G.R. No.
L-24813 April 28, 1969 Failure to pay the tax within the prescribed time shall render the taxpayer
DR. HERMENEGILDO SERAFICA, plaintiff-appellant,
vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF
ORMOC CITY, HON. ESTEBAN C. CONEJOS, as Mayor of Ormoc City and
ORMOC CITY, defendants-appellees.
CONCEPCION, C.J.:
Direct appeal from a decision of the Court of First Instance of Leyte dismissing
plaintiff's complaint, without pronouncement as to costs.
Plaintiff, Dr. Hermenegildo Serafica, seeks a declaration of nullity of Ordinance No.
13, Series of 1964, of Ormoc City, imposing a "tax of five pesos (P5.00) for every
one thousand (1,000) board feet of lumber sold at Ormoc City by any person,
partnership, firm, association, corporation, or entities", pursuant to which the
Treasurer of said City levied on and collected from said plaintiff, as owner of the
Serafica Sawmill, the aggregate sum of P1,837.84, as tax on 367,568 board feet of
lumber sold, in said City, during the third quarter of 1964. After appropriate
proceedings, the lower court rendered judgment upholding the validity of said
ordinance and denying the relief prayed for by Dr. Serafica. Hence, this appeal by
the latter.
The contested ordinance reads:
ORDINANCE NO. 13
AN ORDINANCE IMPOSING A TAX OF FIVE PESOS (P5.00) FOR
EVERY ONE THOUSAND BOARD FEET OF LUMBER SOLD AT
ORMOC CITY AND FOR OTHER PURPOSES.
BE IT ORDAINED, by authority of the Municipal Board of Ormoc City,
Philippines, pursuant to the provisions of Republic Act 179, as amended by
RA 429, otherwise known as the Charter of Ormoc City, That:
SECTION 1. City tax. — There shall be paid to the City Treasurer a city tax
of five pesos (P5.00) for every one thousand (1,000) board feet of lumber
sold at Ormoc City by any person, partnership, firm, association,
corporation or entity.
SECTION 2. Time and manner of payment and penalty for delinquency. —
The city tax herein prescribed shall be payable without penalty within
twenty (20) days after the close of every quarter for which the tax is due.
subject to a surcharge of fifty percentum (50%) for the first offense and one
hundred percentum (100%) for subsequent failures to pay within the
prescribed period.
SECTION 3. Payment to be rendered by taxpayer. — The taxpayer is
hereby obliged to include the tax due in every invoice issued for the sale of
lumber which tax shall be submitted for payment to the City Treasurer
within twenty (20) days after the close of every quarter.
SECTION 4. Inspection of taxpayer's books and records. — For the
purpose of enforcing the provisions of this Ordinance, the City Treasurer or
any of his deputies specifically authorized in writing for the purpose, shall
have authority to examine the books and records of any person, partnership,
firm, association, corporation or entity subject to the tax herein imposed,
PROVIDED, HOWEVER, That such examination shall be made only
during regular business hours, unless the person, partnership, firm,
association, corporation or entity concerned shall consent otherwise.
SEC. 5. Penalty for violation. — Any violation of the provisions of the
Ordinance shall be punishable by a fine of not more than five hundred
(P500.00) pesos and an imprisonment of not more than three (3) months.
SEC. 6. Construction of this Ordinance. — If any part or section of this
Ordinance shall be declared unconstitutional or ultra vires, such part or
section shall not invalidate any other provision hereof.
SEC. 7. Effectivity. — This Ordinance shall take effect immediately upon
approval. ENACTED, June 17, 1964.lawphi1.nêt
RESOLVED, FURTHER, to authorize the City Treasurer to copies of this
Ordinance for issuance to all concerned;
RESOLVED, FINALLY, to furnish a copy of this resolution-ordinance
each to the City Treasurer, the City Auditor, the City Fiscal, the City Judge,
and all concerned;
CARRIED. Six affirmative votes registered by Councilors Tugonon, Alfaro,
Kierulf, Abas, Besabella, and Du; one abstention registered by Councilor
Aviles.
xxx xxx xxx
Plaintiff assails this ordinance as null and void upon the grounds that: (1) the Charter
of Ormoc City (Republic Acts Nos. 179 and 429) authorizes the same to "regulate",
but not to "tax" lumber yards; (2) the ordinance in question imposes, in effect, double
taxation, because the business of lumberyard is already regulated under said Charter
and the sale of lumber is "a mere incident to the business of lumber yard"; (3) the tax
imposed is "unfair, unjust, arbitrary, unreasonable, oppressive and contrary to the
principles of taxation"; and (4) "the public was not heard and given a chance to air its
views" thereon.
With respect to the first ground, We have held in Ormoc Sugar Co. v. Municipal
Board of Ormoc City, 1 that the taxing power of the City of Ormoc, under section 2 of
the Local Autonomy Act 2 is "broad" and "sufficiently plenary to cover everything,
excepting those mentioned therein". 3 It should be noted that in said case of Ormoc
Sugar Co., We upheld the validity of a sales tax.
As regards the second ground, suffice it to say that regulation and taxation are two
different things, the first being an exercise of police power, whereas the latter is not,
apart from the fact that double taxation is not prohibited in the Philippines. 4
The third objection is premised upon the fact that the tax in question is imposed
regardless of the class of lumber sold, although there are several categories thereof,
commanding different prices. Plaintiff has not proven, however, or even alleged the
prices corresponding to each category, so that, like the lower court, We have no
means to ascertain the accuracy of the conclusion drawn by him, and must,
accordingly, rely upon the presumption that the City Council had merely complied
with its duty and that the ordinance is valid, unless and until the contrary has been
duly established. 5
The last objection is based upon Provincial Circular No. 24 of the Department of
Finance, dated March 31, 1960, suggesting that, "in the enactment of tax ordinances
.. under the Local Autonomy Act ... where practicable, public hearings be held
wherein the views of the public ... may be heard." This is, however, a mere
suggestion, compliance with which is not obligatory, so that failure to act in
accordance therewith can not and does not affect the validity of the tax ordinance.
Indeed, since local governments are subject, not to the control, but merely to the
general supervision of the President, it is to say the least, doubtful that the latter
could have made compliance with said circular obligatory. 6
We have not overlooked the fact that, pursuant to Sec. 2 of Republic Act No. 2264 as
amended "no city, municipality or municipal district may levy or impose ...
xxx xxx xxx
(e) Taxes on forest products or forest concessions."
Although lumber is a forest product, this imitation has no application to the case at
bar, the tax in question being imposed, not upon lumber, but upon its sale. Said tax is
not levied upon the lumber in plaintiff's sawmill and does not become due until after
the lumber has been sold. Hence, the case at bar is distinguishable from Golden
Ribbon Lumber Co., Inc. v. City of Butuan 7 in that the ordinance involved therein
provided that "every person, association or corporation operating a lumber mill
and/or lumber yard within the territory of the City of Butuan shall pay to the City a
tax of two-fifths (P.004) centavo for every board foot of lumber sawn, manufactured
and/or produced." In short, the tax in that case was imposed upon the "lumber" — a
forest product, not subject to local taxation — whether sold or not. Similarly, Santos
Lumber Co. v. City of Cebu 8 and Jose S. Johnston & Sons v. Ramon
Regondola 9 cited by the plaintiff, refer to situations arising before the enactment of
Republic Act No. 2264, 10 and, hence, are inapplicable to the present case.
Neither have We overlooked the proviso in Sec. 2 of said Act prohibiting the
imposition of "any percentage tax on sales or other taxes in any form based thereon,"
for this injunction is directed exclusively to "municipalities and municipal districts,"
and does not apply to cities.
WHEREFORE, the decision appealed from should be, as it is hereby affirmed, with
costs against plaintiff herein. It is so ordered.
G.R. No. L-16315 May 30, 1964
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HAWAIIAN-PHILIPPINE COMPANY, respondent.
DIZON, J.:
This is a petition filed by the Commissioner of Internal Revenue for the review of the
decision of the Court of Tax Appeals in C.T.A. Case No. 598 ordering him to refund
to respondent Hawaiian-Philippine Company the amount of P8,411.99 representing
fixed and percentage taxes assessed against it and which the latter had deposited with
the City Treasurer of Silay, Occidental Negros.
The undisputed facts of this ease, as found by the Court of Tax Appeals, are as
follows:
The petitioner, a corporation duly organized in accordance with law, is
operating a sugar central in the City of Silay, Occidental Negros. It
produces centrifugal sugar from sugarcane supplied by planters. The
processed sugar is divided between the planters and the petitioner in the
proportion stipulated in the milling contracts, and thereafter is deposited in
the warehouses of the latter. (Pp. 4-5, t.s.n.) For the sugar deposited by the
 planters, the petitioner issues the corresponding warehouse receipts of
"quedans". It does not collect storage charges on the sugar deposited in its
warehouse during the first 90 days period counted from the time it is
extracted from the sugarcane. Upon the lapse of the first ninety days and up
to the beginning of the next milling season, it collects a fee of P0.30 per
picul a month. Henceforth, if the sugar is not yet withdrawn, a penalty of
P0.25 per picul or fraction thereof a month is imposed. (Exhibits "B-1", "C-
1", "D-1", "B-2", "C-2", p. 10, t.s.n.)
The storage of sugar is carried in the books of the company under Account
No. 5000, denominated "Manufacturing Cost Ledger Control"; the storage
fees under Account No. 521620; the expense accounts of the factory under
Account No. 5200; and the so-called "Sugar Bodega Operations" under
Account No. 5216, under which is a Sub-Account No. 20, captioned,
"Credits". (Pp. 16-17, t.s.n., Exhibit "F".) The collections from storage after
the lapse of the first 90 days period are entered in the company's books as
debit to CASH, and credit to Expense Account No. 2516-20 (p. 18, t.s.n.).
The credit for storage charges decreased the deductible expense resulting in
the corresponding increase of the taxable income of the petitioner. This is
reflected by the entries enclosed in parenthesis in Exhibit "G", under the
heading "Storage Charges". (P. 18, t.s.n.) The alleged reason for this
accounting operation is that, inasmuch as the "Sugar Bodega Operations" is
considered as an expense account, entries under it are "debits". Similarly,
since "Storage Charges" constitute "credit", the corresponding figures (see
Exhibit "C") are enclosed in parenthesis as they decrease the expenses of
maintaining the sugar warehouses.
Upon investigation conducted by the Bureau, it was found that during the
years 1949 to 1957, the petitioner realized from collected storage fees a total
gross receipts of P212,853.00, on the basis of which the respondent
determined the petitioner's liability for fixed and percentage taxes, 25%
surcharge, and administrative penalty in the aggregate amount of P8,411.99
(Exhibit "5", p. 11, BIR rec.)
On October 20, 1958, the petitioner deposited the amount of P8,411.99 with
the Office of the City Treasurer of Silay. (Exhibits "I" and "I-1", pp. 59-60,
CTA rec.) Later, it filed its petition for review before this Court (Exhibit
"K", p. 25, CTA rec.)
After due hearing the Court of Tax Appeals rendered the appealed decision.
The only issue to be resolved in the case at bar is whether or not, upon the facts
stated above, petitioner is a warehouseman liable for the payment of the fixed and
percentage taxes prescribed in Sections 182 and 191 of the National Internal
Revenue Code which read as follows:
SEC. 182. FIXED TAXES — (a) ON BUSINESS (1) PERSONS SUBJECT
TO PERCENTAGE TAX. — Unless otherwise provided every person
engaging in a business on which the percentage tax is imposed shall pay a
fixed annual tax of twenty pesos. ... .
SEC. 191. PERCENTAGE TAX ON ROAD, BUILDING, IRRIGATION,
ARTESIAN WELL, WATERWORKS, AND OTHER CONSTRUCTION
WORK CONTRACTORS, PROPRIETORS OR OPERATORS OF
DOCKYARD, AND OTHERS. ... warehousemen; plumbers, smiths; house
or sign painters; lithographers, publishers, except those engaged in the
publication or printing and publication of any newspaper, magazine, review
or bulletin which appear at regular intervals with fixed prices for
subscription and sale, and which is not devoted principally to the
publication of advertisements; printers and bookbinders, business agents
and other independent contractors, shall pay a tax equivalent to THREE
PERCENTUM of their gross receipts. ... .
