G.R . Nos. L-28508-9 July 7, 1989 2.

The margin fees are not ordinary and necessary business

expenses. Petitioner contends that such remittance was an
20. ESSO STANDARD EASTERN, INC., (formerly, Standard- expenditure necessary and proper for the conduct of its corporate
Vacuum Oil Company), petitioner, vs. affairs. The Court cited Atlas Consolidated Mining and Development
THE COMMISSIONER OF INTERNAL REVENUE, respondent. Corporation v. Commissioner of Internal Revenue, where it laid down
Padilla Law Office for petitioner. the rules on the deductibility of business expenses, thus:

CRUZ, J .: “ the law allowing expenses as deduction from gross income for
purposes of the income tax is Section 30(a) (1) of the National
Internal Revenue which allows a deduction of 'all the ordinary and
Facts: The CTA denied ESSO’s claims for refund of overpaid income
necessary expenses paid or incurred during the taxable year in
taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA
carrying on any trade or business.' An item of expenditure, in order to
Cases No. 1251 and 1558 respectively.
be deductible under this section of the statute, must fall squarely
within its language. We come, then, to the statutory test of
In CTA Case No. 1251, petitioner ESSO deducted from its gross deductibility where it is axiomatic that to be deductible as a business
income for 1959, as part of its ordinary and necessary business expense, three conditions are imposed, namely: (1) the expense
expenses, the amount it had spent for drilling and exploration of its must be ordinary and necessary, (2) it must be paid or incurred within
petroleum concessions. This claim was disallowed by the respondent the taxable year, and (3) it must be paid or incurred in carrying on a
Commissioner of Internal Revenue on the ground that the expenses trade or business. In addition, not only must the taxpayer meet the
should be capitalized and might be written off as a loss only when a business test, he must substantially prove by evidence or records the
"dry hole" should result. ESSO then filed an amended return where it deductions claimed under the law, otherwise, the same will be
asked for the refund of P323,279.00 by reason of its abandonment disallowed.
as dry holes of several of its oil wells and claimed as ordinary and
necessary expenses the margin fees paid to the Central Bank on
Ordinarily, an expense will be considered 'necessary' where the
profit remittances to its New York head office.
expenditure is appropriate and helpful in the development of the
taxpayer's business. It is 'ordinary' when it connotes a payment which
In CTA Case No. 1558, the CR assessed ESSO a deficiency income is normal in relation to the business of the taxpayer and the
tax for the year 1960 arising from the disallowance of the margin fees surrounding circumstances…Assuming that the expenditure is
paid by ESSO to the Central Bank on its profit remittances to its New ordinary and necessary in the operation of the taxpayer's business,
York head office. ESSO settled the same by applying as tax credit its the answer to the question as to whether the expenditure is an
overpayment on its income tax in 1959 and paying under protest the allowable deduction as a business expense must be determined from
remaining amount. the nature of the expenditure itself, which in turn depends on the
extent and permanency of the work accomplished by the
The CIR denied the claims for refund of the overpayment of its 1959 expenditure.
and 1960 income taxes, holding that the margin fees paid to the
Central Bank could not be considered taxes or allowed as deductible The Court held that the CTA was correct in saying that the margin
business expenses. ESSO appealed to the CTA and sought the fees are not expenses in connection with the production or earning of
refund, contending that the margin fees were deductible from gross petitioner's incomes in the Philippines.
income either as a tax or as an ordinary and necessary business
expense, which was also denied.
‘Since the margin fees in question were incurred for the remittance of
funds to petitioner's Head Office in New York, which is a separate
Issue: WON the margin fees were deductible from gross income as a and distinct income taxpayer from the branch in the Philippines, for
tax or an ordinary and necessary business expense its disposal abroad, it can never be said therefore that the margin
fees were appropriate and helpful in the development of petitioner's
Held: business in the Philippines exclusively or were incurred for purposes
proper to the conduct of the affairs of petitioner's branch in the
1. The margin fee was imposed by the State in the exercise of its Philippines exclusively or for the purpose of realizing a profit or of
police power and not the power of taxation. There are at least two minimizing a loss in the Philippines exclusively.“
cases where we have held that a margin fee is not a tax but an
exaction designed to curb the excessive demands upon our ESSO has not shown that the remittance to the head office of part of
international reserve. In Caltex (Phil.) Inc. v. Acting Commissioner of its profits was made in furtherance of its own trade or business. It is
Customs, 2 the Court stated through Justice Jose P. Bengzon: clear that ESSO, having assumed an expense properly attributable to
its head office, cannot now claim this as an ordinary and necessary
“A margin levy on foreign exchange is a form of exchange control or expense paid or incurred in carrying on its own trade or business.
restriction designed to discourage imports and encourage exports,
and ultimately, 'curtail any excessive demand upon the international WHEREFORE, the decision of the Court of Tax Appeals denying the
reserve' in order to stabilize the currency. By its nature, the margin petitioner's claims for refund of P102,246.00 for 1959 and
levy is part of the rate of exchange as fixed by the government.“ P434,234.92 for 1960, is AFFIRMED, with costs against the
petitioner. SO ORDERED. Narvasa (Chairman), Gancayco, Griño-
Moreover, it has been settled that a tax is levied to provide revenue Aquino and Medialdea, JJ., concur.
for government operations, while the proceeds of the margin fee are
applied to strengthen our country's international reserves. Earlier, in 21. OLIVER O. LOZANO vs ENERGY REGULATORY BOARD
Chamber of Agriculture and Natural Resources of the Philippines v. G.R. Nos. 95119-21, December 18, 1990
Central Bank, 3 the same idea was expressed, though in connection
with a different levy, through Justice J.B.L. Reyes:
Facts:
Caltex, Shell and Petron proffered separate application with the
Neither do we find merit in the argument that the 20% retention of
exporter's foreign exchange constitutes an export tax. A tax is a levy Energy Regulatory Board for permission to increase the wholesale
for the purpose of providing revenue for government operations, posted price of petroleum products. The Board order granted
while the proceeds of the 20% retention, as we have seen, are provisional relief. various petroleum products enumerated below,
applied to strengthen the Central Bank's international reserve. refined and/or marketed by them locally. The petitioners submit that
the above Order had been issued with grave abuse of discretion,
tantamount to lack of jurisdiction, and correctible by Certiorari.
The petitioner, Senator Ernesto Maceda, also submits that the same from Batangas to Manila a pipeline system consisting of cylindrical
was issued without proper notice and hearing in violation of Section steel pipes joined together and buried not less than one meter below
3, paragraph (e), of Executive Order No. 172; that the Board, in the surface along the shoulder of the public highway. The portion
passing through Laguna is about thirty kilometers long. In points
decreeing an increase, had created a new source for the Oil Price
where the pipeline traversed rivers or creeks, the pipes were laid
Stabilization Fund (OPSF), or otherwise that it had levied a tax, a beneath the bed thereof. Hence, the pipes are permanently attached
power vested in the legislature, and/or that it had "re-collected", by to the land. However, Meralco Securities notes that segments of the
an act of taxation, ad valorem taxes on oil which Republic Act No. pipeline can be moved from one place to another (if for example,
6965 had abolished. The petitioner, Atty. Oliver Lozano, likewise req'd by the Gov't, should they be affected by any road repair or
argues that the Board's Order was issued without notice and hearing, improvement.) Pursuant to the Assessment Law, Commonwealth Act
and hence, without due process of law. No. 470, the provincial assessor of Laguna treated the pipeline as
real property and issued Tax Declarations, containing the assessed
values of portions of the pipeline. Meralco Securities appealed the
Issue: assessments to the Board of Assessment Appeals of Laguna, which,
WON the Board's Order was issued without notice and hearing, and however, upheld the assessments. Meralco Securities then brought
hence, without due process of law the case to the Central Board of Assessment Appeals but ended w/
the same result. Meralco Securities filed its MR. It was denied, hence
Ruling: this petition.
No.
What must be stressed is that while under Executive Order No. 172, CBAA: Meralco Securities' pipeline is subject to realty tax as the
pipes are machinery or improvements, as contemplated in the
a hearing is indispensable, it does not preclude the Board from
Assessment Law and the Real Property Tax Code. They do not fall
ordering, ex parte, a provisional increase, as it did here, subject to its within the category of property exempt from realty tax under those
final disposition of whether or not: (1) to make it permanent; (2) to laws. Articles 415 and 416 of the Civil Code, defining real and
reduce or increase it further; or (3) to deny the application. Section personal property, have no application to this case and that even
37 paragraph (e) is akin to a temporary restraining order or a writ of under A415, the steel pipes can be regarded as realty because they
preliminary attachment issued by the courts, which are given ex are constructions adhered to the soil and things attached to the land
parte, and which are subject to the resolution of the main case. in a fixed manner and that Meralco Securities is not exempt from
realty tax under the Petroleum Law.
Section 3, paragraph (e) and Section 8 do not negate each other, or
otherwise, operate exclusively of the other, in that the Board may
Meralco: Its pipeline is not subject to realty tax because it is not real
resort to one but not to both at the same time. Section 3(e) outlines
property within the meaning of A415.
the jurisdiction of the Board and the grounds for which it may decree
a price adjustment, subject to the requirements of notice and hearing. WON Meralco's pipeline is a real property subject to realty tax. Held:
Pending that, however, it may order, under Section 8, an authority to Yes. (1) It is incontestable that the pipeline of Meralco Securities
increase provisionally, without need of a hearing, subject to the final does not fall within any of the classes of exempt real property
outcome of the proceeding. The Board, of course, is not prevented enumerated in S3 of the Assessment Law and S40 of the Real
from conducting a hearing on the grant of provisional authority — Property Tax Code.
which is of course, the better procedure — however, it cannot be
stigmatized later if it failed to conduct one. As we held in Citizens' (2) Article 415[l] and [3] provides that real property may consist of
constructions of all kinds adhered to the soil and everything attached
Alliance for Consumer Protection v. Energy Regulatory Board. In the
to an immovable in a fixed manner, in such a way that it cannot be
light of Section 8 quoted above, public respondent Board need not separated therefrom without breaking the material or deterioration of
even have conducted formal hearings in these cases prior to the object.
issuance of its Order of 14 August 1987 granting a provisional
increase of prices. The Board, upon its own discretion and on the The pipeline system in question is indubitably a construction
basis of documents and evidence submitted by private respondents, adhering to the soil. It is attached to the land in such a way that it
could have issued an order granting provisional relief immediately cannot be separated therefrom without dismantling the steel pipes
upon filing by private respondents of their respective applications. In which were welded to form the pipeline.
this respect, the Court considers the evidence presented by private
respondents in support of their applications — i.e., evidence showing Insofar as the pipeline uses valves, pumps and control devices to
maintain the flow of oil, it is in sense machinery within the meaning of
that importation costs of petroleum products had gone up; that the
the Real Property Tax Code.
peso had depreciated in value; and that the Oil Price Stabilization
Fund (OPSF) had by then been depleted — as substantial and hence It should be borne in mind that what are being characterized as real
constitutive of at least prima facie basis for issuance by the Board of property are not the steel pipes but the pipeline system as a whole.
a provisional relief order granting an increase in the prices of
petroleum products. We do not therefore find the challenged action of DISPOSITIVE: The questioned decision and resolution are affirmed.
the Board to have been done in violation of the due process clause. The petition is dismissed. No costs.
The petitioners may contest however, the applications at the hearings
proper. 23. PROCTER &GAMBLE PHIL. MANUFACTURING
[Link] OF JAGNA
22. MERALCO SECURITIES INDUSTRIAL CORPORATION, G.R. No. L-24265; December 28, 1979; Melencio-Herrera, J.
petitioner, v CENTRAL BOARD OF ASSESSMENT APPEALS, Digest prepared by Efren II Resurreccion
BOARD OF ASSESSMENT APPEALS OF LAGUNA and
PROVINCIAL ASSESSOR OF LAGUNA, respondents. May 31, Facts:
1982 1. December 13, 1957, the Municipal Council of Jagna, Bohol
enacted Mun. Ordinance No. 4 Series of 1957 “Imposing
Storage Fees [on] All Exportable Copra Deposited in the
Special Civil Action of certiorari to review the decision of the CBAA Bodega Within the Jurisdiction of the Municipality.”
2. For six years (1958-1963), Procter & Gamble paid the
AQUINO, J. FACTS: Pursuant to a pipeline concession issued under Municipality under protest, storage fees totaling P42,265.13.
the Petroleum Act of 1949, RA No. 387, Meralco Securities installed
3. March 3, 1964, Procter & Gamble (P&G) filed suit in the CFI of  Municipal corps. Are allowed wide discretion in
Manila seeking that: 1) Ordinance no 4 be declared inapplicable determining the rates of imposable license fees even in
to it, or that it be called ultra vires, and 2) that the Municipality cases of purely police power measures.
be ordered to refund the amount paid under protest + costs.  In the absence of proof as to municipal conditions
a. Municipality: questioned the jurisdiction of the trial court to and the nature of business being taxed as well as
take cognizance of the action and pleaded prescription and other factors relevant to the issue of arbitrariness
laches for failure to timely question the validity of the of the questioned rates, courts will go slow in
ordinance. writing off an ordinance.
2. TC: Upheld jurisdiction as well as Municipality’s power to enact
the Ordinance under the Revised Admin Code’s sec. 2238,  P&G’s averment that even if presumed valid, the
known as the general welfare clause. It also declared P&G’s ordinance is inapplicable to it since it is not in the
right of action prescribed under the 5 year period provided by Art business of buying or selling copra should also fail. The
1149 NCC. question is irrelevant since the storage fee is an
3. P&G appeals the case submitting that: imposition on the privilege of storing copra in
a. The ordinance is inapplicable as it is not engaged in the bodegas in the municipality.
business trade of storing copra for others for compensation
or profit, and that the only copra it stores is for exclusive  The imposition is also not an export tax, prohibited by
use in connection with its business as a manufacturer of the Admin code. Only where there is a clear showing
soap, edible oil, margarine and other similar products. that what is being taxed is an export to any foreign
b. That the levy is intended as an “export tax” since it is country would the prohibition come into play.
collected from “exportable copra” which is beyond the o “exportable” copra in the ordinance does not
powers of the Municipal Council. exclusively mean export to a foreign country, but
c. That the fee of P0.10 for every 100 kilos of copra stored in shipment out of the municipality.
the bodega is excessive, unreasonable and oppressive and o It is also not a tax on exports because it is also
is imposed more for revenue than as a regulatory fee. impose upon copra to be used for domestic
purposes.
Issues:
W/N the Municipality of Jagna was authorized to impose and
 However, the lower court erred in claiming that the
collect the storage fee provided or in Ordinance No. 4 – YES.
action has prescribed. In Municipality of Opon v Caltex,
the prescription period for actions to recover municipal
Held:
license taxes is six years, governed by Art. 1145(2)
The validity of the ordinance is sustained.
NCC.
Ratio:
 The Validity of the ordinance must be upheld pursuant to the 24. G.R. No. L-18534 December 24, 1964
broad authority conferred upon municipalities by Commonwealth GOLDEN RIBBON LUMBER COMPANY, INC.,[Link] CITY OF
Act No. 472 (prevailing when the ordinance was enacted). BUTUAN and FRANCISCO MAGNO, in his capacity as City
o Under such article, a municipality is authorized to Treasurer of the City of Butuan, defendants-appellants.
impose three kinds of licenses 1) a license for
regulation of useful occupation or enterprises, 2) DIZON, J.:
license for restriction or regulation of non-useful Facts:
occupations or enterprises, and 3) license for Appellee, a duly organized domestic corporation, operated
revenue. a lumber mill and lumber yard in Butuan City. Pursuant to the
o It is thus unnecessary to determine whether the provisions of Section 1 of Ordinance No. 5, as amended by
subject storage fee is a tax for revenue purposes Ordinance Nos. 9, 10, 47 and 49 of said city, appellee paid to
or a license fee to reimburse the municipality for appellants the taxes provided for therein amounting to the total sum
supervision services since both are within the P2,069.26. Claiming that said ordinance, as amended, was void, it
powers granted to the municipality. later brought the present action to have it so declared; to recover the
 The storage fee imposed under the ordinance is amount mentioned heretofore, and to have appellants permanently
actually a municipal license tax or fee on persons, firms enjoined from enforcing said ordinance, as amended.
and corporations exercising the privilege of storing After the denial of their motion to dismiss the complaint on the
copra in a bodega within the muicipality’s territorial ground that it did not state a cause of action, appellants filed their
jurisdiction. answer in which, after making some denials and admissions, they
o “License tax” has not acquired a fixed meaning. It alleged, as affirmative defenses, (a) that the tax assessed under
is often use to indiscriminately designate Ordinance No. 5, as amended. is a privilege tax on business and is
impositions exacted for various privileges including therefore legal under paragraph p, section 15, Article III of Republic
revenue raising activities. Act No. 523, otherwise known as the Charter of the City of Butuan,
 Further, the business of buying and selling and sorting and (b) that since the payments were not made under protest,
copra is properly the subject of regulation within the appellee could not ask for their refund. As counterclaim they also
police power granted to municipalities under the alleged that appellee had incurred tax delinquencies and surcharges
Revised Admin Code’s “general welfare clause”. Since as of July, 1957 in the amount of P16,978.44 and additional
it has been held that warehouses keeping copra is a undetermined taxes from August, 1957 up to and including January
likely danger to public safety because it contains 1958 exclusive of interests under Ordinance No. 5, as amended by
flammable substances that are difficult to put under the Ordinance No. 49, Series of 1954.
control of water. The principal issue to be resolved is whether Ordinance No. 5, as
originally approved or as later amended, is a valid tax that derives
 The claim that P0.10 / 100kilos fee is beyond the cost of legal basis from the Charter of the City of Butuan? NO, it is void.
regulation and surveillance is not well taken. As (Dito kuna nilagay to para kasunod ng copy ng law and charter ng
discussed Victorias Milling v Municipality of Victorias, city.
