amount of the tax is fixed on any given amount of net income without regard to the
status of the taxpayer, and then this amount is reduced by the tax credit fixed in the
law according to the status of the taxpayer and the number of his dependents as
follows: for single individuals, there is allowed a tax credit of P10; for married
persons or heads of family, P30; and for each dependent below 21 years of age, P10.
Section 7 of the old law provided: "For the purpose of the normal tax only, there
shall be allowed as an exemption in the nature of a deduction from the amount of the
net income . . ."; while section 23 of the new law provides: "For the purpose of the
tax provided for in this Title there shall be allowed the following exemptions." Now,
the question to be determined or answered is: Does this change in the phraseology of
the law show the intention of the National Assembly to change the theory or policy
of the old law so as to deduct now the tax on the personal and additional exemptions
from the tax fixed on the amount of the net income, instead of deducting the amount
of personal and additional exemptions from that of the net income, before
determining the tax due on the latter?
It is a well-settled rule of statutory construction that where a statue has been enacted
which is susceptible of several interpretations there is no better means for
ascertaining the will and intention of the legislature than that which is afforded by
the history of the statue. Taking into consideration the history of section 23 of the
Commonwealth Act No. 466, the answer to the above-propounded question must
obviously be in the negative. Section 22 of the bill entitled "An Act to revise, amend
and codify the Internal Revenue Laws of the Philippines," prepared by the Tax
Commission and submitted to the National Assembly of the Philippines, in
substitution of section 7 of the old Income Tax Law, reads as follows:
SEC. 22. Amount of tax credit allowable to individuals.—There shall be
allowed as a credit in the nature of a deduction from the amount of the tax
payable by each citizen or resident of the Philippines under section 20:
(a) Tax credit of single individuals.—The sum of P10 if the person making
the return is a single person or a married person legally separated from his
or her spouse.
(b) Tax credit of a married person or head of family.—The sum of P30 if
the person making the return is a married man with a wife not legally
separated from him, or a married woman with a husband not legally
separated from her, or the head of the family; Provided, That from the tax
due on the aggregate income of both husband and wife when not legally
separated only one tax credit of P30 shall be deducted. For the purpose of
this section, the term "head of a family" includes an unmarried man or a
woman with one or both parents, or one or more brothers or sisters, or one
or more legitimate, recognized natural or adopted children dependent upon
him or her for their chief support where such brothers, sisters, or children
are less than twenty-one years of age.
 (c) Additional tax credit for dependents.—The sum of P10 for each
legitimate, recognized natural, or adopted child wholly dependent upon the
taxpayer, if such dependents are under twenty-one years of age, or incapable
of self-support because mentally or physically defective. The additional tax
credit under this paragraph shall be allowed only if the person making the
return is the head of the family.
But the National Assembly, instead of adopting or incorporating said proposed
section 22 in the National Internal Revenue Code, C. A. No. 466, copied
substantially in section 23 of the latter provision of section 7 of the old law relating
to personal and additional exemptions, with the only modification that the amount of
personal exemption of single individuals has been reduced from two thousand to one
thousand pesos, and that of married persons or heads of family from four thousand to
two thousand five hundred pesos.
If it were the intention of the National Assembly to adopt the "Wisconsin plan"
proposed by the tax Commission, it would have adopted literally, or at least
substantially, the provisions of said section 22 as section 23 of Commonwealth Act
No. 466, instead of substantially incorporating section 7 of the old Income Tax Law
as section 23 of the new, except the first paragraph thereof which reads: "For the
purpose of the normal tax only, there shall be allowed as an exemption in the nature
of a deduction from the amount of the net income." This was changed in said section
23, which provides: "For the purpose of the tax provided for in this Title, there shall
be allowed the following exemptions:" From the fact that the National Assembly
discarded completely section 22 of the bill drafted in accordance with the "Wisconsin
Plan" and submitted by the Tax Commission, it is to be presumed that the National
Assembly of the Philippines did not intend to introduce any substantial change in the
old law in so far as the effect of personal and additional exemptions on the income
tax is concerned.
The mere fact that the phrase "in the nature of a deduction" found in section 7 of the
old law was omitted in section 23 of the new or National Internal Revenue Code did
not and could not effect any change in the law. It is evident that said phrase was
added or inserted in said section 7 only out of extreme caution, because, even
without it, the exemption would have to be deducted from the gross income in order
to determine the net income subject to tax. Had the provision in the old law been
drafted in exactly the same term as that of said section 23, the same construction
should have been adopted. Because "Exception is an immunity or privilege; it is
freedom from a charge or burden to which others are subjected." (Florar vs. Sherifan,
137 Ind., 28; 36 N. E., 365, 369.) If the amounts of personal and additional
exemptions fixed in section 23 are exempt from taxation, they should not be included
as part of the net income, which is taxable. There is nothing in said section 23 to
justify the contention that the tax on personal exemptions (which are exempt from
taxation) should first be fixed, and then deducted from the tax on the net income.
The change of phraseology alone does not lead to the conclusion that it was the
intention of the lawmaker to amend or change the constructions of the old law as
contended by the appellee. For it is a well-established rule, recognized by the
Supreme Court of Ohio in the case of Conger vs. Barker's Adm'r (11 Ohio St., 1);
"that in the revision of statutes, neither an alteration in phraseology nor the omission
or addition of words in the latter statute, shall be held, necessarily, to alter the
construction of the former act. And the court is only warranted in holding the
construction of a statute, when revised, to be changed, where the intent of the
legislature to make such change is clear, or the language used in the new act plainly
requires such change of construction. It should be remembered that condensation is a
necessity in the work of compilation or codification. Very frequently words which do
not materially affect the sense will be omitted from the statutes as incorporated in the
code, or that same general idea will be expressed in briefer phrases. No design of
altering the law itself could rightly be predicated upon such modifications of the
language." (Emphasis ours.) (See Black on the construction and Interpretation of the
Laws, Second Edition, pp. 594, 595.)
Our Income Tax Law is patterned after the United States Revenue or Income Tax
Laws. the United States Revenue Laws of 1916, 1918, 1921, 1924, 1926, 1928 and
1932 considered the personal and additional exemptions as credits against the net
income for the purpose of the normal tax; and subsequently, the United States
Revenue Acts of 1934, 1936 and 1938 amended the former acts by making said
exemptions as credits against the net income for the purpose of both the normal tax
and surtax. Section 7 of our old Income Tax Law, instead of providing that the
personal and additional exemptions shall be allowed as a credit against the net
income, as in the United States Revenue Acts, prescribed that the amounts specified
therein shall be allowed as an exemption in a nature of deduction from the amount of
the net income. Which has exactly the same effect as the provision regarding
personal and additional exemptions in the said United States Revenue Acts. For, as it
was explained in the Ways and Means Committee Report No. 764, 73d Congress, 2d
Session, pages 6, 23:
To carry out the policy of retaining practically the same tax burden on
ordinary income, it is necessary in connection with the proposed plan to
allow the personal exemption and credits for dependents as an offset against
surtax as well as normal tax. The personal exemption and credits for
defendants would appear to be in lieu of deductions for necessary living
expenses. They may well apply to both taxes as do all other ordinary
deductions.
And Paul and Mertens, Law of Federal Taxation, Vol. 3, p. 509, state regarding the
change in the United States Revenue Act of 1934: "The practical effect of this
statutory change is to convert the personal exemption and credit for dependents
into deductions . . ." (Emphasis ours.)
The lower court, therefore, erred in not declaring that personal and additional
exemptions claimed by appellant should be credited against or deducted from the net
income, and consequently in not sentencing appellee to refund to appellant the sum
of P475.
In view of all the foregoing, the decision of the lower court is affirmed in so far as it
dismisses appellant's first cause of action, and is reversed in so far as it dismissed his
second cause of action. Appellee is sentenced to refund to appellant the sum of P475
claimed in the second cause of action of the complaint. Without pronouncement as to
costs. So ordered.
G.R. No. 90776 June 3, 1991
PHILIPPINE PETROLEUM CORPORATION, petitioner,
vs.
MUNICIPALITY OF PILILLA, RIZAL, Represented by MAYOR
NICOMEDES F. PATENIA, respondent.
PARAS, J.:
This is a petition for certiorari seeking to annul and set aside: (a) the March 17, 1989
decision * of the Regional Trial Court, Branch 80, Tanay, Rizal in Civil Case No.
057-T entitled, "Municipality of Pililla, Rizal, represented by Mayor Nicomedes F.
Patenia vs. Philippine Petroleum Corporation", (PPC for short) upholding the legality
of the taxes, fees and charges being imposed in Pililla under Municipal Tax
Ordinance No. 1 and directing the herein petitioner to pay the amount of said taxes,
fees and charges due the respondent: and (b) the November 2, 1989 resolution of the
same court denying petitioner's motion for reconsideration of the said decision.
The undisputed facts of the case are:
Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise
engaged in the manufacture of lubricated oil basestock which is a petroleum product,
with its refinery plant situated at Malaya, Pililla, Rizal, conducting its business
activities within the territorial jurisdiction of the Municipality of Pililla, Rizal and is
in continuous operation up to the present (Rollo p. 60). PPC owns and maintains an
oil refinery including forty-nine storage tanks for its petroleum products in Malaya,
Pililla, Rizal (Rollo, p. 12).
Under Section 142 of the National Internal Revenue Code of 1939, manufactured
oils and other fuels are subject to specific tax.
On June 28, 1973, Presidential Decree No. 231, otherwise known as the Local Tax
Code was issued by former President Ferdinand E. Marcos governing the exercise by
provinces, cities, municipalities and barrios of their taxing and other revenue-raising
powers. Sections 19 and 19 (a) thereof, provide among others, that the municipality
may impose taxes on business, except on those for which fixed taxes are provided
on manufacturers, importers or producers of any article of commerce of whatever
kind or nature, including brewers, distillers, rectifiers, repackers, and compounders
of liquors, distilled spirits and/or wines in accordance with the schedule listed
therein.
The Secretary of Finance issued Provincial Circular No. 26-73 dated December 27,
1973, directed to all provincial, city and municipal treasurers to refrain from
collecting any local tax imposed in old or new tax ordinances in the business of
manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the
specific tax under the National Internal Revenue Code (Rollo, p. 76).
Likewise, Provincial Circular No. 26 A-73 dated January 9, 1973 was issued by the
Secretary of Finance instructing all City Treasurers to refrain from collecting any
local tax imposed in tax ordinances enacted before or after the effectivity of the
Local Tax Code on July 1, 1973, on the businesses of manufacturing, wholesaling,
retailing, or dealing in, petroleum products subject to the specific tax under the
National Internal Revenue Code (Rollo, p. 79).
Respondent Municipality of Pililla, Rizal, through Municipal Council Resolution No.
25, S-1974 enacted Municipal Tax Ordinance No. 1, S-1974 otherwise known as
"The Pililla Tax Code of 1974" on June 14, 1974, which took effect on July 1, 1974
(Rollo, pp. 181-182). Sections 9 and 10 of the said ordinance imposed a tax on
business, except for those for which fixed taxes are provided in the Local Tax Code
on manufacturers, importers, or producers of any article of commerce of whatever
kind or nature, including brewers, distillers, rectifiers, repackers, and compounders
of liquors, distilled spirits and/or wines in accordance with the schedule found in the
Local Tax Code, as well as mayor's permit, sanitary inspection fee and storage
permit fee for flammable, combustible or explosive substances (Rollo, pp. 183-187),
while Section 139 of the disputed ordinance imposed surcharges and interests on
unpaid taxes, fees or charges (Ibid., p. 193).
On March 30, 1974, Presidential Decree No. 426 was issued amending certain
provisions of P.D. 231 but retaining Sections 19 and 19 (a) with adjusted rates and
22(b).
On April 13, 1974, P.D. 436 was promulgated increasing the specific tax on
lubricating oils, gasoline, bunker fuel oil, diesel fuel oil and other similar petroleum
products levied under Sections 142, 144 and 145 of the National Internal Revenue
Code, as amended, and granting provinces, cities and municipalities certain shares in
the specific tax on such products in lieu of local taxes imposed on petroleum
products.
The questioned Municipal Tax Ordinance No. 1 was reviewed and approved by the
Provincial Treasurer of Rizal on January 13, 1975 (Rollo, p. 143), but was not
implemented and/or enforced by the Municipality of Pililla because of its having
been suspended up to now in view of Provincial Circular Nos. 26-73 and 26 A-73.
Provincial Circular No. 6-77 dated March 13, 1977 was also issued directing all city
and municipal treasurers to refrain from collecting the so-called storage fee on
flammable or combustible materials imposed under the local tax ordinance of their
respective locality, said fee partaking of the nature of a strictly revenue measure or
service charge.
On June 3, 1977, P.D. 1158 otherwise known as the National Internal Revenue Code
of 1977 was enacted, Section 153 of which specifically imposes specific tax on
refined and manufactured mineral oils and motor fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent filed a
complaint on April 4, 1986 docketed as Civil Case No. 057-T against PPC for the
collection of the business tax from 1979 to 1986; storage permit fees from 1975 to
1986; mayor's permit and sanitary inspection fees from 1975 to 1984. PPC, however,
have already paid the last-named fees starting 1985 (Rollo, p. 74).
After PPC filed its answer, a pre-trial conference was held on August 24, 1988 where
the parties thru their respective counsel, after coming up with certain admissions and
stipulations agreed to the submission of the case for decision based on documentary
evidence offered with their respective comments (Rollo, p. 41).
On March 17, 1987, the trial court rendered a decision against the petitioner, the
dispositive part of which reads as follows:
WHEREFORE, premises considered, this Court hereby renders judgment in
favor of the plaintiffs as against the defendants thereby directing the
defendants to 1) pay the plaintiffs the amount of P5,301,385.00 representing
the Tax on Business due from the defendants under Sec. 9 (A) of the
Municipal Tax Ordinance of the plaintiffs for the period from 1979 to 1983
inclusive plus such amount of tax that may accrue until final determination
of case; 2) to pay storage permit fee in the amount of P3,321,730.00 due
from the defendants under Sec. 10, par. z (13) (b) (1 C) of the Municipal
Tax Ordinance of the plaintiffs for the period from 1975 to 1986 inclusive
plus such amount of fee that may accrue until final determination of case; 3)
to pay Mayor's Permit Fee due from the defendants under Sec. 10, par. (P)
(2) of the Municipal Tax Ordinance of the plaintiffs from 1975 to 1984
inclusive in the amount of P12,120.00 plus such amount of fee that may
accrue until final determination of the case; and 4) to pay sanitary
inspection fee in the amount of P1,010.00 for the period from 1975 to 1984
plus such amount that may accrue until final determination of case and 5) to
pay the costs of suit.
SO ORDERED. (Rollo, pp. 49-50)
PPC moved for reconsideration of the decision, but this was denied by the lower
court in a resolution of November 2, 1989, hence, the instant petition.
The Court resolved to give due course to the petition and required both parties to
submit simultaneous memoranda (June 21, 1990 Resolution; Rollo, p. 305).
PPC assigns the following alleged errors:
1. THE RTC ERRED IN ORDERING THE PAYMENT OF THE
BUSINESS TAX UNDER SECTION 9 (A) OF THE TAX ORDINANCE
IN THE LIGHT OF PROVINCIAL CIRCULARS NOS. 26-73 AND 26 A-
73;.
2. THE RTC ERRED IN HOLDING THAT PETITIONER WAS LIABLE
FOR THE PAYMENT OF STORAGE PERMIT FEE UNDER SECTION
10 Z (13) (b) (1-c) OF THE TAX ORDINANCE CONSIDERING THE
ISSUANCE OF PROVINCIAL CIRCULAR NO. 6-77;
3. THE RTC ERRED IN FAILING TO HOLD THAT RESPONDENTS
COMPUTATION OF TAX LIABILITY HAS ABSOLUTELY NO BASIS;
4. THE RTC ERRED IN ORDERING THE PAYMENT OF MAYOR'S
PERMIT AND SANITARY INSPECTION FEES CONSIDERING THAT
THE SAME HAS BEEN VALIDLY AND LEGALLY WAIVED BY THE
MAYOR;
5. THE RTC ERRED IN FAILING TO HOLD THAT THE TAXES AND
DUTIES NOT COLLECTED FROM PETITIONER PRIOR TO THE FIVE
(5) YEAR PERIOD FROM THE FILING OF THIS CASE ON APRIL 4,
1986 HAS ALREADY PRESCRIBED.
The crucial issue in this case is whether or not petitioner PPC whose oil products are
subject to specific tax under the NIRC, is still liable to pay (a) tax on business and
(b) storage fees, considering Provincial Circular No. 6-77; and mayor's permit and
sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on
Municipal Ordinance No. 1.
Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary
to national economic policy the imposition of local taxes on the manufacture of
petroleum products as they are already subject to specific tax under the National
Internal Revenue Code; (b) the above declaration covers not only old tax ordinances
but new ones, as well as those which may be enacted in the future; (c) both
Provincial Circulars (PC) 26-73 and 26 A-73 are still effective, hence, unless and
until revoked, any effort on the part of the respondent to collect the suspended tax on
business from the petitioner would be illegal and unauthorized; and (d) Section 2 of
P.D. 436 prohibits the imposition of local taxes on petroleum products.
PC No. 26-73 and PC No. 26 A-73 suspended the effectivity of local tax ordinances
imposing a tax on business under Section 19 (a) of the Local Tax Code (P.D. No.
231), with regard to manufacturers, retailers, wholesalers or dealers in petroleum
products subject to the specific tax under the National Internal Revenue Code
NIRC, in view of Section 22 (b) of the Code regarding non-imposition by
municipalities of taxes on articles, subject to specific tax under the provisions of the
NIRC.
There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the
assailed taxes, fees and charges is valid especially Section 9 (A) which according to
the trial court "was lifted in toto and/or is a literal reproduction of Section 19 (a) of
the Local Tax Code as amended by P.D. No. 426." It conforms with the mandate of
said law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed
Provincial Circular Nos. 26-73 and 26 A-73 issued by the Secretary of Finance when
Sections 19 and 19 (a), were carried over into P.D. No. 426 and no exemptions were
given to manufacturers, wholesalers, retailers, or dealers in petroleum products.
Well-settled is the rule that administrative regulations must be in harmony with the
provisions of the law. In case of discrepancy between the basic law and an
implementing rule or regulation, the former prevails (Shell Philippines, Inc. v.
Central Bank of the Philippines, 162 SCRA 628 [1988]). As aptly held by the court a
quo:
Necessarily, there could not be any other logical conclusion than that the
framers of P.D. No. 426 really and actually intended to terminate the
effectivity and/or enforceability of Provincial Circulars Nos. 26-73 and 26
A-73 inasmuch as clearly these circulars are in contravention with Sec. 19
(a) of P.D. 426-the amendatory law to P.D. No. 231. That intention to
terminate is very apparent and in fact it is expressed in clear and
unequivocal terms in the effectivity and repealing clause of P.D. 426 . . .
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on
petroleum products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as
amended by P.D. 426, wherein the municipality is granted the right to levy taxes on
business of manufacturers, importers, producers of any article of commerce of
whatever kind or nature. A tax on business is distinct from a tax on the article itself.
Thus, if the imposition of tax on business of manufacturers, etc. in petroleum
products contravenes a declared national policy, it should have been expressly stated
in P.D. No. 436.
The exercise by local governments of the power to tax is ordained by the present
Constitution.1âwphi1 To allow the continuous effectivity of the prohibition set forth
in PC No. 26-73 (1) would be tantamount to restricting their power to tax by mere
administrative issuances. Under Section 5, Article X of the 1987 Constitution, only
guidelines and limitations that may be established by Congress can define and limit
such power of local governments. Thus:
Each local government unit shall have the power to create its own sources
of revenues and to levy taxes, fees, and charges subject to such guidelines
and limitations as the Congress may provide, consistent with the basic
policy of local autonomy . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain
from collecting the so-called storage fee on flammable or combustible materials
imposed in the local tax ordinance of their respective locality frees petitioner PPC
from the payment of storage permit fee.
The storage permit fee being imposed by Pililla's tax ordinance is a fee for the
installation and keeping in storage of any flammable, combustible or explosive
substances. Inasmuch as said storage makes use of tanks owned not by the
municipality of Pililla, but by petitioner PPC, same is obviously not a charge for any
service rendered by the municipality as what is envisioned in Section 37 of the same
Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit
fee is a permit fee allowed under Section 36 of the amended Code.
As to the authority of the mayor to waive payment of the mayor's permit and sanitary
inspection fees, the trial court did not err in holding that "since the power to tax
includes the power to exempt thereof which is essentially a legislative prerogative, it
follows that a municipal mayor who is an executive officer may not unilaterally
withdraw such an expression of a policy thru the enactment of a tax." The waiver
partakes of the nature of an exemption. It is an ancient rule that exemptions from
taxation are construed in strictissimi juris against the taxpayer and liberally in favor
of the taxing authority (Esso Standard Eastern, Inc. v. Acting Commissioner of
Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with disfavor
(Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121
[1983]). Thus, in the absence of a clear and express exemption from the payment of
said fees, the waiver cannot be recognized. As already stated, it is the law-making
body, and not an executive like the mayor, who can make an exemption. Under
Section 36 of the Code, a permit fee like the mayor's permit, shall be required before
any individual or juridical entity shall engage in any business or occupation under
the provisions of the Code.
However, since the Local Tax Code does not provide the prescriptive period for
collection of local taxes, Article 1143 of the Civil Code applies. Said law provides
that an action upon an obligation created by law prescribes within ten (10) years
from the time the right of action accrues. The Municipality of Pililla can therefore
enforce the collection of the tax on business of petitioner PPC due from 1976 to
1986, and NOT the tax that had accrued prior to 1976.
PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing
PRIOR to 1976 are not to be paid by PPC (because the same have prescribed) and
that storage fees are not also to be paid by PPC (for the storage tanks are owned by
PPC and not by the municipality, and therefore cannot be a charge for service by the
municipality), the assailed DECISION is hereby AFFIRMED.
G.R. No. L-46787 August 12, 1991
FLORO CEMENT CORPORATION, petitioner,
vs.
HON. BENJAMIN K. GOROSPE, Judge, CFI of Misamis Oriental, Branch I,
and the MUNICIPALITY OF LUGAIT, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking to set aside and reverse the
decision* of the then Court of First Instance of Misamis Oriental in Civil Case No.
4867, entitled "Municipality of Lugait, Misamis Oriental, (represented) by
the Municipal Treasurer and Provincial Treasurer vs. Floro Cement Corporation",
ordering defendant to pay unto plaintiff the amount of P161,875.00 as manufacturer's
and exporter's taxes plus surcharges for the period from January 1, 1974 to
September 30, 1975 and that herein petitioner Floro Cement Corporation be declared
exempted from the coverage of Ordinances Nos. 5 and 10 of the Municipality of
Lugait and that the taxes and fees it has paid pursuant to said ordinances be refunded.
The facts of the case, as summarized in the decision of the trial court, are as follows:
The municipality of Lugait, province of Misamis Oriental, represented
jointly in this action by its Municipal Treasurer and the Provincial Treasurer
of the said province, filed with this Court a verified complaint for collection
of taxes against the defendant Floro Cement Corporation, a domestic
corporation duly organized and existing under the laws of the Republic of
the Philippines with business establishment and office address at its
compound in the aforementioned municipality of Lugait. The taxes sought
to be collected by the plaintiff specifically refers to "manufacturers" and'
exporter's "taxes for the period from January 1, 1974 to September 30,
1975, inclusive, in the total amount of P161,875.00 plus 25% thereof as
surcharge. Plaintiff alleged that the imposition and collection of these taxes"
is based on its Municipal Ordinance No. 5, otherwise known as the
Municipal Revenue Code of 1974, which was passed pursuant to
Presidential Decree No. 231 dated June 28, 1973 and also Municipal
Ordinance No. 10 passed on June 11, 1974 pursuant to Presidential Decree
No. 426 dated March 30,1974, amending Presidential Decree No. 231.
In its answer to the complaint, the defendant set up the defense that it is not
liable to pay manufacturer's and exporter's taxes alleging among others that
the plaintiffs power to levy and collect taxes, fees, rentals, royalties or
charges of any kind whatsoever on defendant has been limited or withdrawn
by Section 52 of Presidential Decree No. 463 which provides:
Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and
Mineral Products.—Any law to the contrary notwithstanding, no
province, city, municipality, barrio or municipal district shall levy
and collect taxes, fees, rentals, royalties or charges of any kind
whatsoever on mines, mining claims, mineral products, or on any
operation, process or activity connected therewith.
Defendant also set up several special/affirmative defenses, namely: (1) that
plaintiff has no legal capacity to sue; (2) that the complaint states no cause;
(3) that plaintiff has absolutely no cause of action against defendant; (4) that
defendant was granted by the Secretary of Agriculture and Natural
Resources a Certificate of Qualification for Tax Exemption, CQTE No. 22,
dated July 7, 1960, entitling defendant to exemption for a period of five (5)
years from April 30,1969 to April 29, 1974 from payment of all taxes,
except income tax, and which Certificate was amended on November 5,
1974 CQTE P.D. 463-22), entitling defendant to exemption from all taxes,
duties and fees except income tax, for five (5) years from the first date of
actual commercial production of saleable mineral products that is from May
17, 1974 to January 1, 1978; and (5) that Republic Act No. 3823, as
implemented by Mines Administrative Order No. V-25, and P.D. No. 463
which are the basis for the exemption granted to defendant are special laws
whereas, the municipal ordinance mentioned in the complaint which are
based on P.D. No. 231 and P.D No. 426, respectively, are general laws; and
that it is axiomatic that a special law can not be amended and/or repealed by
a general law unless there is an express intent to repeal or abrogate the
provisions of the special law.
After the issues were joined, the parties submitted a written stipulation of
facts under date of May 21, 1976 the pertinent portion of which is quoted in
full as follows:
PLAINTIFF and DEFENDANT, by and through counsel, most
respectfully submit the following stipulation of facts:
1. That plaintiff is a political subdivision of the Republic of the
Philippines created pursuant to EXECUTIVE ORDER NO. 425,
entitled "CREATING THE MUNICIPALITY OF LUGAIT IN
THE PROVINCE OF MISAMIS ORIENTAL", a xerox copy of
said executive order is attached hereto marked ANNEX "A" and
made an integral part hereof;
2. That defendant is a corporation day organized and existing under
and by virtue of the laws of the Philippines; with plant and office at
Lugait, Misamis Oriental, and is engaged in the manufacture and
selling, including exporting, of cement, one of the essential
ingredients of which is limestone;
3. That defendant, as a mining operator of mineral land lands
situated at Lugait, Misamis Oriental, was granted by the Secretary
of Agriculture and Natural Resources a Certificate of Qualification
for Tax Exemption, CQTE No. 22, dated July 7, 1960, entitling
defendant to exemption for a period of five (5) years from April
30, 1969 to April 29, 1974, from the payment of all taxes, except
income tax, a xerox copy of which is attached marked ANNEX
"A" to defendant's answer and made an integral part hereof;
4. That the Certificate of Qualification for Tax Exemption
mentioned in the next preceding paragraph was amended on
November 5, 1974, when the Honorable Secretary of Natural
Resources, Mr. Jose J. Leido Jr., upon recommendation of the
Director of Mines, granted to defendant a Certificate of
Qualification for Tax Exemption, CQTE P.D. 463-22, which
entitled defendant to exemption from all taxes, duties, and fees,
except income tax, for five (5) years from May 17, 1974 to January
1, 1978, a xerox copy of which is attached marked ANNEX "B" to
defendant's answer and made an integral part hereof, and that a
copy of the Certificate of Qualification for Tax Exemption, CQTE
P.D. 463-22 was furnished the Municipal Treasurer of plaintiff on
November 12, 1974, as shown by a xerox copy of the letter of the
Assistant Director of the Bureau of Mines, Mr. Francisco A.
Comsti, a copy of which is attached hereto marked ANNEX "B"
and made an integral part hereof;
5. That the Certificate of Qualification for Tax Exemption
mentioned in the next preceding paragraph was issued pursuant to
the provisions of Sec. 52, P.D. No. 463, which reads as follows:
Sec. 52. Power to Levy Taxes on Mines, Mining
Operations and Mineral Products.—Any law to the
contrary notwithstanding, no province, City, municipality,
barrio or municipal district shall levy and collect taxes,
fees, rentals, royalties or charges of any kind whatsoever
on mines, mining claims, mineral products, or on any
operation, process, or activity therewith.
6. That on or about July 3, 1974, plaintiff through its Municipal
Mayor, wired the Secretary of Finance, opposing the application of
defendant for the extension of its exemption from all forms of
taxation, including its application for extension of its exemption
from realty taxes, which opposition was not favorably acted upon
by the said Secretary of Finance, as evidenced by a xerox copy of
the letter of the Honorable Secretary of Finance, Mr. Cesar Virata,
attached hereto marked ANNEX "C" and made an integral part
hereof;
7. That plaintiff pursuant to P.D.No. 231 promulgated on June 28,
1973, passed Municipal Ordinance No. 5, otherwise known as
Municipal Revenue Code of 1974, effective January 1, 1974,
Section 3 of which is quoted in paragraph 2 of the complaint and
made integral part hereof by reference;
8. That plaintiff pursuant to P.D.No. 426 promulgated on March
30,1974, Municipal Revenue Ordinance No. 10, effective fifteen
(15) days after its passage, of which Section 4, Title I is quoted in
paragraph 3 of the complaint and made integral part hereof by
reference;
9. That pursuant(to)Municipal Ordinances Nos. 5 and 10,
mentioned in paragraphs 7 and 8 hereof, respectively, plaintiff
demanded of defendant the payment of the manufacturer's and
exporter's taxes including surcharge for the period covering
January 1, 1974 to September 30, 1975, broken down as shown in
paragraph 5 of the complaint and made integral part hereof by
reference; but defendant refused because of the allegations found
in paragraphs 1, 2, 3, 4, 5 and 6 hereof.
WHEREFORE, it is most respectfully prayed that the foregoing
stipulation of facts be made the basis of the judgment of this
 Honorable Court, after the parties hereto have submitted their
respective memoranda.
Cagayan de Oro City, May 21,1976.
(CFI Decision, pp. 1-6; Rollo, pp. 54-59),
As aforementioned, the trial court rendered its decision on November 29, 1976, the
dispositive portion of which reads, as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendant Floro Cement Corporation to pay unto plaintiff the amount of
P161,875.00 as manufacturer's and exporter's taxes and surcharges for the
period from January 1, 1974 to September 30, 1975, inclusive, and to pay
the costs.
SO ORDERED.
Hence, this appeal.
The petition was given due course by the First Division of this Court on January 6,
1978 and both parties were required to submit their simultaneous memoranda.
Respondent complied on February 17,1978 while petitioner filed its memorandum on
March 9,1978.
The principal issue in this case is whether or not Ordinances Nos. 5 and 10 of Lugait,
Misamis Oriental apply to petitioner Floro Corporation notwithstanding the
limitation on the taxing power of local government as provided for in Sec. 52 of P.D.
231 and Sec. 52 of P.D. 463.
Petitioner Floro Cement Corporation holds that since Ordinances Nos. 5 and 10 were
enacted pursuant to P.D. No. 231 and P.D. No. 426, respectively, said ordinances do
not apply to its business in view of the limitation on the taxing power of local
government provided in Sec. 5m of P.D. No. 231, which reads:
Sec. 5. Common Limitations on the Taxing Powers of Local Governments.
The exercise of taxing power of provinces, cities, municipalities and barrios
shall not extend to the imposition of the following:
xxx xxx xxx
(m) Taxes on mines, mining operations and mineral products and
their by-products when sold domestically by the operator.
Floro Cement Corporation likewise contends that cement is a mineral
product, relying on the case of Cebu Portland Cement Company vs.
Commissioner of Internal Revenue, G.R. No. L20563, October 29, 1968 (25
SCRA 789), and in the case of Philippine Pipes and Merchandising
Corporation vs. Commissioner of Internal Revenue, CTA Case No. 1858,
dated July 29, 1970 decided by the Court of Tax Appeals (Memorandum for
the Petitioner, Rollo, pp. 89-90).
Petitioner further contends that the partial exemption aforementioned was
rendered absolute by Sec. 52 of P.D. No. 463 promulgated on May 17,
1974, which expressly prohibits the province, city municipality, barrio and
municipal district from levying and collecting taxes, fees, rentals, royalties
or charges of any kind whatsoever on mines, mining claims and mineral
products, any law to the contrary notwithstanding. Said prohibition includes
any operation, process or activity connected with its production. The
manufacture of cement is a process inherently connected with the mining
operation undertaken by petitioner Floro Cement Corporation (Ibid., pp. 92-
93).
On other hand, while respondent municipality admits that petitioner Floro
Cement Corporation undertakes exploration, development and exploitation
of mineral products, the taxes sought to be collected were not imposed on
these activities in view of the mentioned prohibition under Sec. 52 of P.D.
No. 463. Said taxes were levied on the corporation's business of
manufacturing and exporting cement. The business of manufacturing and
exporting cement does not fall under exploration, development nor
exploitation of mineral resources as defined in Sec. 2 of P.D. No. 463,
hence, it is outside the scope of application of Sec. 52 of said decree
(Memorandum for Respondent, p. 10; Rollo, p. 85).
The municipality's power to levy taxes on manufacturers and exporters is
provided in Article 2, Sec. 19 of P.D. No. 231, as amended by P.D. No. 426
which provides that "The municipality may impose a tax on business except
those for which fixed taxes are provided for in this Code:
(a) On manufacturers, importers, or producers of any article of
commerce of whatever kind or nature, including brewers, distillers,
rectifiers, repackers, and compounders of liquors, distilled spirits
and/ or wines in accordance with the following schedule:
xxx xxx xxx
(a-1) On retailers, independent wholesalers and distributors in
accordance with the following schedule:
 xxx xxx xxx Furthermore, by the parties' own stipulation of facts submitted before the court a
quo, it is admitted that Floro Cement Corporation is engaged in the manufacturing
(Comment of the Respondent, Rollo, p. 72) and selling, including exporting of cement (CFI Decision, Rollo, p. 57). As such, and
since the taxes sought to be collected were levied on these activities pursuant to Sec.
19 of P.D. No. 231, Ordinances Nos. 5 and 10, which were enacted pursuant to P.D.
The petition is without merit.
No. 231 and P.D. No. 426, respectively, properly apply to petitioner Floro Cement
Corporation.
On the question of whether or not cement is a mineral product, this Court has
consistently held that it is not a mineral product but rather a manufactured product
WHEREFORE, the petition is DENIED for lack of merit and the decision dated
(Commissioner of Internal Revenue vs. Cebu Portland Cement Company, 156 SCRA
November 29, 1976 of the then Court of First Instance of Misamis Oriental is
535 [1987]; Commissioner of Internal Revenue vs. Philippine Pipes and
Affirmed.
Merchandising Corporation, 153 SCRA 113 [1987]; Commissioner of Internal
Revenue vs. Republic Cement Corporation, 149 SCRA 487 [1987]). while cement is
composed of 80'7c minerals, it is not merely an admixture or blending of raw SO ORDERED.
materials, as lime, silica, shale and others. It is the result of a definite process-the
crushing of minerals, grinding, mixing, calcining adding of retarder or raw gypsum G.R. No. L-29987 October 22, 1975
In short, before cement reaches its saleable form, the minerals had already undergone
a chemical change through manufacturing process (Commissioner of Internal MANILA ELECTRIC COMPANY, petitioner,
Revenue vs. Cebu Portland Cement Company, supra, reiterating the ruling in vs.
Commissioner of Internal Revenue vs. Republic Cement Corporation, 124 SCRA 46 MISAEL P. VERA, in his capacity as Commissioner of Internal
[1983]). It appears evident that the foregoing cases overruled the case of Cebu Revenue, respondent.
Portland Cement Company vs. Commissioner of Internal Revenue, 25 SCRA 789
[1969] which was cited by petitioner.
G.R. No. L-23847 October 22, 1975