Respondent disclaims liability under the provisions quoted above, alleging that it is
not engaged the business of storing its planters' sugar for profit; that the maintenance
of its warehouses is merely incidental to its business of manufacturing sugar and in
compliance with its obligation to its planters. We find this to be without merit.
It is clear from the facts of the case that, after manufacturing the sugar of its planters,
respondent stores it in its warehouses and issues the corresponding "quedans" to the
planters who own the sugar; that while the sugar is stored free during the first ninety
days from the date the it "quedans" are issued, the undisputed fact is that, upon the
expiration of said period, respondent charger, and collects storage fees; that for the
period beginning 1949 to 1957, respondent's total gross receipts from this particular
enterprise amounted to P212,853.00.
A warehouseman has been defined as one who receives and stores goods of another
for compensation (44 Words and Phrases, p. 635). For one to be considered engaged
in the warehousing business, therefore, it is sufficient that he receives goods owned
by another for storage, and collects fees in connection with the same. In fact, Section
2 of the General Bonded Warehouse Act, as amended, defines a warehouseman as "a
person engaged in the business of receiving commodity for storage."
That respondent stores its planters' sugar free of charge for the first ninety days does
not exempt it from liability under the legal provisions under consideration. Were
such fact sufficient for that purpose, the law imposing the tax would be rendered
ineffectual. 1äwphï1.ñët
Neither is the fact that respondent's warehousing business is carried in addition to, or
in relation with, the operation of its sugar central sufficient to exempt it from
payment of the tax prescribed in the legal provisions quoted heretofore Under
Section 178 of the National Internal Revenue Code, the tax on business is payable
for every separate or distinct establishment or place where business subject to the tax
is conducted, and one line of business or occupation does not become exempt by
being conducted with some other business or occupation for which such tax has been
paid.
Lastly, respondent's contention that the imposition of the tax under consideration
would amount to double taxation is likewise without merit. As is clear from the facts,
respondent's warehousing business, although carried on in relation to the operation of
its sugar central, is a distinct and separate business taxable under a different
provision of the Tax Code. There can be no double taxation where the State merely
imposes a tax on every separate and distinct business in which a party is engaged.
Moreover, in Manufacturers Life insurance Co. vs. Meer, G.R. No. L-2910, June 29,
1951; City of Manila vs. Inter-Island Gas service, G.R. L-8799, August 31, 1956,
We have ruled that there is no prohibition against double or multiple taxation in this
jurisdiction.
WHEREFORE, the decision appealed from is reversed and set aside, with costs.
G.R. No. L-16619 June 29, 1963
COMPAÑIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,
vs.
CITY OF MANILA, ET AL., defendants-appellants.
DIZON, J.:
Appeal from the decision of the Court of First Instance of Manila ordering the City
Treasurer of Manila to refund the sum of P15,280.00 to Compania General de
Tabacos de Filipinas.
Appellee Compania General de Tabacos de Filipinas — hereinafter referred to
simply as Tabacalera — filed this action in the Court of First Instance of Manila to
recover from appellants, City of Manila and its Treasurer, Marcelino Sarmiento —
also hereinafter referred to as the City — the sum of P15,280.00 allegedly overpaid
by it as taxes on its wholesale and retail sales of liquor for the period from the third
quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos.
3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the
City the fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to
1957, inclusive, and, as a wholesale and retail dealer of general merchandise, it also
paid the sales taxes required by Ordinances Nos. 3634, 3301, and 3816.1äwphï1.ñët
In its sworn statements of wholesale, retail, and grocery sales of general
merchandise from the third quarter of 1954 to the second quarter of 1957, inclusive,
Tabacalera included its liquor sales of the same period, and it is not denied that of
the taxes it paid on all its sales of general merchandise, the sum of P15,280.00
subject to the action represents the tax corresponding to the liquor sales aforesaid.
Tabacalera's action for refund is based on the theory that, in connection with
its liquor sales, it should pay the license fees prescribed by Ordinance No. 3358 but
not the municipal sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; and
since it already paid the license fees aforesaid, the sales taxes paid by it —
amounting to the sum of P15,208.00 — under the three ordinances mentioned
heretofore is an overpayment made by mistake, and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it granting proper
authority to "conduct or engage in the sale of alcoholic beverages, or liquors"
Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside
from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816; that, even
assuming that Tabacalera is not subject to the payment of the sales taxes prescribed
by the said three ordinances as regards itsliquor sales, it is not entitled to the refund
demanded for the following reasons:.
(a) The said amount was paid by the plaintiff voluntarily and without
protest;
(b) If at all the alleged overpayment was made by mistake, such mistake
was one of law and arose from the plaintiff's neglect of duty; .
(c) The said amount had been added by the plaintiff to the selling price of
the liquor sold by it and passed to the consumers; and
(d) The said amount had been already expended by the defendant City for
public improvements and essential services of the City government, the
benefits of which are enjoyed, and being enjoyed by the plaintiff.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail
liquor license fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634,
amending City Ordinance No. 3420, and City Ordinance No. 3816, amending City
Ordinance No. 3301 were passed. By reason thereof, the City Treasurer issued the
regulations marked Exhibit A, according to which, the term "general merchandise as
used in said ordinances, includes all articles referred to in Chapter 1, Sections 123 to
148 of the National Internal Revenue Code. Of these, Sections 133-135
included liquor among the taxable articles. Pursuant to said regulations, Tabacalera
included its sales of liquor in its sworn quarterly declaration submitted to the City
Treasurer beginning from the third quarter of 1954 to the second quarter of 1957,
with a total value of P722,501.09 and correspondingly paid a wholesaler's tax
amounting to P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of
P15,208.00 — the amount sought to be recovered.
It appears that in the year 1954, the City, through its treasurer, addressed a letter to
Messrs. Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view that
liquor dealers paying the annual wholesale and retail fixed tax under City Ordinance
No. 3358 are not subject to the wholesale and retail dealers' taxes prescribed by City
Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee
stopped including its sales of liquor in its quarterly sworn declarations submitted in
accordance with the aforesaid City Ordinances Nos. 3634, 3301, and 3816, and on
December 3, 1957, it addressed a letter to the City Treasurer demanding refund of
the alleged overpayment. As the claim was disallowed, the present action was
instituted.
The term "tax" applies — generally speaking — to all kinds of exactions which
become public funds. The term is often loosely used to include levies for revenue as
well as levies for regulatory purposes. Thus license fees are commonly called taxes.
Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while
the latter is imposed under the taxing power for the purpose of raising revenues
(MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the
privilege to engage in the business of selling liquor or alcoholic beverages, having
been enacted by the Municipal Board of Manila pursuant to its charter power to fix
license fees on, and regulate, the sale of intoxicating liquors, whether imported or
locally manufactured. (Section 18 [p], Republic Act 409, as amended). The license
fees imposed by it are essentially for purposes of regulation, and are justified,
considering that the sale of intoxicating liquor is, potentially at least, harmful to
public health and morals, and must be subject to supervision or regulation by the
state and by cities and municipalities authorized to act in the premises.
(MacQuillin, supra, p. 445.)
On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose
taxes on the sales of general merchandise, wholesale or retail, and are revenue
measures enacted by the Municipal Board of Manila by virtue of its power to tax
dealers for the sale of such merchandise. (Section 10 [o], Republic Act No. 409, as
amended.).
Under Ordinance No. 3634 the word "merchandise" as employed therein clearly
includes liquor. Aside from this, we have held in City of Manila vs. Inter-Island Gas
Service, Inc., G.R. No. L-8799, August 31, 1956, that the word "merchandise" refers
to all subjects of commerce and traffic; whatever is usually bought and sold in trade
or market; goods or wares bought and sold for gain; commodities or goods to trade;
and commercial commodities in general.
That Tabacalera is being subjected to double taxation is more apparent than real. As
already stated what is collected under Ordinance No. 3358 is a license fee for the
privilege of engaging in the sale of liquor, a calling in which — it is obvious — not
anyone or anybody may freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals. On the other hand, what the
three ordinances mentioned heretofore impose is a tax for revenue purposes based on
the sales made of the same article or merchandise. It is already settled in this
connection that both a license fee and a tax may be imposed on the same business or
occupation, or for selling the same article, this not being in violation of the rule
against double taxation (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla.
641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83).
This is precisely the case with the ordinances involved in the case at bar.
Appellee's contention that the City is repudiating its previous view — expressed by
its Treasurer in a letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 —
that a liquor dealer who pays the annual license fee under Ordinance No. 3358 is
exempted from the wholesalers and retailers taxes under the other three ordinances
mentioned heretofore is of no consequence. The government is not bound by the
errors or mistakes committed by its officers, specially on matters of law.
Having arrived at the above conclusion, we deem it unnecessary to consider the other
legal points raised by the City.
WHEREFORE, the decision appealed from is reversed, with the result that this case
should be, as it is hereby dismissed, with costs.
G.R. No. L-20312 February 26, 1972
SAN MIGUEL BREWERY, INC., plaintiff-appellant,
vs.
THE CITY OF CEBU, defendant-appellee.
G.R. No. L-20496 February 26, 1972
CEBU PORTLAND CEMENT COMPANY, plaintiff-appellant,
vs.
MUNICIPALITY OF NAGA, CEBU and THE MUNICIPAL TREASURER,
NAGA, CEBU, defendants-appellees.
CONCEPCION, C.J.:p
The above-entitled cases are jointly disposed of in this decision owing to the
common issue therein — namely, the extent of the taxing power of municipal
corporations under section 2 of Republic Act No. 2264, otherwise known as the
Local Autonomy Act.
In L-20312, plaintiff San Miguel Brewery, Inc. — hereinafter referred to as SMB —
assails the validity of Ordinance No. 298, as amended by Ordinance No. 300, both
series of 1960, of the City of Cebu, providing that "(t)here shall be collected on any
sale or disposal of liquor or intoxicating beverages of any form in the City of Cebu
by manufacturers and wholesalers for purposes of a municipal tax the following
rates: .
(a) On sales or disposal per bottle or container not exceeding P.50,
a tax of P.03;
(b) On sales or disposal per bottle or container over P.50, but not
exceeding P1, a tax of P.05;
(c) On sales or disposal per bottle or container over P1, but not
exceeding P2, a tax of P.15;
(d) On sales or disposal per bottle or container exceeding P2, the
amount of tax provided under schedule C, plus P.10 per P1, or a
fraction thereof.
PROVIDED, however, that manufacturers, who are at the same
time wholesalers of their own product, shall pay only as
manufacturers under the rates specified hereinabove.
Pursuant to said ordinance, the SMB which is engaged in the manufacture, bottling,
distribution and sale of beer throughout the Philippines, including the defendant
Cebu City, paid thereto, under protest, on April 20, 1961, the sum of P29,874.69, the
refund of which is prayed for in the complaint herein, upon the ground that said
ordinance is ultra vires, for imposing a sales tax, which is allegedly beyond
defendant's power to levy, apart from resulting in illegal double taxation, since SMB
already pays the defendant a business license tax of P600 per annum. The Court of
First Instance of Manila having rendered judgment dismissing the complaint, with
costs, plaintiff seeks a review by record on appeal.
In L-20496, the Cebu Portland Cement Company — Cebu Portland for short —
seeks to annul Ordinance No. 22, series of 1959, of the Municipality of Naga, Cebu,
imposing upon "all cement factories, corporations, or enterprises operating within"
said municipality "an annual municipal license tax, payable quarterly, graduated"
according to the "maximum annual output capacity" of the factory, as follows: P150
if the capacity is not more than 10,000 bags of cement; P300, if over 10,000 but not
more than 20,000 bags; P450, if over 20,000 but not more than 30,000 bags; P600, if
over 30,000 but not more than 40,000 bags; P750, if over 40,000 but not more than
50,000 bags; P900, if over 50,000 but not more than 60,000 bags; and P75 for every
5,000 bags or fraction thereof in excess of 60,000 bags.