“[t]he cost of regulation cannot be taken as a gauge, if
the municipality reallt intended to enact a revenue AN ORDINANCE IMPOSING A TAX ON LUMBER MILLS
ordinance[…]”
SECTION 1. — 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 ordinance was never repealed and instead was carried over and
every board foot of lumber sawn manufactured and/or produced continued to be in force until the latest amendment.
(regardless of group). The tax shall be paid within the first twenty Moreover, the tax thus levied is virtually one on "forest products"
(20), days of the following month. If the tax is not paid within the time since manufactured or sawn lumber is so considered under the
herein prescribed, there shall be added to the unpaid amount a provisions of Section 263, National Internal Revenue Code, which is
surcharge of ten per centum (10%) every month of fractional part embraced in Chapter V thereof entitled "Charges on Forest
thereof, but in no case shall the total surcharge exceed twenty-five Products", as construed by Section VI, Regulation No. 85,
per centum (25%). Department of Finance. Municipal corporations are prohibited from
imposing charges of taxes of such nature (Commonwealth Act No.
SECTION 2. — It shall be the duty of every person, association or 472, Section 3; Republic Act No. 2264).
corporation operating a lumber mill to submit to the City Treasurer Appellants' claim that the questioned tax is one on business or a
within the first fifteen (15) days of every month a sworn statement of privilege tax for the operation of a lumber mill or a lumber yard is
the number of board feet sawn manufactured or produced by it without merit.
during the preceding month. The character or nature of a tax is determined not by the title of the
Falls within the provisions of paragraph 5, Section 15 of Republic Act act or ordinance imposing it but by its operation, practical results and
No. 523, which empowers the municipal board of the City of Butuan: incidents (Dawson vs. Distilleries, etc., 255 U.S. 288, 65 L. Ed. 638;
To tax, fix the license fee for, regulate the business and fix the Association of Customs Brokers, Inc., et al. vs. The Municipal Board,
location of, match factories, blacksmith shops, foundries, steam et al., G.R. No. L-4376, May 22, 1953).
boilers, lumber mills and lumber yards, shipyards, the storage and Neither the original ordinance in question nor the amendatory ones
sale of gunpowder, tar pitch, resin coal, oil, gasoline, benzine show that the tax provided for therein is imposed by reason of the
turpentine, hemp, cotton, nitroglycerine, petroleum, or any of the enjoyment of the privilege to engage in a particular trade or business.
products thereof, and of all other highly combustible or explosive Neither do they provide that payment thereof is a condition precedent
materials and other establishments likely to endanger the public to the enjoyment of such privilege or that its non-payment would
safety or give rise to conflagrations or explosions, and subject to the result in the cancellation of any previous license granted. The only
rules and regulations incured by the Director of Health in accordance consequence of its non-payment appears to be the imposition of a
with law, tanneries renderies, tallow chandeleries, embalmers, and surcharge or liability to suffer the penal sanctions prescribed in
funeral parlors, bone factories and soap factories. Section 3 of the original ordinance. These circumstances lead Us to
Issue: the conclusion that the questioned tax cannot be considered as one
WON Ordinance No. 5, as amended is valid and legal and imposed upon a party for engaging in the business of operating a
that whether or not the plaintiff's corporation is legally bound to pay lumber mill or a lumber yard.
the taxes provided for in said to ordinance in question? We likewise find to be unmeritorious appellants' contention that the
WON the tax imposed by Ordinance No. 5, is a sales tax power of the City of Butuan to tax lumber mills and lumber yards
on the sawn manufactured or produced lumber, which are forest includes the power to tax the sale, production, sawing and/or
products and WON said ordinance is null and void. manufacture of lumber by them. The rule is well-settled that
Held: municipal corporations, unlike sovereign states, are clothed with no
Ordinance No. 5 is ultra vires. power of taxation; that its charter or a statute must clearly show an
Said ordinance is a sales tax on the sawn manufactured or intent to confer that power or the municipal corporation cannot
produced lumber, it is null and void because the City of Butuan is not assume and exercise it, and that any such power granted must be
empowered to impose this type of tax pursuant to its City Charter. construed strictly, any doubt or ambiguity arising out from the terms
Ratio: of the grant to be resolved against the municipality. (Cu Unjieng vs.
The title given to the original ordinance in question was "An Patstone 42 Phil. 818; Vega, et al. vs. Municipal Board, etc., 50 O.G.
ordinance imposing a tax on the sales of lumber". Section 1 thereof No. 6,p. 2456)
made the tax collectible on "every board foot of lumber sold" by every
person, association or corporation operating a lumber mill within the 25. CITY OF OZAMIS VS LUMAPAS
territory of the City of Butuan, while Section 4 expressly exempted [Link]. L-30727, 65 SCRA 33, July 15, 1975
lumber mills from the payment of the quarterly sales tax provided for
in Section 3, Article 11 of Ordinance No. 47, Series of 1949. FACTS:
The above would seem to be sufficient to show that the tax imposed This case is about a bus company, Romar Line, transporting
is and was really intended to be on lumber sold and not a tax on, or, passengers and cargo with Ozamis City and Pagadian City as
license fee for the privilege of operating a lumber mill and/or a lumber terminal points. Said bus company is operated by the respondent
yard. SERAPIO LUMAPAS.
The amendatory ordinances did not change the nature of the tax Then, the Municipal Board of Ozamis City enacted Ordinance No.
imposed by the original. Ordinance No. 9 simply changed the title of 466 imposing parking fees for every motor vehicle parked on any
the latter so as to make it read as an ordinance imposing a tax on the parking space in Ozamis City.
"produce of lumber mills"; Ordinance No. 10, while entitled as one Since Romar Line is affected of said ordinance, Lumapas paid said
imposing a tax on lumber mills made the tax collectible on "every fee under protest for 2 years and 4 months. After 4 years, Lumapas
board foot of lumber, regardless of group, sawn manufactured or filed a complained against City of Ozamis, with CFI-Misamis
produced, etc."; Ordinance No. 47, in turn, made the tax collectible Occidental, for recovery of parking fees, alleging that the said
on "every board foot of lumber sold and/or shipped"; Ordinance No. ordinance is ULTRA VIRES.
49, while changing again the title of the original ordinance so as to CFI ruled in favor of Lumapas and held that the parking area where
make it read as "An ordinance imposing a tax on lumber mills", also buses of Romar Lines are parked is part of the municipal street and
required the tax to be paid "for every board foot of lumber sawn the parking fee is in the nature of a toll fee for the use of a public
manufactured and/or produced, etc." road. As such, the enactment of said ordinance is in violation of Sec.
The clear implication from the original as well as the amendatory 59 (b) of RA No. 4136 (Land Transportation and Traffic Code) for it
ordinances is that the tax imposed is one on lumber sold, has no prior approval by the president of the Philippines with
manufactured, sawn or produced by parties duly licensed to engage recommendation of Secretary of Public Works and Communications,
in said trade or business. As the lower court said — and this we and is NULL & VOID.
quote with approval. —
The intent of Ordinance No. 5 to tax the sale of lumber is clear and Hence, this appeal by certiorari.
unmistakable. The subsequent ordinances Nos. 9, 10, 47 and 49,
Exhs. B, C, D, and E respectively, being all amendatory, naturally did ISSUE (1) WON the Ordinance No. 466, which imposes parking fees
not alter the essence or spirit of the basic ordinance. This is evident, in Ozamis, is valid.
if we consider that section 4 of the original ordinance which exempts
lumber mills from the of quarterly sales tax, as provided in an earlier HELD:
City of Ozamis has been clothed with full power to CONTROL and 8. That the applicant was paying in previous years to 1937, without
REGULATE its street to promote public health, safety and welfare. protest, the sums that the city demanded in accordance with the
The SC held that power to tax can only be exercised by the ordinances and referred to; and for the first time I protest the year
Congress, unless delegated or conferred to others as provided for by 1937, protest that is the object of this litigation;
law. Included in said delegation is the express grant of powers, 9. That a list of properties valued in the city of Baguio was included in
among others. And such delegation of power to tax are to be Ordinance No. 137 and that relationship became part of Ordinance
construed against the Municipality. In this case, RA 321 (Ozamis City No. 137 and was called and converted into "SPECIAL
Chapter) delegates to the Municipal Board the power to regulate the ASSESSMENT LIST, CITY OF BAGUIO" , for the purposes of the
use of the streets, among other public places. aforementioned ordinance and that the properties affected in the
Said republic act delegates the police power to the municipal protest payment of the applicant were and are included in said list
corporation to be exercised as a governmental functions for and have not been excluded so far by virtue of any ordinance
municipal purposes. subsequent to No. 137;
10. That the construction of the drainage and sewerage system has
ISSUE (2) WON the fee charged is a parking fee and not a toll fee. benefited and is benefiting directly and especially to all the owners
whose lots and lands are included in the "SPECIAL ASSESSMENT
HELD: LIST, CITY OF BAGUIO" including the lands of the applicant here
affected in said list and in the payment under protest and that this
The SC ruled that the word TOLL is defined as a DUTY imposed on system of drainage and sewerage has promoted the cleaning and
goods and passengers travelling public roads, and not for use, as a sanitary condition of the lands of the aforementioned list.
parking place for vehicles. 11. That the parties reserve the right to practice additional tests.
In this case, the contested ordinance defined parking as the The appellant maintains in its error statements the following
STOPPAGE of a motor vehicle on an existing parking areas to propositions: (1) that its real estate and its mojoras in the City of
unload and load passengers or cargoes. Considering the use of the Baguio for being exempt from payment of all taxes by the
land, the fee paid is that of a PARKING FEE and not a toll fee, and Constitution and by the laws in force must be equally exempt from
which is imposed to cover the expenses for supervision, inspection the payment of the special contribution that the appellee has charged
and control, to ensure smooth flow of traffic in the environs of the him and he has paid under protest; (2) that Ordinance No. 137 and
public market, and for safety and convenience of the public. its amendments, under which the special contribution has been
SC reversed decision of CFI and declared Ordinance No. 466 VALID. collected, exclude from its provisions its properties exempt from the
payment of all taxes; (3) that in the event that the aforementioned
ordinances do not exclude their properties from the payment of the
26. GR No. L-47252 April 18, 1941 special contribution, they are null and ineffective; and (4) in the event
THE APOSTOLIC PREFECT OF THE MOUNTAIN PROVINCE, that the aforementioned ordinances were legal the appellee, as
plaintiff-appellant, Treasurer of the City of Baguio,
vs. The first proposition involves the question of whether the properties
THE TREASURER OF THE CITY OF BAGUIO, defendant- on which the special contribution is charged are effectively exempt
appealed. from said payment. The special contribution was collected by the
Messrs. Cavanna, Jasmines and Tianco in representation of appellee under the provisions of articles 2 and 5 of Ordinance No.
the appellant. 137 that provide:
The Attorney General representing the appellee. It having heretofore been ascertained that said work will benefit each
IMPERIAL, J .: and every owner or property subject to taxation, lying and being
within the corporate limits of the City, it is hereby stated that benefit
The plaintiff exercised this action to recover from the defendant the will accrue from said work to each and all said persons, and said
sum of P1,019.37 that he paid under protest as a special contribution persons shall pay a compensation for said benefit.
on his properties in the City of Baguio, corresponding to the year The City Assessor having heretofore compiled from the City
1937. Appeal of the judgment of the Court of First Instance of said Assessment and Valuation aforesaid and certified to the City
city that he dismissed your demand, without costs. Treasurer a list containing and setting forth the total amount of
The parties submitted the matter by means of the following partial property within the corporate limits of the City subject to assessment
stipulation of facts: and levy for the purposes in this Ordinance recited, The total amount
of the properties individually owned and possessed, and the name of
1. The plaintiff is a one-person corporation of a religious nature, each individual owner and possessor, the rate per cent, to wit: ONE
organized in accordance with the laws of the Philippines, with PER CENTUM ad valorem of said total value which is necessary for
residence in the city of Baguio; the purposes set forth in Section III hereof, is hereby made the
2. The defendant is a public servant of the city of Baguio and acts as amount to be paid individually by each owner or possessor as his
treasurer and collector of said city; share, and the above-mentioned list is hereby made part hereof and
3. That the defendant demanded and collected from the plaintiff on named "SPECIAL ASSESSMENT LIST," and said list is hereby
June 25, 1937, the sum of one thousand nineteen pesos and thirty- declared to be,and made the City official list and basis for assessing,
seven cents (P1,019.37), Philippine currency, pursuant to the levying and collecting the rate of compensation aforesaid from the
provisions of Ordinance No. 137, as amended and amended by above-mentioned owners and possessors, and each owner or
Ordinances No. 263, 277, 283, 297, 311, 325, 348, 367, 387, 419, possessor is required to, and shall pay the amount in said list stated
471, 45, 455, 466, 512, 552, 591, 592, and Resolution of the Council as his individual share to the City Treasurer on or after the first of
of the City of Baguio No. 10 dated January 22, 1918. All the March and not later than June 30th, 1914.
aforementioned ordinances, as well as Resolution No. 10, series of The appellant maintains that his property is exempt from the payment
1918, become integral parts of this agreement. of the special contribution both by what is provided in Article 2 of
4. That the payment made by the plaintiff of p1,019.37 corresponds Ordinance No. 137 and by what is stated in Article 14, (3), Title VI, of
to the year 1937 and was made under protest formulated in a letter the Constitution of the Philippines. it reads as follows:
dated June 25, 1937 in which the reasons for the portestation were (3) Cementary, churches, parishes and convents attached to these,
presented and the favorable resolution of the protest and the return and all land, buildings and improvements used exclusively for
of the amount paid; religious, charitable or educational purposes, shall be exempt from
5. That the defendant denied the protest; taxation.
6. The lands affected by the payment of P1,019.37 are land owned It is alleged that, according to Article 2 of Ordinance No. 137, only
by the plaintiff's property dedicated to worship and education during those properties that are not subject to the payment of a tax must
the year 1937 and in previous years; pay the special contribution and, in accordance with the
7. That the City of Baguio built in accordance with the ordinances aforementioned constitutional provision, the properties of the
cited above in paragraph 2 of this stipulation a sewer and drainage appellant are exempt from the payment of the tax. Special
system; contribution for being dedicated to religious purposes. This claim
requires that it be resolved, in the first place, if the special tax 1981, (3) secure a permit for cargo handling operations at its Da-an
imposed by Ordinance No. 13 is a tax in its legal meaning. It is a Banua wharf, and (4) remit 10% of its gross income for said
well-established rule on tax that the special contributions that are operations as the government's share.