On the exemption claimed by petitioner, this Court has laid down the rule that as the
power of taxation is a high prerogative of sovereignty, the relinquishment is never
presumed and any reduction or diminution thereof with respect to its mode or its rate,
must be strictly construed, and the same must be coached in clear and unmistakable
terms in order that it may be applied. More specifically stated, the general rule is that
any claim for exemption from the tax statute should be strictly construed against the
taxpayer (Luzon Stevedoring Corporation vs. Court of Appeals, 163 SCRA 647
[1988]). He who claims an exemption must be able to point out some provision of
law creating the right; it cannot be allowed to exist upon a mere vague implication or
inference. It must be shown indubitably to exist, for every presumption is against it,
and a well-founded doubt is fatal to the claim (Manila Electric Company vs. Ver, 67
SCRA 351 [1975]). The petitioner failed to meet this requirement.
As held by the lower court, the exemption mentioned in Sec. 52 of P.D. No. 463
refers only to machineries, equipment, tools for production, etc., as provided in Sec.
53 of the same decree. The manufacture and the export of cement does not fall under
the said provision for it is not a mineral product (CFI Decision, Rollo, p. 62). It is not
cement that is mined only the mineral products composing the finished product
(Commissioner of Internal Revenue vs. Republic Cement
Corporation, supra).1âwphi1
MANILA ELECTRIC COMPANY, petitioner,
vs.
BENJAMIN. TABIOS, as Commissioner of Internal Revenue, respondent.
MUÑOZ PALMA, J.:
Manila Electric Company, petitioner in these two cases, poses a single before
Us: is Manila Electric Company (MERALCO for short) exempt from payment
of a compensating tax on poles, wires, transformers, and insulators imported by
it for use in the operation of its electric light, heat, and power system?
MERALCO answers the query in the affirmative while the Commissioner of
Internal Revenue asserts the contrary.
MERALCO is the holder of a franchise to construct, maintain, and operate an
electric light, heat, and power system in the City of Manila and its suburbs.1
In 1962, MERALCO imported and received from abroad on various dates copper
wires, transformers, and insulators for use in the operation of its business on which,
the Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied
and collected a compensating tax amounting to a total of P62,335.00. A claim for
refund of said amount was presented by MERALCO and because no action was
taken by the Commissioner of Internal Revenue on its claim, it appealed to the Court
of Tax Appeals by filing a petition for review on February 25, 1964 (CTA Case No.
1495). On November 28, 1968, the Court of Tax Appeals denied MERALCO claim,
forthwith, the case was elevated to the Court on appeal (L-29987).
Again in 1963, MERALCO imported certain quantities of copper wires, transformers
and insulators also to be used in its business and again a compensating tax of
P6,587.00 on said purchases was collected. Its claim for refund of the amount having
been denied by the Commissioner of Internal Revenue on January 23, 1964,
MERALCO riled with the Court of Tax Appeals CTA Case No. 1493. On September
23, 1964 the Court of Tax Appeals decided against petitioner, and the latter filed
with this Court the corresponding Petition for Review of said decision docketed
herein as G.R. No. L-23847.
Inasmuch as the two appeals raise the same issue, they are consolidated in this
Decision.
The law under which the Commissioner of Internal Revenue, respondent in these two
cases, assessed and collected the corresponding compensating taxes in 1962 and
1963 was found in Section 190 of the National Internal Revenue
Code(Commonwealth Act No. 466, as amended) the pertinent provision of which
read at the time as follows:
Sec. 190. Compensating Tax. — All persons residing or doing
business in the Philippines, who purchase or receive from without
the Philippines any commodities, goods, wares, or merchandise,
excepting those subject to specific taxes under Title IV of this
Code, shall pay on the total value thereof at the time they are
received by such persons, including freight, postage, insurance,
commission and all similar charges, a compensating tax equivalent
to the percentage taxes imposed under this Title on original
transactions effected by merchants, importers, or manufacturers,
such tax to be paid before the withdrawal or removal of said
commodities, goods, wares, or merchandise from the customhouse
or the post office: ... 2
In deciding against petitioner, the Court of Tax Appeals held that following the
ruling of the Supreme Court in the case of Panay Electric Co. vs. Collector of
Internal Revenue, G.R. No. L-6753, July 30, 1955, Manila Gas Corp. vs. Collector
of Internal Revenue, G.R. No. L-11784, October 24, 1958, and Borja vs. Collector of
Internal Revenue, G.R. No. L-12134, November 30,1961, MERALCO is not
exempt from paying the compensating tax provided for in Section 190 of the
National Internal Revenue Code, the purpose of which is to "place casual importers,
who are not merchants on equal putting with established merchants who pay sales
tax on articles imported by them." The court further stated that MERALCO's claim
for exemption from the payment of the compensating tax is not clear or expressed,
contrary to the cardinal rule in taxation that "exemptions from taxation are highly
disfavored in law, and he who claims exemption must be able to justify his claim by
the clearest grant of organic or statute law. (pp. 10-11, L-23847, rollo)
Petitioner, on the other hand, bases its claim for exemption from the compensating
tax on poles, wires, transformers and insulators purchased by it from abroad on
paragraph 9 of its franchise which We quote from its brief:
PARAGRAPH 9. The grantee shall be liable to pay the same taxes
upon its real estate, buildings, plant (not including poles, wires,
transformers, and insulators), machinery, and personal property as
other persons are or may be hereafter by law to pay.
Inconsideration of Part Two of the franchise herein granted, to wit,
the right to build and maintain in the City of Manila and its suburbs
a plant for the conveying and furnishing of electric current for
light, heat, and power, and to charge for the same, the grantee shall
pay to the City of Manila a five per centum of the gross earnings
received form its business under this franchise in the City and its
suburbs: PROVIDED, That two and one-half per centum of the
gross earnings received from the business of the line to Malabon
shall be paid to the Province of Rizal. Said percentage shall be due
and payable at the times stated in paragraph nineteen of Part One
hereof, and after an audit, like that provided in paragraph twenty of
Part One hereof, and shall be in lieu of all taxes and assessments of
whatsoever nature, and by whatsoever authority upon the
privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted. (Petitioner's
brief, p. 4, G.R. No. L-29987; see also pp. 3-4, petitioner's brief, L-
23847)
Petitioner argues that the abovequoted provision in plain and unambiguous terms
makes two references to the exemption of the articles in question from all taxes
except the franchise tax. Thus, after prescribing in the opening sentence that "the
grantee shall be liable to pay the said taxes upon its real estate buildings, plant (not
including poles, wires, transformers and insulators), machinery and personal
property as other persons are or may be hereinafter required by law to pay," par. 9,
specifically provides that the percentage tax payable by petitioner as fixed therein
"shall be in lieu of all taxes and assessments of whatsoever nature, and by
whatsoever authority upon the privileges, earnings, income, franchise, and poles,
wires, transformers and insulators of the grantee from which taxes and
assessments the grantee is hereby expressly exempted." Petitioner further states that
while par. 9 does not specifically mention the compensating tax for the obvious
reason that petitioner's original franchise was an earlier enactment, the words "in lieu
of all taxes and assessments of whatsoever nature and by whatsoever authority" are
broad and sweeping enough to include the compensating tax. (p. 5, petitioner's brief,
L-29987; pp, 4-5, ibid, L-23847)
Petitioner also contends that the ruling of this Court in the cases of Panay Electric
Co., Manila Gas Corporation, and Borja (supra) are not applicable to its situation.
We find no merit in petitioner's cause.
1. One who claims to be exempt from the payment of a particular tax must do so
under clear and unmistakable terms found in the statute. Tax exemptions are strictly
construed against the taxpayer, they being highly disfavored and may almost be said
"to be odious to the law." He who claims an exemption must be able to print to some
positive provision of law creating the right; it cannot be allowed to exist upon a mere
vague implication or inference.3The right of taxation will not beheld to have been
surrendered unless the intention to surrender is manifested by words too plain to be
mistaken (Ohio Life Insurance & Trust Co. vs. Debolt, 60 Howard, 416), for the state
cannot strip itself of the most essential power of taxation by doubtful words; it
cannot, by ambiguous language, be deprived of this highest attribute of sovereignty
(Erie Railway Co. vs. Commonwealth of Pennsylvania, 21 Wallace 492, 499). So,
when exemption is claimed, it must be shown indubitably to exist, for every
presumption is against it, and a well-founded doubt is fatal to the claim (Farrington
vs. Tennessee & County of Shelby, 95 U.S. 679, 686). 4
2. Petitioner's submission that its right to exemption is supported by the "plain and
unambiguous" term of paragraph 9 of its franchise is positively without basis.
First, the Court cannot overlook the tax court's finding that, and We quote:
At the outset it should be noted that the franchise by the Municipal
Board of the City of Manila to Mr. Charles M. Swift and later
assumed and taken over by petitioner (see Rep. Act No. 150, CTA
rec. p. 84), is a municipal franchise and not a legal franchise.
While it is true that Section 1 of Act No. 484 of the Philippine
Commission of 1902 authorizes the Municipal Board of the City of
Manila to grant a franchise to the person making the most
favorable bid for the construction and maintenance of an electric
street railway and the construction, maintenance, and operation of
an electric light, heat, and power system in Manila and its suburbs,
Section 2 of the same Act authorize the said Municipal Board to
make necessary amendments to be fixed by the terms of the
successful bid; otherwise, the form of the franchise to be granted
shall be in the words and figures appearing in Act No. 484 of the
Philippine Commission, which includes Par. 9. Part Two,
thereof, supra.
This Court is not aware whether or not the tax exemption
provisions contained in Par. 9, Part Two of Act No. 484 of the
Philippine Commission of 1902 was incorporated in the municipal
franchise granted to Mr. Charles M. Swift by the Municipal Board
of the City of Manila and later assumed and taken over by
petitioner because no admissible copy of Ordinance No. 44 of the
said Board was ever presented in evidence by the herein petitioner.
Neither is this Court aware of any amendment to the terms of this
franchise granted by the aforesaid Municipal Board to the
successful bidder in the absence of Ordinance No. 44 and the
amendment thereto, if any. In the circumstances, we are at a Las to
interpret and apply the tax exemption provisions relied upon by
petitioner. (pp. 11-13, rollo, L-29987)
Second, and this is the controlling reason for the denial of petitioner's claim in these
cases, We do not see in paragraph 9 of its petitioner's franchise, on the assumption
that it does exist as worded, what may be considered as "plain and unambiguous
terms" declaring petitioner MERALCO exempt from paying a compensating tax on
its imports of poles, wires, transformers, and insulators. What MERALCO really
wants Us to do, but which We cannot under the principles enumerated earlier, is
to infer and imply that there is such an exemption from the following phrase: "... the
grantee shall pay to the City of Manila five per centum of the gross earnings received
from its business ... and shall be in lieu of all taxes and assessments of whatsoever
nature, and by whatsoever authority upon the privileges, earnings, income, franchise,
and poles, wires, transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted."
Note that what the above provision exempts petitioner from, is the payment of
property, tax on its poles, wires, transformers, and insulators; it does not exempt it
from payment of taxes like the one in question which, by mere necessity or
consequence alone, fall upon property. The first sentence of paragraph 9 of
petitioner's franchise expressly states that the grantee like any other taxpayer shall
pay taxes upon its real estate, buildings, plant (not including poles, wires,
transformers, and insulators),machinery, and personal property. These are direct
taxes imposed upon the thing or property itself. Thus, while the grantee is to pay tax
on its plant, its poles, wires, transformers, and insulators as forming part of the plant
or installation(significantly the enumeration is in parenthesis and follows the word
"plant") are exempt and as such are not to be included in the assessment of the
property tax to be paid.
The ending clause of paragraph 9 providing in effect that the percentage tax imposed
upon petitioner shall be in lieu of "all taxes and assessments of what and by
whatsoever authority" cannot be said to have granted it exemption from payment of
compensating tax. The phrase "all taxes and assessments of whatsoever nature and
by whatsoever authority" is not so broad and sweeping, as petitioner would have Us
think, as to include the tax in question because there is an immediately succeeding
phrase which limits the scope of exemption to taxes and assessments "upon the
privileges earnings, income, franchise, and poles, wires, transformers,
and insulators of the grantee." The last clause of paragraph 9 merely reaffirms, with
regards to poles, wires, transformers, and insulators, what has been expressed in the
that first sentence of the same paragraph namely, exemption of petitioner from
payment of property tax. It is a principle of statutory construction that general terms
may be restricted by specific words, with the result that the general language will be
limited by the specific language which indicates the statute's object and purpose.
(Statutory Construction by Crawford, 1940 ed. p. 324-325)
3. It is a well-settled rule or principle in taxation that a compensating tax is not a
property tax but is an excise tax.5Generally stated, an excise tax is one that is
imposed on the performance of an act, the engaging in an occupation, or the
enjoyment of a privilege. 6 A tax upon property because of its ownership its a direct
tax, whereas one levied upon property because of its use is an excise duty.
(Manufacturer's Trust Co. vs. United States, Ct. Cl., 32 F. Supp. 289, 296) Thus,
where a tax which is not on the property as such, is upon certain kinds of property,
having reference to their origin and their intended use, that is an excise tax. (State v.
Wynne, 133 S.W. 2d 951, 956,957, 133 Tex. 622)
The compensating tax being imposed upon petitioner herein, MERALCO, is an
impost on its use of imported articles and is not in the nature of a direct tax on the
articles themselves, the latter tax falling within the exemption. Thus, in International
Business Machine Corp. vs. Collector of Internal Revenue, 1956, 98 Phil. Reports
595, 593, which involved the collection of a compensating tax from the plaintiff-
petitioner on business machines imported by it, this Court stated in unequivocal
terms that "it is not the act of importation that is taxed under section 190, but the use
of imported goods not subjected to sales tax" because "the compensating tax was
expressly designed as a substitute to make up or compensate for the revenue lost to
the government through the avoidance of sales taxes by means of direct purchases
abroad. ..."
It is true that upon the collection of a compensating tax on petitioner's poles, wires,
transformers, and insulators purchased from abroad, the tax falls on the goods
themselves; this fact leads petitioner to claim that what is being imposed upon it is a
property tax. But petitioner loses sight of the principle that "every excise necessarily
must finally fall upon and be paid by property, and so may be indirectly a tax upon
property; but if it is really imposed upon theperformance of an act, the enjoyment of
a privilege, or the engaging in an occupation, it will be considered an excise." (51
Am. Jur. 1d, Taxation, Sec. 34, emphasis supplied) And so, to reiterate, what is being
taxed here is the use of goods purchased from out of the country, and the imposition
is in the nature of an excise tax.
4. There is no valid reason for Us not to apply to petitioner the ruling of the Court
in Panay Electric Co. and Borja, supra, for MERALCO is similarly situated.
Panay Electric Co. sought exemption from payment of a compensating tax on
equipments purchased abroad for use in its electric plant. A provision in its franchise
reads:
Sec 8. ... Said percentage shall be due and payable quarterly and
shall be lieu of all taxes of any kind levied, established, or
collected by any authority whatsoever, now or in the future, on its
poles, wires, insulators, switches, transformers and other
structures, installations, conductors, and accessories, placed in and
over the public streets, avenues, roads, thoroughfares, squares,
bridges, and other places on its franchise, from which taxes the
grantee is hereby expressly exempted. (113 Phil. 570)
This Court rejected the exemption sought by Panay Electric and held that the cited
provision in its franchise exempts from taxation those rights and privileges which are
not enjoyed by the public in general but only by the grantee of a franchise, but do not
include the common right or privileges of every citizen to make purchases anywhere;
and that we must bear in mind the purpose for the imposition of compensating tax
which as explained in the report of the Tax Commission is as follows:
The purpose of this proposal is to place persons purchasing goods
from dealers doing business in the Philippines on an equal footing,
for tax purposes, with those who purchase goods directly from
without the Philippines. Under the present tax law, the former bear
the burden of the local sales tax because it is shifted to them as part
of the selling price demanded by the local merchants, while the
latter do not. The proposed tax will do away with this inequality
and render justice to merchants and firms of all nationalities who
are in legitimate business here, paying taxes and giving
employment to a large number of people. (113 Phil. 571)
In Borja, petitioner Consuelo P. Borja, a grantee of a legislative franchise, also
claimed to be free from paying the compensating tax imposed on the materials and
equipment such as wires, insulators, transformers, conductors, etc. imported from
Japan, on the basis of Sec. 10 of Act No. 3636 (Model Electric Light and Power
Franchise Act) which has been incorporated by reference in franchise under Act No.
3810. Section 10 provides:
The grantee shall pay the same taxes as are now or may "hereafter
be required by law from other individuals, co-partnerships, private,
public or quasi-public associations, corporations, or joint-stock
companies, on his (its) real estate, buildings, plants, machinery;
and other personal property, except property section. In
consideration of the franchise and rights hereby granted, the
grantee shall pay into the municipal treasury of the (of each)
 municipality in which it is supplying electric current to the public
under this franchise, a tax equal to two per centum of the gross
earnings from electric current sold or supplied under this franchise
in said (each) municipality. Said tax shall be due and payable
quarterly and shall be in lieu of any and all taxes of any kind,
nature or description levied, established, or collected by any
authority whatsoever, municipal, provincial or insular, now or in
the future, on its poles, wires, insulators, switches; transformers
and structures, installations, conductors, and accessories, placed in
and over and under all public property, including public streets and
highways, provincial roads, bridges and public squares, and on its
franchise, rights, privileges, receipts, revenues and profits, from
which taxes the grantee is hereby expressly exempted. (113 Phil.
569-570)
The Court applying the ruling in Panay Electric denied the exemption with the added
statement that
Considering, therefore, the fact that section 190 of the Tax Code is
a sort of an equalizer, to place casual importers, who are not
merchants on equal footing with established merchants who pay
sales tax on articles imported by them ... We may conclude that it
was not the intention of the law to exempt the payment of
compensating tax on the personal properties in question. The
principle and legal philosophy underlying the imposition of
compensating tax, as enunciated in the above case (referring to
Borja), are fundamentally correct, and no plausible reason is
advanced for their non-application to the case at bar. (p. 572, ibid.)
Petitioner claims that there exists a difference between paragraph 9 of its franchise
and the corresponding provisions of the franchise of Panay Electric and Borja in that
in the latter, unlike in the former, there is no statement that the grantee is exempt
from "all taxes of whatsoever nature and whatsoever authority." In addition,
petitioner points out, the franchise of Panay Electric and Borja contains a qualifying
phrase, to wit: "placed in and over the public streets, avenues, roads, thoroughfares,
etc."
A comparison of the pertinent provisions mentioned by petitioner and which are
quoted in the preceding pages reveals no substantial or fundamental distinction as to
remove petitioner MERALCO from the ambit of the Panay
Electric and Borja ruling. There may be differences in the phraseology used, but the
intent to exempt the grantee from the payment only of property tax on its poles,
wires, transformers, and insulators is evidently common to the three; withal, in all the
franchises in question there is no specific mention of exemption of the grantee from
the payment of compensating tax.
Petitioner disputes, however, the applicability of the stare decisis principle to its case
claiming that this Court should not blindly follow the doctrine of Panay
Electric and Borja, and that in Philippine Trust Co. et al. vs. Mitchell, 59 Phil. 30,
36, the Court had occasion to state: ,the rule of stare decisis is entitled to respect.
Stability in the law, particularly in the business field, is desirable. But idolatrous
reverence for precedent, simply as precedent, no longer rules. More important than
anything else is that the court should be right." (pp. 18-19, petitioner's brief, L-
29987)
But what possible ground can there be for deviating from the decisions of this Court
in these two cases? A doctrine buttressed by the law, reason, and logic is not to be
simply brushed aside to suit the convenience of a particular party or interest or to
avoid hardship to one. As We view this legal problem, no justification can be found
for giving petitioner herein preferential treatment by reading into its franchise an
exemption from a particular kind of tax which is not there. If it had been the
legislative intent to exempt MERALCO from paying a tax on the use of imported
equipments, the legislative body could have easily done so by expanding the
provision of paragraph 9 and adding to the exemption such words as "compensating
tax" or "purchases from abroad for use in its business," and the like. We cannot
ignore the principle that express mention in a statute of one exemption precludes
reading others into it. (Hoard vs. Sears, Roebuck & Co., 122 Conn. 185, 193, 188 A.
269)
On this point, the Government correctly argues that the provision in petitioner's
franchise that the payment of the percentage tax on the gross earnings shall be "in
lieu of all taxes and assessments of whatsoever nature, and whatsoever authority"
is not to be given a literal meaning as to preclude the imposition of the compensating
tax in this particular case, and cites for its authority the Opinion of the Supreme
Court of Connecticut rendered in Connecticut Light & Power Co., et al. vs. Walsh,
1948, which involved the construction of a statute imposing a sales and use tax, and
which inter alia held:
The broad statement that the tax upon the gross earning of
telephone companies shall be "in lieu of all other taxation" upon
them is not necessarily to be given a literal meaning. "In
construing the act it is our duty to seek the real intent of the
legislature, even though by so doing we may limit the literal
meaning of the broad language used." Greenwich Trust Co. v.
Tyson, 129 Conn. 211, 222, 27 A. 2d 166, 172. It is not reasonable
to assume that the General Assembly intended by the provisions we
have quoted that the tax on gross earnings should take the place of
taxes of a kind not then anywhere imposed and entire outside its
knowledge. ... ." (57 A.R., 2d S, pp. 129, 133-134, emphasis
supplied)
In 1902 when Act 484 of the Philippine Commission was enacted, "compensating ANTONIO G. GUERRERO, petitioner,
tax' was certainly not generally known or in use, hence, to paraphrase the above- vs.
mentioned Connecticut decision, the Court cannot assume that the Philippine THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Commission in providing that the gross earnings taxes imposed on the grantee of the
electric light franchise shall be in lieu of all taxes and assessments, meant to include L-19074.
impositions in the nature of a compensating tax which came into use in this country
only upon the enactment of Commonwealth Act 466 in 1939.
CONCEPCION, C.J.:

5. One last argument of petitioner to support its cause is that just as a new and
necessary industry was held to be exempt from paying a compensating tax on its
imports under the tax exemption provision of Republic Act 901, so should
MERALCO be exempt from such a tax under the general clause in its franchise, to
wit: "... in lieu of all taxes and assessments of whatsoever nature and whatsoever
authority upon poles, wires, etc."
We agree with the court below that there can be no analogy between MERALCO and
what is considered as a new and necessary industry under Republic Act 35 now
superseded by Republic Act 901.
The rationale of Republic Act 901 is "to encourage the establishment or exploitation
of new and necessary industries to promote the economic growth of the country,"
and because "an entrepreneur engaging in a new and necessary industry faces
uncertainty and assumes a risk bigger than one engaging in a venture already known
and developed ... the law grants him tax exemption — to lighten onerous financial
burdens and reduce losses." (Marcelo Steel Corporation vs. Collector of Internal
Revenue, 109 Phil. 921, 926) This intendment of the legislature in enacting Republic
Act 901 is not the motivation behind the tax exemption clause found in petitioner
MERALCO's franchise; consequently, there can be no analogy between the two.
IN VIEW OF THE FOREGOING, We find no merit in these Petitions for Review
and We hereby AFFIRM the decision of the Court of Tax Appeals in these two
cases, with costs against petitioner in both instances.
These are two (2) appeals from the same decision of the Court of Tax Appeals. One
(L-19074) was taken by the Commissioner of Internal Revenue, and the other
(L-19089) by Antonio G. Guerrero. The dispositive part of said decision reads:
In line with the foregoing opinion, the decision appealed from is hereby
modified. Petitioner (Antonio G. Guerrero) is ordered to pay the sum of
P3,775.66 within thirty days from the date this decision becomes final. No
pronouncement as to costs. (Emphasis ours.)
Said Antonio G. Guerrero was, during the years 1949 and 1950, a dealer in logs,
which he used to sell to the Aparri Lumber Company, hereinafter referred to as the
company.
On April 2, 1954, the then Collector of Internal Revenue made an assessment and
demand requiring Guerrero to pay the sum of P4,014.91, representing fixed and
percentage taxes and forest charges, as well as surcharges and penalties, in
connection with his aforementioned business transactions with the company. Upon
Guerrero's request, the matter was submitted to the Conference Staff of the Bureau of
Internal Revenue, which, in due course, thereafter, or on January 11, 1956,
recommended that the assessment be increased to P5,139.17, computed as follows:
C-14 producer's fixed tax for 1949 and 1950 .
.................. P 20.00

So Ordered. 5% sales tax on P18,760.20

(P14,377.92 & P4,382.28) . . . . . . . . . . . . . . .
.................... 938.01
G.R. No. L-19074 January 31, 1967
25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . .
COMMISSIONER OF INTERNAL REVENUE, petitioner, ................... 234.50
vs.
ANTONIO G. GUERRERO, and the COURT OF TAX APPEALS, respondents. Total for fixed and sales taxes and surcharges
........ P1,192.51
----------------------------- Vol. of timber, July 4, 1949 to May 21, 1950
(41,880 & 13,892) . . . 55,772 Bd. ft
G.R. No. L-19089 January 31, 1967
Add: 40% for squaring . . . . . . . . . . . . . . . . . . In addition to the above amount, the sums of P20.00 and P100.00 as compromise
.................... 22,309 " " penalties in extrajudicial settlement of his penal liabilities under sections 208 and
209 of the N.I.R.C. should be reiterated. That another sum of P50.00 as compromise
Total volume to be assessed . . . . . . . . . . . . . . penalty for his violation of the Bookkeeping Regulations should be imposed against
......... 78,081 " " the taxpayer, he having admitted during the hearing of this case that he did not keep
books of accounts for his timber business.
or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.. 184.15 cu. m. This recommendation was approved by the Collector of Internal Revenue, who,
accordingly, made the corresponding reassessment upon receipt of notice of which
Regular forest charges on 184.15 cu. m. at P
Guerrero requested, on February 10, 1956, a rehearing before the Conference Staff.
P3.50 . . . . . . . . . . . . . 644.53
Instead of acting on this request, on April 20, 1956, the corresponding Internal
300% surcharge for cutting without license . . Revenue Regional Director issued a warrant of distraint and levy against the
................. 1,933.59 properties of Guerrero, in order to effect the collection of his tax liabilities under said
reassessment. Hence, on June 8, 1956, Guerrero filed with the Court of Tax Appeals
50% (x) surcharge for transporting without the corresponding petition for review. Subsequently, said court rendered the decision
invoice . . . . . . . . . . . . . 322.26 appealed from. Hence, these appeals.

50% surcharge for discharging without permit There is no dispute as to the volume of sales of logs made by Guerrero during the
................. 322.26 years 1949 and 1950, upon which the disputed reassessment is based. The only
issues in these appeals are whether or not he is liable for the payment of: (1)
50% surcharge for late payment . . . . . . . . . . .
P3,775.66, by way of forest charges and surcharges on the logs sold to the company,
.................. 322.26
which the Court of Tax Appeals answered in the affirmative; (2) P1,192.51, by way
Forest charges & surcharges . . . . . . . . . . . . . . of fixed and percentage taxes and surcharges as producer of said logs, which said
......... P3,544.90 court decided in the negative; (3) P668.36, as additional forest charges and sales
taxes, as well as surcharges, which was decided by the trial court in favor of the
Regular forest charges on 13.94 cu. m. at taxpayer; and (4) P120.00 and P50.00 as compromise penalties for violation of
P3.50 . . . . . . . . . . . . . . . 48.79 Sections 208 and 209 of the Revised Internal Revenue Code and of the bookkeeping
regulations, respectively, likewise, decided by the Court of Tax Appeals against the
300% surcharge for cutting without license . . Government.
.................. 146.37

25% surcharge for transporting without
invoice . . . . . . . . . . . . . . . . 12.20
25% surcharge for discharging without permit
................. 12.20
25% surcharge for late payment . . . . . . . . . . .
..................
Forest charges & surcharges . . . . . . . . . . . . . .
..........
TOTAL AMOUNT DUE . . . . . . . . . . . . . . . .
............
With respect to the first item, Guerrero maintains that, he is not liable therefor
because he bought the logs in question for the company, as agent thereof and with
money belonging thereto. However, before the Conference Staff of the then Bureau
of Internal Revenue, Guerero had: claimed that he financed his business with
his ownmoney and sold the logs to the company on a commission basis. Moreover,
he admitted having sold some lumber to other enterprises in Manila, although he had
previously asserted that he dealt exclusively with the company.
12.20
Upon the other hand, the auxiliary invoices presented before the Bureau of Internal
Revenue were either spurious, or referred to logs other than those involved in the
P231.76
disputed reassessment. Thus, for instance, in exhibit 8-AA (O.R. No. 6578049, p. 82,
BIR record), the word "June" was superimposed over the word "May" and, at the
P4,969.17 back of Exhibit 8-AA-1 (p. 81, BIR record), which is the corresponding invoice, two
similar alterations were made. In the auxiliary invoices Exhibits 00-3 and 00-4 (PP.
28-29, BIR record), submitted by Guerrero to the Conference Staff, as Exhibits C-3
and C-4, his name is written (script), in ink, on the space opposite the word
consignee". However, in the copies of said auxiliary invoices (Exhibits 8-R-2 and 8-
S pp. 117 and 119, BIR record), taken from the company, the corresponding space
is blank. Again, the taxpayer's name on said Exhibits 00-3 and 00-4 is handwritten
with a penmanship that is markedly different from that of Segundo Agustin, the
signatory of said invoices, who had supposedly accomplished the same, thus
indicating that said name could not have been written by Segundo Agustin, and
rendering the authenticity of the documents highly doubtful. Furthermore, said
invoices, as well as the other invoices submitted by Guerrero to the Conference Staff
(Exhibits C-1 to C-14, also, marked as Exhibits 00-1 to 00-14, pp. 18-31, BIR
record), referred to logs other than those involved in the questioned reassessment.
The foregoing circumstances clearly indicate that the logs involved in said
reassessment were obtained from illegal sources, and that the forest charges due
thereon had not been paid. Since these charges "are liens on the products and
collectible from whomsoever is in possession" thereof, "unless he can show that he
has the required auxiliary and official invoice and discharge permit" (Collector of
Internal Revenue vs. Pio Barretto and Sons, L-11805, May 31, 1960) — which
Guerrero has not shown — it follows that he is bound to pay the aforementioned
forest charges and surcharges, in the sum of P3,775.66.
As regards the second item of P1,192.51, representing fixed and percentage taxes
and surcharges, as producer of the logs involved in the reassessment, the Court of
Tax Appeals held that Guerrero is not liable therefor, upon the theory that said logs
were sold by the Government to the one who had cut, and removed the products from
the forest; that the original sale of said logs was, therefore, made by the Government,
not by the concessionaire or cutter of the forest products; and that, accordingly,
Guerrero is not liable for the payment of the corresponding fixed and percentage
taxes thereon. This theory is based upon the premise that, whereas in Collector of
Internal Revenue vs. M.R. Lacson, L-12945 (April 29, 1960), we held that forest
charges are internal revenue taxes, this ruling was reversed in Collector of Internal
Revenue vs. Pio Barretto Sons, L-11805 (May 31, 1960).
It is true that the dispositive portion of our decision in the first case expressly
sustained the concurring and dissenting opinion of a member of the Court of Tax
Appeals in the appealed decision thereof and that the writer of the opinion
maintained that forest charges are internal revenue taxes. A careful perusal of the text
of the decision of the Supreme Court therein shows, however, that said dissenting
opinion is not the ratio decidendi of the aforementioned decision. It should be noted
that the Collector of Internal Revenue contested the jurisdiction of the Court of Tax
Appeals to entertain the appeal taken by Lacson from the assessment made by said
officer involving forest charges, and that the Supreme Court upheld the authority of
the tax court to hear and decide said appeal, because the issue therein was the validity
of said assessment. From the viewpoint of the Supreme Court, this issue was decisive
on the question of jurisdiction of the Court of Tax Appeals, regardless of whether
forest charges were taxes or not.
At this juncture, it may not be amiss to advert to a problem of semantics arising from
the operation of Section 1588 of the Revised Administrative Code, the counterpart of
which is now Section 315 of the National Internal Revenue Code, pursuant to which:
Every internal revenue tax on property or on any business or occupation,
and every tax on resources and receipts, and any increment to any of them
incident to delinquency, shall constitute a lien superior to all other charges
or liens not only on the property itself upon which such tax may be imposed
but also upon the property used in any business or occupation upon which
the tax is imposed and upon all property rights therein.
xxx xxx xxx
The enforcement of this lien by the Commissioner (formerly Collector) of Internal
Revenue, has often induced the parties adversely affected thereby to raise the
question whether a given charge is a tax or not, on the theory that there would be no
lien if said question were decided in the negative. In connection therewith, said
parties had tended to distinguish between taxes, on the one hand — as burdens
imposed upon persons and/or properties, by way of contributions to the support of
the Government, in consideration of general benefits derived from its operation —
and license fees — charged in the exercise of the regulatory authority of the state,
under its police power — and other charges — for specific things or special
or particular benefits received from the Government — on the other hand.
It is high time to stress that the term "tax," as it appears in said Section 1588 of the
Revised Administrative Code and Section 315 of the National Internal Revenue
Code, is used in these provisions, not in the limited sense adverted to above, but, in
a broad sense encompassing all Government revenues collectible by the
Commissioner of Internal Revenue under said Code, whether involving taxes, in the
strict technical sense thereof, or not. Thus, under the heading "injunction not
available to restrain collection of tax", Section 305 of said Code — which is the first
provision of Title IX (entitled "General Administrative Provisions"), Chapter I
(entitled "Remedies in General) thereof — provides:
No court shall have authority to grant an injunction to restrain the collection
of any national internal-revenue tax, fee, or charge imposed by this Code.
Similarly, under the heading "Civil remedies for the collection of delinquent taxes,"
Section 316 of the same Code ordains;
The civil remedies for the collection of internal revenue taxes, fees, or
charges, and any increment thereto resulting from delinquency shall be (a)
by distraint of goods, chattels, or effects, and other personal property of
whatever character, including stocks and other securities, debts, credits,
bank accounts, and interest in and rights to personal property, and by levy
 upon real property and interest in or rights to real property; and (b) by
judicial action. Either of these remedies or both simultaneously may be
pursued in the discretion of the authorities charged with the collection of
such taxes.
No exemption shall be allowed against the internal revenue taxes in any
case. (Emphasis supplied.)
In other words, the National Internal Revenue Code makes a distinction between
taxes, on the one hand, and fees or charges, on the other; but as used in Title IX of
said Code, the term "tax" includes "any national internal revenue tax, fee or
charge imposed by" the Code. And it is in this sense only that we sustained the view
taken in the aforementioned concurring dissenting opinion in Collector of Internal
Revenue vs. Lacson (supra). Hence, in the Barretto case, it was held that the
Government does not sell forest products, but merely collects charges on the
privilege granted by it "for the exploitation of forest concessions, i.e., charges for the
right to exercise the privilege granted by the Government to the licensee of cutting
timber from a public forest or forest reserve". In line with this view, we stressed
in Cordero vs. Gonda, L-22369 (October 15, 1966), the declaration made in Cebu
Portland Cement Co. vs. Commissioner of Internal Revenue,
L-18649 (February 27, 1965), that a mining ad valorem tax "is a tax not on the
minerals, but upon the privilege of severing or extracting the same from the earth,"
although strictly a fee for something received is not a tax. As a consequence, the
original sale, as contemplated in Section 186 of the Internal Revenue Code, is
made by the concessionaire or whoever cuts or removes forest products from public
forests or forest reserves — in the case at bar, Guerrero, who is accordingly, bound
to pay said sum of P1,192.51.
While this case was being heard in the Court of Tax Appeals, certain documents
were discovered, tending to show that Guerrero had evaded the payment of forest
charges on certain logs (other than those heretofore mentioned), which had been
shipped and sold by him to the company. Said documents, which were found in the
possession of the latter, covered logs shipped and sold thereto as follows:
Exhibit Date Volume Invoice Page
8-I-2 May 9, 1949 4.966 Cu. m. 12272263 156 (BIR Rec.)
The aforementioned documents consist of auxiliary invoices — purporting to have
been issued by Concessionaire Segundo Agustin to Guerrero as consignee of the logs
therein mentioned — which are not included in Agustin's certificate (Exhibit 00, p.
32 BIR record) of the invoices covering logs sold by him to Guerrero, thus showing
that the said invoices (Exhibits 8-I-2, 8-I-3, 8-BB-1 and 8-AA-1) are spurious; that
the logs therein described must have been obtained by Guerrero from illegal sources;
and that the forest charges and the sale and percentage taxes thereon have not been
paid. Although these charges and taxes are not included in the original and revised
assessments made in this case, petitioner herein maintains that Guerrero may
nevertheless be held liable therefor, inasmuch as:
Where plaintiffs themselves show facts upon which they should not recover,
whether defendant pleaded such fact as a defense or not, their claim should
be dismissed. Evidence introduced without objection becomes property of
the case and all the parties are amenable to any favorable or unfavorable
effects resulting from the evidence. (Emphasis ours; Beam vs. Yatco, 82
Phil. 30.)
Petitioner's contention is untenable. The foregoing doctrine deals with plaintiff's right
to recover, when his own evidence proves the contrary. In short, it refers to a point in
issue. In the case at bar, the additional logs under consideration were not included in
the contested assessments. Since the jurisdiction of the Court of Tax Appeals is
purely appellate, said Court correctly declined to make an award thereon, for lack of
jurisdiction over the same.
With reference to the last two (2) items of P120.00 and P50.00, the Court of Tax
Appeals did not sentence Guerrero to pay the same upon the ground that he had not
entered into a compromise agreement with the Government. The record shows,
however, that Guerrero had expressed his willingness to pay "any compromise
penalty which may be imposed by the Honorable Court."
In short we find that the Court of Tax Appeals has erred in not sentencing Antonio
G. Guerrero to pay, besides the sum of P3,775.66 awarded in the decision appealed
from, the aforementioned additional sums of P1,192.51, P120.00 and P50.00. Thus
modified, with the addition of these sums in the award in favor of the Government
and against Antonio G. Guerrero, the decision appealed from is hereby affirmed,
therefore, in all other respect, with costs against the latter. It is so ordered.