Having failed to pay said tax for the years 1960 and 1961, and the corresponding
penalties therefor, 100,000 bags of cement of Cebu Portland were placed under
distraint and levy by the municipal treasurer of Naga. This triggered the filing by
Cebu Portland of two (2) actions, namely: 1) one to impugn the validity of the
distraint and then the sale of said 100,000 bags of cement, both of which were, in due
course, upheld by the Court of First Instance of Manila, the decision of which was,
on appeal, affirmed by Us1; and 2) the present case, to annul said ordinance and
secure the refund of P44,000, subsequently paid under protest by Cebu Portland, in
partial satisfaction of its tax liability, which said plaintiff contests as illegal upon the
theory that it partakes of the nature of a specific tax and that it is allegedly unjust,
excessive, oppressive and confiscatory. The defendants having obtained a favorable
judgment in the Court of First Instance of Manila, Cebu Portland appealed by record
on appeal.
Said section 2 of Republic Act No. 2264 reads as follows: .
"SEC. 2. Taxation. -- Any provision of law to the contrary
notwithstanding, all chartered cities, municipalities and municipal
districts shall have authority to impose municipal license taxes or
fees upon persons engaged in any occupation or business, or
exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licenses at rates
fixed by the municipal board or city council of the city, the
municipal council of the municipality, or the municipal district
council of the municipal district; to collect fees and charges for
services rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes,
licenses or fees: Provided, That municipalities and municipal
districts shall, in no case, impose any percentage tax on sales or
other taxes in any form based thereon nor impose taxes on articles
subject to specific tax, except gasoline, under the provisions of the
national internal revenue code: Provided, however, That no city,
municipality or municipal district may levy or impose any of the
following: .
(a) Residence tax;
 (b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and
publication of any newspaper, magazine, review or bulletin
appearing at regular intervals and having fixed prices for
subscription and sale, and which is not published primarily for the
purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other
public utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritances, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage on wharves owned by the
national government, tonnage, and all other kinds of customs fees,
charges and dues;
(j) Taxes of any kind on banks, insurance companies, and persons
paying franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain
insurance directly with foreign insurance companies." .
Referring to the above provision, this Court declared in Nin Bay Mining Co. vs.
Municipality of Roxas, Palawan,2 that "Republic Act No. 2264 confers upon all
chartered cities, municipalities and municipal districts the general power to levy, not
only taxes, but, also, municipal license taxes, subject to specified exceptions, as well
as service fees." Subsequently, Luzon Surety Co., Inc. vs. City of Bacolod 3 cited with
approval the fact that this Court had consistently upheld the "doctrine that the grant
of the power to tax to chartered cities under section 2 of the Local Autonomy Act
is sufficiently plenary to cover everything excepting those which are mentioned
therein, subject only to the limitation that the tax so levied is for public purposes, just
and uniform."4
Appellant in L-20312 questions the conclusions reached in the decision appealed
from, to the effect that the first proviso in the above-quoted provision, prohibiting
"municipalities and municipal districts" from imposing "any percentage tax on sales
or other taxes in any form based thereon," implies that cities, like appellee therein,
are not subject to said restriction, and that the contested ordinance is not invalid upon
the ground of double taxation.
We find no merit in this pretense, for: (a) double taxation is not prohibited by the
Constitution5; (b) there is double taxation when the same person is taxed by the same
jurisdiction for the same purpose,6 which is not the case in L-20312, for the
ordinance in question imposes a tax on the sale or disposal of every "bottle or
container" of "liquor intoxicating beverages," and, as such, is a typical tax or revenue
measure, whereas the sum of P600 it pays annually is for a "second-class wholesale
liquor license," which is a license to engage in the business of wholesale liquor in
Cebu City, and, accordingly, constitutes a regulatory measure, in the exercise of the
police power;7 and (c) the authority of cities under the above -- quoted section 2 of
Rep. Act No. 2264, to impose a sales tax has already been upheld in City of Bacolod
vs. Gruet8 and Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. City of
Butuan,9and We find no plausible reason to depart from said view.
Neither is there any merit in the contention of Cebu Portland in L-20496, to the
effect that the tax involved therein partakes of the nature of a percentage or sales tax
or a specific tax, merely because the amount of the tax is dependent upon the
maximum annual capacity of the cement factory subject thereto. Settled is the rule
that a graduation of the tax based upon the taxpayer's volume of business, when the
same is considered solely for purposes of classification, and there is no set ratio
between said volume and the amount of the tax, does not render the latter invalid as a
sales, percentage or specific tax. Thus, in Northern Philippines Tobacco Corporation
vs. Municipality of Agoo, La Union, 10 We held: .
The circumstance that the rate of tax payable under the ordinance
is made to some extent dependent on the minimum and maximum
quantity of tobacco redried per quarter, does not transform said tax
into a percentage or sales or income tax and does not bring the case
out of the council's authorized sphere of action. It may be noted
that, as framed in the ordinance, the volume of business is merely
taken into account in classifying the taxpayer's business according
to its size or extent of operations, for the purpose of imposing the
fixed graduated tax it has to pay; and that there is no set ratio
between the tax and the amount of tobacco redried.
This criterion was, also, adhered to in Nin Bay Mining Co. vs. Municipality of
Roxas, 11 Li Seng Giap vs. Municipality of Daet, 12 Standard-Vacuum Oil Co. vs.
Antigua, 13 Shell Co. of P.I. vs. Vano, 14 Syjuco vs. Municipality of
Parañaque, 15 Marinduque Iron Mines Agents, Inc. vs. Municipal Council of
Hinabangan, 16 and Victorias Milling Co., Inc. vs. Municipality of Victorias. 17
For the rest, Cebu Portland has not introduced any evidence in support of its claim
that the tax in question is excessive, oppressive, and confiscatory. Hence, this
objection cannot be sustained for: .
An ordinance carries with it the presumption of validity. The
question of reasonableness though is open to judicial inquiry.
Much should be left thus to the discretion of municipal authorities.
Courts will go slow in writing off an ordinance as unreasonable
unless the amount is so excessive as to be prohibitive. A rule which
has gained acceptance is that factors relevant to such an inquiry are
the municipal conditions as a whole and the nature of the business
made subject to imposition." 18
In Northern Philippines Tobacco Corporation vs. Municipality of Agoo, 19 a similar
charge was disposed of in the following language: .
We find nothing in the record, however, to supports such charge.
Appellant has failed to present proof of the existing municipal
conditions and the nature of its business, as well as other factors
that would have been relevant to the issue of the arbitrariness or
unreasonableness of the questioned rates. An increase in the rate of
tax alone would not support the claim that it is oppressive, unjust
and confiscatory; municipal corporations are allowed much
discretion in determining the rates of imposable license fees, even
in cases of purely police power-measures.
WHEREFORE, the decisions appealed from should be and are hereby affirmed, with
costs against plaintiffs-appellants San Miguel Brewery, Inc. and Cebu Portland
Cement Company. It is so ordered.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF
COMMERCE, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of
Appeals (CA) in CA-G.R. SP No. 52706, affirming the ruling of the Court of Tax
Appeals (CTA)[2] in CTA Case No. 5415.
The facts of the case are undisputed.
In 1994 and 1995, the respondent Bank of Commerce derived passive income
in the form of interests or discounts from its investments in government securities
and private commercial papers. On several occasions during the said period, it paid
5% gross receipts tax on its income, as reflected in its quarterly percentage tax
returns. Included therein were the respondent banks passive income from the said
investments amounting to P85,384,254.51, which had already been subjected to a
final tax of 20%.
Meanwhile, on January 30, 1996, the CTA rendered judgment in Asia Bank
Corporation v. Commissioner of Internal Revenue, CTA Case No. 4720, holding that
the 20% final withholding tax on interest income from banks does not form part of
taxable gross receipts for Gross Receipts Tax (GRT) purposes. The CTA relied on
Section 4(e) of Revenue Regulations (Rev. Reg.) No. 12-80.
Relying on the said decision, the respondent bank filed an administrative claim
for refund with the Commissioner of Internal Revenue on July 19, 1996. It claimed
that it had overpaid its gross receipts tax for 1994 to 1995 by P853,842.54, computed
as follows:
Gross receipts subjected to
Final Tax Derived from Passive
Investment P85,384,254.51
x 20%
20% Final Tax Withheld 17,076,850.90
at Source x 5%
P 853,842.54
Before the Commissioner could resolve the claim, the respondent bank filed a
petition for review with the CTA, lest it be barred by the mandatory two-year
prescriptive period under Section 230 of the Tax Code (now Section 229 of the Tax
Reform Act of 1997).
In his answer to the petition, the Commissioner interposed the following special
and affirmative defenses:
5. The alleged refundable/creditable gross receipts taxes were collected and paid
pursuant to law and pertinent BIR implementing rules and regulations; hence, the
same are not refundable. Petitioner must prove that the income from which the
refundable/creditable taxes were paid from, were declared and included in its gross
income during the taxable year under review;
6. Petitioners allegation that it erroneously and excessively paid its gross receipt tax
during the year under review does not ipso facto warrant the refund/credit. Petitioner
must prove that the exclusions claimed by it from its gross receipts must be an
allowable exclusion under the Tax Code and its pertinent implementing Rules and
Regulations. Moreover, it must be supported by evidence;
7. Petitioner must likewise prove that the alleged refundable/creditable gross receipt
taxes were neither automatically applied as tax credit against its tax liability for the
succeeding quarter/s of the succeeding year nor included as creditable taxes declared
and applied to the succeeding taxable year/s;
8. Claims for tax refund/credit are construed in strictissimi juris against the taxpayer
as it partakes the nature of an exemption from tax and it is incumbent upon the
petitioner to prove that it is entitled thereto under the law. Failure on the part of the
petitioner to prove the same is fatal to its claim for tax refund/credit;
9. Furthermore, petitioner must prove that it has complied with the provision of
Section 230 (now Section 229) of the Tax Code, as amended. [3]
The CTA summarized the issues to be resolved as follows: whether or not the
final income tax withheld should form part of the gross receipts [4] of the taxpayer for
GRT purposes; and whether or not the respondent bank was entitled to a refund
of P853,842.54.[5]
The respondent bank averred that for purposes of computing the 5% gross
receipts tax, the final withholding tax does not form part of gross receipts.[6] On the
other hand, while the Commissioner conceded that the Court defined gross receipts
as all receipts of taxpayers excluding those which have been especially earmarked by
law or regulation for the government or some person other than the taxpayer
in CIR v. Manila Jockey Club, Inc.,[7] he claimed that such definition was applicable
only to a proprietor of an amusement place, not a banking institution which is an
entirely different entity altogether. As such, according to the Commissioner, the
ruling of the Court in Manila Jockey Club was inapplicable.
In its Decision dated April 27, 1999, the CTA by a majority decision [8] partially
granted the petition and ordered that the amount of P355,258.99 be refunded to the
respondent bank. The fallo of the decision reads:
WHEREFORE, in view of all the foregoing, respondent is
hereby ORDERED to REFUND in favor of petitioner Bank of Commerce the
amount of P355,258.99 representing validly proven erroneously withheld taxes from
interest income derived from its investments in government securities for the years
1994 and 1995.[9]
In ruling for respondent bank, the CTA relied on the ruling of the Court
in Manila Jockey Club, and held that the term gross receipts excluded those which
had been especially earmarked by law or regulation for the government or persons
other than the taxpayer. The CTA also cited its rulings in China Banking
Corporation v. CIR[10] and Equitable Banking Corporation v. CIR.[11]
The CTA ratiocinated that the aforesaid amount of P355,258.99 represented the
claim of the respondent bank, which was filed within the two-year mandatory
prescriptive period and was substantiated by material and relevant evidence. The
CTA applied Section 204(3) of the National Internal Revenue Code (NIRC). [12]
The Commissioner then filed a petition for review under Rule 43 of the Rules
of Court before the CA, alleging that:
(1) There is no provision of law which excludes the 20% final income tax
withheld under Section 50(a) of the Tax Code in the computation of the
5% gross receipts tax.
(2) The Tax Court erred in applying the ruling in Collector of Internal Revenue
vs. Manila Jockey Club (108 Phil. 821) in the resolution of the legal
issues involved in the instant case.[13]
The Commissioner reiterated his stand that the ruling of this Court in Manila
Jockey Club, which was affirmed in Visayan Cebu Terminal Co., Inc. v.