created and charged to amortize extraodinary expenses that cause
works, such as the drainage and sewerage system, that benefit the To these demands, Victorias Milling sent two letters wherein it
inhabitants in a special way is not a tax in its sense legal. According maintained that it was exempt from paying PPA any fee or charge
to the ordinance, the special contribution charged to the properties because: (1) the wharf and its facilities were built and installed in its
located in the City of Baguio, was created to amortize the land; (2) repair and maintenance thereof were solely paid by it; (3)
extraordinary expenses caused by the drainage and sewage system even the dredging and maintenance of the Malijao River Channel
that was built, a work that benefits all owners in a special way. city. from Guimaras Strait up to said private wharf were being done by its
Judge Cooley, in drawing the distinction between taxes and special equipment and personnel; (4) at no time had the government ever
contributions in his tax treaty, expresses himself in these terms: spent a single centavo for such activities; and (5) the wharf was
While the word "tax" in its broad meaning, includes both general being used mainly to handle sugar purchased from district planters
taxes and special assessments, and in general sense a tax is an pursuant to existing milling agreements.
assessment, and an assessment is a tax, yet there is a recognized
distinction between them in that assessment is confined to local Victorias Milling filed a petition before the Court of Tax
impositions upon property for the payment of the cost of public Appeals (CTA) but it was dismissed on the ground that it had no
improvements in its immediate vicinity and levied with reference to jurisdiction. The CTA recommended that the appeal be addressed to
special benefits to the assessed property. The differences between a the Office of the President (OP). Victorias Milling elevated the case
special assessment and a tax are that (1) a special assessment can to the Supreme Court (SC) but it was likewise denied. Thereafter, it
be levied only on land; (2) a special assessment can not (at least in appealed to the OP but it was denied on the ground that the appeal
most states) be a personal liability of the person assessed; (3) a was filed beyond the reglementary period. Hence, the instant
special assessment is based wholly on benefits; and (4) a special petition.
assessment is exceptional both as to time and locality. The
imposition of a charge on all property, Real and personal, in a Victorias Milling maintained and submitted that there was
prescribed area, is a tax assessment, although the purpose is to no basis for the PPA to assess and impose the dues and charges it
make a local improvement on a street or highway. A charge imposed was collecting since the wharf was private, constructed and
only on property owners benefited is a special assessment rather maintained at no expense to the government, and that it existed
than a tax notwithstanding the statute calls it a tax. primarily so that its tugboats and barges would ferry the sugarcane of
If the special contribution charged to the appellant is not strictly its Panay planters.
speaking a tax whose payment is exempt from it, it is evident that
neither under the ordinance nor the Constitution the aforementioned
appellant is exempt from the payment of the special contribution. ISSUE:
In addition, according to the stipulation of facts, the appellant can not
successfully invoke the exemption established by the Constitution Whether or not the requirement to remit 10% of its gross income for
because it has not been admitted or proven that its properties that its arrastre and stevedoring operations is valid
paid the special contribution were used exclusively for religious
purposes. It is true that it was stipulated that the properties were
dedicated to religious purposes, but it was not agreed or proved that RULING:
such use was exclusive, and it may therefore occur that the
properties, besides being dedicated to religious purposes, were also Yes. The requirement to remit 10% of its gross income for its
destined and used for other purposes. not religious. arrastre and stevedoring operations is valid.
Regarding the validity of Ordinance No. 137 and its amendments, it
is undeniable that the City of Baguio is authorized by Article 8 (1) of Section 6B-(ix) of the Presidential Decree No. 857 authorized the
Law No. 1963, today Article 2553 (1) of the Revised Administrative PPA "To levy dues, rates, or charges for the use of the premises,
Code, for create the special contribution discussed in order to works, appliances, facilities, or for services provided by or belonging
amortize the cats caused by the sewage and drainage system that to the Authority, or any organization concerned with port operations."
was built for the benefit of all the inhabitants of the aforementioned This 10% government share of earnings of arrastre and stevedoring
city. operators is in the nature of contractual compensation to which a
The ultimate pretension of the appellant is that assuming valid person desiring to operate arrastre service must agree as a condition
Ordinance No. 137 and its amendments he is not already obliged to to the grant of the permit to operate.
pay special contribution in view of that already satisfied in years prior
to 1937 the aliquot part that corresponded to said special As correctly stated by the Solicitor General, the fees and charges
contribution. The claim is equally unfounded, because it results from PPA collects are not for the use of the wharf that petitioner owns but
Exhibit 1 that the cost of the drainage and sewer system amounts to for the privilege of navigating in public waters, of entering and leaving
P502,750.75 and the city only charged by special contribution until public harbors and berthing on public streams or waters.
1937 the sum of P291,290.08; resulting in the cost of the system, in
1937, was not yet fully satisfied. 28. G.R. No. L-13912 September 30, 1960
If the sentence appealed is adjusted to the law, it is confirmed in all THE COMMISSIONER OF INTERNAL REVENUE, petitioner,
its parts, with the costs of this instance to the appellant. This is how it vs.
is ordered. CONSUELO L. VDA. DE PRIETO, respondent.
Avanceña, Pres., Diaz, Laurel, and Horrilleno, MM., Are satisfied.
Office of the Solicitor General Edilberto Barot, Solicitor F.R. Rosete
27. VICTORIAS MILLING CO., INC. vs. OFFICE OF THE and Special Atty. B. Gatdula, Jr. for petitioner.
PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS and Formilleza and Latorre for respondent.
PHILIPPINE PORTS AUTHORITY
G.R. No. 73705 August 27, 1987 GUTIERREZ DAVID, J.:

This is an appeal from a decision of the Court of tax Appeals

FACTS: reversing the decision of the Commissioner of Internal Revenue
which held herein respondent Consuelo L. Vda. de Prieto liable for
On April 28, 1981, the Iloilo Port Manager of Philippine Ports the payment of the sum of P21,410.38 as deficiency income tax, plus
Authority (PPA) wrote Victorias Milling requiring it to (1) have its penalties and monthly interest.
tugboats and barges undergo harbor formalities, (2) pay The case was submitted for decision in the court below upon a
entrance/clearance fees as well as berthing fees effective May 1, stipulation of facts, which for brevity is summarized as follows: On
December 4, 1945, the respondent conveyed by way of gifts to her Reports, 877; Evens and Howard Fire Brick Co. vs. Commissioner of
four children, namely, Antonio, Benito, Carmen and Mauro, all Internal Revenue, 3 Tax Court of United States Reports, p. 62). The
surnamed Prieto, real property with a total assessed value of rule applies even though the tax is nondeductible. (Federal Taxes,
P892,497.50. After the filing of the gift tax returns on or about Vol. 2, Prentice Hall, sec. 163, 13,022; see also Merten's Law of
February 1, 1954, the petitioner Commissioner of Internal Revenue Federal Income Taxation, Vol. 5, pp. 23-24.)
appraised the real property donated for gift tax purposes at To sustain the proposition that the interest payment in question is not
P1,231,268.00, and assessed the total sum of P117,706.50 as deductible for the purpose of computing respondent's net income,
donor's gift tax, interest and compromises due thereon. Of the total petitioner relies heavily on section 80 of Revenue Regulation No. 2
sum of P117,706.50 paid by respondent on April 29, 1954, the sum of (known as Income Tax Regulation) promulgated by the Department
P55,978.65 represents the total interest on account of deliquency. of Finance, which provides that "the word `taxes' means taxes proper
This sum of P55,978.65 was claimed as deduction, among others, by and no deductions should be allowed for amounts representing
respondent in her 1954 income tax return. Petitioner, however, interest, surcharge, or penalties incident to delinquency." The court
disallowed the claim and as a consequence of such disallowance below, however, held section 80 as inapplicable to the instant case
assessed respondent for 1954 the total sum of P21,410.38 as because while it implements sections 30(c) of the Tax Code
deficiency income tax due on the aforesaid P55,978.65, including governing deduction of taxes, the respondent taxpayer seeks to
interest up to March 31, 1957, surcharge and compromise for the late come under section 30(b) of the same Code providing for deduction
payment. of interest on indebtedness. We find the lower court's ruling to be
Under the law, for interest to be deductible, it must be shown that correct. Contrary to petitioner's belief, the portion of section 80 of
there be an indebtedness, that there should be interest upon it, and Revenue Regulation No. 2 under consideration has been part and
that what is claimed as an interest deduction should have been paid parcel of the development to the law on deduction of taxes in the
or accrued within the year. It is here conceded that the interest paid United States. (See Capital Bldg. and Loan Assn. vs. Comm., 23 BTA
by respondent was in consequence of the late payment of her 848. Thus, Mertens in his treatise says: "Penalties are to be
donor's tax, and the same was paid within the year it is sought to be distinguished from taxes and they are not deductible under the
declared. The only question to be determined, as stated by the heading of taxs." . . . Interest on state taxes is not deductible as
parties, is whether or not such interest was paid upon an taxes." (Vol. 5, Law on Federal Income Taxation, pp. 22-23, sec.
indebtedness within the contemplation of section 30 (b) (1) of the Tax 27.06, citing cases.) This notwithstanding, courts in that jurisdiction,
Code, the pertinent part of which reads: however, have invariably held that interest on deficiency taxes are
SEC. 30 Deductions from gross income. — In computing net income deductible, not as taxes, but as interest. (U.S. vs. Jaffray, et al.,
there shall be allowed as deductions — supra; see also Mertens, sec. 26.09, Vol. 4, p. 552, and cases cited
xxx xxx xxx therein.) Section 80 of Revenue Regulation No. 2, therefore, merely
(b) Interest: incorporated the established application of the tax deduction statute
(1) In general. — The amount of interest paid within the taxable year in the United States, where deduction of "taxes" has always been
on indebtedness, except on indebtedness incurred or continued to limited to taxes proper and has never included interest on delinquent
purchase or carry obligations the interest upon which is exempt from taxes, penalties and surcharges.
taxation as income under this Title. To give to the quoted portion of section 80 of our Income Tax
The term "indebtedness" as used in the Tax Code of the United Regulations the meaning that the petitioner gives it would run counter
States containing similar provisions as in the above-quoted section to the provision of section 30(b) of the Tax Code and the construction
has been defined as an unconditional and legally enforceable given to it by courts in the United States. Such effect would thus
obligation for the payment of money.1awphîl.nèt (Federal Taxes Vol. make the regulation invalid for a "regulation which operates to create
2, p. 13,019, Prentice-Hall, Inc.; Merten's Law of Federal Income a rule out of harmony with the statute, is a mere nullity." (Lynch vs.
Taxation, Vol. 4, p. 542.) Within the meaning of that definition, it is Tilden Produce Co., 265 U.S. 315; Miller vs. U.S., 294 U.S. 435.) As
apparent that a tax may be considered an indebtedness. As stated by already stated, section 80 implements only section 30(c) of the Tax
this Court in the case of Santiago Sambrano vs. Court of Tax Appeals Code, or the provision allowing deduction of taxes, while herein
and Collector of Internal Revenue (101 Phil., 1; 53 Off. Gaz., 4839) respondent seeks to be allowed deduction under section 30(b), which
— provides for deduction of interest on indebtedness.
Although taxes already due have not, strictly speaking, the same In conclusion, we are of the opinion and so hold that although
concept as debts, they are, however, obligations that may be interest payment for delinquent taxes is not deductible as tax under
considered as such. Section 30(c) of the Tax Code and section 80 of the Income Tax
The term "debt" is properly used in a comprehensive sense as Regulations, the taxpayer is not precluded thereby from claiming said
embracing not merely money due by contract but whatever one is interest payment as deduction under section 30(b) of the same Code.
bound to render to another, either for contract, or the requirement of In view of the foregoing, the decision sought to be reviewed is
the law. (Camben vs. Fink Coule and Coke Co. 61 LRA 584) affirmed, without pronouncement as to costs.
Where statute imposes a personal liability for a tax, the tax becomes, Bengzon, Bautista Angelo, Labrador, Barrera, Paredes, and Dizon,
at least in a board sense, a debt. (Idem). JJ., concur.
A tax is a debt for which a creditor's bill may be brought in a proper Paras, C. J., Concepcion, and Reyes, J.B.L., JJ., concur in the result.
case. (State vs. Georgia Co., 19 LRA 485).
It follows that the interest paid by herein respondent for the late 29. G.R. No. 107135 February 23, 1999
payment of her donor's tax is deductible from her gross income under COMMISSIONER OF INTERNAL REVENUE, petitioner,
section 30(b) of the Tax Code above quoted. vs.
The above conclusion finds support in the established jurisprudence THE COURT OF APPEALS, CENTRAL VEGETABLE
in the United States after whose laws our Income Tax Law has been MANUFACTURING CO., INC., and THE COURT OF TAX
patterned. Thus, under sec. 23(b) of the Internal Revenue Code of APPEALS, respondents.
1939, as amended 1 , which contains similarly worded provisions as
sec. 30(b) of our Tax Code, the uniform ruling is that interest on taxes PURISIMA, J.:
is interest on indebtedness and is deductible. (U.S. vs. Jaffray, 306
U.S. 276. See also Lustig vs. U.S., 138 F. Supp. 870; Commissioner Before the Court is a Petition for Review on Certiorari from the
of Internal Revenue vs. Bryer, 151 F. 2d 267, 34 AFTR 151; Penrose judgment of the Court of Appeals affirming in totothe decision of the
vs. U.S. 18 F. Supp. 413, 18 AFTR 1289; Max Thomas Davis, et al. Court of Tax Appeals which required the Commissioner of Internal
vs. Commissioner of Internal Revenue, 46 U.S. Boared of Tax Revenue to credit the sales taxes paid by Central Vegetable Oil
Appeals Reports, p. 663, citing U.S. vs. Jaffray, 6 Tax Court of United Manufacturing Co., Inc. (CENVOCO) on containers and packaging
States Reports, p. 255; Armour vs. Commissioner of Internal materials of its milled products, against the deficiency miller's tax due
Revenue, 6 Tax Court of the United States Reports, p. 359; The thereon for the year 1986.
Koppers Coal Co. vs. Commissioner of Internal Revenue, 7 Tax As culled in the decision of the Court of Tax Appeals, the undisputed
Court of United States Reports, p. 1209; Toy vs. Commissioner of facts are, as follows:
Internal Revenue; Lucas vs. Comm., 34 U.S. Board of Tax Appeals
Petitioner (private respondent CENVOCO herein) is a manufacturer P1,575,514.70. This in turn hinges on whether or not containers and
of edible and coconut/coprameal cake and such other coconut packaging materials are raw materials used in the milling process
related oil subject to the miller's tax of 3%. Petitioner also within the contemplation of the final proviso of Section 168 of the
manufactures lard, detergent and laundry soap subject to the sales National Internal Revenue Code, which reads:
tax of 10%. Provided, finally, that credit for any sales, miller's or excise taxes paid
In 1986, petitioner purchased a specified number of containers and on raw materials or supplies used in the milling process shall not be
packaging materials for its edible oil from its suppliers and paid the allowed against the miller's tax due, except in the case of a proprietor
sales tax due thereon. or operator of a refined sugar factory as provided hereunder.
After an investigation conducted by respondent's Revenue Examiner, xxx xxx xxx
Assessment Notice No. FAS-B-86-88-001661-001664 dated April 22, . . . We agree with respondent Court that containers and packages
1988 was issued against petitioner for deficiency miller's tax in the cannot be considered "raw materials" utilized in the milling process.
total amount of P1,575,514.70 . . . . In arriving at the conclusion, respondent Court quoted with approval
On June 29, 1988, petitioner filed with respondent a letter dated June the reasons cited by CENVOCO, as follows:
27, 1988 requesting for reconsideration of the above deficiency FIRST; The raw materials used by Cenvoco in manufacturing edible
miller's tax assessments, contending that the final provision of oil are copra and/or coconut oil. In other words, the term "used" in the
Section 168 of the Tax Code does not a apply to sales tax paid on final proviso of Section 168 of the NIRC refers or is strictly confined
containers and packaging materials, hence, the amount paid therefor to "raw materials" or supplies fed, supplied or put into the apparatus,
should have been credited against the miller's tax assessed against equipment, machinery or its adjuncts that cause or execute the
it. Again, thru letter dated September 28, 1988, petitioner reiterated milling process. On the other hand, the containers, such as tin cans,
its request for reconsideration. and/or packages are not used or fed into the milling machinery nor
were ever intended for conversion to form part of the finished
On November 17, 1988, respondent wrote CENVOCO, the full text of product, i.e., refined coconut/edible oil. Consequently, it would be
which letter reads: absurd to say that said containers and packages are "used in the
milling process", for the process. involves "grinding, crushing,
November 17, 1988 stamping, cutting, shaping or polishing". (See THE DICTIONARY, by
Central Vegetable Oil TIME, COPYRIGHT 1974, p. 444) . . .
Manufacturing Co. Inc. SECOND; Petitioner's interpretation of the term raw materials is
P.O. Box 2816 contrary to law and jurisprudence. Thus, raw materials as used in the
Manila definition of " manufacture", denotes materials from which final
Attention: Mr. James Chua product is made (Black's Law Dictionary, 4th ed. citing State vs.