8-I-3 May 9, 1949 2.151 Cu. m. 12272263 155 " " G.R. No. L-23041 July 31, 1969
8-BB-1 May 20, 1949 5.20 Cu. m. 6578041 77 " "
E. RODRIGUEZ, INC., petitioner,
8-AA-1 May 21, 1949 4.63 Cu. m. A-6578048 81 " " vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
BARREDO, J.:
This is a petition for review of the decision of the Court of Tax Appeals in its CTA
Case No. 849, affirming the decision of the respondent Collector (now
Commissioner) of Internal Revenue holding petitioner E. Rodriguez, Inc. liable for
deficiency income tax in the sum of P63,880.00 for the year 1950.
The records of the case show that on July 17, 1948, Congress enacted Republic Act
No. 333, 1 pursuant to which the Republic of the Philippines sued the petitioner,
among four other defendants, in Civil Case No. Q-54 of the Court of First Instance of
Quezon City, for the expropriation of about 1,360,000 square meters of land owned
by it and situated within the area delimited for the new capital city site. After due
trial, the said court rendered a decision in the case, dated February 21, 1950, with the
following dispositive portion:
WHEREFORE, judgment is hereby rendered, declaring plaintiff entitled to
retain and appropriate the property involved in this proceeding, as site for
the development and establishment of the new capital city of the Philippines
in accordance with our condemnation order dated September 19, 1949; and
ordering plaintiff to pay defendants, as just compensation for the lands to be
taken from them, the following amounts, to wit: to defendant Eulogio
Rodriguez, Sr., the sum of THIRTY-NINE THOUSAND SEVEN
HUNDRED SEVENTY-SIX PESOS (P39,776.00); to defendant E.
Rodriguez, Inc., the sum of ONE MILLION FOUR HUNDRED
EIGHTEEN THOUSAND SIX HUNDRED FOUR (P1,418,604.00)
PESOS; to defendant Luzon Investment & Development Co., the sum of
FIVE THOUSAND TWO HUNDRED EIGHTY (P5,280.00) PESOS; and
to defendants Enrique Manaloto and Canuto G. Manuel, the sum of
SIXTEEN THOUSAND SEVEN HUNDRED TWENTY (P16,720.00)
PESOS, with interest at the rate of 6% per annum on the said amounts from
September 19, 1949, the date the plaintiff entered upon the possession of the
lands in question until payment, plus the costs.
Following the issuance of the above-mentioned decision, however, a series of
negotiations were had between petitioner and the Government, represented by the
Capital City Planning Commission, after which, the said parties entered into a
compromise agreement under date of May 11, 1950, providing, inter alia, as follows:
(1) That the parties will accept the decision laid down in said case by the
Court of First Instance of Rizal (Quezon City Branch) with the following
stipulations:
a. That the defendants mentioned above hereby waive all interest
due on the adjudged value of the expropriated properties;
b. That the defendants above-named hereby donate 207,006 square
meters out of Lots Nos. 41-C-3 and 39, object of expropriation in
Civil Case No. Q-54;
c. That defendant Eulogio Rodriguez, Inc. obligates itself to donate
as it hereby donates the land object of expropriation in Civil Case
No. Q-90, in favor of the Republic of the Philippines, containing
an area of 15,200 square meters, which is a portion of Lot No. 41-
C-3 as indicated in the plan attached to the complaint therein; said
defendant Eulogio Rodriguez, Inc. binding itself to execute the
necessary deed of donation thereof;
d. That defendants named above agree to the payment of the price
awarded by the Court subject to the foregoing stipulations in the
total sum of ONE MILLION TWO HUNDRED FIFTY
THOUSAND SIX HUNDRED THIRTY-ONE PESOS and
EIGHTY CENTAVOS (P1,250,631.80) payable in the following
manner:
1) SIX HUNDRED TWENTY-FIVE THOUSAND
THREE HUNDRED FIFTEEN PESOS AND NINETY
CENTAVOS (P625,315.90) in government bonds in favor
of Eulogio Rodriguez, Sr. and E. Rodriguez, Inc., payable
within five (5) years at not less than three percent (3%)
per annum;
2) THREE HUNDRED THOUSAND PESOS
(P300,000.00) to be given to the Philippine National Bank
in payment of the mortgage indebtedness of defendants E.
Rodriguez, Sr. and E. Rodriguez, Inc.; and
3) the balance of THREE HUNDRED TWENTY-FIVE
THOUSAND TWO HUNDRED FIFTEEN PESOS AND
NINETY CENTAVOS (P325,215.90) in cash to be paid
to all defendants abovenamed, through Eulogio
Rodriguez, Sr., within a reasonable time.
(2) That after approval of this compromise by the Court, the parties herein
agree not to interpose an approval from the judgment of the Court of First
Instance of Rizal (Quezon City Branch) which shall be considered final and
executory under the Rules of Court;
(3) And, finally, that the said parties will submit this compromise agreement
to the Court for its approval and/or its consideration in the decision rendered
in this case.
This compromise agreement was duly approved by the Court of First Instance of On June 8,k 1960, petitioner offered by way of compromise to pay the amount of
Rizal (Quezon City Branch) on May 12, 1950, and pursuant to the terms thereof, the P30,676.25 in full settlement of its disputed deficiency income tax liability for 1950.
Government paid to petitioner the sum of P1,238,204.00, of which P625,315.90 were This offer was rejected by the Collector of Internal Revenue; whereupon, under date
in Government Bonds. of June 24, 1960, petitioner filed a petition for review of the assessment in question
before the respondent Court of Tax Appeals which, after trial on the merits, rendered
On March 1, 1951, petitioner filed its income tax return for the year 1950, showing its decision affirming the assessment in question. Hence, this appeal by petitioner
on the face thereof a loss of P17,982.06. In said return, petitioner did not include the thru the instant petition for review of the said decision of respondent of Court of Tax
sum of P625,315.90 received by it from the government in the form of bonds in Appeals, with the following assigned errors:
payment of its expropriated properties, in the belief that the said amount was free or
exempt from taxation. When this return was later examined by an agent of the I. THE RESPONDENT COURT ERRED IN HOLDING THAT THE
Bureau of Internal Revenue, the Collector of said bureau assessed against petitioner a EXEMPTION CONTEMPLATED BY THE BONDS IN QUESTION
deficiency income tax of P63,880.00, computed as follows: APPLIES ONLY TO DOCUMENTARY STAMP TAX AND TAX ON
INTEREST DERIVED FROM SUCH BONDS, AND THAT SUCH
Net income per return (loss) EXEMPTION CONSTITUTES SUFFICIENT INDUCEMENT FOR
P17,982.06 PETITIONER TO ACCEPT SAID BONDS.
..................................
Amount received for property
P1,238,204.00 II. THE RESPONDENT COURT ERRED IN AFFIRMING THE ORDER
.....
OF THE RESPONDENT COLLECTOR HOLDING PETITIONER
Less: Cost of Land ................... 827,279.82 LIABLE FOR INCOME TAX ON THE EXCHANGE OF ITS
PROPERTIES FOR GOVERNMENT TAX-EXEMPT BONDS UNDER
Gain REPUBLIC ACT NO. 333.
P410,924.18
..............................................
Undeclared gain .............................................. P410,924.18 As petitioner correctly puts it, the only question to decide here is whether or not in
Accounts receivable charged off as bad debts but determining the profit realized from the payment of the purchase price of its
not forming part of gross income (petitioner's) expropriated property, for income tax purposes portion of the purchase
.......................... 1,860.00 price paid in the form of tax-exempt bonds issued under Republic Act No. 333
should be included.
Miscellaneous expenses not connected with the
4,450.00
business
.................................................................. The pertinent provisions of law involved are found in Section 9 of the Act
abovementioned which reads as follows:1äwphï1.ñët
Net Income
P399,252.12
..............................................................
SEC. 9. The President of the Philippines is authorized to issue, in the name
Tax due on P399,262.12 and behalf of the Republic of the Philippines, bonds in an amount of twenty
P63,980.00 million pesos, the proceeds of which shall be used as a revolving fund for
.........................................
========== the acquisition of private estates, the subdivision of the area, and the
construction of streets, bridges, waterworks, sewerage and other municipal
A series of communications between petitioner and respondent Collector of Internal improvements in the Capital City of the Philippines.
Revenue followed the foregoing assessment, with the former protesting against and
requesting the cancellation of the deficiency income tax assessed against it, and the The bonds so authorized to be issued shall bear such date and in such form
latter maintaining its accuracy and demanding payment thereof. As petitioner, did as the President of the Philippines may determine and shall bear such rate of
not past, on July 6, 1959, the Collector of Internal Revenue sought the collection of interest and run for such length of time as may be determined by the
said deficiency income tax of P63,880.00, plus 5% surcharge and 1% monthly President. Both principal and interest shall be payable in Philippine
interest thereon from, March 11, 1956, by means of an action in the Court of First currency or its equivalent in the United States currency, in the discretion of
Instance of Manila. the Secretary of Finance, at the Treasury of the Philippines, and the interest
 shall be payable at such periods as the President of the Philippines may
determine.
Said bonds shall be exempt from taxation by the Government of the
Republic of the Philippines or by any political or municipal subdivisions
thereof, which fact shall be stated upon their face, in accordance with this
Act, under which the said bonds are issued. [Emphasis supplied]
Petitioner maintains that the portion (paid in tax-exempt Government Bonds) of the
profit it derived from the expropriation of its property should not be made subject to
income tax, for the reasons that: (1) the Republic of the Philippines gave no
concession to petitioner in the compromise agreement involved in this case except
that, as testified to by the lawyer who represented petitioner in the negotiations
which led to the compromise agreement in question, it was understood between the
parties, and it was precisely the only inducement, according to the witness, that made
petitioner accept payment of P625,315.90 in Government Bonds instead of cash, that
said bonds would be "tax-free"; now, it is argued that by "tax-free" is meant that by
acceptance of the bonds rather than cash, petitioner would not also have to pay
income tax on the exchange gain from said bonds; 2 (2) that the third paragraph of
Section 9 of the Act granting tax exemption on bonds issued thereunder was inserted
in the law as a further inducement to private land owners within the new capital site
to part away with their properties in favor of the Government other than for cash,
which legislative history of the law allegedly sustains the position of petitioner; and
(3) Congress must have really intended such income tax exemption under Republic
Act No. 333, since, similar provisions in Republic Act No. 1400, 3 likewise involving
the expropriation of private estates, expressly declare that the price paid by the
Government for the lands acquired for resale to tenants under the authority of said
Act (Republic Act No. 1400) shall not be considered as income of the landowner for
purposes of the income tax. This reasoning was brushed aside by the respondent
Court of Tax Appeals in its decision under review, on the following rationale:
Petitioner contends that since the Government bonds which it received as
part payment of the price of its lot were exempt from taxation, the
deficiency assessment made by respondent against it is not in order. On the
other hand, respondent claims that the exemption of Government bonds
refers only the documentary stamps on the bonds and does not include
income tax on the income derived by petitioner which was paid to him in
the form of bonds.
The pertinent portion of Section 9 of Republic Act No. 333, which is the
sole basis of petitioner's claim for exemption, provides:1äwphï1.ñët
Said bonds shall be exempt from taxation by the Government of
the Republic of the Philippines or by any political or municipal
subdivision thereof, which fact shall be stated upon their face, in
accordance with this Act, under which the said bonds are issued.
There can be no question that petitioner is taxable on its income derived
from the sale of its property to the Government. The fact that a portion of
the purchase price of the property was paid by the Government in the form
of tax exempt bonds does not operate to exempt said income from income
tax. The income from the sale of the land in question and the bond are two
different and distinct taxable items so that the exemption of one does not
operate to exempt the other, unless the law expressly so provides.
It is alleged that to deny exemption from income tax on the amount
represented by the said bonds would be to nullify the purpose of the law in
granting exemption. The question has been asked: If income or gain derived
from the acceptance of such bonds in exchange for private estates would be
taxed, what inducement did such provision of Republic Act No. 333 give to
landowners to accept payment in bonds for their properties in the proposed
site of the Capital City? To our mind, there is sufficient inducement, and
that is, the exemption not only of the bonds from documentary stamp tax
but also of the interest derived from such bonds. Section 29(b) (4) of the
National Internal Revenue Code exempts interest derived from such bonds
from income tax to the extent provided in the law authorizing the issue
thereof.
Counsel for petitioner also alleged that the prevailing rule obtaining in the
United States before removal of exemptions of government obligations was
to exempt such bonds from income tax both as to principal and interest. To
quote from the memorandum of counsel:
... Actually, most of the Federal Treasury Bonds issued by the U.S.
Government from 1921 to 1941, or before the Public Debt Acts of
1941 and 1942, that removed tax exemptions on obligations issued
by the United States and its agencies and its instrumentalities, were
—
'exempt, both as to principal and interest, from all taxation now or
hereafter imposed by the United States, any States, or any of the
possessions of the United States, or by any local taxing authority,
except (a) estate or inheritance taxes, and (b) graduated additional
income taxes, known as surtaxes and excess profits and war profits
taxes, now or hereafter imposed by the United States, upon the
income or profits of individuals, partnerships, associations, or
corporations. (I Mertens, Law of Federal Income Taxation, pp.
297-313).' [See page 12, Memorandum of counsel for petitioner,
March 20, 1963.]
 Apparently the import of the ruling quoted above from the book of Mertens
has not been clearly understood. We think that the exemption referred to
therein of both principal and interest has reference to the exemption from
income tax of the income derived from the sale or exchange of the bonds
and the interest paid by the U.S. Government on such bonds. The opinion
quoted from Mertens is inapplicable to the instant case because it does not
refer to any income derived by petitioner from the sale or exchange of
bonds received by petitioner from the Government under Republic Act No.
333. The tax here involved is on the income derived from the sale of
petitioner's property to the Government, not the income derived from the
sale or exchange of the bonds.
Mention has been made of Republic Act No. 1400, Section 22 of which
provides that 'the purchase price paid by the Government for any
agricultural land acquired for resale to tenants under the authority of this
Act, whether by negotiation or expropriation, shall not be considered as
income of the landowner concerned for purposes of the income tax.' It is
argued that since Republic Acts Nos. 333 and 1400 are in pari materia both
should be construed together, and since Republic Act No. 1400 exempts
income derived from the sale of property to the Government under said Act,
the same exemption should also apply to income derived from the sale of
property to the Government under Republic Act No. 333. It is precisely
because Republic Act No. 1400 contains an express exemption from income
tax of the income derived by property owners from the sale of their lands
under said Act and the absence of a similarly provision in Republic Act No.
333 which indicates plainly that Congress intended not to grant such
exemption to landowners under Republic Act No. 333. If Congress had
intended to grant exemption from income tax with respect to income
derived by a person from the sale of his property under Republic Act No.
333, it should have expressly made an express provision to that effect as it
did in Republic Act No. 1400; that it did not, is a clear indication that its
purpose was to withhold such exemption.
We find no cogent reasons to disturb the above holding of the Court of Tax Appeals.
It has been the constant and uniform holding of this Court that exemption from
taxation is not favored and is never presumed; in fact, if it is granted, the grant must
be strictly construed against the taxpayer. 4 Affirmatively put, the law requires courts
to frown on alleged exemptions from taxation, hence, an exempting provision in a
legislative enactment should be construed in strictissimi juris 5 against the taxpayer
and liberally in favor of the taxing authority. 6 This Court has been most consistent in
this holding. In Asiatic Petroleum Co. vs. Llanes, 7 it was explained beyond any
possibility of miscomprehension that: .
... Exemptions from taxation are highly disfavored, so much so that they
may almost be said to be odious to the law. He who claims an exemption
must be able to point to some positive provision of law creating the right. It
cannot be allowed to exist upon a vague implication ... The books are full of
very strong expressions on this point. As was said by the Supreme Court of
Tennessee in Memphis vs. U & P. Bank (91 Tenn. 546, 550), 'The right of
taxation is inherent in the State. It is a prerogative essential to the perpetuity
of the government; and he who claims an exemption from the common
burden, must justify his claim by the clearest grant of organic or statute
law.' Other utterances equally or more emphatic come readily to hand from
the highest authority. In Ohio Life Ins. and Trust Co. vs. Debolt (16 Howard
416), it was said by Chief Justice Taney, that the right of taxation will not
be held to have been surrendered, 'unless the intention to surrender is
manifested by words too plain to be mistaken.' In the case of the Delaware
Railroad Tax (18 Wallace 206, 226), the Supreme Court of the United
States said that the surrender, when claimed, must be shown by clear,
unambiguous language, which will admit of no reasonable construction
consistent with the reservation of the power. If a doubt arises as to the intent
of the legislature, that doubt must be resolved in favor of the State. In Erie
Railway Company vs. Commonwealth of Pennsylvania (21 Wallace 492,
499), Mr. Justice Hunt, speaking of exemptions, observed that the State
cannot strip itself of the most essential power of taxation by doubtful words.
'It cannot by ambiguous language, be deprived of this highest attribute of
sovereignty.' In Tennessee vs. Whitworth (117 U.S. 129, 136), it was said:
'In all cases of this kind the question is as to the intent of the legislature, the
presumption always being against any surrender of the taxing power.'
In Farrington vs. Tennessee and County of Shelby (95 U.S. 679, 686), Mr.
Justice Swayne said: '... When exemption is claimed it must be shown
indubitably to exist. At the outset every presumption is against it. A well-
founded doubt is fatal to the claim. It is only when the terms of the
concession are too explicit to admit fairly of any other construction that the
proposition can be supported.'
The above rules should be applied to the case at bar where the law invoked (Section
9 of Republic Act No. 333) does not make any reference whatsoever to exemption of
income derived from sale of expropriated property thereunder unlike under Republic
Act No. 1400 where relative to the price paid by the Government for any agricultural
land acquired for resale to tenants there is an express declaration that the same "shall
not be considered as income of the landowner concerned for purposes of the income
tax." Nor are We convinced by the argument that the particular provision of Republic
Act No. 333 relied upon which grants exemption on bonds issued thereunder for
purposes of inducement to private landowners within the new capital site to part
away with their properties in favor of the Government other than for cash should be
taken to mean that said property owners need not pay income tax on their income
derived from the sale of such properties. The pertinent Congressional Record of the
proceedings held during the consideration of the bill which later became Republic
Act No. 333, 8 does not show that Congress had intended to exempt said property
owners from the payment of income tax on the proceeds of the sale of their
properties when the same is paid in government bonds issued under the said law.
Likewise even were We to assume for the sake of argument, that the Capital City
Planning Commission and other officials of the government did make some
assurance or promise to herein petitioner that the portion of the price of its
expropriated property paid in tax-exempt government bonds would not be made
subject to income tax payment, such assurance or promise, made without statutory
sanction, cannot bind the Government. The same amounts to a surrender of the
State's power to require payment of income tax, which in this case is not explicitly
granted by Republic Act No. 333. It is a well-known rule that erroneous application
and enforcement of the law by public officers do not block subsequent correct
application of the statute, 9 and that the Government is never estopped by mistake or
error on the part of its agents. 10 In the present circumstances, the Collector of
Internal Revenue is right in assessing against petitioner the deficiency income tax in
question, consonant with the proposition that income from expropriation proceedings
is income from sales or exchange and therefore taxable. 11
FOR THE FOREGOING CONSIDERATIONS, the decision of the Court of Tax
Appeals under review is affirmed, with costs against herein petitioner.1äwphï1.ñët
[G.R. No. 131359. May 5, 1999]
MANILA ELECTRIC COMPANY, petitioner vs. PROVINCE OF LAGUNA
and BENITO R. BALAZO, in his capacity as Provincial Treasurer of
Laguna, respondents.
DECISION
VITUG, J.:
On various dates, certain municipalities of the Province of Laguna including,
Bian, Sta Rosa, San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing
laws then in effect, issued resolutions through their respective municipal councils
granting franchise in favor of petitioner Manila Electric Company (MERALCO) for
the supply of electric light, heat and power within their concerned areas. On 19
January 1983, MERALCO was likewise granted a franchise by the National
Electrification Administration to operate an electric light and power service in the
Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No. 7160, otherwise known as the Local
Government Code of 1991, was enacted to take effect on 01 January 1992 enjoining
local government units to create their own sources of revenue and to levy taxes, fees
and charges, subject to the limitations expressed therein, consistent with the basic
policy of local autonomy. Pursuant to the provisions of the Code, respondent
province enacted Laguna Provincial Ordinance No. 01-92, effective 01 January
1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. There is hereby imposed a tax on businesses enjoying a
franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the
preceding calendar year within this province, including the territorial limits on any
city located in the province[1]
On the basis of the above ordinance, respondent Provincial Treasurer sent a
demand letter to MERALCO for the corresponding tax payment. Petitioner
MERALCO paid the tax, which then amounted to P19,520,628.42, under protest. A
formal claim for refund was thereafter sent by MERALCO to the Provincial
Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay
to the National Government pursuant to P.D. 551 already included the franchise tax
imposed by the Provincial Tax Ordinance. MERALCO contended that the imposition
of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92,
insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D.
551 which read:
Any provision of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchises to generate, distribute and sell
electric current for light, heat and power shall be two per cent (2%) of their gross
receipts received from the sale of electric current and from transactions incident to
the generation, distribution and sale of electric current.
Such franchise tax shall be payable to the Commissioner of Internal Revenue or his
duly authorized representative on or before the twentieth day of the month following
the end of each calendar quarter or month, as may be provided in the respective
franchise or pertinent municipal regulation and shall, any provision of the Local Tax
Code or any other law to the contrary notwithstanding, be in lieu of all taxes and
assessments of whatever nature imposed by any national or local authority on
earnings, receipts, income and privilege of generation, distribution and sale of
electric current.
On 28 August 1995, the claim for refund of petitioner was denied in a letter
signed by Governor Jose D. Lina. In denying the claim, respondents relied on a more
recent law, i.e., Republic Act No. 7160 or the Local Government Code of 1991, than
the old decree invoked by petitioner.
On 14 February 1996, petitioner MERALCO filed with the Regional Trial
Court of Sta Cruz, Laguna, a complaint for refund, with a prayer for the issuance of a
writ of preliminary injunction and/or temporary restraining order, against the
Province of Laguna and also Benito R. Balazo in his capacity as the Provincial
Treasurer of Laguna. Aside from the amount of P19,520,628.42 for which petitioner
MERALCO had priority made a formal request for refund, petitioner thereafter
likewise made additional payments under protest on various dates totaling
P27,669,566.91.
 The trial court, in its assailed decision of 30 September 1997, dismissed the
complaint and concluded:
WHEREFORE, IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS,
JUDGMENT is hereby rendered in favor of the defendants and against the plaintiff,
by:
1. Ordering the dismissal of the Complaint; and
2. Declaring Laguna Provincial Tax Ordinance No. 01-92 as valid, binding,
reasonable and enforceable.[2]
In the instant petition, MERALCO assails the above ruling and brings up the
following issues; viz:
1. Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as petitioner is concerned, is violative of the non-
impairment clause of the Constitution and Section 1 of Presidential Decree No. 551.
2. Whether Republic Act. No. 7160, otherwise known as the Local Government
Code of 1991, has repealed, amended or modified Presidential Decree No. 551.
3. Whether the doctrine of exhaustion of administrative remedies is applicable in this
case.[3]
The petition lacks merit.
Prefatorily, it might be well to recall that local governments do not have
the inherent power to tax[4] except to the extent that such power might
be delegated to them either by the basic law or by statute.Presently, under Article X
of the 1987 Constitution, a general delegation of that power has been given in favor
of local government units. Thus:
Sec. 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a
system of decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions, and duties of local
officials, and all other matters relating to the organization and operation of the local
units.
xxxxxxxxx
Sec. 5. Each local government shall have the power to create its own sources of
revenues and to levy taxes, fees, and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.
The 1987 Constitution has a counterpart provision in the 1973 Constitution which
did come out with a similar delegation of revenue making powers to local
governments.[5]
Under the regime of the 1935 Constitution no similar delegation of tax powers
was provided, and local government units instead derived their tax powers under a
limited statutory authority. Whereas, then, the delegation of tax powers granted at
that time by statute to local governments was confined and defined (outside of which
the power was deemed withheld), the present constitutional rule (starting with the
1973 Constitution), however, would broadly confer such tax powers subject only to
specific exceptions that the law might prescribe.
Under the now prevailing Constitution, where there is neither a grant nor a
prohibition by statute, the tax power must be deemed to exist although Congress
may provide statutory limitations and guidelines. The basic rationale for the current
rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the fundamental
law did not intend the delegation to be absolute and unconditional; the constitutional
objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous,[6] the legislature must still see to it that (a)
the taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair share of available
resources; (c) the resources of the national government will not be unduly disturbed;
and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by and
large the provisions of the now repealed Local Tax Code, which had been in effect
since 01 July 1973, promulgated into law by Presidential Decree No. 231 [7] pursuant
to the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991
Code explicitly authorizes provincial governments, notwithstanding any exemption
granted by any law or other special law, x x x (to) impose a tax on businesses
enjoying a franchise. Section 137 thereof provides:
Sec. 137. Franchise Tax Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a
rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual
receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction. In the case of a newly started business, the tax shall
not exceed one-twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to operate, the tax
shall be based on the gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein. (Underscoring supplied for emphasis)
Indicative of the legislative intent to carry out the Constitutional mandate of
vesting broad tax powers to local government units, the Local Government Code has
effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states:
Section 193 Withdrawal of Tax Exemption Privileges Unless otherwise provided in
this Code, tax exemptions or incentives granted to, or presently enjoyed by all
persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A.
No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Underscoring supplied for emphasis)
The Code, in addition, contains a general repealing clause in its Section 534;
thus:
Section 534. Repealing Clause. x x x.
(f) All general and special laws, acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly. (Underscoring supplied for emphasis)[8]
To exemplify, in Mactan Cebu International Airport Authority vs.
Marcos,[9] the Court upheld the withdrawal of the real estate tax exemption
previously enjoyed by Mactan Cebu International Airport Authority. The Court
ratiocinated:
x x x These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they enjoy genuine
and meaningful local autonomy to enable them to attain their fullest development as
self-reliant communities and make them effective partners in the attainment of
national goals. The power to tax is the most effective instrument to raise needed
revenues to finance and support myriad activities of local government units for the
delivery of basic service essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It may also be relevant
to recall that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and
distortions in the tax treatment of similarly situated enterprises, and there was a need
for these entities to share in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them.[10]