Commissioner of Internal Revenue,[14] is not decisive. He averred that the factual
milieu in the said case is different, involving as it did the wager fund. The
Commissioner further pointed out that in Manila Jockey Club, the Court ruled that
the race tracks commission did not form part of the gross receipts, and as such were
not subjected to the 20% amusement tax. On the other hand, the issue in Visayan
Cebu Terminal was whether or not the gross receipts corresponding to 28% of the
total gross income of the service contractor delivered to the Bureau of Customs
formed part of the gross receipts was subject to 3% of contractors tax under Section
191 of the Tax Code. It was further pointed out that the respondent bank, on the other
hand, was a banking institution and not a contractor. The petitioner insisted that the
term gross receipts is self-evident; it includes all items of income of the respondent
bank regardless of whether or not the same were allocated or earmarked for a
specific purpose, to distinguish it from net receipts.
On August 14, 2001, the CA rendered judgment dismissing the petition. Citing
Sections 51 and 58(A) of the NIRC, Section 4(e) of Rev. Reg. No. 12-80[15] and the
ruling of this Court in Manila Jockey Club, the CA held that the P17,076,850.90
representing the final withholding tax derived from passive investments subjected to
final tax should not be construed as forming part of the gross receipts of the
respondent bank upon which the 5% gross receipts tax should be imposed. The CA
declared that the final withholding tax in the amount of P17,768,509.00 was a trust
fund for the government; hence, does not form part of the respondents gross receipts.
The legal ownership of the amount had already been vested in the government.
Moreover, the CA declared, the respondent did not reap any benefit from the said
amount. As such, subjecting the said amount to the 5% gross receipts tax would
result in double taxation. The appellate court further cited CIR v. Tours Specialists,
Inc.,[16] and declared that the ruling of the Court in Manila Jockey Club was decisive
of the issue.
The Commissioner now assails the said decision before this Court, contending
that:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE 20% FINAL
WITHHOLDING TAX ON BANKS INTEREST INCOME DOES NOT FORM
PART OF THE TAXABLE GROSS RECEIPTS IN COMPUTING THE 5%
GROSS RECEIPTS TAX (GRT, for brevity).[17]
The petitioner avers that the reliance by the CTA and the CA on Section 4(e) of
Rev. Reg. No. 12-80 is misplaced; the said provision merely authorizes the
determination of the amount of gross receipts based on the taxpayers method of
accounting under then Section 37 (now Section 43) of the Tax Code. The petitioner
asserts that the said provision ceased to exist as of October 15, 1984, when Rev. Reg.
No. 17-84 took effect. The petitioner further points out that under paragraphs 7(a)
and (c) of Rev. Reg. No. 17-84, interest income of financial institutions (including
banks) subject to withholding tax are included as part of the gross receipts upon
which the gross receipts tax is to be imposed. Citing the ruling of the CA
in Commissioner of Internal Revenue v. Asianbank Corporation [18] (which likewise
cited Bank of America NT & SA v. Court of Appeals, [19]) the petitioner posits that in
computing the 5% gross receipts tax, the income need not be actually received. For
income to form part of the taxable gross receipts, constructive receipt is enough. The
petitioner is, likewise, adamant in his claim that the final withholding tax from the
respondent banks income forms part of the taxable gross receipts for purposes of
computing the 5% of gross receipts tax. The petitioner posits that the ruling of this
Court in Manila Jockey Club is not decisive of the issue in this case.
The petition is meritorious.
The issues in this case had been raised and resolved by this Court in China
Banking Corporation v. Court of Appeals,[20] and CIR v. Solidbank Corporation.[21]
Section 27(D)(1) of the Tax Code reads:
(D) Rates of Tax on Certain Passive Incomes.
(1) Interest from Deposits and Yield or any other Monetary Benefit from
Deposit Substitutes and from Trust Funds and Similar Arrangements, and
Royalties. A final tax at the rate of twenty percent (20%) is hereby imposed upon the
amount of interest on currency bank deposit and yield or any other monetary benefit
from deposit substitutes and from trust funds and similar arrangements received by
domestic corporations, and royalties, derived from sources within the
Philippines: Provided, however, That interest income derived by a domestic
corporation from a depository bank under the expanded foreign currency deposit
system shall be subject to a final income tax at the rate of seven and one-half percent
(7%) of such interest income.
On the other hand, Section 57(A)(B) of the Tax Code authorizes the
withholding of final tax on certain income creditable at source:
SEC. 57. Withholding of Tax at Source.
(A) Withholding of Final Tax on Certain Incomes. Subject to rules and
regulations, the Secretary of Finance may promulgate, upon the recommendation of
the Commissioner, requiring the filing of income tax return by certain income
payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C),
24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1), 27(D)(2),
27(D)(3), 27(D)(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c),
28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and
282 of this Code on specified items of income shall be withheld by payor-corporation
and/or person and paid in the same manner and subject to the same conditions as
provided in Section 58 of this Code.
(B) Withholding of Creditable Tax at Source. The Secretary of Finance may, upon
the recommendation of the Commissioner, require the withholding of a tax on the
items of income payable to natural or juridical persons, residing in the Philippines,
by payor-corporation/persons as provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent (32%) thereof, which shall be
credited against the income tax liability of the taxpayer for the taxable year.
The tax deducted and withheld by withholding agents under the said provision
shall be held as a special fund in trust for the government until paid to the collecting
officer.[22]
Section 121 (formerly Section 119) of the Tax Code provides that a tax on
gross receipts derived from sources within the Philippines by all banks and non-bank
financial intermediaries shall be computed in accordance with the schedules therein:
(a) On interest, commissions and discounts from lending activities as well as income
from financial leasing, on the basis of remaining maturities of instruments from
which such receipts are derived:
Short-term maturity (not in excess of two (2) years) 5%
Medium-term maturity (over two (2) years but
not exceeding four (4) years) 3%
Long-term maturity
(1) Over four (4) years but not exceeding
seven (7) years 1%
(2) Over seven (7) years 0%
(b) On dividends 0%
(c) On royalties, rentals of property, real or personal,
profits from exchange and all other items treated
as gross income under Section 32 of this Code 5%
Provided, however, That in case the maturity period referred to in paragraph (a) is
shortened thru pre-termination, then the maturity period shall be reckoned to end as
of the date of pre-termination for purposes of classifying the transaction as short,
medium or long-term and the correct rate of tax shall be applied accordingly.
Nothing in this Code shall preclude the Commissioner from imposing the same tax
herein provided on persons performing similar banking activities.
The Tax Code does not define gross receipts. Absent any statutory definition,
the Bureau of Internal Revenue has applied the term in its plain and ordinary
meaning.[23]
In National City Bank v. CIR,[24] the CTA held that gross receipts should be
interpreted as the whole amount received as interest, without deductions; otherwise,
if deductions were to be made from gross receipts, it would be considered as net
receipts. The CTA changed course, however, when it promulgated its decision
in Asia Bank; it applied Section 4(e) of Rev. Reg. No. 12-80 and the ruling of this
Court in Manila Jockey Club, holding that the 20% final withholding tax on the
petitioner banks interest income should not form part of its taxable gross receipts,
since the final tax was not actually received by the petitioner bank but went to the
coffers of the government.
The Court agrees with the contention of the petitioner that the appellate courts
reliance on Rev. Reg. No. 12-80, the rulings of the CTA in Asia Bank, and of this
Court in Manila Jockey Club has no legal and factual bases. Indeed, the Court ruled
in China Banking Corporation v. Court of Appeals[25] that:
In Far East Bank & Trust Co. v. Commissioner and Standard Chartered Bank v.
Commissioner, both promulgated on 16 November 2001, the tax court ruled that the
final withholding tax forms part of the banks gross receipts in computing the gross
receipts tax. The tax court held that Section 4(e) of Revenue Regulations No. 12-80
did not prescribe the computation of the amount of gross receipts but merely
authorized the determination of the amount of gross receipts on the basis of the
method of accounting being used by the taxpayer.
The word gross must be used in its plain and ordinary meaning. It is defined as
whole, entire, total, without deduction. A common definition is without
deduction.[26] Gross is also defined as taking in the whole; having no deduction or
abatement; whole, total as opposed to a sum consisting of separate or specified
parts.[27] Gross is the antithesis of net.[28] Indeed, in China Banking Corporation v.
Court of Appeals,[29] the Court defined the term in this wise:
As commonly understood, the term gross receipts means the entire receipts without
any deduction. Deducting any amount from the gross receipts changes the result, and
the meaning, to net receipts. Any deduction from gross receipts is inconsistent with a
law that mandates a tax on gross receipts, unless the law itself makes an exception.
As explained by the Supreme Court of Pennsylvania in Commonwealth of
Pennsylvania v. Koppers Company, Inc., -
Highly refined and technical tax concepts have been developed by the accountant
and legal technician primarily because of the impact of federal income tax
legislation. However, this in no way should affect or control the normal usage of
words in the construction of our statutes; and we see nothing that would require us
not to include the proceeds here in question in the gross receipts allocation unless
statutorily such inclusion is prohibited. Under the ordinary basic methods of
handling accounts, the term gross receipts, in the absence of any statutory definition
of the term, must be taken to include the whole total gross receipts without any
deductions, x x x. [Citations omitted] (Emphasis supplied)
Likewise, in Laclede Gas Co. v. City of St. Louis, the Supreme Court of Missouri
held:
The word gross appearing in the term gross receipts, as used in the ordinance, must
have been and was there used as the direct antithesis of the word net. In its usual and
ordinary meaning gross receipts of a business is the whole and entire amount of the
receipts without deduction, x x x. On the contrary, net receipts usually are the
receipts which remain after deductions are made from the gross amount thereof of
the expenses and cost of doing business, including fixed charges and depreciation.
Gross receipts become net receipts after certain proper deductions are made from the
gross. And in the use of the words gross receipts, the instant ordinance, of course,
precluded plaintiff from first deducting its costs and expenses of doing business, etc.,
in arriving at the higher base figure upon which it must pay the 5% tax under this
ordinance. (Emphasis supplied)
Absent a statutory definition, the term gross receipts is understood in its plain and
ordinary meaning. Words in a statute are taken in their usual and familiar
signification, with due regard to their general and popular use. The Supreme Court of
Hawaii held in Bishop Trust Company v. Burns that -
xxx It is fundamental that in construing or interpreting a statute, in order to ascertain
the intent of the legislature, the language used therein is to be taken in the generally
accepted and usual sense. Courts will presume that the words in a statute were used
to express their meaning in common usage. This principle is equally applicable to a
tax statute. [Citations omitted] (Emphasis supplied)
The Court, likewise, declared that Section 121 of the Tax Code expressly
subjects interest income of banks to the gross receipts tax. Such express inclusion of
interest income in taxable gross receipts creates a presumption that the entire amount
of the interest income, without any deduction, is subject to the gross receipts tax.
Indeed, there is a presumption that receipts of a person engaging in business are
subject to the gross receipts tax. Such presumption may only be overcome by
pointing to a specific provision of law allowing such deduction of the final
withholding tax from the taxable gross receipts, failing which, the claim of deduction
has no leg to stand on. Moreover, where such an exception is claimed, the statute is
construed strictly in favor of the taxing authority. The exemption must be clearly and
unambiguously expressed in the statute, and must be clearly established by the
taxpayer claiming the right thereto. Thus, taxation is the rule and the claimant must
show that his demand is within the letter as well as the spirit of the law. [30]
In this case, there is no law which allows the deduction of 20% final tax from
the respondent banks interest income for the computation of the 5% gross receipts
tax. On the other hand, Section 8(a)(c), Rev. Reg. No. 17-84 provides that interest
earned on Philippine bank deposits and yield from deposit substitutes are included as
part of the tax base upon which the gross receipts tax is imposed. Such earned
interest refers to the gross interest without deduction since the regulations do not
provide for any such deduction. The gross interest, without deduction, is the amount
the borrower pays, and the income the lender earns, for the use by the borrower of
the lenders money. The amount of the final tax plainly covers for the interest earned
and is consequently part of the taxable gross receipt of the lender. [31]
The bare fact that the final withholding tax is a special trust fund belonging to
the government and that the respondent bank did not benefit from it while in custody
of the borrower does not justify its exclusion from the computation of interest
income. Such final withholding tax covers for the respondent banks income and is
the amount to be used to pay its tax liability to the government. This tax, along with
the creditable withholding tax, constitutes payment which would extinguish the
respondent banks obligation to the government. The bank can only pay the money it
owns, or the money it is authorized to pay.[32]
In the same vein, the respondent banks reliance on Section 4(e) of Rev. Reg.