President Hennessy Co., 71 Mont. 301, 230, p. 64, 65). And consistent with
said definition, Revenue Regulations Nos. 2-86 and 11-86 [effective
Gentlemen: January 1, 1986 and August 11 1986, respectively] which govern the
We have received your letter of September 28,1988, relative to our filing of quarterly percentage tax returns and payment thereof under
assessment against your company in the amount of P1,575,514.75, the provisions, inter alia, of Section 168 of the NIRC, define raw
as deficiency miller's tax for the year 1986. materials or material, to wit:
Sec. 188 of the Tax Code provides that sales, miller's or excise taxes Any article which when used in the MANUFACTURE of another
paid on raw materials or supplies used in the milling process shall not article becomes a homogenous part thereof, such that it can no
be allowed against the miller's tax due. You contend that since longer be identified in its original state nor may be removed
packaging materials are not used in the milling process then, the therefrom without destroying or rendering useless the finished article
sales taxes paid thereon should be allowed as a credit against the to which it has been merged, mixed or dissolved. . . .
miller's tax due because they do not fall within the scope of the Tested in the light of the foregoing statutory definition, it is evident
prohibition. that containers and packages used by Cenvoco are not "raw
It is our position, however, that since the law specifically does not materials" and do not fall within the purview of the final proviso of
allow taxes paid on the raw materials or supplies used in the milling Section 168 of the NIRC. . . . As a coup de grace, it is pertinent to
process as a credit against the miller's tax due, with more reasons note the case of Caltex (Phils.) [Link]. Manila Port Service (17 SCRA
should the sales taxes paid on materials not used in the milling 1075) where the Supreme Court aptly defined containers and/or
process be allowed as a credit against the miller's tax due. There is packages.
no provision of law which allows such a credit-to-be made. . . . a package or a bundle made up for transportation; a packet; a
In view of the above, we are reiterating the assessment referred to bale; a parcel; or that in which anything is packed: box, case, barrel,
above. We request that you make payment immediately so that this crate , etc. in which goods are packed; a container. (Emphasis Ours)
case may be considered closed and terminated. The definition is an emphatic rejection of petitioner's construction that
Cenvoco's containers and packages are raw materials used in the
Very truly yours, milling process. . . .
(SGD) EUFRACIO D. SANTOS . . . Moreover, Section 168 of the Revenue Code expressly limits the
Deputy Commissioner articles subject to percentage tax (miller's tax) to: "rope, sugar,
(CA Decision, pp. 31-33 Rollo) coconut oil, palm oil, cassava flour or starch, desiccated coconuts,
manufactured, processed or milled by them, including the by-product
Dissatisfied with the adverse action taken by the BIR, CENVOCO of the raw materials, from which said articles are produced,
filed a petition for review with the Court of Tax Appeals, which came processed or manufactured". . . .
out with a decision, dated December 3, 1990, in favor of CENVOCO, (CR Decision, Rollo pp. 34-36)
disposing, thus: Hence, the petition under consideration, posing the issue:
WHEREFORE, in view of the foregoing, petitioner Central Vegetable WHETHER OR NOT THE SALES TAX PAID BY CENVOCO WHEN
Oil Manufacturing Co., Inc., is not liable for deficiency miller's tax for IT PURCHASED CONTAINERS AND PACKAGING MATERIALS
the year 1986 in the amount of P1,575,514.70. FOR ITS MILLED PRODUCTS CAN BE CREDITED AGAINST THE
No pronouncement as to costs. DEFICIENCY MILLER'S TAX DUE THEREON.
SO ORDERED. (Rollo, p. 53) Resolution of the issue posited by the petitioner hinges on. the
Appealed to the Court of Appeals, the said decision was affirmed in proper application of Section 168 of the then applicable National
toto. (Rollo, p. 38) Internal Revenue Code, particularly the last proviso of said section,
The Court of Appeals adopted the reasons cited and ratiocination by which reads:
the Court of Tax Appeals for allowing the sales tax paid by Sec. 168. Percentage tax upon proprietors or operators of rope
CENVOCO on the containers and packaging materials of its milled factories, sugar centrals and mills, coconut oil mills, palm oil mills,
products to be credited against the miller's tax due thereon, viz — cassava mills and desiccated coconut factories. Proprietors or
The main issuein this case is whether or not respondent CENVOCO operators of rope factories, sugar centrals and mills, coconut oil mills,
is liable for deficiency miller's tax for the year 1986 in the amount of palm oil mills, cassava mills, and desiccated coconut factories, shall
pay a tax equivalent to three (3) percent of the gross value of money perpetual exemption in favor of CENVOCO although there may be
of all the rope, sugar, coconut, oil, palm oil, cassava flour or starch, subsequent changes in circumstances warranting a reversal.
desiccated coconut, manufactured, processed or milled by them, This Court is mindful of the well-entrenched principle that the
including the by-product of the raw materials, from which said articles government is never estopped from collecting taxes because of
are produced, processed or manufactured, such tax to be based on mistakes or errors on the part of its agents, but this rule admits of
the actual selling price or market value of these articles at the time exceptions in the interest of justice and fairplay. (ABS CBN
they leave the factory or mill warehouse: Provided, however, that this Broadcasting Corp. vs. Court of Tax Appeals, 108 SCRA 151 [1951])
tax shall not apply to rope, coconut oil, palm oil and the by-product of More so in the present case, where we discern no error in allowing
copra from which it is produced or manufactured, and dessiccated the sales taxes paid by CENVOCO on the containers and packages
coconuts, if such rope, coconut oil, palm oil, copra by-products and of its milled products, to be credited against the deficiency miller's tax
dessiccated coconuts, shall be removed for exportation by the due thereon, for a proper application of the law.
proprietor of operator or the factory or mill himself, and are actually It bears stressing that tax burdens are not to be imposed, nor
exported without returning to the Philippines, whether in their original presumed to be imposed beyond what the statute expressly and
state or as an ingredient or part of any manufactured article or clearly imports, tax statutes being construed strictissimi juris against
product: Provided further, That where the planter or the owner of the the government. (The Province of Bulacan, et. al, vs. Hon. CA, et. al.,
raw materials is the exporter of the aforementioned milled or GR No. 226232, November 27, 1998; Republic vs. IAC, 196 SCRA
manufactured products, he shall be entitled to a tax credit of the 335[1931]; CIR vs. Firemen's Fund Ins. Co., 148 SCRA 315 (1987);
miller's taxes withheld by the proprietor or operator of the factory or CIR vs. CA, 204 SCRA 182 [1991])
mill, corresponding to the quantity exported, which may be used Then, too, it has been the long standing policy and practice of this
against any internal revenue tax directly due from him: and Provided, Court to respect conclusions arrived at by quasi-judicial agencies,
finally, That credit for any sales. miller's or excise taxes paid on raw especially the Court of Tax Appeals which: by the nature of its
materials or supplies used in the milling process shall not be allowed functions, is dedicated exclusively to the study and consideration of
against the miller's tax due, except in the case of a proprietor or tax problems, and which has thus developed an expertise on the
operator of a refined sugar factory as provided hereunder. (emphasis subject, unless an abuse or improvident exercise of its authority is
supplied) shown. Finding no such abuse or improvident exercise of authority or
Notably, the law relied upon by the BIR Commissioner as the basis discretion under the premises, the decision of the Court of Appeals,
for not allowing Cenvoco's tax credit is just a proviso of Section 168 affirming that of the Court of Tax Appeals, should be upheld.
of the old Tax Code. The restriction in the said proviso, however, is (Commissioner of Internal Revenue vs. Court of Appeals, 204 SCRA
limited only to sales, miller's or excise taxes paid "on raw materials 189 [1991])
used in the milling process". WHEREFORE, the petition is hereby DISMISSED and the decision
Under the rules of statutory construction, exceptions, as a general of the Court of Appeals AFFIRMED. No pronouncement as to costs.
rule, should be strictly but reasonably construed. They extend only so SO ORDERED.
far as their language fairly warrants, and all doubts should be Romero, Panganiban and Gonzaga-Reyes, JJ., concur.
resolved in favor of the general provisions rather than the exception. Vitug, J., on official leave.
Where a general rule is established by statute with exceptions, the
court will not curtail the former nor add to the latter by implication. . . . 30. G.R. No. L-30232 July 29, 1988
(Samson vs. Court of Appeals, 145 SCRA 659 [1986]). LUZON STEVEDORING CORPORATION, petitioner-appellant,
The exception provided for in Section 168 of the old Tax Code should vs.
thus be strictly construed. Conformably, the sales, miller's and excise COURT OF TAX APPEALS and the HONORABLE
taxes paid on all Other materials (except on raw materials used in the COMMISSIONER OF INTERNAL REVENUE, respondents-
milling process), such as the sales taxes paid on containers and appellees.
packaging materials of the milled products under consideration, may
be credited against the miller's tax due therefor. H. San Luis & V.L. Simbulan for petitioner-appellant.
It is a basic rule of interpretation that words and phrases used in the
statute, in the absence of a clear legislative intent to the contrary, PARAS, J.:
should be given their plain, ordinary and common usage or meaning. This is a petition for review of the October 21, 1968 Decision * of the
(Mustang Lumber Inc. v. CA, 257 SCRA 430 [1996] citing Ruben E. Court of Tax Appeals in CTA Case No. 1484, "Luzon Stevedoring
Agpalo, Statutory Construction, second ed. [1990], 131). Corporation v. Hon. Ramon Oben, Commissioner, Bureau of Internal
From the disquisition and rationalization aforequoted, containers and Revenue", denying the various claims for tax refund; and the
packaging materials are certainly not raw materials. Cans and February 20, 1969 Resolution of the same court denying the motion
tetrakpaks are not used in the manufacture of Cenvoco's finished for reconsideration.
products which are coconut, edible oil or coprameal cake. Such Herein petitioner-appellant, in 1961 and 1962, for the repair and
finished products are packed in cans and tetrapaks. maintenance of its tugboats, imported various engine parts and other
Petitioner laments the pronouncement by the Court of Appeals that equipment for which it paid, under protest, the assessed
Deputy Commissioner Eufracio Santos' 1988 ruling may not reverse compensating tax. Unable to secure a tax refund from the
Commissioner Ruben Ancheta's favorable ruling on a similar claim of Commissioner of Internal Revenue, on January 2, 1964, it filed a
CENVOCO of October, 1984, which reads in part: Petition for Review (Rollo, pp. 14-18) with the Court of Tax Appeals,
. . . This refers to your letter dated September 5, 1984 requesting that docketed therein as CTA Case No. 1484, praying among others, that
the 10% sales tax paid on container cans purchased by you, be it be granted the refund of the amount of P33,442.13. The Court of
credited against the 2% (now 3%) miller's tax due on the refined Tax Appeals, however, in a Decision dated October 21, 1969 (Ibid.,
coconut edible oil. pp. 22-27), denied the various claims for tax refund. The decretal
It is represented that you process copra and/or coconut oil and sell portion of the said decision reads:
the refined edible oil in cans; that said cans are purchased from can WHEREFORE, finding petitioner's various claims for refund
manufacturers who in turn bill to you the price of the cans and the amounting to P33,442.13 without sufficient legal justification, the said
10% tax paid thereon which are separately shown on the invoice; claims have to be, as they are hereby, denied. With costs against
and that the cost of the cans, including the 2% miller's tax is petitioner.
computed. On January 24, 1969, petitioner-appellant filed a Motion for
In reply, I have the honor to inform you that your request is hereby Reconsideration (Ibid., pp. 28-34), but the same was denied in a
granted. . . . (Pacific Oxygen & Acetylene Co. vs. Commissioner, GR Resolution dated February 20, 1969 (Ibid., p. 35). Hence, the instant
No. L-17708, April 30, 1905). (Rollo p. 36) petition.
According to petitioner, to hold, as what the Court of Appeals did, that This Court, in a Resolution dated March 13, 1969, gave due course
a reversal of the aforesaid ruling would be violative of the rule on to the petition (Ibid., p. 40). Petitioner-appellant raised three (3)
non-retroactivity of rulings of tax officials when prejudicial to the assignments of error, to wit:
taxpayer (Section 278 of the old Tax Code) would, in effect, create a I
The lower court erred in holding that the petitioner-appellant is harbors, rivers and canals. (Encyclopedia International Grolier, Vol.
engaged in business as stevedore, the work of unloading and loading 18, p. 256).
of a vessel in port, contrary to the evidence on record. A tug is a steam vessel built for towing, synonymous with tugboat.
II (Bouvier's Law Dictionary.) (Rollo, p. 24).
The lower court erred in not holding that the business in which Under the foregoing definitions, petitioner's tugboats clearly do not
petitioner-appellant is engaged, is part and parcel of the shipping fall under the categories of passenger and/or cargo vessels. Thus, it
industry. is a cardinal principle of statutory construction that where a provision
III of law speaks categorically, the need for interpretation is obviated, no
The lower court erred in not allowing the refund sought by petitioner- plausible pretense being entertained to justify non-compliance. All
appellant. that has to be done is to apply it in every case that falls within its
The instant petition is without merit. terms (Allied Brokerage Corp. v. Commissioner of Customs, L-27641,
The pivotal issue in this case is whether or not petitioner's tugboats" 40 SCRA 555 [1971]; Quijano, etc. v. DBP, L-26419, 35 SCRA 270
can be interpreted to be included in the term "cargo vessels" for [1970]).
purposes of the tax exemption provided for in Section 190 of the And, even if construction and interpretation of the law is insisted
National Internal Revenue Code, as amended by Republic Act No. upon, following another fundamental rule that statutes are to be
3176. construed in the light of purposes to be achieved and the evils sought
Said law provides: to be remedied (People v. Purisima etc., et al., L-42050-66, 86 SCRA
Sec. 190. Compensating tax. — ... And Provided further, That the tax 544 [1978], it will be noted that the legislature in amending Section
imposed in this section shall not apply to articles to be used by the 190 of the Tax Code by Republic Act 3176, as appearing in the
importer himself in the manufacture or preparation of articles subject records, intended to provide incentives and inducements to bolster
to specific tax or those for consignment abroad and are to form part the shipping industry and not the business of stevedoring, as
thereof or to articles to be used by the importer himself as passenger manifested in the sponsorship speech of Senator Gil Puyat (Rollo, p.
and/or cargo vessel, whether coastwise or oceangoing, including 26).
engines and spare parts of said vessel. .... On analysis of petitioner-appellant's transactions, the Court of Tax
Petitioner contends that tugboats are embraced and included in the Appeals found that no evidence was adduced by petitioner-appellant
term cargo vessel under the tax exemption provisions of Section 190 that tugboats are passenger and/or cargo vessels used in the
of the Revenue Code, as amended by Republic Act. No. 3176. He shipping industry as an independent business. On the contrary,
argues that in legal contemplation, the tugboat and a barge loaded petitioner-appellant's own evidence supports the view that it is
with cargoes with the former towing the latter for loading and engaged as a stevedore, that is, the work of unloading and loading of
unloading of a vessel in part, constitute a single vessel. Accordingly, a vessel in port; and towing of barges containing cargoes is a part of
it concludes that the engines, spare parts and equipment imported by petitioner's undertaking as a stevedore. In fact, even its trade name
it and used in the repair and maintenance of its tugboats are exempt is indicative that its sole and principal business is stevedoring and
from compensating tax (Rollo, p. 23). lighterage, taxed under Section 191 of the National Internal Revenue
On the other hand, respondents-appellees counter that petitioner- Code as a contractor, and not an entity which transports passengers
appellant's "tugboats" are not "Cargo vessel" because they are or freight for hire which is taxed under Section 192 of the same Code
neither designed nor used for carrying and/or transporting persons or as a common carrier by water (Decision, CTA Case No. 1484; Rollo,
goods by themselves but are mainly employed for towing and pulling p. 25).
purposes. As such, it cannot be claimed that the tugboats in question Under the circumstances, there appears to be no plausible reason to
are used in carrying and transporting passengers or cargoes as a disturb the findings and conclusion of the Court of Tax Appeals.
common carrier by water, either coastwise or oceangoing and, As a matter of principle, this Court will not set aside the conclusion
therefore, not within the purview of Section 190 of the Tax Code, as reached by an agency such as the Court of Tax Appeals, which is, by
amended by Republic Act No. 3176 (Brief for Respondents- the very nature of its function, dedicated exclusively to the study and
Appellees, pp. 45). consideration of tax problems and has necessarily developed an
This Court has laid down the rule that "as the power of taxation is a expertise on the subject unless there has been an abuse or
high prerogative of sovereignty, the relinquishment is never improvident exercise of authority (Reyes v. Commissioner of Internal
presumed and any reduction or dimunition thereof with respect to its Revenue, 24 SCRA 199 [1981]), which is not present in the instant
mode or its rate, must be strictly construed, and the same must be case.
coached in clear and unmistakable terms in order that it may be PREMISES CONSIDERED, the instant petition is DISMISSED and
applied." (84 C.J.S. pp. 659-800), More specifically stated, the the decision of the Court of Tax Appeals is AFFIRMED.
general rule is that any claim for exemption from the tax statute SO ORDERED.
should be strictly construed against the taxpayer (Acting
Commissioner of Customs v. Manila Electric Co. et al., 69 SCRA 469 31. G.R. No. L-31092 February 27, 1987
[1977] and Commissioner of Internal Revenue v. P.J. Kiener Co. Ltd., COMMISSIONER OF INTERNAL REVENUE, petitioner,
et al., 65 SCRA 142 [1975]). vs.