Petitioner in its complaint before the Regional Trial Court cited the ruling of
this Court in Province of Misamis Oriental vs. Cagayan Electric Power and Light
Company, Inc.;[11] thus:
In an earlier case, the phrase shall be in lieu of all taxes and at any time levied,
established by, or collected by any authority found in the franchise of the Visayan
Electric Company was held to exempt the company from payment of the 5% tax on
corporate franchise provided in Section 259 of the Internal Revenue Code (Visayan
Electric Co. vs. David, 49 O.G. [No. 4] 1385)
Similarly, we ruled that the provision: shall be in lieu of all taxes of every name and
nature in the franchise of the Manila Railroad (Subsection 12, Section 1, Act No.
1510) exempts the Manila Railroad from payment of internal revenue tax for its
importations of coal and oil under Act No. 2432 and the Amendatory Acts of the
Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the Philippine Railway Co. (Sec. 13, Act
No. 1497) justified the exemption of the Philippine Railway Company from payment
of the tax on its corporate franchise under Section 259 of the Internal Revenue Code,
as amended by R.A. No. 39 (Philippine Railway Co vs. Collector of Internal
Revenue, 91 Phil. 35).
Those magic words, shall be in lieu of all taxes also excused the Cotabato Light and
Ice Plant Company from the payment of the tax imposed by Ordinance No. 7 of the
City of Cotabato (Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA
231).
So was the exemption upheld in favor of the Carcar Electric and Ice Plant Company
when it was required to pay the corporate franchise tax under Section 259 of the
Internal Revenue Code as amended by R.A. No. 39 (Carcar Electric & Ice Plant vs.
Collector of Internal Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that
such exemption is part of the inducement for the acceptance of the franchise and the
rendition of public service by the grantee.[12]
In the recent case of the City Government of San Pablo, etc., et al. vs. Hon.
Bienvenido V. Reyes, et al.,[13] the Court has held that the phrase in lieu of all
taxes have to give way to the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions, privileges, and that
upon the effectivity of the Local Government Code all exemptions except only as
provided therein can no longer be invoked by MERALCO to disclaim liability for
the local tax. In fine, the Court has viewed its previous rulings as laying stress
more on the legislative intent of the amendatory law whether the tax exemption
privilege is to be withdrawn or not rather than on whether the law can
withdraw, without violating the Constitution, the tax exemption or not.
 While the Court has, not too infrequently, referred to tax exemptions contained
in special franchises as being in the nature of contracts and a part of the inducement
for carrying on the franchise, these exemptions, nevertheless, are far from being
strictly contractual in nature. Contractual tax exemptions, in the real sense of the
term and where the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them
under enabling laws in which the government, acting in its private capacity,
sheds its cloak of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without impairing the obligations of
contracts.[14] These contractual tax exemptions, however, are not to be confused with
tax exemptions granted under franchises. A franchise partakes the nature of a grant
which is beyond the purview of the non-impairment clause of the
Constitution.[15] Indeed, Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall be granted except under the
condition that such privilege shall be subject to amendment, alteration or repeal by
Congress as and when the common good so requires.
WHEREFORE, the instant petition is hereby DISMISSED. No costs.
SO ORDERED.
G.R. No. L-25386 October 20, 1926
ASIATIC PETROLEUM CO. (P.I.), LTD., plaintiff-appellee,
vs.
A. LLANES, provincial treasurer of Cebu, defendant-appellant.
STREET, J.:
This action was instituted by the Asiatic Petroleum Co., Ltd., for the purpose of
recovering from the provincial treasurer of Cebu the sum of P3,523.02, which is
alleged to have been illegally exacted under protest from said company by the
defendant for taxes covering the years 1923 to 1925, inclusive, upon the land known
as "Shell Island" near the City and upon certain improvements placed thereon by the
plaintiff. Upon hearing the cause the trial court gave judgment in favor of the
plaintiff to recover the amount claimed in the complaint, with the lawful interest
from May 28, 1925, the date of the filing of the complaint. From this judgment the
defendant appealed.
It appears that on August 22, 1919, the Governor-General, acting on behalf of the
Government of the Philippine Islands, entered into a contract of lease with the
plaintiff, the Asiatic Petroleum Co. (P.I.) whereby Government leased to said
company for the term of fifty years a piece of land, having an area of one and one-
half hectares, situated adjacent to the Island of Mactam, municipality of Opon,
Province of Cebu, said island being at a distance of about 600 meters from the
lending place of the port of Cebu. At the time of the making of the lease, the land
referred to was accustomed to be covered by water at high tide; but it was needed by
the lessee as a site for tanks to be used in the storage of petroleum. In order to
reclaim the site and protect the improvements thereon from the sea, it was necessary
for the company to build a concrete and cement foundation, protected by retaining
walls of the same material.
The contract of lease recites that the lease is made pursuant to the provisions of Act
No. 1654 of the Philippine commission, as amended by Act No. 2570 of the
Philippine Legislature; but an examination of the contents of Act No. 1654 shows
that the lease in question was made pursuant to section 5 and 6 of Act No. 1654,
since these sections alone relate particularly to the lease of land under water. As
pertinent to the discussion, we note that sections 2 to 4, inclusive of Act No. 1654
deal with the leasing of lands to have been made or reclaimed from the sea by the
Government by means of dredging or filing or otherwise; and in section 4 it is
declared that all lands leased under the preceding sections of the Act and all
improvements on such lands shall be subject to local taxation against the lessees, to
the same extent as if such lessees were the owners of both land and improvements.
The portion of the same Act which deals with the subject of the leasing of lands
under water (sections 5 and 6) makes no mention of the liability of the lessee for
taxes; and the lease itself contains no stipulation making the lessee liable for taxes.
However, after the lessee obtained possession, the taxing authorities made an
assessment against it with respect both to the land and improvements thereon for the
years 1923 to 1925, inclusive, which tax had been paid by the plaintiff under protest,
and for the recovery of the same, this action was instituted.
It is quite clear that the lessee is not liable for the tax assessed against it with respect
to the land which is the subject of the lease. That land is the property of the
Government; and section 344 of the Administrative Code especially exempts from
local taxation property owned by the United States of America or by the Government
of the Philippine Islands. The circumstance that the plaintiff now holds said land
under a contract of lease with the Government by no means makes the plaintiff liable
for the tax on the land. This point was expressly ruled by this court in Fairchild vs.
Sarmiento (47 Phil., 485), where we held that when the Government as owner of
land leases it for a fixed rental, under a contract not containing a stipulation for the
payment of taxes by the lessee such land is exempt in the hands of the lessee. This
rule must be understood to apply to all property which is exempt in the hands of the
Government, whether it be of a public or patrimonial nature. In this jurisdiction real
property, whether consisting of land or the improvements thereon, is assessable
against the owner; and in the absence of special provision no liability for the tax
attaches to any other person that the owner.
We note that Act No. 1654 has been superseded by certain provisions in Act No.
2874; and in section 113 of this Act there is a general provision that all the lands
granted by virtue of said Act, except homesteads, shall be subject to the ordinary
taxes which shall be paid by the grantee even though the title remains in the
Government. This Act was approved November 29, 1919, a little more than three
months after the date when the lease now under consideration was made, but section
129 of Act No. 2874 contains provision to the effect that it shall take effect on July 1,
1919. Upon this it is contended by the provincial fiscal of Cebu, as attorney for the
Government, that Act No. 2874 should be given a retroactive effect, with the result
that the lease under this contract is made liable for the taxes upon Shell Island and
improvements thereon, by virtue of said retroactive provision. This view is
untenable. While it may be conceded that the Act referred to could be given
retroactive effect with respect to the administrative and curative features of the
statute, it could not be given retroactive effect to the extent of impairing the
obligation of an existing lease, since our Organic Law prohibits the enactment of
laws impairing the obligation of contracts ( Act of Congress of August 29, 1916, sec.
3).
It follows from what has been said that no error was committed by the lower court in
giving judgment in favor of the plaintiff to recover the taxes paid by it under protest
the land which is the subject of the lease.
Whether the plaintiff was liable for the tax assessed against it upon the value of the
improvements which it placed upon Shell Island is a question which is governed by
different considerations. In this connection we note that these improvements consist
of oil tanks, wharf, warehouse, pump house, and sheds together with an office and
residence building and coolie quarters. These are not public improvements, but are,
of a private nature, constructed for the use of the lessee in conducting its business as
a purveyor of coal oil. Said improvements belong to the lessee and will remain its
property until the termination of the lease, when, under subsection (c) of section 6 of
Act No. 1654, the title to the same will vest in the Government of the Philippine
Islands. The fact that the improvements will thus ultimately belong to the
Government in no wise alters the liability of the lessee of taxes thereon, so long as
the property belongs to it. Under section 343 of the Administrative Code the tax on
improvements on real property is assessable against the owner of such improvements
whether he is also the owner of the land, on which they are placed or not. The case
not infrequently happens that the land is assessed to one person and the
improvements to another; and as it should be, when the titles to the two different
sorts of property are vested in different persons.
Upon examining the provisions of Act No. 1654 relative to the leasing of lands
reclaimed by the Government, it will be noted that, by section 4, all lands leased
under the preceding sections of the Act, "and all improvements thereon" shall be
subject to the local taxation. From the inclusion of improvements in said section and
the omission of all reference to taxation in the sections dealing with the leasing of
lands under water, an argument has been deduced to the effect that the lease here
should not be held liable for taxes on the improvements. We consider such
implication to be too weak to support the claim of exemption asserted by the lease,
even supposing that the inference drawn is in any wise legitimate. Exemptions from
taxation are highly disfavored, so much so that they may almost be said to be odious
to the law. He who claims an exemption must be able to point to some positive
provision of law creating the right. It cannot be allowed to exist upon a vague
implication such as is supposed to arise in this case from the omission from Act No.
1654 of any reference to liability for tax. The books are full of very strong
expressions on this point. As was said by the Supreme Court of Tennessee in
Memphis vs. U. & P. Bank (91 Tenn., 546, 550), "The right of taxation is inherent in
the State, It is a prerogative essential to the perpetuity of the government; and he who
claims an exemption from the common burden, must justify his claim by the clearest
grant of organic or statute law." Other utterances equally or more emphatic come
readily to hand from the highest authority. In Ohio Life Ins. and Trust Co. vs.
Debolt (16 Howard, 416), it was said by Chief Justice Taney, that the right of
taxation will not be held to have been surrendered, "unless the intention to surrender
is manifested by words too plain to be mistaken." In the case of the Delaware
Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United States said
that the surrender, when claimed, must be shown be clear, unambiguous language,
which will admit of no reasonable construction consistent with the reservation of the
power. If a doubt arise to as to the intent of the legislature, that doubt must be solved
in favor of the State. In entire Railway Company vs. Commonwealth of
Pennsylvania, (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions
observed that a State cannot strip itself of the most essential power of taxation by
doubtful words. "It cannot, by ambiguous language, be deprived of this highest
attribute of sovereignty." In Tennessee vs. Whitworth (117 U. S., 129, 136), it was
said: "In all cases of this kind the question is as to the intent of the legislature, the
presumption always being against any surrender of taxing power." In Farrington vs.
Tennessee and County of Shelby (95 U. S., 679, 686), Mr. Justice Swayne said: ". . .
When exemption is claimed, it must be shown indubitably to exist. At the outset,
every presumption is against it. A well-founded doubt is fatal to the claim. It is only
when the terms of the concession are too explicit to admit fairly of any other
construction that the proposition can be supported."
Reliance is placed in the brief of the appellee upon the case of the City of Oakland
vs. Albers Bros.' Milling Co. (184 Pac., 868), where it was held that a dock and
warehouse built by a lessee of public land are not subject to taxation as
improvements. But the lease there in question contained a stipulation declaring that
the dock and warehouse, when constructed by the lessee pursuant to the terms of the
lease, should become and remain the property of the lessor. In the case before us the
improvements upon which the assessment is now sustained certainty belong to the
lessee; and, with the assent of the officials mentioned in the contract, the lessee may
assign the lease, or mortgage or encumber the improvements, and its successors will
have full enjoyment of both the lease and the improvements during the term of the
contract. It is true, as already stated, that the improvements cannot be removed and
that upon termination of the lease the improvements will become the property of the
Government. This change of ownership, which an only occur at the end of the life of
the lease, can no wise affect the liability of present owners for taxes. In Army and
Navy Club vs. Trinidad (44 Phil., 383), we held that the circumstance that at the end
of a long term of years the property now owned by the Army and Navy Club is
subject to an option for the purchase of the same by the city, at a very small
valuation, does not affect the liability of the present owner for taxes upon the full
value of the property.
But it is also said that the irremovable nature of these improvements determines their
character as realty, with the result that the improvements, like the land itself, should
be held exempt. We see no necessity for thus ignoring the fact of the present
ownership of the improvements by the lessee. Improvements are taxable separately
in this jurisdiction and there is neither difficulty not injustice in allowing the tax laws
to operate against the owner of the improvements, while relieving it from liability for
the tax on the land.1awph!l.net
The result of the discussion is that while the lessee is not taxable in respect to the
land which is the subject of the lease, it is subject to taxation with respect to the
improvements. The appealed judgment must therefore be modified by reducing the
recovery to the amount paid upon the land, namely, P2,270.88; and this refund must,
under section 1579 of the Administrative Code, be made without interest.
It being understood that the recovery is limited to the amount last above stated,
without interest, the same is affirmed, without costs. So ordered.
G.R. No. L-30644 March 9, 1987
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
FIREMAN'S FUND INSURANCE COMPANY and the COURT OF TAX
APPEALS, respondents.
PARAS, J.:
This is an appeal from the decision of the respondent Court of Tax Appeals dated
May 24, 1969, in C.T.A. Case No. 1629, entitled "FIREMAN'S FUND INSURANCE
COMPANY v. COMMISSIONER OF INTERNAL REVENUE," which reversed the
decision of petitioner Commissioner of Internal Revenue holding private respondent
Fireman's Fund Insurance Company liable for the payment of the amount of
P81,406.87 as documentary stamp taxes and compromise penalties for the years
1952 to 1958.
Private respondent is a resident foreign insurance corporation organized under the
laws of the United States, authorized and duly licensed to do business in the
Philippines. It is a member of the American Foreign Insurance Association, through
which its business is cleared (Brief for Respondents, pp. 1-2)
The antecedent facts of this case are as follows:
From January, 1952 to December, 1958, herein private respondent Fireman's Fund
Insurance Company entered into various insurance contracts involving casualty, fire
and marine risks, for which the corresponding insurance policies were issued. From
January, 1952 to 1956, documentary stamps were bought and affixed to the monthly
statements of policies issues; and from 1957 to 1958 documentary stamps were
bought and affixed to the corresponding pages of the policy register, instead of on
the insurance policies issued. On July 3, 1959, respondent company discovered that
its monthly statements of business and policy register were lost. The loss was
reported to the Building Administration of Ayala Building and the National Bureau
of Investigation on July 6, 1959. Herein petitioner was also informed of such loss by
respondent company, through the latter's auditors, Sycip, Gorres and Velayo, in a
letter dated July 14, 1959. After conducting an investigation of said loss, petitioner's
examiner ascertained that respondent company failed to affix the required
documentary stamps to the insurance policies issued by it and failed to preserve its
accounting records within the time prescribed by Section 337 of the Revenue Code
by using loose leaf forms as registers of documentary stamps without written
authority from the Commissioner of Internal Revenue as required by Section 4 of
Revenue Regulations No. V-1. As a consequence of these findings, petitioner, in a
letter dated December 7, 1962, assessed and demanded from petitioner the payment
of documentary stamp taxes for the years 1952 to 1958 in the total amount of P
79,806.87 and plus compromise penalties, a total of P 81,406.87.
A breakdown of the amount of taxes due and collectible are as follows:
YEAR AMOUNT
1952 P 6,500.00
1953 9,977.72
1954 10,908.89
1955 14,204.52
1956 12,108.26
1957 7,880.68
1958 16,257.60
Total stamp taxes due on policies issued from 1952 to 1958
77,837.67
 Add: Stamp taxes on monthly statements during:
1957.......................................................................
...................1,218.35
1958.......................................................................
...................3,264.39
Total......................................................................
.............P 82,320.41
Less: Stamp taxes paid per voucher shown:
1957...............................................................
416.82
1958................................................................2,09
6.72 2,513.54
AMOUNT DUE & COLLECTIBLE.............................................P
79,906.87
(CTA Decision, Rollo, pp. 16-17).
The compromise penalties consisted of the sum of P1,000.00 as penalty for the
alleged failure to affix documentary stamps and the further sum of P 600.00 as
penalty for an alleged violation of Revenue Regulations No. V-1 otherwise known as
the Bookkeeping Regulations (Brief for Respondents, p. 4)
In a letter dated January 14, 1963, respondent company contested the assessment.
After petitioner denied the protest in a decision dated March 17, 1965, respondent
company appealed to the respondent Court of Tax Appeals on May 8, 1965. After
hearing respondent court rendered its decision dated May 24, 1969 (Rollo, pp. 16-21)
reversing the decision of the Commissioner of Internal Revenue. The assailed
decision reads in part:
The affixture of documentary stamps to papers other than those
authorized by law is not tantamount to failure to pay the same. It is
true that the mode of affixing the stamps as prescribed by law was
not followed, but the fact remains that the documentary stamps
corresponding to the various insurance policies were purchased
and paid by petitioner. There is no legal justification for respondent
to require petitioner to pay again the documentary stamp tax which
it had already paid. To sustain respondent's stand would require
petitioner to pay the same tax twice. If at all, the petitioner should
be proceeded against for failure to comply with the requirement of
affixing the documentary stamps to the taxable insurance policies
and not for failure to pay the tax. (See Sec. 239 and 332, Rev.
Code).
It should be observed that the law allows the affixture of
documentary stamps' to such other paper as may be indicated by
law or regulations as the proper recipient of the stamp.' It appears
from this provision that respondent has authority to allow
documentary stamps to be affixed to papers other than the
documents or instruments taxed. Although the practice adopted by
petitioner in affixing the documentary stamps to the business
statements and policy register was without specific permission
p from respondent but only on the strength of his ruling given to
Wise & Company (see Petitioner's Memorandum, p. 176, CTA
rec.; p. 24, t.s.n.), one of the general agents of petitioner, however,
considering that petitioner actually purchased the documentary
stamps, affixed them to the business statements and policy register
and cancelled the stamps by perforating them, we hold that
petitioner cannot be held liable to pay again the same tax.
With respect to the 'compromise penalties' in the total sum of P
1,600.00, suffice it to say that penalties cannot be imposed in the
absence of a showing that petitioner consented thereto. A
compromise implies agreement. If the offer is rejected by the
taxpayer, as in this case, respondent cannot enforce it except
through a criminal action. (See Comm. of Int. Rev. vs. Abad, L-
19627, June 27, 1968.) (CTA Decision, Rollo, pp. 20-21).
Hence, this petition filed on June 26, 1969 (Rollo, pp. 1-8).
The petition is devoid of merit.
The principal issue in this case is whether or not respondent company may be
required to pay again the documentary stamps it has actually purchased, affixed and
cancelled.
The relevant provisions of the National Internal Revenue Code provide:
SEC. 210. Stamp taxes upon documents, instruments, and papers.
— Upon documents, instruments, and papers, and upon
acceptances, assignments, sales, and transfers of the obligation,
right, or property incident thereto, there shall be levied, collected
and paid for and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes
prescribed in the following sections of this Title, by the person
making, signing, issuing, accepting, or transferring the same, and
at the same time such act is done or transaction had. (Now. Sec.
222).
SEC. 232. Stamp tax on life insurance policies. — On all policies
of insurance or other instruments by whatever name the same may
be called, whereby any insurance shall be made or renewed upon
any life or lives, there shall be collected a documentary stamp tax
of thirty-five centavos on each two hundred pesos or fractional part
thereof, of the amount issued by any such policy. (220) (As
amended by PD 1457)
Insurance policies issued by a Philippine company to persons in
other countries are not subject to documentary stamp tax. (Rev.
Regs. No. 26)
Medical certificate attached to an insurance policy is not a part of
the said policy. Insurance policy is subject to Section 232 of the
Tax Code while medical certificate is taxable under Section 237 of
the same Code.
Insurance policies are issued in the place where delivered to the
person insured. (As amended.)
SEC. 221. Stamp tax on policies of insurance upon property. —
On all policies of insurance or other instruments by whatever name
the same may be called, by which insurance shall be made or
renewed upon property of any description, including rents or
profits, against peril by sea or on inland waters, or by fire or
lightning, there shall be collected a documentary stamp tax of six
centavos on each four persons, or fractional part thereof, of the
amount of premium charged," (Now Sec. 233.)
SEC. 237. Payment of documentary stamp tax. — Documentary
stamp taxes shall be paid by the purchase and affixture of
documentary stamps to the document or instrument taxed or to
such other paper as may be indicated by law or regulations as the
proper recipient of the stamp, and by the subsequent
cancellation of same, such cancellation to be accomplished by
writing, stamping, or perforating the date of the cancellation across
the face of each stamp in such manner that part of the writing,
impression, or perforation shall be on the stamp itself and part on
the paper to which it is attached; Provided, That if the cancellation
is accomplished by writing or stamping the date of cancellation, a
hole sufficiently large to be visible to the naked eye shall be
punched, cut or perforated on both the stamp and the document
either by the use of a hand punch, knife, perforating machine,
scissors, or any other cutting instrument; but if the cancellation is
accomplished by perforating the date of cancellation, no other hole
need be made on the stamp. (Now Sec. 249.)
SEC. 239. Failure to affix or cancel documentary stamps. — Any
person who fails to affix the correct amount of documentary
stamps to any taxable document, instrument, or paper, or to cancel
in the manner prescribed by section 237 any documentary stamp
affixed to any document, instrument, or paper, shall be subject to a
fine of not less than twenty pesos or more than three hundred
pesos. (Emphasis supplied.) (Now Sec. 250.)
As correctly pointed out by respondent Court of Tax Appeals, under the above-
quoted provisions of law, documentary tax is deemed paid by: (a) the purchase of
documentary stamps; (b) affixture of documentary stamps to the document or
instrument taxed or to such other paper as may be indicated by law or regulations;
and (c) cancellation of the stamps as required by law (Rollo, p. 18).
It will be observed however, that the over-riding purpose of these provisions of law
is the collection of taxes. The three steps above-mentioned are but the means to that
end. Thus, the purchase of the stamps is the form of payment made; the affixture
thereof on the document or instrument taxed is to insure that the corresponding tax
has been paid for such document while the cancellation of the stamps is to obviate
the possibility that said stamps will be reused for similar documents for similar
purposes.
In the case at bar, there appears to be no dispute on the fact that the documentary
stamps corresponding to the various policies were purchased and paid for by the
respondent Company. Neither is there any argument that the same were cancelled as
required by law. In fact such were the findings of petitioner's examiner Amando B.
Melgar who stated as follows:
Investigation disclosed that the subject insurance company is a
duly organized corporation doing business in the Philippines. It
keeps the necessary books of accounts and other accounting
records needed by the business. Further verification revealed that it
has, since July, 1959, been using a "HASLER" franking machine,
Model F88, which stamps the documentary stamps on the
duplicates of the policies issued. Prior to the acquisition of the said
machine, the company buys its stamps by allowing the Manager to
issue a Manager's check drawn against the National City Bank of
 New York and payable to the City Treasurer of Manila. It was also
found out that during this period (1952 to 1958), the total
purchases of documentary stamps amounted to P77,837.67, while
the value of the used stamps lost amounted to
P65,901.11. Verification with the files revealed that most of the
monthly statements of business and registers of documentary
stamps corresponding to insurance policies issued were missing
while some where the punched documentary stamps affixed were
small in amount are still intact.
The taxpayer was found to be negligent in the preservation and
keeping of its records. Although the loss was found by the
company's private investigator (see attached true copies of his
reports) was not an "Inside Job," still the company should be held
liable for its negligence, it appearing that the said records were
placed in a bodega, where almost all patrons of the coffee shop
nearby could see them. The company also violated the provision of
Section 221 of the National Internal Revenue Code which provides
that the documentary stamps should be affixed and cancelled on
the duplicates of bonds and policies issued. In this case, the said
stamps were affixed on the register of documentary stamps. (pp.
35-36, BIR rec.; Emphasis supplied.) (CTA Decision, Rollo, pp,
18-19.)
Such findings were confirmed by the Memorandum of Acting Commissioner of
Internal Revenue Jose B. Lingad, dated November 7, 1962 to the Chief, Business
Tax Division, which states:
The records show that the FIREMAN'S FUND INSURANCE
COMPANY allegedly paid P 77,837.67 in documentary stamp
taxes for the policies of insurance issued by it for the years 1952 to
1958 but could only present as proof of payment Pll,936.56 of said
taxes as the rest of the amount of P 65,901.11 were lost due to
robbery. Upon verification of this payment however it was found
that the FIREMAN'S FUND INSURANCE COMPANY affixed
the documentary stamps not on the individual insurance policies
issued by it but on a monthly statement of business and a register
of documentary stamps, the use of which was not authorized by
this Office. It was claimed that the same procedure was used in the
case of the lost documentary stamps aforementioned. As this
practice is irregular and the remaining records are not conclusive
proofs of the payment of the corresponding documentary stamp tax
on the policies, the FIREMAN'S FUND AND INSURANCE
COMPANY is still liable for the payment of the documentary
stamp taxes on the policies found not affixed with stamps.
(Original B I R Record, p. 87).
Later, respondent Court of Tax Appeals correctly observed that the purchase of
documentary stamps and their being affixed to the monthly statements of business
and policy registers were also admitted by counsel for the Government as could
clearly be gleaned from his Memorandum submitted to the respondent Court.
(Decision, CTA Rollo, pp. 4-5).
Thus, all investigations made by the petitioner show the same factual findings that
respondent company purchased documentary stamps for the various policies it has
issued for the period in question although it has attached the same on documents not
authorized by law.
There is no argument to petitioner's contention that the insurance policies with the
corresponding documentary stamps affixed are the best evidence to prove payment
of said documentary stamp tax. This rule however does not preclude the
admissibility of other proofs which are uncontradicted and of considerable weight,