No. 12-80 and the ruling of the CTA in Asia Bank is misplaced. The Courts
discussion in China Banking Corporation[33] is instructive on this score:
CBC also relies on the Tax Courts ruling in Asia Bank that Section 4(e) of Revenue
Regulations No. 12-80 authorizes the exclusion of the final tax from the banks
taxable gross receipts. Section 4(e) provides that:
Sec. 4. x x x
(e) Gross receipts tax on banks, non-bank financial intermediaries, financing
companies, and other non-bank financial intermediaries not performing quasi-
banking functions. - The rates of taxes to be imposed on the gross receipts of such
financial institutions shall be based on all items of income actually received. Mere
accrual shall not be considered, but once payment is received on such accrual or in
cases of prepayment, then the amount actually received shall be included in the tax
base of such financial institutions, as provided hereunder: x x x. (Emphasis supplied
by Tax Court)
Section 4(e) states that the gross receipts shall be based on all items of income
actually received. The tax court in Asia Bank concluded that it is but logical to infer
that the final tax, not having been received by petitioner but instead went to the
coffers of the government, should no longer form part of its gross receipts for the
purpose of computing the GRT.
The Tax Court erred glaringly in interpreting Section 4(e) of Revenue Regulations
No. 12-80. Income may be taxable either at the time of its actual receipt or its
accrual, depending on the accounting method of the taxpayer. Section 4(e) merely
provides for an exception to the rule, making interest income taxable for gross
receipts tax purposes only upon actual receipt. Interest is accrued, and not actually
received, when the interest is due and demandable but the borrower has not actually
paid and remitted the interest, whether physically or constructively. Section 4(e) does
not exclude accrued interest income from gross receipts but merely postpones its
inclusion until actual payment of the interest to the lending bank. This is clear when
Section 4(e) states that [m]ere accrual shall not be considered, but once payment is
received on such accrual or in case of prepayment, then the amount actually
received shall be included in the tax base of such financial institutions x x x.
Actual receipt of interest income is not limited to physical receipt. Actual receipt
may either be physical receipt or constructive receipt. When the depository bank
withholds the final tax to pay the tax liability of the lending bank, there is prior to the
withholding a constructive receipt by the lending bank of the amount withheld. From
the amount constructively received by the lending bank, the depository bank deducts
the final withholding tax and remits it to the government for the account of the
lending bank. Thus, the interest income actually received by the lending bank, both
physically and constructively, is the net interest plus the amount withheld as final
tax.
The concept of a withholding tax on income obviously and necessarily implies that
the amount of the tax withheld comes from the income earned by the taxpayer. Since
the amount of the tax withheld constitutes income earned by the taxpayer, then that
amount manifestly forms part of the taxpayers gross receipts. Because the amount
withheld belongs to the taxpayer, he can transfer its ownership to the government in
payment of his tax liability. The amount withheld indubitably comes from income of
the taxpayer, and thus forms part of his gross receipts.
The Court went on to explain in that case that far from supporting the
petitioners contention, its ruling in Manila Jockey Club, in fact even buttressed the
contention of the Commissioner. Thus:
CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that the
final withholding tax on interest income does not form part of a banks gross receipts
because the final tax is earmarked by regulation for the government. CBCs reliance
on the Manila Jockey Club is misplaced. In this case, the Court stated that Republic
Act No. 309 and Executive Order No. 320 apportioned the total amount of the bets in
horse races as follows:
87 % as dividends to holders of winning tickets, 12 % as commission of the Manila
Jockey Club, of which % was assigned to the Board of Races and 5% was distributed
as prizes for owners of winning horses and authorized bonuses for jockeys.
A subsequent law, Republic Act No. 1933 (RA No. 1933), amended the sharing by
ordering the distribution of the bets as follows:
Sec. 19. Distribution of receipts. The total wager funds or gross receipts from the
sale of pari-mutuel tickets shall be apportioned as follows: eighty-seven and one-half
per centum shall be distributed in the form of dividends among the holders of win,
place and show horses, as the case may be, in the regular races; six and one-half per
centum shall be set aside as the commission of the person, racetrack, racing club, or
any other entity conducting the races; five and one-half per centum shall be set aside
for the payment of stakes or prizes for win, place and show horses and authorized
bonuses for jockeys; and one-half per centum shall be paid to a special fund to be
used by the Games and Amusements Board to cover its expenses and such other
purposes authorized under this Act. xxx. (Emphasis supplied)
Under the distribution of receipts expressly mandated in Section 19 of RA No. 1933,
the gross receipts apportioned to Manila Jockey Club referred only to its own 6 %
commission. There is no dispute that the 5 % share of the horse-owners and jockeys,
and the % share of the Games and Amusements Board, do not form part of Manila
Jockey Clubs gross receipts. RA No. 1933 took effect on 22 June 1957, three years
before the Court decided Manila Jockey Club on 30 June 1960.
Even under the earlier law, Manila Jockey Club did not own the entire 12 %
commission. Manila Jockey Club owned, and could keep and use, only 7% of the
total bets. Manila Jockey Club merely held in trust the balance of 5 % for the benefit
of the Board of Races and the winning horse-owners and jockeys, the real owners of
the 5 1/2 % share.
The Court in Manila Jockey Club quoted with approval the following Opinion of the
Secretary of Justice made prior to RA No. 1933:
There is no question that the Manila Jockey Club, Inc. owns only 7-1/2% [sic] of the
bets registered by the Totalizer. This portion represents its share or commission in
the total amount of money it handles and goes to the funds thereof as its own
property which it may legally disburse for its own purposes. The 5% [sic] does not
belong to the club. It is merely held in trust for distribution as prizes to the owners of
winning horses. It is destined for no other object than the payment of prizes and the
club cannot otherwise appropriate this portion without incurring liability to the
owners of winning horses. It can not be considered as an item of expense because the
sum used for the payment of prizes is not taken from the funds of the club but from a
certain portion of the total bets especially earmarked for that purpose. (Emphasis
supplied)
Consequently, the Court ruled that the 5 % balance of the commission, not being
owned by Manila Jockey Club, did not form part of its gross receipts for purposes of
the amusement tax. Manila Jockey Club correctly paid the amusement tax based only
on its own 7% commission under RA No. 309 and Executive Order No. 320.
Manila Jockey Club does not support CBCs contention but rather the Commissioners
position. The Court ruled in Manila Jockey Club that receipts not owned by the
Manila Jockey Club but merely held by it in trust did not form part of Manila Jockey
Clubs gross receipts. Conversely, receipts owned by the Manila Jockey Club would
form part of its gross receipts.[34]
We reverse the ruling of the CA that subjecting the Final Withholding Tax
(FWT) to the 5% of gross receipts tax would result in double taxation. In CIR v.
Solidbank Corporation,[35] we ruled, thus:
We have repeatedly said that the two taxes, subject of this litigation, are different
from each other. The basis of their imposition may be the same, but their natures are
different, thus leading us to a final point. Is there double taxation?
The Court finds none.
Double taxation means taxing the same property twice when it should be taxed only
once; that is, xxx taxing the same person twice by the same jurisdiction for the same
thing. It is obnoxious when the taxpayer is taxed twice, when it should be but once.
Otherwise described as direct duplicate taxation, the two taxes must be imposed on
the same subject matter, for the same purpose, by the same taxing authority, within
the same jurisdiction, during the same taxing period; and they must be of the same
kind or character.
First, the taxes herein are imposed on two different subject matters. The subject
matter of the FWT is the passive income generated in the form of interest on deposits
and yield on deposit substitutes, while the subject matter of the GRT is the privilege
of engaging in the business of banking.
A tax based on receipts is a tax on business rather than on the property; hence, it is
an excise rather than a property tax. It is not an income tax, unlike the FWT. In fact,
we have already held that one can be taxed for engaging in business and further
taxed differently for the income derived therefrom. Akin to our ruling in Velilla v.
Posadas, these two taxes are entirely distinct and are assessed under different
provisions.
Second, although both taxes are national in scope because they are imposed by the
same taxing authority the national government under the Tax Code and operate
within the same Philippine jurisdiction for the same purpose of raising revenues, the
taxing periods they affect are different. The FWT is deducted and withheld as soon
as the income is earned, and is paid after every calendar quarter in which it is earned.
On the other hand, the GRT is neither deducted nor withheld, but is paid only after
every taxable quarter in which it is earned.
Third, these two taxes are of different kinds or characters. The FWT is an income tax
subject to withholding, while the GRT is a percentage tax not subject to withholding.
In short, there is no double taxation, because there is no taxing twice, by the same
taxing authority, within the same jurisdiction, for the same purpose, in different
taxing periods, some of the property in the territory. Subjecting interest income to a
20% FWT and including it in the computation of the 5% GRT is clearly not double
taxation.
IN LIGHT OF THE FOREGOING, the petition is GRANTED. The decision
of the Court of Appeals in CA-G.R. SP No. 52706 and that of the Court of Tax
Appeals in CTA Case No. 5415 are SET ASIDE and REVERSED. The CTA is
hereby ORDERED to DISMISS the petition of respondent Bank of Commerce. No
costs.
SO ORDERED.
G.R. No. 100152 March 31, 2000
ACEBEDO OPTICAL COMPANY, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, Hon. MAMINDIARA
MANGOTARA, in his capacity as Presiding Judge of the RTC, 12th Judicial
Region, Br. 1, Iligan City; SAMAHANG OPTOMETRIST Sa PILIPINAS —
Iligan City Chapter, LEO T. CAHANAP, City Legal Officer, and Hon.
CAMILO P. CABILI, City Mayor of Iligan,respondents.
PURISIMA, J.:
At bar is a petition for review under Rule 45 of the Rules of Court seeking to nullify
the dismissal by the Court of Appeals of the original petition for certiorari,
prohibition and mandamus filed by the herein petitioner against the City Mayor and
City Legal Officer of Iligan and the Samahang Optometrist sa Pilipinas — Iligan
Chapter (SOPI, for brevity).
The antecedent facts leading to the filing of the instant petition are as follows:
Petitioner applied with the Office of the City Mayor of Iligan for a business permit.
After consideration of petitioner's application and the opposition interposed thereto
by local optometrists, respondent City Mayor issued Business Permit No. 5342
subject to the following conditions:
1. Since it is a corporation, Acebedo cannot put up an optical clinic but only
a commercial store;
2. Acebedo cannot examine and/or prescribe reading and similar optical
glasses for patients, because these are functions of optical clinics;
3. Acebedo cannot sell reading and similar eyeglasses without a prescription
having first been made by an independent optometrist (not its employee) or
independent optical clinic. Acebedo can only sell directly to the public,
without need of a prescription, Ray-Ban and similar eyeglasses;
4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise
Ray-Ban and similar glasses and frames;
5. Acebedo is allowed to grind lenses but only upon the prescription of an
independent optometrist. 1
On December 5, 1988, private respondent Samahan ng Optometrist Sa Pilipinas
(SOPI), Iligan Chapter, through its Acting President, Dr. Frances B. Apostol, lodged
a complaint against the petitioner before the Office of the City Mayor, alleging that
Acebedo had violated the conditions set forth in its business permit and requesting
the cancellation and/or revocation of such permit.
Acting on such complaint, then City Mayor Camilo P. Cabili designated City Legal
Officer Leo T. Cahanap to conduct an investigation on the matter. On July 12, 1989,
respondent City Legal Officer submitted a report to the City Mayor finding the
herein petitioner guilty of violating all the conditions of its business permit and
recommending the disqualification of petitioner from operating its business in Iligan
City. The report further advised that no new permit shall be granted to petitioner for
the year 1989 and should only be given time to wind up its affairs.