As correctly analyzed by the Court of Tax Appeals, in order that the JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX
importations in question may be declared exempt from the APPEALS, respondents.
compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare YAP, J.:
parts must be used by the importer himself as a passenger and/or The question involved in this petition is whether respondent John
cargo, vessel; and (2) the said passenger and/or cargo vessel must Gotamco & Sons, Inc. should pay the 3% contractor's tax under
be used in coastwise or oceangoing navigation (Decision, CTA Case Section 191 of the National Internal Revenue Code on the gross
No. 1484; Rollo, p. 24). receipts it realized from the construction of the World Health
As pointed out by the Court of Tax Appeals, the amendatory Organization office building in Manila.
provisions of Republic Act No. 3176 limit tax exemption from the The World Health Organization (WHO for short) is an international
compensating tax to imported items to be used by the importer organization which has a regional office in Manila. As an international
himself as operator of passenger and/or cargo vessel (Ibid., p. 25). organization, it enjoys privileges and immunities which are defined
more specifically in the Host Agreement entered into between the
As quoted in the decision of the Court of Tax Appeals, a tugboat is Republic of the Philippines and the said Organization on July 22,
defined as follows: 1951. Section 11 of that Agreement provides, inter alia, that "the
A tugboat is a strongly built, powerful steam or power vessel, used Organization, its assets, income and other properties shall be: (a)
for towing and, now, also used for attendance on vessel. (Webster exempt from all direct and indirect taxes. It is understood, however,
New International Dictionary, 2nd Ed.) that the Organization will not claim exemption from taxes which are,
A tugboat is a diesel or steam power vessel designed primarily for in fact, no more than charges for public utility services; . . .
moving large ships to and from piers for towing barges and lighters in When the WHO decided to construct a building to house its own
offices, as well as the other United Nations offices stationed in
Manila, it entered into a further agreement with the Govermment of in an occupation. . . It is a tax due primarily and directly on the
the Republic of the Philippines on November 26, 1957. This contractor, not on the owner of the building. Since this tax has no
agreement contained the following provision (Article III, paragraph 2): bearing upon the WHO, it cannot be deemed an indirect taxation
The Organization may import into the country materials and fixtures upon it."
required for the construction free from all duties and taxes and We agree with the Court of Tax Appeals in rejecting this contention of
agrees not to utilize any portion of the international reserves of the the petitioner. Said the respondent court:
Government. In context, direct taxes are those that are demanded from the very
Article VIII of the above-mentioned agreement referred to the Host person who, it is intended or desired, should pay them; while indirect
Agreement concluded on July 22, 1951 which granted the taxes are those that are demanded in the first instance from one
Organization exemption from all direct and indirect taxes. person in the expectation and intention that he can shift the burden to
In inviting bids for the construction of the building, the WHO informed someone else. (Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S.
the bidders that the building to be constructed belonged to an Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable
international organization with diplomatic status and thus exempt by the contractor but in the last analysis it is the owner of the building
from the payment of all fees, licenses, and taxes, and that therefore that shoulders the burden of the tax because the same is shifted by
their bids "must take this into account and should not include items the contractor to the owner as a matter of self-preservation. Thus, it
for such taxes, licenses and other payments to Government is an indirect tax. And it is an indirect tax on the WHO because,
agencies." although it is payable by the petitioner, the latter can shift its burden
The construction contract was awarded to respondent John Gotamco on the WHO. In the last analysis it is the WHO that will pay the tax
& Sons, Inc. (Gotamco for short) on February 10, 1958 for the indirectly through the contractor and it certainly cannot be said that
stipulated price of P370,000.00, but when the building was 'this tax has no bearing upon the World Health Organization.
completed the price reached a total of P452,544.00. Petitioner claims that under the authority of the Philippine Acetylene
Sometime in May 1958, the WHO received an opinion from the Company versus Commissioner of Internal Revenue, et al., 3 the 3%
Commissioner of the Bureau of Internal Revenue stating that "as the contractor's tax fans directly on Gotamco and cannot be shifted to the
3% contractor's tax is an indirect tax on the assets and income of the WHO. The Court of Tax Appeals, however, held that the said case is
Organization, the gross receipts derived by contractors from their not controlling in this case, since the Host Agreement specifically
contracts with the WHO for the construction of its new building, are exempts the WHO from "indirect taxes." We agree. The Philippine
exempt from tax in accordance with . . . the Host Agreement." Acetylene case involved a tax on sales of goods which under the law
Subsequently, however, on June 3, 1958, the Commissioner of had to be paid by the manufacturer or producer; the fact that the
Internal Revenue reversed his opinion and stated that "as the 3% manufacturer or producer might have added the amount of the tax to
contractor's tax is not a direct nor an indirect tax on the WHO, but a the price of the goods did not make the sales tax "a tax on the
tax that is primarily due from the contractor, the same is not covered purchaser." The Court held that the sales tax must be paid by the
by . . . the Host Agreement." manufacturer or producer even if the sale is made to tax-exempt
On January 2, 1960, the WHO issued a certification state 91 inter entities like the National Power Corporation, an agency of the
alia,: Philippine Government, and to the Voice of America, an agency of
When the request for bids for the construction of the World Health the United States Government.
Organization office building was called for, contractors were informed The Host Agreement, in specifically exempting the WHO from
that there would be no taxes or fees levied upon them for their work "indirect taxes," contemplates taxes which, although not imposed
in connection with the construction of the building as this will be upon or paid by the Organization directly, form part of the price paid
considered an indirect tax to the Organization caused by the increase or to be paid by it. This is made clear in Section 12 of the Host
of the contractor's bid in order to cover these taxes. This was upheld Agreement which provides:
by the Bureau of Internal Revenue and it can be stated that the While the Organization will not, as a general rule, in the case of
contractors submitted their bids in good faith with the exemption in minor purchases, claim exemption from excise duties, and from taxes
mind. on the sale of movable and immovable property which form part of
The undersigned, therefore, certifies that the bid of John Gotamco & the price to be paid, nevertheless, when the Organization is making
Sons, made under the condition stated above, should be exempted important purchases for official use of property on which such duties
from any taxes in connection with the construction of the World and taxes have been charged or are chargeable the Government of
Health Organization office building. the Republic of the Philippines shall make appropriate administrative
On January 17, 1961, the Commissioner of Internal Revenue sent a arrangements for the remission or return of the amount of duty or tax.
letter of demand to Gotamco demanding payment of P 16,970.40, (Emphasis supplied).
representing the 3% contractor's tax plus surcharges on the gross The above-quoted provision, although referring only to purchases
receipts it received from the WHO in the construction of the latter's made by the WHO, elucidates the clear intention of the Agreement to
building. exempt the WHO from "indirect" taxation.
Respondent Gotamco appealed the Commissioner's decision to the The certification issued by the WHO, dated January 20, 1960, sought
Court of Tax Appeals, which after trial rendered a decision, in favor of exemption of the contractor, Gotamco, from any taxes in connection
Gotamco and reversed the Commissioner's decision. The Court of with the construction of the WHO office building. The 3% contractor's
Tax Appeal's decision is now before us for review on certiorari. tax would be within this category and should be viewed as a form of
In his first assignment of error, petitioner questions the entitlement of an "indirect tax" On the Organization, as the payment thereof or its
the WHO to tax exemption, contending that the Host Agreement is inclusion in the bid price would have meant an increase in the
null and void, not having been ratified by the Philippine Senate as construction cost of the building.
required by the Constitution. We find no merit in this contention. Accordingly, finding no reversible error committed by the respondent
While treaties are required to be ratified by the Senate under the Court of Tax Appeals, the appealed decision is hereby affirmed.
Constitution, less formal types of international agreements may be SO ORDERED.
entered into by the Chief Executive and become binding without the Narvasa, Melencio-Herrera, Cruz, Feliciano, Gancayco and
concurrence of the legislative body. 1 The Host Agreement comes Sarmiento, JJ., concur.
within the latter category; it is a valid and binding international
agreement even without the concurrence of the Philippine Senate. CIR vs. John Gotamco and Sons, [Link].[G.R. No. No. L-31092
The privileges and immunities granted to the WHO under the Host February 27, 1987]
Agreement have been recognized by this Court as legally binding on Facts: The World Health Organization (WHO for short) is an
Philippine authorities.2 international organization which has a regional office in Manila. An
Petitioner maintains that even assuming that the Host Agreement agreement was entered into between the Republic of the Philippines
granting tax exemption to the WHO is valid and enforceable, the 3% and the said Organization on July 22, 1951. Section 11 of that
contractor's tax assessed on Gotamco is not an "indirect tax" within Agreement provides, inter alia, that "the Organization, its assets,
its purview. Petitioner's position is that the contractor's tax "is in the income and other properties shall be: (a) exempt from all direct and
nature of an excise tax which is a charge imposed upon the indirect taxes.” The WHO decided to construct a building to house its
performance of an act, the enjoyment of a privilege or the engaging own offices, as well as the other United Nations offices stationed in
Manila. A bidding was held for the building construction. The WHO Not in accord with said decision, petitioner came to Supreme Court
informed the bidders that the building to be constructed belonged to via a petition for review.
an international organization exempted from the payment of all fees,
licenses, and taxes, and that therefore their bids "must take this into Issue:
account and should not include items for such taxes, licenses and
other payments to Government agencies." Thereafter, the Whether the private respondent is taxable as an independent
construction contract was awarded to John Gotamco & Sons, Inc. contractor.
(Gotamco for short). Subsequently, the Commissioner of Internal Held: The Commissioner erred in applying the principles of tax
Revenue sent a letter of demand to Gotamco demanding payment of exemption without first applying the well-settled doctrine of strict
for the 3% contractor's tax plus surcharges on the gross receipts it interpretation in the imposition of taxes. It is obviously both illogical
received from the WHO in the construction of the latter's building. and impractical to determine who are exempted without first
WHO. The WHO issued a certification that the bid of John Gotamco determining who are covered by the aforesaid provision. The
& Sons, should be exempted from any taxes in connection with the Commissioner should have determined first if private respondent was
construction of the World Health Organization office building because covered by Section 205, applying the rule of strict interpretation of
such can be considered as an indirect tax to WHO. However, The laws imposing taxes and other burdens on the populace, before
Commissioner of Internal Revenue contends that the 3% contractor's asking Ateneo to prove its exemption therefrom, following the rule of
tax is not a direct nor an indirect tax on the WHO, but a tax that is construction where “the tax exemptions are to be strictly construed
primarily due from the contractor, and thus not covered by the tax against the taxpayer”.
exemption agreement The doctrine in the interpretation of tax laws is that a statute will not
be construed as imposing a tax unless it does so clearly, expressly,
Issue: Whether or not the said 3% contractor’s tax imposed upon and unambiguously. Tax cannot be imposed without clear and
petitioner is covered by the “direct and indirect tax exemption” express words for that purpose. Accordingly, the general rule of
granted to WHO by the government. requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are
Held: Yes. The 3% contractor’s tax imposed upon petitioner is not to be extended by implication.” In case of doubt, such statutes
covered by the “direct and indirect tax exemption” granted to WHO. are to be construed most strongly against the government and in
Hence, petitioner cannot be held liable for such contractor’s tax. The favor of the subjects or citizens because burdens are not to be
Supreme Court explained that direct taxes are those that are imposed nor presumed to be imposed beyond what statutes
demanded from the very person who, it is intended or desired, should expressly and clearly import. In the present case, Ateneo’s Institute of
pay them; while indirect taxes are those that are demanded in the Philippine Culture never sold its services for a fee to anyone or was
first instance from one person in the expectation and intention that he ever engaged in a business apart from and independently of the
can shift the burden to someone else. While it is true that the academic purposes of the university. Funds received by the Ateneo
contractor's tax is payable by the contractor, However in the last de Manila University are technically not a fee. They may however fall
analysis it is the owner of the building that shoulders the burden of as gifts or donations which are “tax-exempt” as shown by private
the tax because the same is shifted by the contractor to the owner as respondent’s compliance with the requirement of Section 123 of the
a matter of self-preservation. Thus, it is an indirect tax against the National Internal Revenue Code providing for the exemption of such
WHO because, although it is payable by the petitioner, the latter can gifts to an educational institution.
shift its burden on the WHO. The Supreme Court denied the petition and affirmed the assailed
Decision of the Court of Appeals. The Court ruled that the private
32. CIR v. CA, CTA, Ateneo De Manila University respondent is not a contractor selling its services for a fee but an
academic institution conducting these researches pursuant to its
Facts: commitments to education and, ultimately, to public service. For the
Ateneo de Manila University, is a non-stock, non-profit educational institute to have tenaciously continued operating for so long despite
institution with auxiliary units and branches all over the Philippines. its accumulation of significant losses, we can only agree with both
One auxiliary unit is the Institute of Philippine Culture (IPC), which the Court of Tax Appeals and the Court of Appeals that “education
has no legal personality separate and distinct from that of private and not profit is motive for undertaking the research projects.
respondent. The IPC is a Philippine unit engaged in social science
studies of Philippine society and culture. Occasionally, it accepts 33. G.R. No. L-45355 January 12, 1990
sponsorships for its research activities from international THE PROVINCE OF MISAMIS ORIENTAL, represented by its
organizations, private foundations and government agencies. On 8 PROVINCIAL TREASURER, petitioner,
July 1983, private respondent received from Commissioner of vs.
Internal Revenue (CIR) a demand letter dated 3 June 1983, CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.
assessing private respondent the sum of P174,043.97 for alleged (CEPALCO), respondent.
deficiency contractor’s tax, and an assessment dated 27 June 1983
in the sum of P1,141,837 for alleged deficiency income tax, both for Jaime A. Chaves for petitioner.
the fiscal year ended 31 March 1978. Denying said tax liabilities, Quiason, Makalintal, Barot & Torres for respondent.
private respondent sent petitioner a letter-protest and subsequently
filed with the latter a memorandum contesting the validity of the
assessments. On 17 March 1988, petitioner rendered a letter- GRIÑO-AQUINO, J.:
decision cancelling the assessment for deficiency income tax but
modifying the assessment for deficiency contractor’s tax by The issue in this case is a legal one: whether or not a corporation
increasing the amount due to P193,475.55. Unsatisfied, private whose franchise expressly provides that the payment of the
respondent requested for a reconsideration or reinvestigation of the "franchise tax of three per centum of the gross earnings shall be in
modified assessment. lieu of all taxes and assessments of whatever authority upon
At the same time, it filed in the respondent court a petition for review privileges, earnings, income, franchise, and poles, wires,
of the said letter-decision of the petitioner. While the petition was transformers, and insulators of the grantee." (p. 20, Rollo), is exempt
pending before the respondent court, petitioner issued a final from paying a provincial franchise tax.
decision dated 3 August 1988 reducing the assessment for deficiency Cagayan Electric Power and Light Company, Inc. (CEPALCO for
contractor’s tax from P193,475.55 to P46,516.41, exclusive of short) was granted a franchise on June 17, 1961 under Republic Act
surcharge and interest. On 12 July 1993, the respondent court set No. 3247 to install, operate and maintain an electric light, heat and
aside respondent’s decision, and cancelling the deficiency power system in the City of Cagayan de Oro and its suburbs. Said
contractor’s tax assessment in the amount of P46,516.41 exclusive franchise was amended on June 21, 1963 by R.A. No. 3570 which
of surcharge and interest for the fiscal year ended 31 March 1978. added the municipalities of Tagoloan and Opol to CEPALCO's sphere
No pronouncement as to cost. On 27 April 1994, Court of Appeals, in of operation, and was further amended on August 4, 1969 by R.A.