such as: copies of the applications for manager's checks, copies of the manager's
check vouchers of the bank showing the purchases of documentary stamps
corresponding to the various insurance policies issued during the years 1952-1958
duly and properly Identified by the witnesses for respondent company during the
hearing and admitted by the respondent Court of Tax Appeals (Brief for Respondent,
p. 15).
It is a general rule in the interpretation of statutes levying taxes or duties, that in case
of doubt, such statutes are to be construed most strongly against the government and
in favor of the subjects or citizens, because burdens are not to be imposed, nor
presumed to be imposed beyond what statutes expressly and clearly import (Manila
Railroad Co. v. Collector of Customs, 52 Phil. 950 [1929]).
There appears to be no question that the purpose of imposing documentary stamp
taxes is to raise revenue and the corresponding amount has already been paid by
respondent and has actually become part of the revenue of the government. In the
same manner, it is evident that the affixture of the stamps on documents not
authorized by law is not attended by bad faith as the practice was adopted from the
authority granted to Wise & Company, one of respondent's general agents (CTA
Decision, Rollo, p. 20). Indeed, petitioner argued that such authority was not given to
respondent company specifically, but under the general principle of agency, where
the acts of the agents bind the principal, the conclusion is inescapable that the
justification for the acts of the agents may also be claimed for the acts of the
principal itself (Brief for the Respondents, pp. 12-13).
Be that as it may, there is no justification for the government which has already
realized the revenue which is the object of the imposition of subject stamp tax, to
require the payment of the same tax for the same documents. Enshrined in our basic
legal principles is the time honored doctrine that no person shall unjustly enrich
himself at the expense of another. It goes without saying that the government is not
exempted from the application of this doctrine (Ramie Textiles, Inc. v. Mathay Sr.,
89 SCRA 587 [1979]).
Under the circumstances, this court RESOLVED to DISMISS this petition and to
AFFIRM the assailed decision of the Court of Tax Appeals.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.
[G.R. No. L-9408. October 31, 1956.]
EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF INTERNAL
REVENUE and THE COURT OF TAX APPEALS, Respondents.
DECISION
BAUTISTA ANGELO, J.:
On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer
of Bacolod City wherein he claimed, among other things, the amount of P12,837.65
as a deductible item from his gross income pursuant to General Circular No. V-123
issued by the Collector of Internal Revenue. This circular was issued pursuant to
certain rules laid down by the Secretary of Finance On the basis of said return, an
assessment notice demanding the payment of P9,419 was sent to Petitioner, who
paid the tax in monthly installments, the last payment having been made on January
2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of
Internal Revenue, issued General Circular No. V-139 which not only revoked and
declared void his general Circular No. V- 123 but laid down the rule that losses of
property which occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible
in the year of actual loss or destruction of said property. As a consequence, the
amount of P12,837.65 was disallowed as a deduction from the gross income
of Petitioner for 1951 and the Collector of Internal Revenue demanded from him the
payment of the sum of P3,546 as deficiency income tax for said year. When the
petition for reconsideration filed by Petitioner was denied, he filed a petition for
review with the Court of Tax Appeals. In due time, this court rendered decision
affirming the assessment made by Respondent Collector of Internal Revenue. This is
an appeal from said decision.
It appears that Petitioner claimed in his 1951 income tax return the deduction of the
sum of P12,837.65 as a loss consisting in a portion of his war damage claim which
had been duly approved by the Philippine War Damage Commission under the
Philippine Rehabilitation Act of 1946 but which was not paid and never has been
paid pursuant to a notice served upon him by said Commission that said part of his
claim will not be paid until the United States Congress should make further
appropriation. He claims that said amount of P12,837.65 represents a “business
asset” within the meaning of said Act which he is entitled to deduct as a loss in his
return for 1951. This claim is untenable.
To begin with, assuming that said a mount represents a portion of the 75% of his war
damage claim which was not paid, the same would not be deductible as a loss in
1951 because, according to Petitioner, the last installment he received from the War
Damage Commission, together with the notice that no further payment would be
made on his claim, was in 1950. In the circumstance, said amount would at most be a
proper deduction from his 1950 gross income. In the second place, said amount
cannot be considered as a “business asset” which can be deducted as a loss in
contemplation of law because its collection is not enforceable as a matter of right,
but is dependent merely upon the generosity and magnanimity of the U. S.
government. Note that, as of the end of 1945, there was absolutely no law under
which Petitioner could claim compensation for the destruction of his properties
during the battle for the liberation of the Philippines. And under the Philippine
Rehabilitation Act of 1946, the payments of claims by the War Damage Commission
merely depended upon its discretion to be exercised in the manner it may see fit, but
the non-payment of which cannot give rise to any enforceable right, for, under said
Act, “All findings of the Commission concerning the amount of loss or damage
sustained, the cause of such loss or damage, the persons to whom compensation
pursuant to this title is payable, and the value of the property lost or damaged, shall
be conclusive and shall not be reviewable by any court”. (section 113).
It is true that under the authority of section 338 of the National Internal Revenue
Code the Secretary of Finance, in the exercise of his administrative powers, caused
the issuance of General Circular No. V-123 as an implementation or interpretative
regulation of section 30 of the same Code, under which the amount of P12,837.65
was allowed to be deducted “in the year the last installment was received with notice
that no further payment would be made until the United States Congress makes
further appropriation therefor”, but such circular was found later to be wrong and
was revoked. Thus, when doubts arose as to the soundness or validity of such
circular, the Secretary of Finance sought the advice of the Secretary of Justice who,
accordingly, gave his opinion the pertinent portion of which reads as
follows:chanroblesvirtuallawlibrary
“Yet it might be argued that war losses were not included as deductions for the year
when they were sustained because the taxpayers had prospects that losses would be
compensated for by the United States Government; chan roblesvirtualawlibrarythat
since only uncompensated losses are deductible, they had to wait until after the
determination by the Philippine War Damage Commission as to the compensability
in part or in whole of their war losses so that they could exclude from the deductions
those compensated for by the said Commission; chan roblesvirtualawlibraryand that,
of necessity, such determination could be complete only much later than in the year
when the loss was sustained. This contention falls to the ground when it is
considered that the Philippine Rehabilitation Act which authorized the payment by
the United States Government of war losses suffered by property owners in the
Philippines was passed only on August 30, 1946, long after the losses were
sustained. It cannot be said therefore, that the property owners had any conclusive
assurance during the years said losses were sustained, that the compensation was to
be paid therefor. Whatever assurance they could have had, could have been based
only on some information less reliable and less conclusive than the passage of the
Act itself. Hence, as diligent property owners, they should adopt the safest
alternative by considering such losses deductible during the year when they were
sustained.”
In line with this opinion, the Secretary of Finance, through the Collector of Internal
Revenue, issued General Circular No. V-139 which not only revoked and declared
void his previous Circular No. V — 123 but laid down the rule that losses of
property which occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible
for income tax purposes in the year of actual destruction of said property. We can
hardly argue against this opinion. Since we have already stated that the amount
claimed does not represent a “business asset” that may be deducted as a loss in 1951,
it is clear that the loss of the corresponding asset or property could only be deducted
in the year it was actually sustained. This is in line with section 30 (d) of the National
Internal Revenue Code which prescribes that losses sustained are allowable as
deduction only within the corresponding taxable year.
Petitioner’s contention that during the last war and as a consequence of enemy
occupation in the Philippines “there was no taxable year” within the meaning of our
internal revenue laws because during that period they were unenforceable, is without
merit. It is well known that our internal revenue laws are not political in nature and
as such were continued in force during the period of enemy occupation and in effect
were actually enforced by the occupation government. As a matter of fact, income
tax returns were filed during that period and income tax payment were effected and
considered valid and legal. Such tax laws are deemed to be the laws of the occupied
territory and not of the occupying enemy.
“Furthermore, it is a legal maxim, that excepting that of a political nature, ‘Law once
established continues until changed by some competent legislative power. It is not
changed merely by change of sovereignty.’ (Joseph H. Beale, Cases on Conflict of
Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As
the same author says, in his Treatise on the Conflict of Laws (Cambridge, 1916,
section 131):chanroblesvirtuallawlibrary ‘There can be no break or interregnun in
law. From the time the law comes into existence with the first-felt corporateness of a
primitive people it must last until the final disappearance of human society. Once
created, it persists until a change takes place, and when changed it continues in such
changed condition until the next change and so forever. Conquest or colonization is
impotent to bring law to an end; chan roblesvirtualawlibraryinspite of change of
constitution, the law continues unchanged until the new sovereign by legislative act
creates a change.’“ (Co Kim Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-
143.)
It is likewise contended that the power to pass upon the validity of General Circular
No. V-123 is vested exclusively in our courts in view of the principle of separation of
powers and, therefore, the Secretary of Finance acted without valid authority in
revoking it and approving in lieu thereof General Circular No. V-139. It cannot be
denied, however, that the Secretary of Finance is vested with authority to revoke,
repeal or abrogate the acts or previous rulings of his predecessor in office because
the construction of a statute by those administering it is not binding on their
successors if thereafter the latter become satisfied that a different construction should
be given. [Association of Clerical Employees vs. Brotherhood of Railways &
Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]
“When the Commissioner determined in 1937 that the Petitioner was not exempt and
never had been, it was his duty to determine, assess and collect the tax due for all
years not barred by the statutes of limitation. The conclusion reached and announced
by his predecessor in 1924 was not binding upon him. It did not exempt
the Petitioner from tax, This same point was decided in this way in Stanford
University Bookstore, 29 B. T. A., 1280; chan roblesvirtualawlibraryaffd., 83 Fed.
(2d) 710.” (Southern Maryland Agricultural Fair Association vs. Commissioner of
Internal Revenue, 40 B. T. A., 549, 554).
With regard to the contention that General Circular No. V-139 cannot be given
retroactive effect because that would affect and obliterate the vested right acquired
by Petitioner under the previous circular, suffice it to say that General Circular No.
V-123, having been issued on a wrong construction of the law, cannot give rise to a
vested right that can be invoked by a taxpayer. The reason is
obvious:chanroblesvirtuallawlibrary a vested right cannot spring from a wrong
interpretation. This is too clear to require elaboration.
“It seems too clear for serious argument that an administrative officer cannot change
a law enacted by Congress. A regulation that is merely an interpretation of the statute
when once determined to have been erroneous becomes nullity. An erroneous
construction of the law by the Treasury Department or the collector of internal
revenue does not preclude or estop the government from collecting a tax which is
legally due.” (Ben Stocker, et al., 12 B. T. A., 1351.)
“Art. 2254. — No vested or acquired right can arise from acts or omissions which
are against the law or which infringe upon the rights of others.” (Article 2254, New
Civil Code.)
Wherefore, the decision appealed from is affirmed Without pronouncement as to
costs.
G.R. No. L-63915 April 24, 1985
LORENZO M. TAÑADA, ABRAHAM F. SARMIENTO, and MOVEMENT
OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. [MABINI], petitioners,
vs.
HON. JUAN C. TUVERA, in his capacity as Executive Assistant to the
President, HON. JOAQUIN VENUS, in his capacity as Deputy Executive
Assistant to the President , MELQUIADES P. DE LA CRUZ, in his capacity as
Director, Malacañang Records Office, and FLORENDO S. PABLO, in his
capacity as Director, Bureau of Printing, respondents.
ESCOLIN, J.:
Invoking the people's right to be informed on matters of public concern, a right
recognized in Section 6, Article IV of the 1973 Philippine Constitution, 1 as well as
the principle that laws to be valid and enforceable must be published in the Official
Gazette or otherwise effectively promulgated, petitioners seek a writ of mandamus to
compel respondent public officials to publish, and/or cause the publication in the
Official Gazette of various presidential decrees, letters of instructions, general
orders, proclamations, executive orders, letter of implementation and administrative
orders.
Specifically, the publication of the following presidential issuances is sought:
a] Presidential Decrees Nos. 12, 22, 37, 38, 59, 64, 103, 171, 179,
184, 197, 200, 234, 265, 286, 298, 303, 312, 324, 325, 326, 337,
355, 358, 359, 360, 361, 368, 404, 406, 415, 427, 429, 445, 447,
473, 486, 491, 503, 504, 521, 528, 551, 566, 573, 574, 594, 599,
644, 658, 661, 718, 731, 733, 793, 800, 802, 835, 836, 923, 935,
961, 1017-1030, 1050, 1060-1061, 1085, 1143, 1165, 1166, 1242,
1246, 1250, 1278, 1279, 1300, 1644, 1772, 1808, 1810, 1813-
1817, 1819-1826, 1829-1840, 1842-1847.
b] Letter of Instructions Nos.: 10, 39, 49, 72, 107, 108, 116, 130,
136, 141, 150, 153, 155, 161, 173, 180, 187, 188, 192, 193, 199,
202, 204, 205, 209, 211-213, 215-224, 226-228, 231-239, 241-245,
248, 251, 253-261, 263-269, 271-273, 275-283, 285-289, 291, 293,
297-299, 301-303, 309, 312-315, 325, 327, 343, 346, 349, 357,
358, 362, 367, 370, 382, 385, 386, 396-397, 405, 438-440, 444-
445, 473, 486, 488, 498, 501, 399, 527, 561, 576, 587, 594, 599,
600, 602, 609, 610, 611, 612, 615, 641, 642, 665, 702, 712-713,
726, 837-839, 878-879, 881, 882, 939-940, 964,997,1149-
1178,1180-1278.
c] General Orders Nos.: 14, 52, 58, 59, 60, 62, 63, 64 & 65.
d] Proclamation Nos.: 1126, 1144, 1147, 1151, 1196, 1270, 1281,
1319-1526, 1529, 1532, 1535, 1538, 1540-1547, 1550-1558, 1561-
1588, 1590-1595, 1594-1600, 1606-1609, 1612-1628, 1630-1649,
1694-1695, 1697-1701, 1705-1723, 1731-1734, 1737-1742, 1744,
1746-1751, 1752, 1754, 1762, 1764-1787, 1789-1795, 1797, 1800,
1802-1804, 1806-1807, 1812-1814, 1816, 1825-1826, 1829, 1831-
1832, 1835-1836, 1839-1840, 1843-1844, 1846-1847, 1849, 1853-
1858, 1860, 1866, 1868, 1870, 1876-1889, 1892, 1900, 1918,
1923, 1933, 1952, 1963, 1965-1966, 1968-1984, 1986-2028, 2030-
2044, 2046-2145, 2147-2161, 2163-2244.
e] Executive Orders Nos.: 411, 413, 414, 427, 429-454, 457- 471,
474-492, 494-507, 509-510, 522, 524-528, 531-532, 536, 538, 543-
544, 549, 551-553, 560, 563, 567-568, 570, 574, 593, 594, 598-
604, 609, 611- 647, 649-677, 679-703, 705-707, 712-786, 788-852,
854-857.
f] Letters of Implementation Nos.: 7, 8, 9, 10, 11-22, 25-27, 39, 50,
51, 59, 76, 80-81, 92, 94, 95, 107, 120, 122, 123.
g] Administrative Orders Nos.: 347, 348, 352-354, 360- 378, 380-
433, 436-439.
The respondents, through the Solicitor General, would have this case dismissed
outright on the ground that petitioners have no legal personality or standing to bring
the instant petition. The view is submitted that in the absence of any showing that
petitioners are personally and directly affected or prejudiced by the alleged non-
publication of the presidential issuances in question 2 said petitioners are without the
requisite legal personality to institute this mandamus proceeding, they are not being
"aggrieved parties" within the meaning of Section 3, Rule 65 of the Rules of Court,
which we quote:
SEC. 3. Petition for Mandamus.—When any tribunal, corporation,
board or person unlawfully neglects the performance of an act
which the law specifically enjoins as a duty resulting from an
office, trust, or station, or unlawfully excludes another from the use
a rd enjoyment of a right or office to which such other is entitled,
and there is no other plain, speedy and adequate remedy in the
ordinary course of law, the person aggrieved thereby may file a
verified petition in the proper court alleging the facts with certainty
and praying that judgment be rendered commanding the defendant,
immediately or at some other specified time, to do the act required
to be done to Protect the rights of the petitioner, and to pay the
damages sustained by the petitioner by reason of the wrongful acts
of the defendant.
Upon the other hand, petitioners maintain that since the subject of the petition
concerns a public right and its object is to compel the performance of a public duty,
they need not show any specific interest for their petition to be given due course.
The issue posed is not one of first impression. As early as the 1910 case of Severino
vs. Governor General, 3 this Court held that while the general rule is that "a writ of
mandamus would be granted to a private individual only in those cases where he has
some private or particular interest to be subserved, or some particular right to be
protected, independent of that which he holds with the public at large," and "it is for
the public officers exclusively to apply for the writ when public rights are to be
subserved [Mithchell vs. Boardmen, 79 M.e., 469]," nevertheless, "when the question
is one of public right and the object of the mandamus is to procure the enforcement
of a public duty, the people are regarded as the real party in interest and the relator at
whose instigation the proceedings are instituted need not show that he has any legal
or special interest in the result, it being sufficient to show that he is a citizen and as
such interested in the execution of the laws [High, Extraordinary Legal Remedies,
3rd ed., sec. 431].
Thus, in said case, this Court recognized the relator Lope Severino, a private
individual, as a proper party to the mandamus proceedings brought to compel the
Governor General to call a special election for the position of municipal president in
the town of Silay, Negros Occidental. Speaking for this Court, Mr. Justice Grant T.
Trent said:
We are therefore of the opinion that the weight of authority
supports the proposition that the relator is a proper party to
proceedings of this character when a public right is sought to be
enforced. If the general rule in America were otherwise, we think
that it would not be applicable to the case at bar for the reason 'that
it is always dangerous to apply a general rule to a particular case
without keeping in mind the reason for the rule, because, if under
the particular circumstances the reason for the rule does not exist,
the rule itself is not applicable and reliance upon the rule may well
lead to error'
No reason exists in the case at bar for applying the general rule
insisted upon by counsel for the respondent. The circumstances
which surround this case are different from those in the United
States, inasmuch as if the relator is not a proper party to these
proceedings no other person could be, as we have seen that it is not
the duty of the law officer of the Government to appear and
represent the people in cases of this character.
The reasons given by the Court in recognizing a private citizen's legal personality in
the aforementioned case apply squarely to the present petition. Clearly, the right
sought to be enforced by petitioners herein is a public right recognized by no less
than the fundamental law of the land. If petitioners were not allowed to institute this
proceeding, it would indeed be difficult to conceive of any other person to initiate the
same, considering that the Solicitor General, the government officer generally
empowered to represent the people, has entered his appearance for respondents in
this case.
Respondents further contend that publication in the Official Gazette is not a sine qua
non requirement for the effectivity of laws where the laws themselves provide for
their own effectivity dates. It is thus submitted that since the presidential issuances in
question contain special provisions as to the date they are to take effect, publication
in the Official Gazette is not indispensable for their effectivity. The point stressed is
anchored on Article 2 of the Civil Code:
Art. 2. Laws shall take effect after fifteen days following the
completion of their publication in the Official Gazette, unless it is
otherwise provided, ...
The interpretation given by respondent is in accord with this Court's construction of
said article. In a long line of decisions,4 this Court has ruled that publication in the
Official Gazette is necessary in those cases where the legislation itself does not
provide for its effectivity date-for then the date of publication is material for
determining its date of effectivity, which is the fifteenth day following its
publication-but not when the law itself provides for the date when it goes into effect.
Respondents' argument, however, is logically correct only insofar as it equates the
effectivity of laws with the fact of publication. Considered in the light of other
statutes applicable to the issue at hand, the conclusion is easily reached that said
Article 2 does not preclude the requirement of publication in the Official Gazette,
even if the law itself provides for the date of its effectivity. Thus, Section 1 of
Commonwealth Act 638 provides as follows:
Section 1. There shall be published in the Official Gazette [1] all
important legisiative acts and resolutions of a public nature of the,
Congress of the Philippines; [2] all executive and administrative
orders and proclamations, except such as have no general
applicability; [3] decisions or abstracts of decisions of the Supreme
Court and the Court of Appeals as may be deemed by said courts
of sufficient importance to be so published; [4] such documents or
classes of documents as may be required so to be published by law;
and [5] such documents or classes of documents as the President of
the Philippines shall determine from time to time to have general
applicability and legal effect, or which he may authorize so to be
published. ...
The clear object of the above-quoted provision is to give the general public adequate
notice of the various laws which are to regulate their actions and conduct as citizens.
Without such notice and publication, there would be no basis for the application of
the maxim "ignorantia legis non excusat." It would be the height of injustice to
punish or otherwise burden a citizen for the transgression of a law of which he had
no notice whatsoever, not even a constructive one.
Perhaps at no time since the establishment of the Philippine Republic has the
publication of laws taken so vital significance that at this time when the people have
bestowed upon the President a power heretofore enjoyed solely by the legislature.
While the people are kept abreast by the mass media of the debates and deliberations
in the Batasan Pambansa—and for the diligent ones, ready access to the legislative
records—no such publicity accompanies the law-making process of the President.
Thus, without publication, the people have no means of knowing what presidential
decrees have actually been promulgated, much less a definite way of informing
themselves of the specific contents and texts of such decrees. As the Supreme Court
of Spain ruled: "Bajo la denominacion generica de leyes, se comprenden tambien los
reglamentos, Reales decretos, Instrucciones, Circulares y Reales ordines dictadas de
conformidad con las mismas por el Gobierno en uso de su potestad. 5
The very first clause of Section I of Commonwealth Act 638 reads: "There shall be
published in the Official Gazette ... ." The word "shall" used therein imposes upon
respondent officials an imperative duty. That duty must be enforced if the
Constitutional right of the people to be informed on matters of public concern is to
be given substance and reality. The law itself makes a list of what should be
published in the Official Gazette. Such listing, to our mind, leaves respondents with
no discretion whatsoever as to what must be included or excluded from such
publication.
The publication of all presidential issuances "of a public nature" or "of general
applicability" is mandated by law. Obviously, presidential decrees that provide for
fines, forfeitures or penalties for their violation or otherwise impose a burden or. the
people, such as tax and revenue measures, fall within this category. Other
presidential issuances which apply only to particular persons or class of persons such
as administrative and executive orders need not be published on the assumption that
they have been circularized to all concerned. 6
It is needless to add that the publication of presidential issuances "of a public nature"
or "of general applicability" is a requirement of due process. It is a rule of law that
before a person may be bound by law, he must first be officially and specifically
informed of its contents. As Justice Claudio Teehankee said in Peralta vs.
COMELEC 7:
In a time of proliferating decrees, orders and letters of instructions
which all form part of the law of the land, the requirement of due
process and the Rule of Law demand that the Official Gazette as
the official government repository promulgate and publish the texts
of all such decrees, orders and instructions so that the people may
know where to obtain their official and specific contents.
The Court therefore declares that presidential issuances of general application, which
have not been published, shall have no force and effect. Some members of the Court,
quite apprehensive about the possible unsettling effect this decision might have on
acts done in reliance of the validity of those presidential decrees which were
published only during the pendency of this petition, have put the question as to
whether the Court's declaration of invalidity apply to P.D.s which had been enforced
or implemented prior to their publication. The answer is all too familiar. In similar
situations in the past this Court had taken the pragmatic and realistic course set forth
in Chicot County Drainage District vs. Baxter Bank 8 to wit:
The courts below have proceeded on the theory that the Act of
Congress, having been found to be unconstitutional, was not a law;
that it was inoperative, conferring no rights and imposing no
duties, and hence affording no basis for the challenged decree.
Norton v. Shelby County, 118 U.S. 425, 442; Chicago, 1. & L. Ry.
Co. v. Hackett, 228 U.S. 559, 566. It is quite clear, however, that
such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual
existence of a statute, prior to such a determination, is an operative
fact and may have consequences which cannot justly be ignored.
The past cannot always be erased by a new judicial declaration.
The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects-with respect to particular conduct,
private and official. Questions of rights claimed to have become
vested, of status, of prior determinations deemed to have finality
and acted upon accordingly, of public policy in the light of the
nature both of the statute and of its previous application, demand
examination. These questions are among the most difficult of those
which have engaged the attention of courts, state and federal and it
is manifest from numerous decisions that an all-inclusive statement
of a principle of absolute retroactive invalidity cannot be justified.
Consistently with the above principle, this Court in Rutter vs. Esteban 9 sustained the
right of a party under the Moratorium Law, albeit said right had accrued in his favor
before said law was declared unconstitutional by this Court.
Similarly, the implementation/enforcement of presidential decrees prior to their
publication in the Official Gazette is "an operative fact which may have
consequences which cannot be justly ignored. The past cannot always be erased by a
new judicial declaration ... that an all-inclusive statement of a principle of absolute
retroactive invalidity cannot be justified."
From the report submitted to the Court by the Clerk of Court, it appears that of the
presidential decrees sought by petitioners to be published in the Official Gazette,
only Presidential Decrees Nos. 1019 to 1030, inclusive, 1278, and 1937 to 1939,
inclusive, have not been so published. 10 Neither the subject matters nor the texts of
these PDs can be ascertained since no copies thereof are available. But whatever
Domestic Purchases- Capital Goods ₱12,312,722.00 ₱1,231,272.20
their subject matter may be, it is undisputed that none of these unpublished PDs has
ever been implemented or enforced by the government. In Pesigan vs. Angeles, 11 the Domestic Purchases- Goods other than
Court, through Justice Ramon Aquino, ruled that "publication is necessary to apprise ₱64,789,507.90 ₱6,478,950.79
capital Goods
the public of the contents of [penal] regulations and make the said penalties binding
on the persons affected thereby. " The cogency of this holding is apparently Domestic Purchases- Services ₱16,455,868.10 ₱1,645,586.81
recognized by respondent officials considering the manifestation in their comment
that "the government, as a matter of policy, refrains from prosecuting violations of Total Input Tax ₱9,355,809.80
criminal laws until the same shall have been published in the Official Gazette or in
some other publication, even though some criminal laws provide that they shall take Zero-rated Sales ₱316,113,513.34
effect immediately.
Total Sales ₱335,640,544.74
WHEREFORE, the Court hereby orders respondents to publish in the Official
Gazette all unpublished presidential issuances which are of general application, and
unless so published, they shall have no binding force and effect. Accenture filed its Monthly VAT Return for the month of September 2002 on 24
October 2002; and that for October 2002, on 12 November 2002. These returns were
amended on 9 January 2003. Accenture’s Quarterly VAT Return for the first quarter
G.R. No. 190102 July 11, 2012 of 2003, which included the period 1 September 2002 to 30 November 2002 (2nd
period), was filed on 17 December 2002; and the Amended Quarterly VAT Return,
ACCENTURE, INC., Petitioner, on 18 June 2004. The latter contains the following information: 6
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Purchases Amount Input VAT
DECISION Domestic Purchases- Capital Goods ₱80,765,294.10 ₱8,076,529.41