On July 19, 1989, the City Mayor sent petitioner a Notice of Resolution and
Cancellation of Business Permit effective as of said date and giving petitioner three
(3) months to wind up its affairs.
On October 17, 1989, petitioner brought a petition for certiorari, prohibition
and mandamus with prayer for restraining order/preliminary injunction against the
respondents, City Mayor, City Legal Officer and Samahan ng Optometrists sa
Pilipinas-Iligan City Chapter (SOPI), docketed as Civil Case No. 1497 before the
Regional Trial Court of Iligan City, Branch I. Petitioner alleged that (1) it was denied
due process because it was not given an opportunity to present its evidence during
the investigation conducted by the City Legal Officer; (2) it was denied equal
protection of the laws as the limitations imposed on its business permit were not
imposed on similar businesses in Iligan City; (3) the City Mayor had no authority to
impose the special conditions on its business permit; and (4) the City Legal Officer
had no authority to conduct the investigation as the matter falls within the exclusive
jurisdiction of the Professional Regulation Commission and the Board of Optometry.
Respondent SOPI interposed a Motion to Dismiss the Petition on the ground of non-
exhaustion of administrative remedies but on November 24, 1989, Presiding Judge
Mamindiara P. Mangotara deferred resolution of such Motion to Dismiss until after
trial of the case on the merits. However, the prayer for a writ of preliminary
injunction was granted. Thereafter, respondent SOPI filed its answer.1âwphi1.nêt
On May 30, 1990, the trial court dismissed the petition for failure to exhaust
administrative remedies, and dissolved the writ of preliminary injunction it earlier
issued. Petitioner's motion for reconsideration met the same fate. It was denied by an
Order dated June 28, 1990.
On October 3, 1990, instead of taking an appeal, petitioner filed a petition
for certiorari, prohibition and mandamus with the Court of Appeals seeking to set
aside the questioned Order of Dismissal, branding the same as tainted with grave
abuse of discretion on the part of the trial court.
On January 24, 1991, the Ninth Division 2 of the Court of Appeals dismissed the
petition for lack of merit. Petitioner's motion reconsideration was also denied in the
Resolution dated May 15, 1991.
Undaunted, petitioner has come before this court via the present petition, theorizing
that:
A.
THE RESPONDENT COURT, WHILE CORRECTLY HOLDING THAT
THE RESPONDENT CITY MAYOR ACTED BEYOND HIS
AUTHORITY IN IMPOSING THE SPECIAL CONDITIONS IN THE
PERMIT AS THEY HAD NO BASIS IN ANY LAW OR ORDINANCE,
ERRED IN HOLDING THAT THE SAID SPECIAL CONDITIONS
NEVERTHELESS BECAME BINDING ON PETITIONER UPON ITS
ACCEPTANCE THEREOF AS A PRIVATE AGREEMENT OR
CONTRACT.
B.
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING
THAT THE CONTRACT BETWEEN PETITIONER AND THE CITY OF
ILIGAN WAS ENTERED INTO BY THE LATTER IN THE
PERFORMANCE OF ITS PROPRIETARY FUNCTIONS.
The petition is impressed with merit.
Although petitioner agrees with the finding of the Court of Appeals that respondent
City Mayor acted beyond the scope of his authority in imposing the assailed
conditions in subject business permit, it has excepted to the ruling of the Court of
Appeals that the said conditions nonetheless became binding on petitioner, once
accepted, as a private agreement or contract. Petitioner maintains that the said special
conditions are null and void for being ultra vires and cannot be given effect; and
therefore, the principle of estoppel cannot apply against it.
On the other hand, the public respondents, City Mayor and City Legal Officer,
private respondent SOPI and the Office of the Solicitor General contend that as a
valid exercise of police power, respondent City Mayor has the authority to impose,
as he did, special conditions in the grant of business permits.
Police power as an inherent attribute of sovereignty is the power to prescribe
regulations to promote the health, morals, peace, education, good order or safety and
general welfare of the people. 9 The State, through the legislature, has delegated the
exercise of police power to local government units, as agencies of the State, in order
to effectively accomplish and carry out the declared objects of their creation. 4 This
delegation of police power is embodied in the general welfare clause of the Local
Government Code which provides:
Sec. 6. General Welfare. — Every local government unit shall exercise the
powers expressly granted, those necessarily implied therefrom, as well as
powers necessary, appropriate, or incidental for its efficient and effective
governance, and those which are essential to the promotion of the general
welfare. Within their respective territorial jurisdictions, local government
units shall ensure and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance the right of the
people to a balanced ecology, encourage and support the development of
appropriate and self-reliant scientific and technological capabilities,
improve public morals, enhance economic prosperity and social justice,
promote full employment among their residents, maintain peace and order,
and preserve the comfort and convenience of their inhabitants.
The scope of police power has been held to be so comprehensive as to encompass
almost all matters affecting the health, safety, peace, order, morals, comfort and
convenience of the community. Police power is essentially regulatory in nature and
the power to issue licenses or grant business permits, if exercised for a regulatory
and not revenue-raising purpose, is within the ambit of this power. 5
The authority of city mayors to issue or grant licenses and business permits is beyond
cavil. It is provided for by law. Section 171, paragraph 2 (n) of Batas Pambansa
Bilang 337 otherwise known as the Local Government Code of 1983, reads:
Sec. 171. The City Mayor shall:
xxx xxx xxx
n) Grant or refuse to grant, pursuant to law, city licenses or permits, and
revoke the same for violation of law or ordinance or the conditions upon
which they are granted.
However, the power to grant or issue licenses or business permits must always be
exercised in accordance with law, with utmost observance of the rights of all
concerned to due process and equal protection of the law.
Succinct and in point is the ruling of this Court, that:
. . . While a business may be regulated, such regulation must, however, be
within the bounds of reason, i.e., the regulatory ordinance must be
reasonable, and its provision cannot be oppressive amounting to an arbitrary
interference with the business or calling subject of regulation. A lawful
business or calling may not, under the guise of regulation, be unreasonably
interfered with even by the exercise of police power. . . .
xxx xxx xxx
. . . The exercise of police power by the local government is valid unless it
contravenes the fundamental law of the land or an act of the legislature, or
unless it is against public policy or is unreasonable, oppressive, partial,
discriminating or in derogation of a common right. 6
In the case under consideration, the business permit granted by respondent City
Mayor to petitioner was burdened with several conditions. Petitioner agrees with the
holding by the Court of Appeals that respondent City Mayor acted beyond his
authority in imposing such special conditions in its permit as the same have no basis
in the law or ordinance. Public respondents and private respondent SOPI, on the
other hand, are one in saying that the imposition of said special conditions on
petitioner's business permit is well within the authority of the City Mayor as a valid
exercise of police power.
As aptly discussed by the Solicitor General in his Comment, the power to issue
licenses and permits necessarily includes the corollary power to revoke, withdraw or
cancel the same. And the power to revoke or cancel, likewise includes the power to
restrict through the imposition of certain conditions. In the case of Austin-
Hardware, Inc. vs. Court of Appeals, 7 it was held that the power to license carries
with it the authority to provide reasonable terms and conditions under which the
licensed business shall be conducted. As the Solicitor General puts it:
If the City Mayor is empowered to grant or refuse to grant a license, which
is a broader power, it stands to reason that he can also exercise a lesser
power that is reasonably incidental to his express power, i.e. to restrict a
license through the imposition of certain conditions, especially so that there
is no positive prohibition to the exercise of such prerogative by the City
Mayor, nor is there any particular official or body vested with such
authority. 8
However, the present inquiry does not stop there, as the Solicitor General believes.
The power or authority of the City Mayor to impose conditions or restrictions in the
business permit is indisputable. What petitioner assails are the conditions imposed in
its particular case which, it complains, amount to a confiscation of the business in
which petitioner is engaged.
Distinction must be made between the grant of a license or permit to do business and
the issuance of a license to engage in the practice of a particular profession. The first
is usually granted by the local authorities and the second is issued by the Board or
Commission tasked to regulate the particular profession. A business permit
authorizes the person, natural or otherwise, to engage in business or some form of
commercial activity. A professional license, on the other hand, is the grant of
authority to a natural person to engage in the practice or exercise of his or her
profession.
In the case at bar, what is sought by petitioner from respondent City Mayor is a
permit to engage in the business of running an optical shop. It does not purport to
seek a license to engage in the practice of optometry as a corporate body or entity,
although it does have in its employ, persons who are duly licensed to practice
optometry by the Board of Examiners in Optometry.
The case of Samahan ng Optometrists sa Pilipinas vs. Acebedo International
Corporation, G.R. No. 117097, 9promulgated by this Court on March 21, 1997, is in
point. The factual antecedents of that case are similar to those of the case under
consideration and the issue ultimately resolved therein is exactly the same issue
posed for resolution by this Court en banc.
In the said case, the Acebedo International Corporation filed with the Office of the
Municipal Mayor an application for a business permit for the operation of a branch
of Acebedo Optical in Candon, Ilocos Sur. The application was opposed by the
Samahan ng Optometrists sa Pilipinas-Ilocos Sur Chapter, theorizing that Acebedo is
a juridical entity not qualified to practice optometry. A committee was created by the
Office of the Mayor to study private respondent's application. Upon recommendation
of the said committee, Acebedo's application for a business permit was denied.
Acebedo filed a petition with the Regional Trial Court but the same was dismissed.
On appeal, however, the Court of Appeals reversed the trial court's disposition,
prompting the Samahan ng Optometrists to elevate the matter to this Court.
The First Division of this Court, then composed of Honorable Justice Teodoro
Padilla, Josue Bellosillo, Jose Vitug and Santiago Kapunan, with Honorable Justice
Regino Hermosisima, Jr. as ponente, denied the petition and ruled in favor of
respondent Acebedo International Corporation, holding that "the fact that private
respondent hires optometrists who practice their profession in the course of their
employment in private respondent's optical shops, does not translate into a practice
of optometry by private respondent itself," 10 The Court further elucidated that in
both the old and new Optometry Law, R.A. No. 1998, superseded by R.A. No. 8050,
it is significant to note that there is no prohibition against the hiring by corporations
of optometrists. The Court concluded thus:
All told, there is no law that prohibits the hiring by corporations of
optometrists or considers the hiring by corporations of optometrists as a
practice by the corporation itself of the profession of optometry.
In the present case, the objective of the imposition of subject conditions on
petitioner's business permit could be attained by requiring the optometrists in
petitioner's employ to produce a valid certificate of registration as optometrist, from
the Board of Examiners in Optometry. A business permit is issued primarily to
regulate the conduct of business and the City Mayor cannot, through the issuance of
such permit, regulate the practice of a profession, like that of optometry. Such a
function is within the exclusive domain of the administrative agency specifically
empowered by law to supervise the profession, in this case the Professional
Regulations Commission and the Board of Examiners in Optometry.
It is significant to note that during the deliberations of the bicameral conference
committee of the Senate and the House of Representatives on R.A. 8050 (Senate Bill
No. 1998 and House Bill No. 14100), the committee failed to reach a consensus as to
the prohibition on indirect practice of optometry by corporations. The proponent of
the bill, former Senator Freddie Webb, admitted thus:
Senator Webb: xxx xxx xxx
The focus of contention remains to be the proposal of prohibiting the
indirect practice of optometry by corporations.1âwphi1 We took a second
look and even a third look at the issue in the bicameral conference, but a
compromise remained elusive. 11
Former Senator Leticia Ramos-Shahani likewise voted her reservation in casting her
vote:
Senator Shahani: Mr. President.
The optometry bills have evoked controversial views from the members of
the panel. While we realize the need to uplift the standards of optometry as
a profession, the consesnsus of both Houses was to avoid touching sensitive
issues which properly belong to judicial determination. Thus, the bicameral
conference committee decided to leave the issue of indirect practice of
optometry and the use of trade names open to the wisdom of the Courts
which are vested with the prerogative of interpreting the laws. 12
From the foregoing, it is thus evident that Congress has not adopted a unanimous
position on the matter of prohibition of indirect practice of optometry by
corporations, specifically on the hiring and employment of licensed optometrists by
optical corporations. It is clear that Congress left the resolution of such issue for
judicial determination, and it is therefore proper for this Court to resolve the issue.
