Roxas et al vs CTA GR L 25043 April 26, 1968 Facts: The Roxas brothers owned agricultural lands with a total

l area of 19,000 hectares. At the end of the second world war, the tenant express their desire to purchase from the brothers the parcels where they actually occupy. For its part, the government, in consonance with the constitutional mandate to acquire big landed estate and apportion them among landless tenants, persuaded the brothers to part with their landholdings. However, the government did not have the funds to cover the purchase price, so Roxas allowed the farmers to buy the land for the same price but by installment. Subsequently, the CIR demanded that the brothers to pay real estate dealers tax for the sale of the said land. Issue: Are petitioners liable? Ruling: No. the contention of the CIR Roxas y Cia should be considered a real estate dealer because it engaged in the selling of real estate as without merit. The sale of the farm was not only in consonance with but in obedience to the request and pursuant to the policy of the government to allocate lands to the landless. It is the duty of the government to pay the agreed compensation after it persuaded Roxas y Cia to sell the hacienda, and to subsequently subdivide them among the farmers at very reasonable terms and prices.

POWER TO TAX AND POWER TO DESTROY * > The power to tax includes the power to destroy if it is used as an implement of the police power (regulatory) of the State. However, it does not include the power to destroy if it is used solely for the purpose of raising revenue. (ROXAS vs. CTA) NOTES: > If the purpose of taxation is regulatory in character, taxation is used to implement the police power of the state > If the power of taxation is used to destroy things, businesses, or enterprises and the purpose is to raise revenue, the court will come in because there will be violation of the inherent and constitutional limitations and it will be declared invalid. Facts: Roxas Y Cia is a partnership managing agricultural lands with a total land area of 19,000 ha (Known as the Nasugbu farmlands). The tenants therein wanted to acquire the land they till, thus the government persuaded Roxas Y Cia to sell to it some of its lands. Roxas Y Cia agreed but it turned out that the govt does not have sufficient funds to pay for such lands, hence, Roxas Y Cia took the burden of selling the lands directly to the tenants on installment basis. Because of Roxas Y Cias act of making profits from the purchase and sale of securities, the Commissioner of Internal Revenue demanded from it fixed tax of dealers securities, hence, 100% of the profits made therefrom was taxed. Issue: WON the assessment made by the CIR is correct (of taxing 100% of the profits made from the sale of the lands to the tenants made by Roxas). Held: Negative. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden egg. And, in order to maintain the general publics trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%.

Philex Mining vs. CIR GR 125704, August 28, 1998 Facts: Philex Mining Corporation assails the decision of the court of appeals which affirmed the decision of the court of tax appeals ordering philex to pay its excise tax liability, philex refused to pay and contended it has pending claims for vat input credit or refund against the government which should be made compensate or set-off its tax liability. Issue: can tax be subject for set-off? Ruling: No. tax cannot be the subject for compensation for simple reason that the government and the tax payer are not mutual creditors and debtors of each other. Debts are due in the government in its corporate capacity while taxes are due to the government in its sovereign capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government that the collection of the tax is contingent on the result of the law suit it filed against the government.

Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)

Philex Mining Corporation was to set off its claims for VAT input credit/refund for the excise taxes due from it. The Supreme Court disallowed such set off or compensation. Requisites of compensation 1. 2. 3. 4. 5. That each one of the obligor be bound principally, and that he be at the same time a principal creditor of the other. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind and also of the same quality if the latter has been stated. That the two (2) debts be due. That they be liquidated and demandable. That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtors.

Facts: The BIR sent a letter to Philex asking the latter to settle its tax liabilities. Philex protested the demand contending that it has pending claims for VAT input credit/refund for taxes it paid for the previous years. Thus, Philex wants to set-off or apply the concept of compensation in its favor. The BIR refused. The CTA, affirmed by CA, ruled against Philex stating that taxes cannot be subject to setoff on compensation since claim for taxes is not a debt or contract. Issue: WON the pending claim for refund of Philex may be applied against an existing tax liability; or, WON Philex may set-off its tax liability against its pending claims for refund. Held: Negative. 1. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity;

2. Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein the SC ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner, is no longer without any support in statutory law. It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.