SERENO, J.: Domestic Purchases- Goods other

₱132,820,541.70 ₱13,282,054.17
than capital Goods
This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure, praying
Domestic Purchases-Services ₱63,238,758.00 ₱6,323,875.80
for the reversal of the Decision of the Court of Tax Appeals En Banc (CTA En Banc
) dated 22 September 2009 and its subsequent Resolution dated 23 October 2009. 1 Total Input Tax ₱27,682,459.38

Accenture, Inc. (Accenture) is a corporation engaged in the business of providing

management consulting, business strategies development, and selling and/or
licensing of software.2 It is duly registered with the Bureau of Internal Revenue
(BIR) as a Value Added Tax (VAT) taxpayer or enterprise in accordance with
Section 236 of the National Internal Revenue Code (Tax Code). 3
On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1 July
2002 to 31 August 2002 (1st period). Its Quarterly VAT Return for the fourth quarter
of 2002, which covers the 1st period, was filed on 17 September 2002; and an
Amended Quarterly VAT Return, on 21 June 2004. 4 The following are reflected in
Accenture’s VAT Return for the fourth quarter of 2002:5
1âwphi1
Purchases Amount Input VAT
Zero-rated Sales ₱545,686,639.18
Total Sales ₱ ₱572,880,982.68
The monthly and quarterly VAT returns of Accenture show that, notwithstanding its
application of the input VAT credits earned from its zero-rated transactions against
its output VAT liabilities, it still had excess or unutilized input VAT credits. These
VAT credits are in the amounts of P9,355,809.80 for the 1st period and
P27,682,459.38 for the 2nd period, or a total of P37,038,269.18. 7
Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated input
VAT on Accenture’s "domestic purchases of taxable goods which cannot be directly
attributed to its zero-rated sale of services."8 This allocated input VAT was broken
down to P8,811,301.66 for the 1st period and P26,367,542.55 for the 2nd period. 9
The excess input VAT was not applied to any output VAT that Accenture was liable
for in the same quarter when the amount was earned—or to any of the succeeding
quarters. Instead, it was carried forward to petitioner’s 2nd Quarterly VAT Return
for 2003.10
Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF) an
administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC).
The DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter
filed a Petition for Review with the First Division of the Court of Tax Appeals
(Division), praying for the issuance of a TCC in its favor in the amount of
P35,178,844.21.
The Commissioner of Internal Revenue (CIR), in its Answer, 11 argued thus:
1. The sale by Accenture of goods and services to its clients are not zero-
rated transactions.
2. Claims for refund are construed strictly against the claimant, and
Accenture has failed to prove that it is entitled to a refund, because its claim
has not been fully substantiated or documented.
In a 13 November 2008 Decision,12 the Division denied the Petition of Accenture
for failing to prove that the latter’s sale of services to the alleged foreign clients
qualified for zero percent VAT.13
In resolving the sole issue of whether or not Accenture was entitled to a refund or an
issuance of a TCC in the amount of P35,178,844.21, 14 the Division ruled that
Accenture had failed to present evidence to prove that the foreign clients to which
the former rendered services did business outside the Philippines. 15 Ruling that
Accenture’s services would qualify for zero-rating under the 1997 National Internal
Revenue Code of the Philippines (Tax Code) only if the recipient of the services was
doing business outside of the Philippines,16 the Division cited Commissioner of
Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
(Burmeister)17 as basis.
Accenture appealed the Division’s Decision through a Motion for Reconsideration
(MR).18 In its MR, it argued that the reliance of the Division on Burmeister was
misplaced19 for the following reasons:
1. The issue involved in Burmeister was the entitlement of the applicant to a
refund, given that the recipient of its service was doing business in the
Philippines; it was not an issue of failure of the applicant to present
evidence to prove the fact that the recipient of its services was a foreign
corporation doing business outside the Philippines.20
2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the
services should be doing business outside the Philippines, and Accenture
had successfully established that.21
3. Having been promulgated on 22 January 2007 or after Accenture filed its
Petition with the Division, Burmeister cannot be made to apply to this
case.22
Accenture also cited Commissioner of Internal Revenue v. American Express
(Amex)23 in support of its position. The MR was denied by the Division in its 12
March 2009 Resolution.24
Accenture appealed to the CTA En Banc. There it argued that prior to the
amendment introduced by Republic Act No. (R.A.) 9337, 25 there was no requirement
that the services must be rendered to a person engaged in business conducted outside
the Philippines to qualify for zero-rating. The CTA En Banc agreed that because the
case pertained to the third and the fourth quarters of taxable year 2002, the applicable
law was the 1997 Tax Code, and not R.A. 9337. 26 Still, it ruled that even though the
provision used in Burmeister was Section 102(b)(2) of the earlier 1977 Tax Code, the
pronouncement therein requiring recipients of services to be engaged in business
outside the Philippines to qualify for zero-rating was applicable to the case at bar,
because Section 108(B)(2) of the 1997 Tax Code was a mere reenactment of Section
102(b)(2) of the 1977 Tax Code.
The CTA En Banc concluded that Accenture failed to discharge the burden of
proving the latter’s allegation that its clients were foreign-based.27
Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter
affirmed the Division’s Decision and Resolution.28 A subsequent MR was also
denied in a Resolution dated 23 October 2009.
Hence, the present Petition for Review29 under Rule 45.
In a Joint Stipulation of Facts and Issues, the parties and the Division have agreed to
submit the following issues for resolution:
1. Whether or not Petitioner’s sales of goods and services are zero-rated for
VAT purposes under Section 108(B)(2)(3) of the 1997 Tax Code.
2. Whether or not petitioner’s claim for refund/tax credit in the amount of
P35,178,884.21 represents unutilized input VAT paid on its domestic
purchases of goods and services for the period commencing from 1 July
2002 until 30 November 2002.
 3. Whether or not Petitioner has carried over to the succeeding taxable
quarter(s) or year(s) the alleged unutilized input VAT paid on its domestic
purchases of goods and services for the period commencing from 1 July
2002 until 30 November 2002, and applied the same fully to its output VAT
liability for the said period.
4. Whether or not Petitioner is entitled to the refund of the amount of
P35,178,884.21, representing the unutilized input VAT on domestic
purchases of goods and services for the period commencing from 1 July
2002 until 30 November 2002, from its sales of services to various foreign
clients.
5. Whether or not Petitioner’s claim for refund/tax credit in the amount of
P35,178,884.21, as alleged unutilized input VAT on domestic purchases of
goods and services for the period covering 1 July 2002 until 30 November
2002 are duly substantiated by proper documents. 30
For consideration in the present Petition are the following issues:
1. Should the recipient of the services be "doing business outside the
Philippines" for the transaction to be zero-rated under Section 108(B)(2) of
the 1997 Tax Code?
2. Has Accenture successfully proven that its clients are entities doing
business outside the Philippines?
Recipient of services must be doing business outside the Philippines for the
transactions to qualify as zero-rated.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which
allows the refund of unutilized input VAT earned from zero-rated or effectively zero-
rated sales. The provision reads:
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods of properties
or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately
on the basis of the volume of sales. Section 108(B) referred to in the foregoing
provision was first seen when Presidential Decree No. (P.D.) 1994 31 amended Title
IV of P.D. 1158,32 which is also known as the National Internal Revenue Code of
1977. Several Decisions have referred to this as the 1986 Tax Code, even though it
merely amended Title IV of the 1977 Tax Code.
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 273 33 further
amended provisions of Title IV. E.O. 273 by transferring the old Title IV provisions
to Title VI and filling in the former title with new provisions that imposed a VAT.
The VAT system introduced in E.O. 273 was restructured through Republic Act No.
(R.A.) 7716.34 This law, which was approved on 5 May 1994, widened the tax base.
Section 3 thereof reads:
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is
hereby further amended to read as follows:
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
xxx xxx xxx
"(b) Transactions subject to zero-rate. — The following services performed in the
Philippines by VAT-registered persons shall be subject to 0%:
"(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph,
the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP)."
Essentially, Section 102(b) of the 1977 Tax Code—as amended by P.D. 1994, E.O.
273, and R.A. 7716—provides that if the consideration for the services provided by a
VAT-registered person is in a foreign currency, then this transaction shall be
subjected to zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section
108(B), to wit:
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT- registered persons shall be subject to zero
percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP); x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing
provision, became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. -
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT-registered persons shall be subject to zero
percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
"(2) Services other than those mentioned in the preceding paragraph
rendered to a person engaged in business conducted outside the Philippines
or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); x x
x." (Emphasis supplied)
The meat of Accenture’s argument is that nowhere does Section 108(B) of the 1997
Tax Code state that services, to be zero-rated, should be rendered to clients doing
business outside the Philippines, the requirement introduced by R.A.
9337.35 Required by Section 108(B), prior to the amendment, is that the consideration
for the services rendered be in foreign currency and in accordance with the rules of
the Bangko Sentral ng Pilipinas (BSP). Since Accenture has complied with all the
conditions imposed in Section 108(B), it is entitled to the refund prayed for.
In support of its claim, Accenture cites Amex, in which this Court supposedly ruled
that Section 108(B) reveals a clear intent on the part of the legislators not to impose
the condition of being "consumed abroad" in order for the services performed in the
Philippines to be zero-rated.36
The Division ruled that this Court, in Amex and Burmeister, did not declare that the
requirement—that the client must be doing business outside the Philippines—can be
disregarded, because this requirement is expressly provided in Article 108(2) of the
Tax Code.37
Accenture questions the Division’s application to this case of the pronouncements
made in Burmeister. According to petitioner, the provision applied to the present
case was Section 102(b) of the 1977 Tax Code, and not Section 108(B) of the 1997
Tax Code, which was the law effective when the subject transactions were entered
into and a refund was applied for.
In refuting Accenture’s theory, the CTA En Banc ruled that since Section 108(B) of
the 1997 Tax Code was a mere reproduction of Section 102(b) of the 1977 Tax Code,
this Court’s interpretation of the latter may be used in interpreting the former, viz:
In the Burmeister case, the Supreme Court harmonized both Sections 102(b)(1) and
102(b)(2) of the 1977 Tax Code, as amended, pertaining to zero-rated transactions. A
parallel approach should be accorded to the renumbered provisions of Sections
108(B)(2) and 108(B)(1) of the 1997 NIRC. This means that Section 108(B)(2) must
be read in conjunction with Section 108(B)(1). Section 108(B)(2) requires as
follows: a) services other than processing, manufacturing or repacking rendered by
VAT registered persons in the Philippines; and b) the transaction paid for in
acceptable foreign currency duly accounted for in accordance with BSP rules and
regulations. The same provision made reference to Section 108(B)(1) further
imposing the requisite c) that the recipient of services must be performing business
outside of Philippines. Otherwise, if both the provider and recipient of service are
doing business in the Philippines, the sale transaction is subject to regular VAT as
explained in the Burmeister case x x x.
xxx xxx xxx
Clearly, the Supreme Court’s pronouncements in the Burmeister case requiring that
the recipient of the services must be doing business outside the Philippines as
mandated by law govern the instant case.38
Assuming that the foregoing is true, Accenture still argues that the tax appeals courts
cannot be allowed to apply to Burmeister this Court’s interpretation of Section
102(b) of the 1977 Tax Code, because the Petition of Accenture had already been
filed before the case was even promulgated on 22 January 2007, 39 to wit:
x x x. While the Burmeister case forms part of the legal system and assumes the
same authority as the statute itself, however, the same cannot be applied retroactively
against the Petitioner because to do so will be prejudicial to the latter. 40
The CTA en banc is of the opinion that Accenture cannot invoke the non-
retroactivity of the rulings of the Supreme Court, whose interpretation of the law is
part of that law as of the date of its enactment.41
We rule that the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B) of the
Tax Code.
This Court upholds the position of the CTA en banc that, because Section 108(B) of
the 1997 Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any
interpretation of the latter holds true for the former.
Moreover, even though Accenture’s Petition was filed before Burmeister was
promulgated, the pronouncements made in that case may be applied to the present
one without violating the rule against retroactive application. When this Court
decides a case, it does not pass a new law, but merely interprets a preexisting
one.42 When this Court interpreted Section 102(b) of the 1977 Tax Code in
Burmeister, this interpretation became part of the law from the moment it became
effective. It is elementary that the interpretation of a law by this Court constitutes
part of that law from the date it was originally passed, since this Court's construction
merely establishes the contemporaneous legislative intent that the interpreted law
carried into effect.43
Accenture questions the CTA’s application of Burmeister, because the provision
interpreted therein was Section 102(b) of the 1977 Tax Code. In support of its
position that Section 108 of the 1997 Tax Code does not require that the services be
rendered to an entity doing business outside the Philippines, Accenture invokes this
Court’s pronouncements in Amex. However, a reading of that case will readily
reveal that the provision applied was Section 102(b) of the 1977 Tax Code, and not
Section 108 of the 1997 Tax Code. As previously mentioned, an interpretation of
Section 102(b) of the 1977 Tax Code is an interpretation of Section 108 of the 1997
Tax Code, the latter being a mere reproduction of the former.
This Court further finds that Accenture’s reliance on Amex is misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does not require that the
services be consumed abroad to be zero-rated. However, nowhere in that case did
this Court discuss the necessary qualification of the recipient of the service, as this
matter was never put in question. In fact, the recipient of the service in Amex is a
nonresident foreign client.
The aforementioned case explains how the credit card system works. The issuance of
a credit card allows the holder thereof to obtain, on credit, goods and services from
certain establishments. As proof that this credit is extended by the establishment, a
credit card draft is issued. Thereafter, the company issuing the credit card will pay
for the purchases of the credit card holders by redeeming the drafts. The obligation to
collect from the card holders and to bear the loss—in case they do not pay—rests on
the issuer of the credit card.
The service provided by respondent in Amex consisted of gathering the bills and
credit card drafts from establishments located in the Philippines and forwarding them
to its parent company's regional operating centers outside the country. It facilitated in
the Philippines the collection and payment of receivables belonging to its Hong
Kong-based foreign client.
The Court explained how the services rendered in Amex were considered to have
been performed and consumed in the Philippines, to wit:
Consumption is "the use of a thing in a way that thereby exhausts it." Applied to
services, the term means the performance or "successful completion of a contractual
duty, usually resulting in the performer’s release from any past or future liability x x
x." The services rendered by respondent are performed or successfully completed
upon its sending to its foreign client the drafts and bills it has gathered from service
establishments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.44
The effect of the place of consumption on the zero-rating of the transaction was not
the issue in Burmeister.1âwphi1Instead, this Court addressed the squarely raised
issue of whether the recipient of services should be doing business outside the
Philippines for the transaction to qualify for zero-rating. We ruled that it should.
Thus, another essential condition for qualification for zero-rating under Section
102(b)(2) of the 1977 Tax Code is that the recipient of the business be doing that
business outside the Philippines. In clarifying that there is no conflict between this
pronouncement and that laid down in Amex, we ruled thus:
x x x. As the Court held in Commissioner of Internal Revenue v. American Express
International, Inc. (Philippine Branch), the place of payment is immaterial, much less
is the place where the output of the service is ultimately used. An essential condition
for entitlement to 0% VAT under Section 102 (b) (1) and (2) is that the recipient of
the services is a person doing business outside the Philippines. In this case, the
recipient of the services is the Consortium, which is doing business not outside, but
within the Philippines because it has a 15-year contract to operate and maintain
NAPOCOR’s two 100-megawatt power barges in Mindanao. (Emphasis in the
original)45
In Amex we ruled that the place of performance and/or consumption of the service is
immaterial. In Burmeister, the Court found that, although the place of the
consumption of the service does not affect the entitlement of a transaction to zero-
rating, the place where the recipient conducts its business does.
Amex does not conflict with Burmeister. In fact, to fully understand how Section
102(b)(2) of the 1977 Tax Code—and consequently Section 108(B)(2) of the 1997
Tax Code—was intended to operate, the two aforementioned cases should be taken
together. The zero-rating of the services performed by respondent in Amex was
affirmed by the Court, because although the services rendered were both performed
and consumed in the Philippines, the recipient of the service was still an entity doing
business outside the Philippines as required in Burmeister.
That the recipient of the service should be doing business outside the Philippines to
qualify for zero-rating is the only logical interpretation of Section 102(b)(2) of the
1977 Tax Code, as we explained in Burmeister:
This can only be the logical interpretation of Section 102 (b) (2). If the provider and
recipient of the "other services" are both doing business in the Philippines, the
payment of foreign currency is irrelevant. Otherwise, those subject to the regular
VAT under Section 102 (a) can avoid paying the VAT by simply stipulating payment
in foreign currency inwardly remitted by the recipient of services. To interpret
Section 102 (b) (2) to apply to a payer-recipient of services doing business in the
Philippines is to make the payment of the regular VAT under Section 102 (a)
dependent on the generosity of the taxpayer. The provider of services can choose to
pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly
remitted by the payer-recipient. Such interpretation removes Section 102 (a) as a tax
measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a
mandatory exaction, not a voluntary contribution.
xxx xxx xxx
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102 (a) governing domestic
sale or exchange of services. Indeed, this is a purely local sale or exchange of
services subject to the regular VAT, unless of course the transaction falls under the
other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than those mentioned in the
preceding subparagraph," the legislative intent is that only the services are different
between subparagraphs 1 and 2. The requirements for zero-rating, including the
essential condition that the recipient of services is doing business outside the
Philippines, remain the same under both subparagraphs. (Emphasis in the original) 46
Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress
had already clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and
108(B)(2) of the 1997 Tax Code amending the earlier provision. R.A. 9337 added the
following phrase: "rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed."
Accenture has failed to establish that the recipients of its services do business outside
the Philippines.
Accenture argues that based on the documentary evidence it presented, 47 it was able
to establish the following circumstances:
1. The records of the Securities and Exchange Commission (SEC) show that
Accenture’s clients have not established any branch office in which to do
business in the Philippines.
2. For these services, Accenture bills another corporation, Accenture
Participations B.V. (APB), which is likewise a foreign corporation with no
"presence in the Philippines."
3. Only those not doing business in the Philippines can be required under
BSP rules to pay in acceptable currency for their purchase of goods and
services from the Philippines. Thus, in a domestic transaction, where the
provider and recipient of services are both doing business in the Philippines,
the BSP cannot require any party to make payment in foreign currency.48
Accenture claims that these documentary pieces of evidence are supported by the
Report of Emmanuel Mendoza, the Court-commissioned Independent Certified
Public Accountant. He ascertained that Accenture’s gross billings pertaining to zero-
rated sales were all supported by zero-rated Official Receipts and Billing Statements.
These documents show that these zero-rated sales were paid in foreign exchange
currency and duly accounted for in the rules and regulations of the BSP. 49
In the CTA’s opinion, however, the documents presented by Accenture merely
substantiate the existence of the sales, receipt of foreign currency payments, and
inward remittance of the proceeds of these sales duly accounted for in accordance
with BSP rules. Petitioner presented no evidence whatsoever that these clients were
doing business outside the Philippines.50
Accenture insists, however, that it was able to establish that it had rendered services
to foreign corporations doing business outside the Philippines, unlike in Burmeister,
which allegedly involved a foreign corporation doing business in the Philippines. 51
We deny Accenture’s Petition for a tax refund.
The evidence presented by Accenture may have established that its clients are
foreign.1âwphi1 This fact does not automatically mean, however, that these clients
were doing business outside the Philippines. After all, the Tax Code itself has
provisions for a foreign corporation engaged in business within the Philippines and
vice versa, to wit:
SEC. 22. Definitions - When used in this Title:
xxx xxx xxx
(H) The term "resident foreign corporation" applies to a foreign corporation
engaged in trade or business within the Philippines.
(I) The term ‘nonresident foreign corporation’ applies to a foreign
corporation not engaged in trade or business within the Philippines.
(Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that
the recipient of the service be proven to be a foreign corporation; rather, it must be
specifically proven to be a nonresident foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. We ruled thus in Commissioner of Internal Revenue v. British
Overseas Airways Corporation:52
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar
environmental circumstances. The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of acts or works
or the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business
organization. "In order that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a
temporary character."53
A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim.1âwphi1 Tax refunds, like tax exemptions, are construed
strictly against the taxpayer.54
Accenture failed to discharge this burden. It alleged and presented evidence to prove
only that its clients were foreign entities. However, as found by both the CTA
Division and the CTA En Banc, no evidence was presented by Accenture to prove
the fact that the foreign clients to whom petitioner rendered its services were clients
doing business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment
Requests, Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable,
and Bank Statements presented by Accenture merely substantiated the existence of
sales, receipt of foreign currency payments, and inward remittance of the proceeds of