Even in the United States, jurisprudence varies and there is a conflict of opinions
among the federal courts as to the right of a corporation or individual not himself
licensed, to hire and employ licensed optometrists. 13
Courts have distinguished between optometry as a learned profession in the category
of law and medicine, and optometry as a mechanical art. And, insofar as the courts
regard optometry as merely a mechanical art, they have tended to find nothing
objectionable in the making and selling of eyeglasses, spectacles and lenses by
corporations so long as the patient is actually examined and prescribed for by a
qualified practitioner. 14
The primary purpose of the statute regulating the practice of optometry is to insure
that optometrical services are to be rendered by competent and licensed persons in
order to protect the health and physical welfare of the people from the dangers
engendered by unlicensed practice. Such purpose may be fully accomplished
although the person rendering the service is employed by a corporation. 15
Furthermore, it was ruled that the employment of a qualified optometrist by a
corporation is not against public policy. 16 Unless prohibited by statutes, a
corporation has all the contractual rights that an individual has 17 and it does not
become the practice of medicine or optometry because of the presence of a physician
or optometrist. 18 The manufacturing, selling, trading and bartering of eyeglasses and
spectacles as articles of merchandise do not constitute the practice of optometry. 19
In the case of Dvorine vs. Castelberg Jewelry Corporation, 20 defendant corporation
conducted as part of its business, a department for the sale of eyeglasses and the
furnishing of optometrical services to its clients. It employed a registered optometrist
who was compensated at a regular salary and commission and who was furnished
instruments and appliances needed for the work, as well as an office. In holding that
corporation was not engaged in the practice of optometry, the court ruled that there is
no public policy forbidding the commercialization of optometry, as in law and
medicine, and recognized the general practice of making it a commercial business by
advertising and selling eyeglasses.
To accomplish the objective of the regulation, a state may provide by statute that
corporations cannot sell eyeglasses, spectacles, and lenses unless a duly licensed
physician or a duly qualified optometrist is in charge of, and in personal attendance
at the place where such articles are sold. 21 In such a case, the patient's primary and
essential safeguard lies in the optometrist's control of the "treatment" by means of
prescription and preliminary and final examination. 22
In analogy, it is noteworthy that private hospitals are maintained by corporations
incorporated for the purpose of furnishing medical and surgical treatment. In the
course of providing such treatments, these corporations employ physicians, surgeons
and medical practitioners, in the same way that in the course of manufacturing and
selling eyeglasses, eye frames and optical lenses, optical shops hire licensed
optometrists to examine, prescribe and dispense ophthalmic lenses. No one has ever
charged that these corporations are engaged in the practice of medicine. There is
indeed no valid basis for treating corporations engaged in the business of running
optical shops differently.
It also bears stressing, as petitioner has pointed out, that the public and private
respondents did not appeal from the ruling of the Court of Appeals. Consequently,
the holding by the Court of Appeals that the act of respondent City Mayor in
imposing the questioned special conditions on petitioner's business permit is ultra
vires cannot be put into issue here by the respondents. It is well-settled that:
A party who has not appealed from the decision may not obtain any
affirmative relief from the appellate court other than what he had obtain
from the lower court, if any, whose decision is brought up on appeal. 23
. . . an appellee who is not an appellant may assign errors in his brief where
his purpose is to maintain the judgment on other grounds, but he cannot
seek modification or reversal of the judgment or affirmative relief unless he
has also appealed. 24
Thus, respondents' submission that the imposition of subject special conditions on
petitioner's business permit is not ultra vires cannot prevail over the finding and
ruling by the Court of Appeals from which they (respondents) did not appeal.
Anent the second assigned error, petitioner maintains that its business permit issued
by the City Mayor is not a contract entered into by Iligan City in the exercise of its
proprietary functions, such that although petitioner agreed to such conditions, it
cannot be held in estoppel since ultra vires acts cannot be given effect.
Respondents, on the other hand, agree with the ruling of the Court of Appeals that
the business permit in question is in the nature of a contract between Iligan City and
the herein petitioner, the terms and conditions of which are binding upon agreement,
and that petitioner is estopped from questioning the same. Moreover, in the
Resolution denying petitioner's motion for reconsideration, the Court of Appeals held
that the contract between the petitioner and the City of Iligan was entered into by the
latter in the performance of its proprietary functions.
This Court holds otherwise. It had occasion to rule that a license or permit is not in
the nature of a contract but a special privilege.
. . . a license or a permit is not a contract between the sovereignty and the
licensee or permitee, and is not a property in the constitutional sense, as to
which the constitutional proscription against impairment of the obligation of
contracts may extend. A license is rather in the nature of a special privilege,
of a permission or authority to do what is within its terms. It is not in any
way vested, permanent or absolute. 25
It is therefore decisively clear that estoppel cannot apply in this case. The fact that
petitioner acquiesced in the special conditions imposed by the City Mayor in subject
business permit does not preclude it from challenging the said imposition, which
is ultra vires or beyond the ambit of authority of respondent City Mayor. Ultra
vires acts or acts which are clearly beyond the scope of one's authority are null and
void and cannot be given any effect. The doctrine of estoppel cannot operate to give
effect to an act which is otherwise null and void or ultra vires.
The Court of Appeals erred in adjudging subject business permit as having been
issued by responded City Mayor in the performance of proprietary functions of Iligan
City. As hereinabove elaborated upon, the issuance of business licenses and permits
by a municipality or city is essentially regulatory in nature. The authority, which
devolved upon local government units to issue or grant such licenses or permits, is
essentially in the exercise of the police power of the State within the contemplation
of the general welfare clause of the Local Government Code.
WHEREFORE, the petition is GRANTED; the Decision of the Court of Appeals in
CA-GR SP No. 22995 REVERSED: and the respondent City Mayor is hereby
ordered to reissue petitioner's business permit in accordance with law and with this
disposition. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-26521 December 28, 1968
EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,
vs.
CITY OF ILOILO, defendants-appellants.
CASTRO, J.:
Appeal by the defendant City of Iloilo from the decision of the Court of First
Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An
Ordinance Imposing Municipal License Tax On Persons Engaged In The Business
Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-
appellees the sums of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86,
imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00
annually; (2) tenement house, partly or wholly engaged in or dedicated to business in
the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other streets, P12.00 per
apartment. The validity and constitutionality of this ordinance were challenged by
the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four
tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios
Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the
ordinance ultra vires, "it not appearing that the power to tax owners of tenement
houses is one among those clearly and expressly granted to the City of Iloilo by its
Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that
with the passage of Republic Act 2264, otherwise known as the Local Autonomy
Act, it had acquired the authority or power to enact an ordinance similar to that
previously declared by this Court as ultra vires, enacted Ordinance 11, series of
1960, hereunder quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON
PERSONS ENGAGED IN THE BUSINESS OF OPERATING
TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the
provisions of Republic Act No. 2264, otherwise known as the Autonomy
Law of Local Government, that:
Section 1. — A municipal license tax is hereby imposed on tenement
houses in accordance with the schedule of payment herein provided.
Section 2. — Tenement house as contemplated in this ordinance shall mean
any building or dwelling for renting space divided into separate apartments
or accessorias.
Section 3. — The municipal license tax provided in Section 1 hereof shall
be as follows:
I. Tenement houses:
(a) Apartment house made of strong materials P20.00 per door p.a.
(b) Apartment house made of mixed materials P10.00 per door p.a.
II Rooming house of strong materials P10.00 per door p.a.
Rooming house of mixed materials P5.00 per door p.a.
III. Tenement house partly or wholly engaged in or dedicated to
business in the following streets: J.M. Basa, Iznart, Aldeguer,
Guanco and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.
IV. Tenement house partly or wholly engaged in or dedicated to
business in any other street P12.00 per door p.a.
V. Tenement houses at the streets surrounding the super market
as soon as said place is declared commercial P24.00 per door p.a.
Section 4. — All ordinances or parts thereof inconsistent herewith are
hereby amended.
Section 5. — Any person found violating this ordinance shall be punished
with a fine note exceeding Two Hundred Pesos (P200.00) or an
imprisonment of not more than six (6) months or both at the discretion of
the Court.
Section 6 — This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are
owners of five tenement houses, aggregately containing 43 apartments, while the
other appellees and the same Remedios S. Villanueva are owners of ten apartments.
Each of the appellees' apartments has a door leading to a street and is rented by either
a Filipino or Chinese merchant. The first floor is utilized as a store, while the second
floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns,
likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and
Quezon City, which cities, according to him, do not impose tenement or apartment
taxes.
By virtue of the ordinance in question, the appellant City collected from spouses
Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum
of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and
Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio
Villanueva has likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and
an amended complaint, respectively, against the City of Iloilo, in the aforementioned
court, praying that Ordinance 11, series of 1960, be declared "invalid for being
beyond the powers of the Municipal Council of the City of Iloilo to enact, and
unconstitutional for being violative of the rule as to uniformity of taxation and for
depriving said plaintiffs of the equal protection clause of the Constitution," and that
the City be ordered to refund the amounts collected from them under the said
ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance
illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose
apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it
penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not
only double taxation, but treble at that and (d) it violates the rule of uniformity of
taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it
imposes double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose
tenement taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it
carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of
taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder
quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licences at rates fixed by the
municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to
collect fees and charges for services rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for services
rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise
to levy for public purposes, just and uniform taxes, licenses or
fees; Provided, That municipalities and municipal districts shall, in no case,
impose any percentage tax on sales or other taxes in any form based thereon
nor impose taxes on articles subject to specific tax, except gasoline, under
the provisions of the National Internal Revenue Code; Provided, however,
That no city, municipality or municipal district may levy or impose any of
the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication
of any newspaper, magazine, review or bulletin appearing at regular
intervals and having fixed prices for for subscription and sale, and which is
not published primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public
utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritance, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the
national government, tonnage, and all other kinds of customs fees, charges
and duties;
 (j) Taxes of any kind on banks, insurance companies, and persons paying
franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance
directly with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage,
unless the ordinance shall provide otherwise: Provided, however, That the
Secretary of Finance shall have authority to suspend the effectivity of any
ordinance within one hundred and twenty days after its passage, if, in his
opinion, the tax or fee therein levied or imposed is unjust, excessive,
oppressive, or confiscatory, and when the said Secretary exercises this
authority the effectivity of such ordinance shall be suspended.
In such event, the municipal board or city council in the case of cities and
the municipal council or municipal district council in the case of
municipalities or municipal districts may appeal the decision of the
Secretary of Finance to the court during the pendency of which case the tax
levied shall be considered as paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local
governments broad taxing authority which extends to almost "everything, excepting
those which are mentioned therein," provided that the tax so levied is "for public
purposes, just and uniform," and does not transgress any constitutional provision or
is not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority
of a city or municipal ordinance, is not within the exceptions and limitations
aforementioned, the same comes within the ambit of the general rule, pursuant to the
rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus
non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions
provided for in section 2 of the Local Autonomy Act? For this purpose, it is
necessary to determine the true nature of the tax. The appellees strongly maintain
that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in
any occupation or business or exercising privileges," or a license tax, or a privilege
tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a
"municipal license tax on persons engaged in the business of operating tenement
houses," while section 1 thereof states that a "municipal license tax is
hereby imposed on tenement houses." It is the phraseology of section 1 on which the
appellees base their contention that the tax involved is a real estate tax which,
according to them, makes the ordinance ultra vires as it imposes a levy "in excess of
the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter,
Com. Act 158."5.
It is our view, contrary to the appellees' contention, that the tax in question is not a
real estate tax. Obviously, the appellees confuse the tax with the real estate tax within
the meaning of the Assessment Law,6 which, although not applicable to the City of
Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a
direct tax on the ownership of lands and buildings or other improvements thereon,
not specially exempted,8 and is payable regardless of whether the property is used or
not, although the value may vary in accordance with such factor.9 The tax is usually
single or indivisible, although the land and building or improvements erected thereon
are assessed separately, except when the land and building or improvements belong
to separate owners.10 It is a fixed proportion11 of the assessed value of the property
taxed, and requires, therefore, the intervention of assessors. 12 It is collected or
payable at appointed times,13 and it constitutes a superior lien on and is enforceable
against the property14 subject to such taxation, and not by imprisonment of the
owner.