CA-GR SP 31790, affirmed the decision of the Court of Tax Appeals.
No. 6020 which extended its field of operation to the municipalities of act are broad enough to include the cases in the special law (id.)
Villanueva and Jasaan. unless there is manifest intent to repeal or alter the special law.
R.A. Nos. 3247, 3570 and 6020 uniformly provide that: Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable
Sec. 3. In consideration of the franchise and rights hereby granted, only to CEPALCO, while P.D. No. 231 is a general tax law. The
the grantee shall pay a franchise tax equal to three per centum of the presumption is that the special statutes are exceptions to the general
gross earnings for electric current sold under this franchise, of which law (P.D. No. 231) because they pertain to a special charter granted
two per centum goes into the National Treasury and one per centum to meet a particular set of conditions and circumstances.
goes into the treasury of the Municipalities of Tagoloan, Opol, The franchise of respondent CEPALCO expressly exempts it from
Villanueva and Jasaan and Cagayan de Oro City, as the case may payment of "all taxes of whatever authority" except the three per
be: Provided, That the said franchise tax of three per centum of the centum (3%) tax on its gross earnings.
gross earnings shall be in lieu of all taxes and assessments of In an earlier case, the phrase "shall be in lieu of all taxes and at any
whatever authority upon privileges earnings, income, franchise, and time levied, established by, or collected by any authority" found in the
poles, wires, transformers, and insulators of the grantee from which franchise of the Visayan Electric Company was held to exempt the
taxes and assessments the grantee is hereby expressly exempted. company from payment of the 5% tax on corporate franchise
(Emphasis supplied.) provided in Section 259 of the Internal Revenue Code (Visayan
On June 28, 1973, the Local Tax Code (P.D. No. 231) was Electric Co. vs. David, 49 O.G. [No. 4] 1385).
promulgated, Section 9 of which provides: Similarly, we ruled that the provision: "shall be in lieu of all taxes of
Sec. 9. Franchise Tax.—Any provision of special laws to the contrary every name and nature" in the franchise of the Manila Railroad
notwithstanding, the province may impose a tax on businesses (Subsection 12, Section 1, Act No. 1510) exempts the Manila
enjoying franchise, based on the gross receipts realized within its Railroad from payment of internal revenue tax for its importations of
territorial jurisdiction, at the rate of not exceeding one-half of one per coal and oil under Act No. 2432 and the Amendatory Acts of the
cent of the gross annual receipts for the preceding calendar year. Philippine Legislature (Manila Railroad vs. Rafferty, 40 Phil. 224).
In the case of newly started business, the rate shall not exceed three The same phrase found in the franchise of the Philippine Railway Co.
thousand pesos per year. Sixty per cent of the proceeds of the tax (Sec. 13, Act No. 1497) justified the exemption of the Philippine
shall accrue to the general fund of the province and forty per cent to Railway Company from payment of the tax on its corporate franchise
the general fund of the municipalities serviced by the business on the under Section 259 of the Internal Revenue Code, as amended by
basis of the gross annual receipts derived therefrom by the franchise R.A. No. 39 (Philippine Railway Co. vs. Collector of Internal
holder. In the case of a newly started business, forty per cent of the Revenue, 91 Phil. 35).
proceeds of the tax shall be divided equally among the municipalities Those magic words: "shall be in lieu of all taxes" also excused the
serviced by the business. (Emphasis supplied.) Cotabato Light and Ice Plant Company from the payment of the tax
Pursuant thereto, the Province of Misamis Oriental (herein petitioner) imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light
enacted Provincial Revenue Ordinance No. 19, whose Section 12 and Power Co. vs. City of Cotabato, 32 SCRA 231).
reads: So was the exemption upheld in favor of the Carcar Electric and Ice
Sec. 12. Franchise Tax.—There shall be levied, collected and paid on Plant Company when it was required to pay the corporate franchise
businesses enjoying franchise tax of one-half of one per cent of their tax under Section 259 of the Internal Revenue Code, as amended by
gross annual receipts for the preceding calendar year realized within R.A. No. 39 (Carcar Electric & Ice Plant vs. Collector of Internal
the territorial jurisdiction of the province of Misamis Oriental. (p. 27, Revenue, 53 O.G. [No. 4] 1068). This Court pointed out that such
Rollo.) exemption is part of the inducement for the acceptance of the
The Provincial Treasurer of Misamis Oriental demanded payment of franchise and the rendition of public service by the grantee. As a
the provincial franchise tax from CEPALCO. The company refused to charter is in the nature of a private contract, the imposition of another
pay, alleging that it is exempt from all taxes except the franchise tax franchise tax on the corporation by the local authority would
required by R.A. No. 6020. Nevertheless, in view of the opinion constitute an impairment of the contract between the government
rendered by the Provincial Fiscal, upon CEPALCO's request, and the corporation.
upholding the legality of the Revenue Ordinance, CEPALCO paid Recently, this Court ruled that the franchise (R.A. No. 3843) of the
under protest on May 27, 1974 the sum of P 4,276.28 and appealed Lingayen Gulf Electric Power Company which provided that the
the fiscal's ruling to the Secretary of Justice who reversed it and ruled company shall pay:
in favor of CEPALCO. tax equal to 2% per annum of the gross receipts . . . and shall be in
On June 26, 1976, the Secretary of Finance issued Local Tax lieu of any and all taxes . . . now or in the future . . . from which
Regulation No. 3-75 adopting entirely the opinion of the Secretary of taxes . . . the grantee is hereby expressly exempted and . . . no other
Justice. tax . . . other than the franchise tax of 2% on the gross receipts as
On February 16, 1976, the Province filed in the Court of First provided for in the original franchise shall be collected.
Instance of Misamis Oriental a complaint for declaratory relief exempts the company from paying the franchise tax under Section
praying, among others, that the Court exercise its power to construe 259 of the National Internal Revenue Code (Commissioner of Internal
P.D. No. 231 in relation to the franchise of CEPALCO (R.A. No. Revenue vs. Lingayen Gulf Electric Power Co., Inc., G.R. No. 23771,
6020), and to declare the franchise as having been amended by P.D. August 4, 1988).
No. 231. The Court dismissed the complaint and ordered the On the other hand, the Balanga Power Plant Company, Imus Electric
Province to return to CEPALCO the sum of P4,276.28 paid under Company, Inc., Guagua Electric Company, Inc. were subjected to the
protest. 5% tax on corporate franchise under Section 259 of the Internal
The Province has appealed to this Court, alleging that the lower court Revenue Code, as amended, because Act No. 667 of the Philippine
erred in holding that: Commission and the ordinance or resolutions granting their
1) CEPALCO's tax exemption under Section 3 of Republic Act No. respective franchises did not contain the "in-lieu-of-all-taxes" clause
6020 was not amended or repealed by P.D. No. 231; (Balanga Power Plant Co. vs. Commissioner of Internal Revenue,
2) the imposition of the provincial franchise tax on CEPALCO would G.R. No. L-20499, June 30, 1965; Imus Electric Co. vs. Court of Tax
subvert the purpose of P.D. No. 231; Appeals, G.R. No. L-22421, March 18, 1967; Guagua Electric Light
3) CEPALCO is exempt from paying the provincial franchise tax; and vs. Collector of Internal Revenue, G.R. No. L-23611, April 24, 1967).
4) petitioner should refund CEPALCO's tax payment of P4,276.28. Local Tax Regulation No. 3-75 issued by the Secretary of Finance on
We find no merit in the petition for review. June 26, 1976, has made it crystal clear that the franchise tax
There is no provision in P.D. No. 231 expressly or impliedly amending provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be
or repealing Section 3 of R.A. No. 6020. The perceived repugnancy imposed on companies with franchises that do not contain the
between the two statutes should be very clear before the Court may exempting clause. Thus it provides:
hold that the prior one has been repealed by the later, since there is The franchise tax imposed under local tax ordinance pursuant to
no express provision to that effect (Manila Railroad Co. vs. Rafferty, Section 9 of the Local Tax Code, as amended, shall be collected from
40 Phil. 224). The rule is that a special and local statute applicable to businesses holding franchise but not from business establishments
a particular case is not repealed by a later statute which is general in whose franchise contain the "in-lieu-of-all-taxes-proviso".
its terms, provisions and application even if the terms of the general
Manila Electric Company vs. Vera, 67 SCRA 351, cited by the Additionally, the exceptions enumerated in Section 4 of Executive
petitioner, is not applicable here because what the Government Order No. 41, as amended, do not indicate any reference to an
sought to impose on Meralco in that case was not a franchise tax but assessment or pending investigation aside from one arising from
a compensating tax on the poles, wires, transformers and insulators information furnished by an informer. . . . Thus, we deem that the rule
which it imported for its use. in Revenue Memorandum Order No. 4-87 promulgating that only
WHEREFORE, the petition for review is denied, and the decision of assessments issued after August 21, 1986 shall be abated by the
the Court of First Instance is hereby affirmed in toto. No costs. amnesty is beyond the contemplation of Executive Order No. 41, as
SO ORDERED. amended.2
On appeal by the Commissioner to the Court of Appeals, the decision
34. G.R. No. 108358 January 20, 1995 of the tax court was affirmed. The appellate court further observed:
COMMISSIONER OF INTERNAL REVENUE, petitioner, In the instant case, examining carefully the words used in Executive
vs. Order No. 41, as amended, we find nothing which justifies petitioner
THE HON. COURT OF APPEALS, R.O.H. AUTO PRODUCTS Commissioner's ground for denying respondent taxpayer's claim to
PHILIPPINES, INC. and THE HON. COURT OF TAX the benefits of the amnesty law. Section 4 of the subject law
APPEALS, respondents. enumerates, in no uncertain terms, taxpayers who may not avail of
the amnesty granted,. . . .
VITUG, J.: Admittedly, respondent taxpayer does not fall under any of the . . .
On 22 August 1986, during the period when the President of the exceptions. The added exception urged by petitioner Commissioner
Republic still wielded legislative powers, Executive Order No. 41 was based on Revenue Memorandum Order No. 4-87, further restricting
promulgated declaring a one-time tax amnesty on unpaid income the scope of the amnesty clearly amounts to an act of administrative
taxes, later amended to include estate and donor's taxes and taxes legislation quite contrary to the mandate of the law which the
on business, for the taxable years 1981 to 1985. regulation ought to implement.
Availing itself of the amnesty, respondent R.O.H. Auto Products xxx xxx xxx
Philippines, Inc., filed, in October 1986 and November 1986, its Tax Lastly, by its very nature, a tax amnesty, being a general pardon or
Amnesty Return No. 34-F-00146-41 and Supplemental Tax Amnesty intentional overlooking by the State of its authority to impose
Return No. 34-F-00146-64-B, respectively, and paid the penalties on persons otherwise guilty of evasion or violation of a
corresponding amnesty taxes due. revenue or tax law, partakes of an absolute forgiveness or waiver by
Prior to this availment, petitioner Commissioner of Internal Revenue, the Government of its right to collect what otherwise would be due it,
in a communication received by private respondent on 13 August and in this sense, prejudicial thereto, particularly to give tax evaders,
1986, assessed the latter deficiency income and business taxes for who wish to relent and are willing to reform a chance to do so and
its fiscal years ended 30 September 1981 and 30 September 1982 in thereby become a part of the new society with a clean slate.
an aggregate amount of P1,410,157.71. The taxpayer wrote back to (Republic vs. Intermediate Appellate Court. 196 SCRA 335, 340
state that since it had been able to avail itself of the tax amnesty, the [1991] citing Commissioner of Internal Revenue vs. Botelho Shipping
deficiency tax notice should forthwith be cancelled and withdrawn. Corp., 20 SCRA 487) To follow [the restrictive application of Revenue
The request was denied by the Commissioner, in his letter of 22 Memorandum Order No. 4-87 pressed by petitioner Commissioner
November 1988, on the ground that Revenue Memorandum Order would be to work against the raison d'etre of E.O. 41, as amended,
No. 4-87, dated 09 February 1987, implementing Executive Order i.e., to raise government revenues by encouraging taxpayers to
No. 41, had construed the amnesty coverage to include only declare their untaxed income and pay the tax due thereon. (E.O. 41,
assessments issued by the Bureau of Internal Revenue after the first paragraph)]3
promulgation of the executive order on 22 August 1986 and not to In this petition for review, the Commissioner raises these related
assessments theretofore made. The invoked provisions of the issues:
memorandum order read: 1. WHETHER OR NOT REVENUE MEMORANDUM ORDER NO. 4-
87, PROMULGATED TO IMPLEMENT E.O. NO. 41, IS VALID;
TO: All Internal Revenue Officers and Others Concerned: 2. WHETHER OR NOT SAID DEFICIENCY ASSESSMENTS IN
QUESTION WERE EXTINGUISHED BY REASON OR PRIVATE
1.0. To give effect and substance to the immunity provisions of the RESPONDENT'S AVAILMENT OF EXECUTIVE ORDER NO. 41 AS
tax amnesty under Executive Order No. 41, as expanded by AMENDED BY EXECUTIVE ORDER NO. 64;
Executive Order No. 64, the following instructions are hereby issued: 3. WHETHER OR NOT PRIVATE RESPONDENT HAS OVERCOME
xxx xxx xxx THE PRESUMPTION OF VALIDITY OF ASSESSMENTS.4
1.02. A certification by the Tax Amnesty Implementation Officer of the The authority of the Minister of Finance (now the Secretary of
fact of availment of the said tax amnesty shall be a sufficient basis Finance), in conjunction with the Commissioner of Internal Revenue,
for: to promulgate all needful rules and regulations for the effective
xxx xxx xxx enforcement of internal revenue laws cannot be controverted. Neither
1.02.3. In appropriate cases, the cancellation/withdrawal of can it be disputed that such rules and regulations, as well as
assessment notices and letters of demand issued after August 21, administrative opinions and rulings, ordinarily should deserve weight
1986 for the collection of income, business, estate or donor's taxes and respect by the courts. Much more fundamental than either of the
due during the same taxable years.1 (Emphasis supplied) above, however, is that all such issuances must not override, but
Private respondent appealed the Commissioner's denial to the Court must remain consistent and in harmony with, the law they seek to
of Tax Appeals. Ruling for the taxpayer, the tax court said: apply and implement. Administrative rules and regulations are
Respondent (herein petitioner Commissioner) failed to present any intended to carry out, neither to supplant nor to modify, the law.
case or law which proves that an assessment can withstand or The real and only issue is whether or not the position taken by the
negate the force and effects of a tax amnesty. This burden of proof Commissioner coincides with the meaning and intent of executive
on the petitioner (herein respondent taxpayer) was created by the Order No. 41.
clear and express terms of the executive order's intention — qualified We agree with both the court of Appeals and court of Tax Appeals
availers of the amnesty may pay an amnesty tax in lieu of said that Executive Order No. 41 is quite explicit and requires hardly
unpaid taxes which are forgiven (Section 2, Section 5, Executive anything beyond a simple application of its provisions. It reads:
Order No. 41, as amended). More specifically, the plain provisions in Sec. 1. Scope of Amnesty. — A one-time tax amnesty covering
the statute granting tax amnesty for unpaid taxes for the period unpaid income taxes for the years 1981 to 1985 is hereby declared.
January 1, 1981 to December 31, 1985 shifted the burden of proof on Sec. 2. Conditions of the Amnesty. — A taxpayer who wishes to avail
respondent to show how the issuance of an assessment before the himself of the tax amnesty shall, on or before October 31, 1986;
date of the promulgation of the executive order could have a a) file a sworn statement declaring his net worth as of December 31,
reasonable relation with the objective periods of the amnesty, so as 1985;
to make petitioner still answerable for a tax liability which, through the b) file a certified true copy of his statement declaring his net worth as
statute, should have been erased with the proper availment of the of December 31, 1980 on record with the Bureau of Internal
amnesty. Revenue, or if no such record exists, file a statement of said net
worth therewith, subject to verification by the Bureau of Internal administrative bodies, in which he is a defendant or respondent, and
Revenue; the same shall not be examined, inquired or looked into by any
c) file a return and pay a tax equivalent to ten per cent (10%) of the person, government official, bureau or office.
increase in net worth from December 31, 1980 to December 31, c) The books of account and other records of the taxpayer for the
1985: Provided, That in no case shall the tax be less than P5,000.00 period from January 1, 1981 to December 31, 1985 shall not be
for individuals and P10,000.00 for judicial persons. examined for income tax purposes: Provided, That the Commissioner
Sec. 3. Computation of Net Worth. — In computing the net worths of Internal Revenue may authorize in writing the examination of the
referred to in Section 2 hereof, the following rules shall govern: said books of accounts and other records to verify the validity or
a) Non-cash assets shall be valued at acquisition cost. correctness of a claim for grant of any tax refund, tax credit (other
b) Foreign currencies shall be valued at the rates of exchange than refund on credit of withheld taxes on wages), tax incentives,
prevailing as of the date of the net worth statement. and/or exemptions under existing laws.