such sales duly accounted for in accordance with BSP rules, all of these were devoid
of any evidence that the clients were doing business outside of the Philippines. 55
WHEREFORE, the instant Petition is DENIED. The 22 September 2009 Decision
and the 23 October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A.
EB No. 477, dismissing the Petition for the refund of the excess or unutilized input
VAT credits of Accenture, Inc., are AFFIRMED.
G.R. No. 182045 September 19, 2012
GULF AIR COMPANY, PHILIPPINE BRANCH (GF), Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the. Court is a Petition for Review on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure assailing the January 30, 2008 Decision1 and the
March 12, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Bane in C.T.A.
E.B. No. 302 (C.T.A. Case No. 7030) entitled "Gulf Air Company, Philippine
Branch (GF) v. Commissioner of Internal Revenue."
The Facts
Petitioner Gulf Air Company Philippine Branch (GF) is a branch of Gulf Air
Company, a foreign corporation duly organized in accordance with the laws of the
Kingdom of Bahrain.3
On October 25, 2001, GF availed of the Voluntary Assessment Program of the
Bureau of Internal Revenue (BIR) under Revenue Regulations 8-2001 for its 1999
and 2000 Income Tax and Documentary Stamp Tax and its Percentage Tax for the
third quarter of 2000, paying a total of ₱ 11,964,648.00. 4
GF also made a claim for refund of percentage taxes for the first, second and fourth
quarters of 2000. In connection with this, a letter of authority was issued by the BIR
authorizing its revenue officers to examine GF’s books of accounts and other records
to verify its claim.5
After its submission of several documents and an informal conference with BIR
representatives, GF received its Preliminary Assessment Notice on November 4,
2003 for deficiency percentage tax amounting to ₱ 32,745,141.93. On the same day,
GF also received a letter denying its claim for tax credit or refund of excess
percentage tax remittance for the first, second and fourth quarters of 2000, and
requesting the immediate settlement of the deficiency tax assessment. 6
GF then received the Formal Letter of Demand, dated December 10, 2003, for the
payment of the total amount of ₱ 33,864,186.62. In response, it filed a letter on
December 29, 2003 to protest the assessment and to reiterate its request for
reconsideration on the denial of its claim for refund. 7
On June 30, 2004, the Deputy Commissioner, Officer-in-Charge of the Large
Taxpayers Service of the BIR, denied GF’s written protest for lack of factual and
legal basis and requested the immediate payment of the ₱ 33,864,186.62 deficiency
percentage tax assessment.8
Aggrieved, GF filed a petition for review with the CTA.9 On March 21, 2007, the
Second Division of the CTA dismissed the petition, finding that Revenue
Regulations No. 6-66 was the applicable rule providing that gross receipts should be
computed based on the cost of the single one-way fare as approved by the Civil
Aeronautics Board (CAB). In addition, it noted that GF failed to include in its gross
receipts the special commissions on passengers and cargo. Finally, it ruled that
Revenue Regulations No. 15-2002, allowing the use of the net net rate in
determining the gross receipts, could not be given any or a retroactive effect. Thus,
the CTA affirmed the decision of the BIR and ordered the payment of ₱
41,117,734.01 plus 20% delinquency interest.10
GF elevated the case to the CTA En Banc which promulgated its Decision on
January 30, 2008 dismissing the petition and affirming the decision of the CTA in
Division. It found that Revenue Regulations No. 6-66 was the applicable rule
because the period involved in the assessment covered the first, second and fourth
quarters of 2000 and the amended percentage tax returns were filed on October 25,
2001. Revenue Regulations No. 15-2002, which took effect on October 26, 2002,
could not be given retroactive effect because it was declarative of a new right as it
provided a different rule in determining gross receipts. 11
GF subsequently filed a motion for reconsideration but the same was denied by the
CTA En Banc in its March 12, 2008 Resolution.
Hence, this petition.
The Issue
GF relies upon the following grounds for the allowance of its petition:
The honorable CTA En Banc erred in affirming the ruling of the Court in Division
summarized on pages 8 to 9 of the January 30, 2008 decision, as follows:
1. That the correct basis of the 3% Percentage Tax imposed under Section
118(A) of the 1997 NIRC on the quarterly gross receipts of international air
carriers doing business in the Philippines is the fare approved by the CAB
pursuant to Revenue Regulations 6-66; that Revenue Regulations 6-66 is the
applicable implementing regulation and it is clearly provided therein that
gross receipt shall be computed on the cost of the single one way fare as
approved by the CAB on the continuous and uninterrupted flight of
passengers, excess baggage, freight or cargo including mail, as reflected on
the plane manifest of the carrier; and
2. That the respondent was correct in adding back the special commissions
on passengers and cargo to the gross receipt per return of petitioner in order
to come up with the gross receipts subject to tax under Section 118(A) of
the 1997 NIRC.12
The sole issue to be resolved by the Court, as identified by the tax court, is whether
the definition of "gross receipts," for purposes of computing the 3% Percentage Tax
under Section 118(A) of the 1997 National Internal Revenue Code (NIRC), should
include special commissions on passengers and special commissions on cargo based
on the rates approved by the CAB.13
The Court’s Ruling
The petition has no merit.
GF questions the validity of Revenue Regulations No. 6-66, claiming that it is not a
correct interpretation of Section 118(A) of the NIRC, and insisting that the gross
receipts should be based on the "net net" amount – the amount actually received,
derived, collected, and realized by the petitioner from passengers, cargo and excess
baggage. It further argues that the CAB approved fares are merely notional and not
reflective of the actual revenue or receipts derived by it from its business as an
international air carrier.14
GF also insists that its construction of "gross receipts" to mean the "net net" amount
actually received, rather than the CAB approved rates as mandated by Revenue
Regulations No. 6-66, has been validated by the issuance of Revenue Regulations
No. 15-2002 which expressly superseded the former.
Finally, GF contends that because the definition of gross receipts under the
questioned regulations is contrary to that given under the other sections of the NIRC
on value-added tax and percentage taxes, the legislative intention was to collect the
percentage tax based solely on the actual receipts derived and collected by the
taxpayer. Given that Revenue Regulations No. 6-66 allegedly conflicts with Section
118 of the NIRC as well as with the other sections on percentage tax, GF concludes
that the former was effectively repealed, amended or modified by the NIRC. 15
Section 118(A) of the NIRC states that:
Sec. 118. Percentage Tax on International Carriers. –
(A) International air carriers doing business in the Philippines shall pay a tax of three
percent (3%) of their quarterly gross receipts.
Pursuant to this, the Secretary of Finance promulgated Revenue Regulations No. 15-
2002, which prescribes that "gross receipts" for the purpose of determining Common
Carrier’s Tax shall be the same as the tax base for calculating Gross Philippine
Billings Tax.16 Section 5 of the same provides for the computation of "Gross
Philippine Billings":
Sec. 5. Determination of Gross Philippine Billings. –
(a) In computing for "Gross Philippine Billings," there shall be included the total
amount of gross revenue derived from passage of persons, excess baggage, cargo
and/or mail, originating from the Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and the place of payment of the
passage documents.
The gross revenue for passengers whose tickets are sold in the Philippines shall be
the actual amount derived for transportation services, for a first class, business class
or economy class passage, as the case may be, on its continuous and uninterrupted
flight from any port or point in the Philippines to its final destination in any port or
point of a foreign country, as reflected in the remittance area of the tax coupon
forming an integral part of the plane ticket. For this purpose, the Gross Philippine
Billings shall be determined by computing the monthly average net fare of all the tax
coupons of plane tickets issued for the month per point of final destination, per class
of passage (i.e., first class, business class, or economy class) and per classification of
passenger (i.e., adult, child or infant) and multiplied by the corresponding total
number of passengers flown for the month as declared in the flight manifest.
For tickets sold outside the Philippines, the gross revenue for passengers for first
class, business class or economy class passage, as the case may be, on a continuous
and uninterrupted flight from any port of point in the Philippines to final destination
in any port or point of a foreign country shall be determined using the locally
available net fares applicable to such flight taking into consideration the seasonal
fare rate established at the time of the flight, the class of passage (whether first class,
business class, economy class or non-revenue), the classification of passenger
(whether adult, child or infant), the date of embarkation, and the place of final
destination. Correspondingly, the Gross Philippine Billing for tickets sold outside the
Philippines shall be determined in the manner as provided in the preceding
paragraph.
Passage documents revalidated, exchanged and/or endorsed to another on-line
international airline shall be included in the taxable base of the carrying airline and
shall be subject to Gross Philippine Billings tax if the passenger is lifted/boarded on
an aircraft from any port or point in the Philippines towards a foreign destination.
The gross revenue on excess baggage which originated from any port or point in the
Philippines and destined to any part of a foreign country shall be computed based on
the actual revenue derived as appearing on the official receipt or any similar
document for the said transaction.
The gross revenue for freight or cargo and mail shall be determined based on the
revenue realized from the carriage thereof. The amount realized for freight or cargo
shall be based on the amount appearing on the airway bill after deducting therefrom
the amount of discounts granted which shall be validated using the monthly cargo
sales reports generated by the IATA Cargo Accounts Settlement System (IATA
CASS) for airway bills issued through their cargo agents or the monthly reports
prepared by the airline themselves or by their general sales agents for direct issues
made. The amount realized for mails shall, on the other hand, be determined based
on the amount as reflected in the cargo manifest of the carrier.
xxx [Emphasis and underscoring supplied]
This expressly repealed Revenue Regulations No. 6-66 that stipulates a different
manner of calculating the gross receipts:
Sec. 5. Gross Receipts, how determined. – The total amount of gross receipts derived
from passage of persons, excess baggage, freight or cargo, including, mail cargo,
originating from the Philippines in a continuous and uninterrupted flight, irrespective
of the place of sale or issue and the place of payment of the ticket, shall be subject to
the common carrier’s percentage tax (Sec. 192, Tax Code). The gross receipts shall
be computed on the cost of the single one way fare as approved by the Civil
Aeronautics Board on the continuous and uninterrupted flight of passengers, excess
baggage, freight or cargo, including mail, as reflected on the plane manifest of the
carrier.
Tickets revalidated, exchanged and/or indorsed to another international airline are
subject to percentage tax if lifted from a passenger boarding a plane in a port or point
in the Philippines.
In case of a flight that originates from the Philippines but transhipment of passenger
takes place elsewhere on another airline, the gross receipts reportable for Philippine
tax purposes shall be the portion of the cost of the ticket corresponding to the leg of
the flight from port of origin to the point of transhipment.
In case of passengers, the taxable base shall be gross receipts less 25% thereof.
[Emphasis and underscoring supplied]
There is no doubt that prior to the issuance of Revenue Regulations No. 15-2002
which became effective on October 26, 2002, the prevailing rule then for the purpose
of computing common carrier’s tax was Revenue Regulations No. 6-66. While the
petitioner’s interpretation has been vindicated by the new rules which compute gross
revenues based on the actual amount received by the airline company as reflected on
the plane ticket, this does not change the fact that during the relevant taxable period
involved in this case, it was Revenue Regulations No. 6-66 that was in effect.
GF itself is adamant that it does not seek the retroactive application of Revenue
Regulations No. 15-2002.17 Even if it were inclined to do so, it cannot insist on the
application of the said rules because tax laws, including rules and regulations,
operate prospectively unless otherwise legislatively intended by express terms or by
necessary implication.18
Although GF does not dispute that Revenue Regulations No. 6-66 was the applicable
rule covering the taxable period involved, it puts in issue the wisdom of the said rule
as it pertains to the definition of gross receipts.
GF is reminded that rules and regulations interpreting the tax code and promulgated
by the Secretary of Finance, who has been granted the authority to do so by Section
244 of the NIRC, "deserve to be given weight and respect by the courts in view of
the rule-making authority given to those who formulate them and their specific
expertise in their respective fields." 19
As such, absent any showing that Revenue Regulations No. 6-66 is inconsistent with
the provisions of the NIRC, its stipulations shall be upheld and applied accordingly.
This is in keeping with our primary duty of interpreting and applying the law.
Regardless of our reservations as to the wisdom or the perceived ill-effects of a
particular legislative enactment, the court is without authority to modify the same as
it is the exclusive province of the law-making body to do so.20 As aptly stated in
Saguiguit v. People,21
xxx Even with the best of motives, the Court can only interpret and apply the law
and cannot, despite doubts about its wisdom, amend or repeal it. Courts of justice
have no right to encroach on the prerogatives of lawmakers, as long as it has not
been shown that they have acted with grave abuse of discretion. And while the
judiciary may interpret laws and evaluate them for constitutional soundness and to
strike them down if they are proven to be infirm, this solemn power and duty does
not include the discretion to correct by reading into the law what is not written
therein.22
Moreover, the validity of the questioned rules can be sustained by the application of
the principle of legislative approval by re-enactment. Under the aforementioned legal
concept, "where a statute is susceptible of the meaning placed upon it by a ruling of
the government agency charged with its enforcement and the Legislature thereafter
re-enacts the provisions without substantial change, such action is to some extent
confirmatory that the ruling carries out the legislative purpose." 23 Thus, there is tacit
approval of a prior executive construction of a statute which was re-enacted with no
substantial changes.24
In this case, Revenue Regulations No. 6-66 was promulgated to enforce the
provisions of Title V, Chapter I (Tax on Business) of Commonwealth Act No. 466
(National Internal Revenue Code of 1939), under which Section 192, pertaining to
the common carrier’s tax, can be found:
Sec. 192. Percentage tax on carriers and keepers of garages. –
Keepers of garages, transportation contractors, persons who transport passenger or
freight for hire, and common carriers by land, air, or water, except owners of bancas,
and owners of animal-drawn two-wheeled vehicles, shall pay a tax equivalent to two
per centum of their monthly gross receipts. [Emphasis supplied]
This provision has, over the decades, been substantially reproduced with every
amendment of the NIRC, up until its recent reincarnation in Section 118 of the
NIRC.
The legislature is presumed to have full knowledge of the existing revenue
regulations interpreting the aforequoted provision of law and, with its subsequent
substantial re-enactment, there is a presumption that the lawmakers have approved
and confirmed the rules in question as carrying out the legislative purpose. 25 Hence,
it can be concluded that with the continued duplication of the NIRC provision on
common carrier’s tax, the law-making body was aware of the existence of Revenue
Regulations No. 6-66 and impliedly endorsed its interpretation of the NIRC and its
definition of gross receipts.
Although the Court commiserates with GF in its predicament, it is left with no choice
but to uphold the validity of Revenue Regulations No. 6-66 and apply it to the case at
bench, thus upholding the ruling of the CTA.There is no cause to reverse the decision
of the tax court. As a specialized court dedicated exclusively to the study and
resolution of tax issues, the CTA has developed an expertise on the subject of
taxation.26 The Court cannot be compelled to set aside its decisions, unless there is a
finding that the questioned decision is not supported by substantial evidence or there
is a showing of abuse or improvident exercise of authority. 27 Therefore, its findings
are accorded the highest respect and are generally conclusive upon this court, in the
absence of grave abuse of discretion or palpable error. 28 1âwphi1
On a final note, it is incumbent on the Court to emphasize that tax refunds partake
the nature of tax exemptions which are a derogation of the power of taxation of the
State. Consequently, they are construed strictly against a taxpayer and liberally in
favor of the State such that he who claims a refund or exemption must justify it by
words too plain to be mistaken and too categorical to be
misinterpreted.29 Regrettably, the petitioner in the case at bench failed to
unequivocally prove that it is entitled to a refund.
WHEREFORE, the petition 1s DENIED. The January 30, 2008 Decision and the
March 12, 2008 Resolution of the Court of Tax Appeals in CT.A. E.B. No. 302
(C.T.A. Case No. 7030) are hereby AFFIRMED.
G.R. No. L-66653 June 19, 1986
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.
PARAS, J.:
Petition for certiorari to review and set aside the Decision dated June 27, 1983 of
respondent Court of Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs
Limited vs. Commissioner of Internal Revenue" which ordered petitioner
Commissioner of Internal Revenue to grant in favor of private respondent Burroughs
Limited, tax credit in the sum of P172,058.90, representing erroneously overpaid
branch profit remittance tax.
Burroughs Limited is a foreign corporation authorized to engage in trade or business
in the Philippines through a branch office located at De la Rosa corner Esteban
Streets, Legaspi Village, Makati, Metro Manila.
Sometime in March 1979, said branch office applied with the Central Bank for
authority to remit to its parent company abroad, branch profit amounting to
P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance
tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of
P6,499,999.30 computed as follows:
Amount applied for remittance................................ P7,647,058.00
Deduct: 15% branch profit
remittance tax ..............................................1,147,058.70
Net amount actually remitted.................................. P6,499,999.30
Claiming that the 15% profit remittance tax should have been computed on the basis
of the amount actually remitted (P6,499,999.30) and not on the amount before profit
remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a
written claim for the refund or tax credit of the amount of P172,058.90 representing
alleged overpaid branch profit remittance tax, computed as follows:
Profits actually remitted .........................................P6,499,999.30
Remittance tax rate .......................................................15%
Branch profit remittance tax-
due thereon ......................................................P 974,999.89
Branch profit remittance
tax paid .............................................................Pl,147,058.70
Less: Branch profit remittance
tax as above computed................................................. 974,999.89
Total amount refundable........................................... P172,058.81
On February 24, 1981, private respondent filed with respondent court, a petition for
review, docketed as C.T.A. Case No. 3204 for the recovery of the above-mentioned
amount of P172,058.81.
On June 27, 1983, respondent court rendered its Decision, the dispositive portion of
which reads—
ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to
grant a tax credit in favor of petitioner Burroughs Limited the amount of P
172,058.90. Without pronouncement as to costs.
SO ORDERED.
Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the
instant petition before this Court with the prayers as herein earlier stated upon the
sole issue of whether the tax base upon which the 15% branch profit remittance tax
shall be imposed under the provisions of section 24(b) of the Tax Code, as amended,
is the amount applied for remittance on the profit actually remitted after deducting
the 15% profit remittance tax. Stated differently is private respondent Burroughs
Limited legally entitled to a refund of the aforementioned amount of P172,058.90.
We rule in the affirmative. The pertinent provision of the National Revenue Code is
Sec. 24 (b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits remittances. Any profit remitted
abroad by a branch to its head office shall be subject to a tax of
fifteen per cent (15 %) ...
In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting
Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision
had been interpreted to mean that "the tax base upon which the 15% branch profit
remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on
the total branch profits out of which the remittance is to be made. " The said ruling is
hereinbelow quoted as follows:
In reply to your letter of November 3, 1978, relative to your query
as to the tax base upon which the 15% branch profits remittance
tax provided for under Section 24 (b) (2) of the 1977 Tax Code
shall be imposed, please be advised that the 15% branch profit tax
shall be imposed on the branch profits actually remitted abroad and
not on the total branch profits out of which the remittance is to be
made.
Please be guided accordingly.
Applying, therefore, the aforequoted ruling, the claim of private respondent that it
made an overpayment in the amount of P172,058.90 which is the difference between
the remittance tax actually paid of Pl,147,058.70 and the remittance tax that should
have been paid of P974,999,89, computed as follows
Profits actually remitted......................................... P6,499,999.30
Remittance tax rate.............................................................. 15%
Remittance tax due................................................... P974,999.89
is well-taken. As correctly held by respondent Court in its assailed
decision-
Respondent concedes at least that in his ruling dated January 21,
1980 he held that under Section 24 (b) (2) of the Tax Code the
15% branch profit remittance tax shall be imposed on the profit
actually remitted abroad and not on the total branch profit out of
which the remittance is to be made. Based on such ruling petitioner
should have paid only the amount of P974,999.89 in remittance tax
computed by taking the 15% of the profits of P6,499,999.89 in
remittance tax actually remitted to its head office in the United
States, instead of Pl,147,058.70, on its net profits of
P7,647,058.00. Undoubtedly, petitioner has overpaid its branch
profit remittance tax in the amount of P172,058.90.
Petitioner contends that respondent is no longer entitled to a refund because
Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed
the BIR ruling of January 21, 1980. The said memorandum circular states—
Considering that the 15% branch profit remittance tax is imposed
and collected at source, necessarily the tax base should be the
amount actually applied for by the branch with the Central Bank of
the Philippines as profit to be remitted abroad.
Petitioner's aforesaid contention is without merit. What is applicable in the case at
bar is still the Revenue Ruling of January 21, 1980 because private respondent
Burroughs Limited paid the branch profit remittance tax in question on March 14,
1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given
retroactive effect in the light of Section 327 of the National Internal Revenue Code
which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation,

modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of the
rulings or circulars promulgated by the Commissioner shag not be
given retroactive application if the revocation, modification, or
reversal will be prejudicial to the taxpayer except in the following
cases (a) where the taxpayer deliberately misstates or omits
material facts from his return or in any document required of him
by the Bureau of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based, or
(c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting
Corp. v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a

retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount of P172,058.90. And, insofar as the
enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall
under any of them.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby

AFFIRMED. No pronouncement as to costs.

SO ORDERED.