The tax imposed by the ordinance in question does not possess the aforestated
attributes. It is not a tax on the land on which the tenement houses are erected,
although both land and tenement houses may belong to the same owner. The tax is
not a fixed proportion of the assessed value of the tenement houses, and does not
require the intervention of assessors or appraisers. It is not payable at a designated
time or date, and is not enforceable against the tenement houses either by sale or
distraint. Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof,
and the court looks less to its words and more to the context, subject-matter,
consequence and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although
not within the spirit, is not within the ordinance."15 It is within neither the letter nor
the spirit of the ordinance that an additional real estate tax is being imposed,
otherwise the subject-matter would have been not merely tenement houses. On the
contrary, it is plain from the context of the ordinance that the intention is to impose a
license tax on the operation of tenement houses, which is a form of business or
calling. The ordinance, in both its title and body, particularly sections 1 and 3
thereof, designates the tax imposed as a "municipal license tax" which, by itself,
means an "imposition or exaction on the right to use or dispose of property, to pursue
a business, occupation, or calling, or to exercise a privilege." 16.
"The character of a tax is not to be fixed by any isolated words that may
beemployed in the statute creating it, but such words must be taken in the
connection in which they are used and the true character is to be deduced
from the nature and essence of the subject." 17 The subject-matter of the
ordinance is tenement houses whose nature and essence are expressly set
forth in section 2 which defines a tenement house as "any building or
dwelling for renting space divided into separate apartments or accessorias."
The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-
12695, March 23, 1959, adopted the definition of a tenement house 18 as
 "any house or building, or portion thereof, which is rented, leased, or hired
out to be occupied, or is occupied, as the home or residence of three
families or more living independently of each other and doing their cooking
in the premises or by more than two families upon any floor, so living and
cooking, but having a common right in the halls, stairways, yards, water-
closets, or privies, or some of them." Tenement houses, being necessarily
offered for rent or lease by their very nature and essence, therefore
constitute a distinct form of business or calling, similar to the hotel or motel
business, or the operation of lodging houses or boarding houses. This is
precisely one of the reasons why this Court, in the said case of City of Iloilo
vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra
vires, because, although the municipal board of Iloilo City is empowered,
under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and
regulate hotels, restaurants, refreshment parlors, cafes, lodging houses,
boarding houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City Charter
of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is
one among those clearly and expressly granted to the City of Iloilo by its
Charter, the exercise of such power cannot be assumed and hence the
ordinance in question is ultra vires insofar as it taxes a tenement house such
as those belonging to defendants." .
The lower court has interchangeably denominated the tax in question as a tenement
tax or an apartment tax. Called by either name, it is not among the exceptions listed
in section 2 of the Local Autonomy Act. On the other hand, the imposition by the
ordinance of a license tax on persons engaged in the business of operating tenement
houses finds authority in section 2 of the Local Autonomy Act which provides that
chartered cities have the authority to impose municipal license taxes or fees upon
persons engaged in any occupation or business, or exercising privileges within their
respective territories, and "otherwise to levy for public purposes, just and uniform
taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation
but treble at that," because "buildings pay real estate taxes and also income taxes as
provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides
the tenement tax under the said ordinance." Obviously, what the trial court refers to
as "income taxes" are the fixed taxes on business and occupation provided for in
section 182, Title V, of the National Internal Revenue Code, by virtue of which
persons engaged in "leasing or renting property, whether on their account as
principals or as owners of rental property or properties," are considered "real estate
dealers" and are taxed according to the amount of their annual income. 20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions
of the National Internal Revenue Code as real estate dealers, and still taxable under
the ordinance in question, the argument against double taxation may not be invoked.
The same tax may be imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the exaction of license fees or
taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying
the real estate taxes and the tenement tax imposed by the ordinance in question, is
also devoid of merit. It is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used in connection therewith is
subject to property tax. The State may collect an ad valorem tax on property used in
a calling, and at the same time impose a license tax on that calling, the imposition of
the latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited
sense the same property must be taxed twice when it should be taxed but
once; both taxes must be imposed on the same property or subject-matter,
for the same purpose, by the same State, Government, or taxing authority,
within the same jurisdiction or taxing district, during the same taxing
period, and they must be the same kind or character of tax." 23 It has been
shown that a real estate tax and the tenement tax imposed by the ordinance,
although imposed by the sametaxing authority, are not of the same kind or
character.
At all events, there is no constitutional prohibition against double taxation in the
Philippines.24 It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the
ordinance is not only oppressive because it "carries a penal clause of a fine of
P200.00 or imprisonment of 6 months or both, if the owner or owners of the
tenement buildings divided into apartments do not pay the tenement or apartment tax
fixed in said ordinance," but also unconstitutional as it subjects the owners of
tenement houses to criminal prosecution for non-payment of an obligation which is
purely sum of money." The lower court apparently had in mind, when it made the
above ruling, the provision of the Constitution that "no person shall be imprisoned
for a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is
not a debt in the sense of an obligation incurred by contract, express or implied, and
therefore is not within the meaning of constitutional or statutory provisions
abolishing or prohibiting imprisonment for debt, and a statute or ordinance which
punishes the non-payment thereof by fine or imprisonment is not, in conflict with
that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a
fixed amount upon all persons, or upon all persons of a certain class, resident within
a specified territory, without regard to their property or the occupations in which they
may be engaged.28 Therefore, the tax in question is not oppressive in the manner the
lower court puts it. On the other hand, the charter of Iloilo City29 empowers its
municipal board to "fix penalties for violations of ordinances, which shall not exceed
a fine of two hundred pesos or six months' imprisonment, or both such fine and
imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra,
this Court overruled the pronouncement of the lower court declaring illegal and void
an ordinance imposing an occupation tax on persons exercising various professions
in the City of Manilabecause it imposed a penalty of fine and imprisonment for its
violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of
taxation.
"... because while the owners of the other buildings only pay real estate tax
and income taxes the ordinance imposes aside from these two taxes an
apartment or tenement tax. It should be noted that in the assessment of real
estate tax all parts of the building or buildings are included so that the
corresponding real estate tax could be properly imposed. If aside from the
real estate tax the owner or owners of the tenement buildings should pay
apartment taxes as required in the ordinance then it will violate the rule of
uniformity of taxation.".
Complementing the above ruling of the lower court, the appellees argue that there is
"lack of uniformity" and "relative inequality," because "only the taxpayers of the
City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of
other cities, where their councils do not enact a similar tax ordinance, are permitted
to escape such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court
has already ruled that tenement houses constitute a distinct class of property. It has
likewise ruled that "taxes are uniform and equal when imposed upon all property of
the same class or character within the taxing authority." 31 The fact, therefore, that the
owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed
by the ordinance in question is no argument at all against uniformity and equality of
the tax imposition. Neither is the rule of equality and uniformity violated by the fact
that tenement taxesare not imposed in other cities, for the same rule does not require
that taxes for the same purpose should be imposed in different territorial subdivisions
at the same time.32 So long as the burden of the tax falls equally and impartially on
all owners or operators of tenement houses similarly classified or situated, equality
and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of
tenement houses in the City of Iloilo, have not shown that the tax burden is not
equally or uniformly distributed among them, to overthrow the presumption that tax
statutes are intended to operate uniformly and equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the
case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was
declared by this Court in L-12695, supra, as ultra vires, the decision in that case
should be accorded the effect of res judicata in the present case or should constitute
estoppel by judgment. To dispose of this contention, it suffices to say that there is no
identity of subject-matter in that case andthis case because the subject-matter in L-
12695 was an ordinance which dealt not only with tenement houses but also
warehouses, and the said ordinance was enacted pursuant to the provisions of the
City charter, while the ordinance in the case at bar was enacted pursuant to the
provisions of the Local Autonomy Act. There is likewise no identity of cause of
action in the two cases because the main issue in L-12695 was whether the City of
Iloilo had the power under its charter to impose the tax levied by Ordinance 11,
series of 1960, under the Local Autonomy Act which took effect on June 19, 1959,
and therefore was not available for consideration in the decision in L-12695 which
was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of
the Local Autonomy Act, local governments may now tax any taxable subject-matter
or object not included in the enumeration of matters removed from the taxing power
of local governments.Prior to the enactment of the Local Autonomy Act the taxes
that could be legally levied by local governments were only those specifically
authorized by law, and their power to tax was construed in strictissimi juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in
questionbeing valid, the complaint is hereby dismissed. No pronouncement as to
costs..
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES,
INC., plaintiff-appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil
Case No. 3294, which was certified to Us by the Court of Appeals on October 6,
1969, as involving only pure questions of law, challenging the power of taxation
delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264,
as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint with preliminary injunction before the
Court of First Instance of Leyte for that court to declare Section 2 of Republic Act
No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27,
series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions
of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed therein are practically the same,
and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan,
Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
said municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September
25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the
purpose of computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly report, of
the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28,
1962, levies and collects "on soft drinks produced or manufactured within the
territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing
soft drinks shall submit to the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2, Republic
Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering
the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the
costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court
of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the
Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
1. — Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. 6 It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to which,
said theory does not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. 7 This is sanctioned by
immemorial practice. 8 By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law." Withal, it cannot be
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of
the legislative power to enact and vest in local governments the power of local
taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant's pretense, would not suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not limited 6 the exact measure of
that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such
measure of power to impose and collect taxes as the legislature may deem expedient.
Thus, municipalities may be permitted to tax subjects which for reasons of public
policy the State has not deemed wise to tax for more general purposes. 10 This is not
to say though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the taxing power,
as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is
observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds
of taxes notice and opportunity for hearing are provided. 11 Due process is usually
violated where the tax imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation;
and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a
tax does not violate the due process clause, as applied to a particular taxpayer,
although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner in which it shall be apportioned
are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. 13 The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation, in general, is
not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and
some states of the Union.14 Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the
same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed
by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double
taxation, because these two ordinances cover the same subject matter and impose
practically the same tax rate. The thesis proceeds from its assumption that both
ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects
from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo
for .every bottle corked, irrespective of the volume contents of the bottle used. When
it was discovered that the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the Municipality of Tanauan
enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts
confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6
compel compliance by the plaintiff-appellant of the provisions of said Ordinance No.
27, series of 1962. The aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal,
counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No.
27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend
to almost "everything, accepting those which are mentioned therein." As long as the
text levied under the authority of a city or municipal ordinance is not within the
exceptions and limitations in the law, the same comes within the ambit of the general
rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in
cabisus non excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other taxes in
any form based thereon nor impose taxes on articles subject to specific tax except
gasoline, under the provisions of the National Internal Revenue Code." For purposes
of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales
tax and is null and void for being outside the power of the municipality to
enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of the nature of a percentage tax on sales,
or other taxes in any form based thereon. The tax is levied on the produce (whether
sold or not) and not on the sales. The volume capacity of the taxpayer's production of
soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the amount of the
tax.21
Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed
on specified articles, such as distilled spirits, wines, fermented liquors, products of
tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and
other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of
those specified.
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would
not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
corporations are allowed much discretion in determining the reates of imposable
taxes. 25 This is in line with the constutional policy of according the widest possible
autonomy to local governments in matters of local taxation, an aspect that is given
expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount
is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
unreasonable. 27 Reluctance should not deter compliance with an ordinance such as
Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were
to be realized. 28
Finally, the municipal license tax of P1,000.00 per corking machine with five but not
more than ten crowners or P2,000.00 with ten but not more than twenty crowners
imposed on manufacturers, producers, importers and dealers of soft drinks and/or
mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the
resolution of the validity of Ordinance No. 27. Municipalities are empowered to
impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a
municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,

otherwise known as the Local Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962,
re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and
legal effect. Costs against petitioner-appellant.

SO ORDERED.