Francia vs. IAC 162 SCRA 753 FACTS: Francia was the registered owner of a house and lot in Pasay City. A portion of said property was expropriated by the republic. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. He contended that his tax delinquency had been extinguished by legal compensation since the government owed him 4,116 when a portion of his land was expropriated. ISSUE: can there be off-setting of debts and taxes? RULING: No. there can be no off-setting of taxes against the claims that the taxpayer may have against the government. Taxes cannot be the subject of compensation. The government and the taxpayer are not mutually creditor and debtors of each other and a claim for each other and a claim for taxes is not such a debt demand, contract or judgement as is allowed to be set-off. Furthermore, the tax was due to the city government. While the expropriation effected by the national government. In fact, the expropriation payment was already deposited with the PNB long before the sale at public auction of his property was conducted.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot be extinguished by legal compensation. This is so because the government and the tax delinquent are not mutually creditors and debtors. Neither is a tax obligation an ordinary act. Moreover, the collection of a tax cannot await the results of a lawsuit against the government. Finally, taxes are not in the nature of contracts but grow out of the duty to, and are the positive acts of the government to the making and enforcing of which the personal consent of the taxpayer is not required. (Francia v. IAC, 162 SCRA 754 and Republic v. Mambulao Lumber, 4 SCRA 622)

Domingo vs. Garlitos 8 SCRA 443 FACTS: In Domingo vs. Moscoso, the Supreme Court declared at final and executor the order of the court of first instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to 40, 058.55 by the estate of the late Walter Scott Pine. He petition for execution filed by the fiscal, however, was denied by the lower court the court held that the execution is unjustified as the government itself is indebted to the estate for 262,200; and ordered the amount of inheritance taxes be deducted from the governments indebtedness to the estate. Issues: Can there be legal compensation? Ruling: Yes. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law ( RA 2700) shows that both the claim of the government for inheritance taxes and the claim of the intestate for services regarded have already become overdue and demandable as well as fully liquidated. Compensation, therefore, take place by operation of law, in accordance with the provisions of article 1279 and 1290 of the civil code, and both debts are extinguished to the amount. Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re: claim for payment of unpaid services of a government employee vis--vis the estate taxes due from his estate. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law shows that both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated. Compensation therefore takes place by operation of law. MELECIO R. DOMINGO vs. LORENZO C. GARLITOS, ET AL. G.R. No. L-18994. June 29, 1963 Facts: The government has a claim against the estate of the Walter Scott Price of estate and inheritance taxes, charges and penalties amounting to P40,058.55. The government is at the same time indebted to the estate under administration in the amount of P262,200. Issue: May the claim by the government against the estate be deducted from its debt to the estate? May compensation take place? Ruling: Yes. The claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. compensation takes effect by operation of law, and extinguished both debts to the concurrent amount.

PAL vs. Edu 164 SCRA 320

Facts: The Philippine airlines is engaged in the air transportation business under a legislative franchise, Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the secretary of justice, PAL was determined not to have been paying motor vehicle registration fees since 1956. The Land Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle registration fees, PAL protested. Issue: Are motor vehicle registration fees taxes? Ruling: It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to as a source of revenue as well as a means of regulation. The money collected under the motor vehicle law is not intended for the expenditures of the motor vehicle office but accrue to the funds for the construction and maintenance of the public roads, streets, and bridges. As the fees are not collected for regulatory purpose as an incident to the enforcement of regulational governing operation of motor vehicles on public highways, but to provide revenue with which the government is to construct and maintain public highways for everyones use, they are taxes, not merely fees.
PAL vs. EDU
> It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to as a source of revenue as well as a means regulation. The fees may properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax.

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