Sec. 4. Exceptions. — The following taxpayers may not avail There is no pretension that the tax amnesty returns and due
themselves of the amnesty herein granted: payments made by the taxpayer did not conform with the conditions
a) Those falling under the provisions of Executive Order Nos. 1, 2 expressed in the amnesty order.
and 14; WHEREFORE, the decision of the court of Appeals, sustaining that
b) Those with income tax cases already filed in Court as of the of the court of Tax Appeals, is hereby AFFIRMED in toto. No costs.
effectivity hereof; SO ORDERED.
c) Those with criminal cases involving violations of the income tax Feliciano, Bidin, Romero and Melo, JJ., concur.
already filed in court as of the effectivity filed in court as of the
effectivity hereof; 35. ERNESTO M. MACEDA, petitioner, vs. HON. CATALINO
d) Those that have withholding tax liabilities under the National MACARAIG, JR
Internal Revenue Code, as amended, insofar as the said liabilities G.R. No. 88291 May 31, 1991; G.R. No. 88291 June 8, 1993
are concerned;
e) Those with tax cases pending investigation by the Bureau of FACTS:
Internal Revenue as of the effectivity hereof as a result of information On November 3, 1986, Commonwealth Act No. 120 created the NPC
furnished under Section 316 of the National Internal Revenue Code, as a public corporation to undertake the development of hydraulic
as amended; power and the production of power from other sources.
f) Those with pending cases involving unexplained or unlawfully Effective March 10, 1987, Executive Order No. 93 once again
acquired wealth before the Sandiganbayan; withdrew all tax and duty incentives granted to government and
g) Those liable under Title Seven, Chapter Three (Frauds, Illegal private entities which had been restored under Presidential Decree
Exactions and Transactions) and Chapter Four (Malversation of Nos. 1931 and 1955 but it gave the authority to FIRB to restore,
Public Funds and Property) of the Revised Penal Code, as amended. revise the scope and prescribe the date of effectivity of such tax
xxx xxx xxx and/or duty exemptions.
Sec. 9. The Minister of finance, upon the recommendation of the On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring
Commissioner of Internal Revenue, shall promulgate the necessary NPC's tax and duty exemption privileges effective March 10, 1987.
rules and regulations to implement this Executive Order. On October 5, 1987, the President, through respondent Executive
xxx xxx xxx Secretary Macaraig, Jr., confirmed and approved FIRB Resolution
Sec. 11. This Executive Order shall take effect immediately. No. 17-87.
DONE in the City of Manila, this 22nd day of August in the year of Though the issues raised was resolved by the Supreme Court in
Our Lord, nineteen hundred and eighty-six. G.R. No. 88291, the issues was again brought to the Supreme Court
The period of the amnesty was later extended to 05 December 1986 for the second time by the petitioner in G.R. No. 88291.
from 31 October 1986 by Executive Order No. 54, dated 04 ISSUE: Whether or not the powers conferred upon the FIRB by
November 1986, and, its coverage expanded, under Executive Order Section 2(a), (b), and (c) and (4) of Executive Order No. 93
No. 64, dated 17 November 1986, to include estate and honors taxes "constitute undue delegation of legislative power and is, therefore,
and taxes on business. unconstitutional.”
If, as the Commissioner argues, Executive Order No. 41 had not
been intended to include 1981-1985 tax liabilities already assessed RULING: No.
(administratively) prior to 22 August 1986, the law could have simply With the growing complexities of modern life and the many technical
so provided in its exclusionary clauses. It did not. The conclusion is fields of governmental functions, as in matters pertaining to tax
unavoidable, and it is that the executive order has been designed to exemptions, delegation of legislative powers has become the rule
be in the nature of a general grant of tax amnesty subject only to the and non-delegation the exception. The legislature may not have the
cases specifically excepted by it. competence, let alone the interest and the time, to provide direct and
It might not be amiss to recall that the taxable periods covered by the efficacious solutions to many problems attendant upon present day
amnesty include the years immediately preceding the 1986 revolution undertakings. The legislature could not be expected to state all the
during which time there had been persistent calls, all too vivid to be detailed situations wherein the tax exemption privilege would be
easily forgotten, for civil disobedience, most particularly in the restored. The task may be assigned to an administrative body like the
payment of taxes, to the martial law regime. It should be Fiscal Incentives Review Board (FIRB).
understandable then that those who ultimately took over the reigns of When E.O No. 93 (S'86) was issued, President Aquino was
government following the successful revolution would promptly exercising both Executive and Legislative powers. Thus, there was
provide for abroad, and not a confined, tax amnesty. no power delegated to her, rather it was she who was delegating her
Relative to the two other issued raised by the Commissioner, we power. She delegated it to the FIRB, which, for purposes of E.O No.
need only quote from Executive Order No. 41 itself; thus: 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-
Sec. 6. Immunities and Privileges. — Upon full compliance with the delegating her power.
conditions of the tax amnesty and the rules and regulations issued And E.O. No. 93 (S'86), as a delegating law, was complete in itself —
pursuant to this Executive order, the taxpayer shall enjoy the it set forth the policy to be carried out 85 and it fixed the standard to
following immunities and privileges: which the delegate had to conform in the performance of his
a) The taxpayer shall be relieved of any income tax liability on any functions, 86 both qualities having been enunciated by this Court in
untaxed income from January 1, 1981 to December 31, 1985, Pelaez vs. Auditor General. 87
including increments thereto and penalties on account of the non- For delegation to be constitutionally valid, the law must be complete
payment of the said tax. Civil, criminal or administrative liability in itself and must set forth sufficient standards.
arising from the non-payment of the said tax, which are actionable Certain aspects of the taxing process that are not really legislative in
under the National Internal Revenue Code, as amended, are likewise nature are vested in administrative agencies. In this case, there really
deemed extinguished. is no delegation, to wit: a) power to value property; b) power to
b) The taxpayer's tax amnesty declaration shall not be admissible in assess and collect taxes; c) power to perform details of computation,
evidence in all proceedings before judicial, quasi-judicial or appraisement or adjustment; among others.
 prior to the effectivity of the amendatory law (Rep. Act 2343) will be
36. COMMISSIONER OF INTERNAL REVENUE VS DE LA tantamount to giving it (Rep. Act No. 2343) retroactive application.
SALLE UNIVERSITY • On June 15, 1964, the Tax Court rendered its decision,
GR No. 196596 November 9, 2016a upholding the ruling of respondent Commissioner.
In G. R. No. L-23254 (CTA Case No. 1278
FACTS: • The same petitioner (Central Azucarera Don Pedro) filed its
In 2004, the Bureau of Internal Revenue (BIR) issued a Letter of income tax returns within the prescribed period for the succeeding
Authority to DLSU authorizing its revenue officers to examine the fiscal years ending August 31 — 1955, 1956, 1957, and 1958, for
latter’s books of accounts and other accounting records for all which it paid the corresponding income taxes, based on said returns.
internal revenue taxes for the period “Fiscal Year Ending 2003 and • After verification and examination of petitioner's income tax
Unverified Prior Years.” Subsequently, the BIR issued a Formal Letter returns for the abovestated fiscal years, respondent Commissioner
of Demand to which the DLSU protested. Arguing the said ascertained and assessed, for each of said fiscal years against
assessment, DLSU stated that RMO No. 43-90 prohibits the practice petitioner, deficiency income taxes in the total amount of P21,330.00,
of issuing a LoA with any indication of unverified prior years. A LoA and interest thereon in the total sum of P2,307.10, which interest
issued contrary to the RMO is void, thus, an assessment issued were likewise imposed pursuant to Section 51 (d) of the Internal
based on such defective LoA must also be void. ISSUE: Whether or Revenue Code, as amended by Republic Act No. 2343.
not the Letter of Authority issued by the BIR is void HELD: The LoA • Petitioner paid said deficiency income taxes and interests
issued to DLSU is not entirely void. The assessment for taxable year within the period prescribed by respondent to pay the same;
2003 is valid. The relevant provision is Sec. C of RMO No. 43-90, the however, on January 19, 1962, it filed with the latter a claim for
pertinent portion of which reads: 3. A Letter of Authority [LOA] should refund or tax credit of the aforesaid sum of P2,307.00, which was
cover a taxable period not exceeding one taxable year. The practice paid as interests, claiming that said payment was erroneous and the
of issuing [LOAs] covering audit of unverified prior years is hereby collection thereof by respondent was illegal, which contention is
prohibited. If the audit of a taxpayer shall include more than one similar to that alleged in its previous protest (now CTA Case No.
taxable period, the other periods or years shall be specifically 1273).
indiated in the [LOA]. What this provision clearly prohibits is the ISSUE: Whether or not the interest provided for in Section 51 (d) of
practice of issuing LOAs covering audit of unverified prior years. the National Internal Revenue Code, as amended by Republic Act
RMO 43-90 does not say that a LOA which contains unverified prior No. 2343 (effective June 20, 1959) is imposable on deficiency
years is void. It merely prescribes that if the audit includes more than income tax due on income earned prior to the effectivity of said
one taxable period, the other periods or years must be specified. The Republic Act No. 2343, but assessed after it.
provision read as a whole requires that if a taxpayer is audited for HELD: YES. It is thus evident that petitioner's contention that
more than one taxable year, the BIR must specify each taxable year "interest on such deficiency accrued only when the taxpayer failed to
or taxable pay the tax within the period prescribed therefor by respondent
(Commissioner of Internal Revenue)" is not correct; said interest was
imposable in case of non-payment on time, not only on the basic
38. G.R. Nos. L-23236 and L-23254 May 31, 1967 income tax, but also on the deficiency tax, since the deficiency was
CENTRAL AZUCARERA DON PEDRO, petitioner, part and parcel of petitioner's income tax liability.
vs. RATIO:
COURT OF TAX APPEALS and COMMISSIONER OF The interest in this case is imposed on deficiency income tax due on
INTERNAL REVENUE, respondents. income earned prior to the amendment, but assessed after it.

FACTS: TAX CODE BEFORE AMENDMENT

In G.R. No. L-23236 (CTA Case No. 1273), TAX CODE AFTER AMENDMENT
• Petitioner Central Azucarera Don Pedro had been filing its
income tax returns on the "fiscal year" basis ending August 31, of Sec. 51. Assessment and payment of income tax. —
every year. (a) Assessment of Tax. — All assessments shall be made by the
• Within the period allowed it under Section 46 of the Collector of Internal Revenue and all persons and corporation subject
National Internal Revenue Code, petitioner filed, on October 24, to tax shall be notified of the amount for which the are respectively
1954, with the Bureau of Internal Revenue, its income tax return for liable on or before the first day of May each successive year.
the fiscal year ending August 31, 1954, for which it paid the total sum (b) Time of payment. — The total amount of tax imposed by this Title
of P491,038.00, as income tax, computed on the basis of said return. shall be paid on or before the fifteenth day of May following the close
• On October 15, 1959, Respondent Commissioner of of the calendar year, by the person subject to tax, and in case of a
Internal Revenue assessed against petitioner the amount of corporation, by the president, vice-president, or other responsible
P167,935.00, as deficiency income tax for the abovementioned fiscal officer thereof. If the return is made on the basis of a fiscal year, the
year, but he did not assess and impose any interest thereon. total amount of the tax shall be paid on or before the fifteenth day of
• Petitioner protested, in a letter dated October 26, 1959, the fifth month following the close of the fiscal year.
said deficiency income tax assessment and requested that the same xxx xxx xxx
be cancelled. (d) Refusal or neglect to make returns; fraudulent returns, etc. — In
• Acting on the letter-protest, respondent finally ascertained case(s) of . . . erroneous . . . returns, the Collector of Internal
and assessed, in a letter dated December 20, 1961, against Revenue shall, upon discovery thereof, . . . make a return upon
petitioner the amount of P10,062.00, as deficiency income tax, to information obtained as provided for in this code or by existing law, or
which was added the sum of P1,509.30 as ½% monthly interest require the necessary corrections to be made, and the assessment
thereon, made by the Collector of Internal Revenue thereon shall be paid by
• Petitioner was satisfied with the revised assessment of said such person or corporation immediately upon notification of the
deficiency income tax proper and, accordingly, it paid, on January 16, amount of such assessment.
1962, the said amount of P10,062.00 to respondent; however, it (e) Surcharge and interest in case of delinquency.—To any sum or
objected, in a letter-protest dated January 18, 1962, to the demand sums due and unpaid after the dates prescribed in subsections (b),
and imposition of interest which was assessed and included for the (c) and (d) for the payment of the same, there shall be added the
first time in respondent's letter of December 20,1961. sum of fiveper centum on the amount of tax unpaid and interest at
• In due time petitioner went to the Tax Court in a petition for the rate of one per centum a month upon said tax from the time the
review, claiming that the imposition of ½% monthly interest on its same became due, except from the estates of insane, deceased, or
deficiency tax for the fiscal year 1954, Pursuant to Section 51 (d) of insolvent persons.1äwphï1.ñët Sec. 51. Payment and
the Revenue Code, as amended by Republic Act No. 2343, is illegal, Assessment of income tax. —
because the imposition of interest on efficiency income tax earned (a) Payment of tax. — (1) In general. — The total amount of tax
imposed by this Title shall be paid at the time the return is filed but
not later than the fifteenth day of April following the close of the 1959, respectively, respondent Commissioner merely imposed the
calendar year, or, if the return is made on the basis of a fiscal year, new ½% monthly interest from January 20, 1959, which interests, as
then not later than the fifteenth day of the fourth month following the computed, are less than what would be due under the old law.
close of the fiscal year. Such tax shall be paid by the person subject With respect to the petitioner's contention that the application of the
thereto, and in the case of a corporation by the President, Vice- amended provision (now Sec. 51-d of the Tax Code) to the cases at
President, or other responsible officer thereof: Provided, That if in bar would run counter to the constitutional restriction against the
any preceding year, the payer was entitled to a refund of any amount enactment of ex post factolaws, it is to be noted that the collection of
thereof, if not yet refunded, it may be deducted from the amount of interest in these cases is not penal in nature,
tax to be paid.
xxx xxx xxx 39. CIR v Benguet Corporation
(b) Assessment and payment of deficiency tax. — After the return is
filed, the Commissioner of Internal Revenue shall examine it and Re: A petition for declaratory relief to Test the validity of Ordinance
assess the correct amount of the tax. The tax or deficiency in tax so No. 3379 passed by the Municipal Board of the City of Manila on
discovered shall be paid upon notice and demand from the March 24, 1950.
Commissioner of Internal Revenue.
xxx xxx xxx Ponente: BAUTISTA ANGELO, J.:
(d) Interest on deficiency. — Interest upon the amount determined as
a deficiency shall be assessed at the same time as the deficiency DOCTRINE: While as a rule an ad valorem tax is a property tax, the
and shall be paid upon notice and demand from the Commissioner of rule should not be taken in its absolute sense if the nature and
Internal Revenue; and shall be collected as a part of the tax, at the purpose of the tax as gathered from the context show that it is in
rate of six per centum per annum from the date prescribed for the effect an excise or a license tax. Thus, it has been held that "If a tax
payment of the tax (or, if the tax is paid in installments, from the date is in its nature an excise, it does not become a property tax because
prescribed for the payment of the first installment) to the date the it is proportioned in amount to the value of the property used in
deficiency is assessed: Provided, That the maximum amount that connection with the occupation, privilege or act which is taxed…. If it
may be collected as interest on deficiency shall in no case exceed is really imposed upon the performance of an act, enjoyment of a
the amount corresponding to a period of three years, the present privilege, or the engaging in an occupation, it will be considered an
provisions regarding prescription to the contrary notwithstanding. excise tax."

Sec. 46. Corporation returns. — . . . QUICK FACTS: The Association composed of all brokers and public
(b) When to file. — The return shall be rendered on or before the first service operators of motor vehicles in the City of Manila challenged
day of March of each year for the preceding calendar year, or if the the validity of Ordinance No. 3379 on the ground that (1) while it
corporation has designated a fiscal year, then within sixty days after levies a so-called property tax it is in reality a license tax which is
the close of such fiscal year. Sec. 46. Corporation returns. — . . . . beyond the power of the Municipal Board of the City of Manila; (2)
(b) When to file. — The return shall be filed on or before the fifteenth said ordinance offends against the rule of uniformity of taxation; and
day of April of each year for the preceding calendar year, or if the (3) it constitutes double taxation.
corporation has designated a fiscal year, on or before the fifteenth
day of the fourth month following the close of such fiscal year. FACTS:
From a perusal and comparison of the above quoted sections of the Tax: 10% VAT on selling price of gold pursuant to Sec. 99 of NIRC.
Tax Code, before and after its amendment, it will be observed that,
although the Commissioner (formerly Collector) of Internal Revenue, Benguet Corporation is a domestic corporation engaged in the
under the old Section 51 (a) was required to assess the tax due, exploration, development and operation of mineral resources, and
based on the taxpayer's return, and notify the taxpayer of said the sale or marketing thereof to various entities. It is a value added
assessment, still, under subsection (b) of the same old Section 51, tax (VAT) registered enterprise.
the time prescribed for the payment of tax was fixed, whether or not a
notice of the assessment was given to the taxpayer. Under the new The transactions in question occurred during the period between
provision, the time of payment is also fixed and pre-determined 1988 and 1991. Under Sec. 99 of NIRC as amended by E.O. 273 s.
(usually coinciding with the filing of the return) without the necessity 1987 then in effect, any person who, in the course of trade or
of giving notification of the assessment to the taxpayer by the business, sells, barters or exchanges goods, renders services, or
Commissioner. engages in similar transactions and any person who imports goods is
It should further be observed that, under the old Section 51 (e), the liable for output VAT at rates of either 10% or 0% (zero-rated)
interest on deficiency was imposed from the time the tax became depending on the classification of the transaction under Sec. 100 of
due; while under the new Section 51 (d), said interest is imposed on the NIRC.
the deficiency from the date prescribed for the payment of the tax.
It is thus evident that petitioner's contention that "interest on such In January of 1988, Benguet applied for and was granted by the BIR
deficiency accrued only when the taxpayer failed to pay the tax within a zero-rated status on its sale of gold to Central Bank. On 28 August
the period prescribed therefor by respondent (Commissioner of 1988, (BIR) VAT Ruling No. 3788-88 was issued which declared that
Internal Revenue)" is not correct; said interest was imposable in case the sale of gold to Central Bank is considered as export sale subject
of non-payment on time, not only on the basic income tax, but also to zero-rate pursuant to Section 100 of the Tax Code, as amended by
on the deficiency tax, since the deficiency was part and parcel of EO 273. Relying on its zero-rated status and the above issuances,
petitioner's income tax liability. Benguet sold gold to the Central Bank during the period of 1 August
It appearing that the new Section 51 (d) under Republic Act 2343 1989 to 31 July 1991 and entered into transactions that resulted in
expressly provides that the interest on deficiency shall be assessed input VAT incurred in relation to the subject sales of gold. It then filed
at the same time as the deficiency income tax; and that respondent applications for tax refunds/credits corresponding to input VAT.
Commissioner of Internal Revenue imposed and sought to collect the
interest only from June 20, 1959, which was the date of effectivity of However, such request was not granted due to BIR VAT Ruling No.
said Republic Act No. 2343; that the deficiency income taxes in 008-92 dated 23 January 1992 that was issued subsequent to the
question were assessed and unpaid when said Act was already in consummation of the subject sales of gold to the Central Bank which
force, the Tax Court correctly held that said Section 51 (d), as provides that sales of gold to the Central Bank shall not be
amended, is not being applied retroactively as contended by considered as export sales and thus, shall be subject to 10% VAT.
petitioner herein. BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all
Moreover, the application of said Section 51 (d), as amended, in the inconsistent BIR issuances.
cases at bar, operated and worked in favor of petitioner-appellant,
since instead of imposing the rate of one per centum (1%) monthly Both petitioner and Benguet agree that the retroactive application of
interest prescribed in the old section 51 (e) from the time the tax VAT Ruling No. 008-92 is valid only if it would not be prejudicial to the
became due, i.e., from January 15, — 1955, 1956, 1957, 1958 and Benguet pursuant Sec. 246 of the NIRC.
 Are the receipts of Burmeister entitled to VAT zero-rated status?
? Contention: the so-called property tax is in reality a license tax
which is beyond the power of the Municipal Board of the City of HELD:
Manila, the said ordinance offends against the rule of uniformity of PARTIALLY. Respondent is entitled to the refund prayed for BUT
taxation; and it constitutes double taxation. ONLY for the period covered prior to the filing of CIR’s Answer in the
CTA.
Benguet Corporation’s Contention: Retroactive application of BIR
VAT Ruling No. 008-92 would violate Sec. 246 of the NIRC, which The claim has no merit since the consortium, which was the recipient
mandates the non-retroactivity of rulings or circulars issued by the of services rendered by Burmeister, was deemed doing business
Commissioner of Internal Revenue that would operate to prejudice within the Philippines since its 15-year O&M with NPC can not be
the taxpayer. interpreted as an isolated transaction.
In addition, the services referring to ‘processing, manufacturing,
CFI of manila: Sustained validity of ordinance and dismissed the repacking’ and ‘services other than those in (1)’ of Sec. 102 both
petition. Hence the appeal. require (i) payment in foreign currency; (ii) inward remittance; (iii)
accounted for by the BSP; AND (iv) that the service recipient is doing
ISSUE: WON the new BIR ruling which changed the VAT business outside the Philippines. The Court ruled that if this is not the
categorization of respondent’s transactions with the Central Bank case, taxpayers can circumvent just by stipulating payment in foreign
from zero-rated to 10% can be applied retroactively to Benguet’s sale currency.
of gold to the Central Bank.
The refund was partially allowed since Burmeister secured a ruling
DECISION: No. from the BIR allowing zero-rating of its sales to foreign consortium.
However, the ruling is only valid until the time that CIR filed its
HELD: Answer in the CTA which is deemed revocation of the previously-
At the time when the subject transactions were consummated, the issued ruling. The Court said the revocation can not retroact since
prevailing BIR regulations relied upon by Benguet ordained that gold none of the instances in Section 246 (bad faith, omission of facts,
sales to the Central Bank were zero-rated. Benguet should not be etc.) are present
faulted for relying on the BIRs interpretation of the said laws and
regulations. 41. CIR v Ayala Securities Corporation (Imprescribility of
While it is true, as CIR alleges, that government is not estopped from Taxes)
collecting taxes which remain unpaid on account of the errors or
mistakes of its agents and/or officials and there could be no vested Facts:
right arising from an erroneous interpretation of law, these principles Ayala Securities Corp. (Ayala) failed to file returns of their
must give way to exceptions based on and in keeping with the accumulated surplus so Ayala was charged with 25% surtax by the
interest of justice and fair play. (Similar to the ABS-CBN case). Commissioner of internal Revenue. The CTA (Court of Tax Appeals)
reversed the Commissioner’s decision and held that the assessment
The adverse effect is that Benguet Corp became the unexpected and made against Ayala was beyond the 5-yr prescriptive period as
unwilling debtor to the BIR of the amount equivalent to the total VAT provided in section 331 of the National Internal Revenue Code.
cost of its product, a liability it previously could have recovered from Commissioner now files a motion for reconsideration of this decision.
the BIR in a zero-rated scenario or at least passed on to the Central Ayala invokes the defense of prescription against the right of the
Bank had it known it would have been taxed at a 10% rate. Thus, it is Commissioner to assess the surtax.
clear that Benguet suffered economic prejudice when its Issue: Whether or not the right to assess and collect the 25% surtax
consummated sales of gold to the Central Bank were taken out of the has prescribed after five years.
zero-rated category. The change in the VAT rating of Benguet’s Held: No. There is no such time limit on the right of the
transactions with the Central Bank resulted in the twin loss of its Commissioner to assess the 25% surtax since there is no express
exemption from payment of output VAT and its opportunity to recover statutory provision limiting such right or providing for its prescription.
input VAT, and at the same time subjected it to the 10% VAT sans the Hence, the collection of surtax is imprescriptible. The underlying
option to pass on this cost to the Central Bank, with the total purpose of the surtax is to avoid a situation where the corporation
prejudice in money terms being equivalent to the 10% VAT levied on unduly retains its surplus earnings instead of declaring and paying
its sales of gold to the Central Bank. dividends to its shareholders. SC reverses the ruling of the CTA.
Gurrero Notes:
Even assuming that the right to recover Benguets excess payment of Commissioner of Internal Revenue vs. Ayala Securities Corp. (GR L-
income tax has not yet prescribed, this relief would only address 29485, 21 November 1980)
Benguet’s overpayment of income tax but not the other burdens Facts: An assessment made on 21 February 1961 by the
discussed above. Verily, this remedy is not a feasible option for Commissioner of Internal Revenue against the Ayala Securities
Benguet because the very reason why it was issued a deficiency tax Corporation (and received by the latter on 22 March 1961) in the sum
assessment is that its input VAT was not enough to offset its of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year
retroactive output VAT. Indeed, the burden of having to go through an ending 30 September 1955. Raised before the Court of Tax Appeals,
unnecessary and cumbersome refund process is prejudice enough. the tax court reversed the assessment of the 25% surtax and interest
in the amount of P758,687.04, and thereby cancelled and declared of
40. G.R. No. 153205 January 22, 2007 no force and effect the assessment of the Commissioner for 1955.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, On 8 April 1976, the Supreme Court affirmed the decision of the
vs. Court of Tax Appeals and ruled that the assessment fell under the 5-
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR year prescriptive period provided in section 331 of the National
MINDANAO, INC., Respondent. Internal Revenue
Code (NIRC) and that the assessment had, therefore, been made
FACTS: after the expiration of the said 5-year prescriptive period and was of
A foreign consortium, parent company of Burmeister, entered into an no binding force and effect. The Commissioner moved for
O&M contract with NPC. The foreign entity then subcontracted the reconsideration.
actual O&M to Burmeister. NPC paid the foreign consortium a
mixture of currencies while the consortium, in turn, paid Burmeister The Supreme Court set aside its decision of 8 April 1976, and
foreign currency inwardly remitted into the Philippines. BIR did not rendered in lieu thereof another judgment ordering the corporation to
want to grant refund since the services are “not destined for pay the assessment in the sum of P758,687.04 as 25% surtax on its
consumption abroad” (or the destination principle). unreasonably accumulated surplus, plus the 5% surcharge and 1%
monthly interest thereon, pursuant to section 51 (e) of the NIRC, as
ISSUE: amended by RA 2343; with costs
 payments which respondent paid for the period covering July 1992 to
42. Pepsi Cola Bottling Company vs Municipality of Tanauan May 1993 in the total amount of P1,603,443.00.

69 SCRA 460 – Taxation – Delegation to Local Governments – On October 29, 1993, respondent filed with the International Tax
Double Taxation Affairs Division (ITAD) of the BIR a claim for refund of overpaid
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. withholding tax on royalties arguing that, the antecedent facts
In September 1962, the Municipality approved Ordinance No. 23 attending respondents case fall squarely within the same
which levies and collects “from soft drinks producers and circumstances under which said MacGeorge and Gillette rulings were
manufacturers a tai of one-sixteenth (1/16) of a centavo for every issued. Since the agreement was approved by the Technology
bottle of soft drink corked.” Transfer Board, the preferential tax rate of 10% should apply to the
In December 1962, the Municipality also approved Ordinance No. 27 respondent. So, royalties paid by the respondent to SC Johnson and
which levies and collects “on soft drinks produced or manufactured Son, USA is only subject to 10% withholding tax.
within the territorial jurisdiction of this municipality a tax of one
centavo P0.01) on each gallon of volume capacity.” The Commissioner did not act on said claim for refund. Private
Pepsi Cola assailed the validity of the ordinances as it alleged that respondent SC Johnson & Son, Inc. then filed a petition for review
they constitute double taxation in two instances: a) double taxation before the CTA, to claim a refund of the overpaid withholding tax on
because Ordinance No. 27 covers the same subject matter and royalty payments from July 1992 to May 1993.
impose practically the same tax rate as with Ordinance No. 23, b)
double taxation because the two ordinances impose percentage or On May 7, 1996, the CTA rendered its decision in favor of SC
specific taxes. Johnson and ordered the CIR to issue a tax credit certificate in the
Pepsi Cola also questions the constitutionality of Republic Act 2264 amount of P163,266.00 representing overpaid withholding tax on
which allows for the delegation of taxing powers to local government royalty payments beginning July 1992 to May 1993.
units; that allowing local governments to tax companies like Pepsi
Cola is confiscatory and oppressive. The CIR thus filed a petition for review with the CA which rendered
The Municipality assailed the arguments presented by Pepsi Cola. It the decision subject of this appeal on November 7, 1996 finding no
argued, among others, that only Ordinance No. 27 is being enforced merit in the petition and affirming in toto the CTA ruling.
and that the latter law is an amendment of Ordinance No. 23, hence
there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Issue: Whether or not tax refunds are considered as tax exemptions.
Whether or not there is double taxation.
HELD: No. There is no undue delegation. The Constitution even
allows such delegation. Legislative powers may be delegated to local Held: It bears stress that tax refunds are in the nature of tax
governments in respect of matters of local concern. By necessary exemptions. As such they are registered as in derogation of
implication, the legislative power to create political corporations for sovereign authority and to be construed strictissimi juris against the
purposes of local self-government carries with it the power to confer person or entity claiming the exemption. The burden of proof is upon
on such local governmental agencies the power to tax. Under the him who claims the exemption in his favor and he must be able to
New Constitution, local governments are granted the autonomous justify his claim by the clearest grant of organic or statute law. Private
authority to create their own sources of revenue and to levy taxes. respondent is claiming for a refund of the alleged overpayment of tax
Section 5, Article XI provides: “Each local government unit shall have on royalties; however there is nothing on record to support a claim
the power to create its sources of revenue and to levy taxes, subject that the tax on royalties under the RP-US Treaty is paid under similar
to such limitations as may be provided by law.” Withal, it cannot be circumstances as the tax on royalties under the RP-West Germany
said that Section 2 of Republic Act No. 2264 emanated from beyond Tax Treaty.
the sphere of the legislative power to enact and vest in local
governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well 44. CIR vs Rufino ( Merger)
taken. Further, Pepsi Cola’s assertion that the delegation of taxing
power in itself constitutes double taxation cannot be merited. It must Facts:
be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be Private respondents ( RUFINOS: Vicente, Remedios, Ernesto, El
exercised. The reason is that the State has exclusively reserved the vira, Rafael) were majority stockholders of the defunct Eastern
same for its own prerogative. Moreover, double taxation, in general, Theatrical INC Co., a corporation organized in 1934 for a period of 25
is not forbidden by our fundamental law unlike in other jurisdictions. years termination on Ja. 25, 1959. It had an original capital stock of P
Double taxation becomes obnoxious only where the taxpayer is 500K which was increased in 1949 to P 2 million and was organized
taxed twice for the benefit of the same governmental entity or by the to engage in the business of operating theaters, opera houses,
same jurisdiction for the same purpose, but not in a case where one places of amusement and other related business and enterprises ,
tax is imposed by the State and the other by the city or municipality. more particularly the Lyric and Capitol Theaters in Manila. The
president of the corportation ( OLD Corporation ) during the year in
43. CIR V SC JOHNSON INC. June 25, 1999 question was Ernesto Rufino.
Monday, January 26, 2009 Posted by Coffeeholic Writes The same private respondents are also the majority and controlling
Labels: Case Digests, Taxation stockholders of another corporation , the Eastern Theatrical Co which
was organized on Dec. 8, 1958, for a term of 50 years , with
Facts: Respondent is a domestic corporation organized and authorized capital stock of P200K. The corporation is engaged in the
operating under the Philippine Laws, entered into a licensed same kind of business as the OLD corporation.
agreement with the SC Johnson and Son, USA, a non-resident In a special meeting of stockholders of the OLD corporation in Dec.
foreign corporation based in the USA pursuant to which the 1958, a resolution was passed authorizing the OLD corporation to
respondent was granted the right to use the trademark, patents and merge with NEW corporation by transferring its business, assets,
technology owned by the later including the right to manufacture, good will and liabilities to the latter, which in exchange would issue
package and distribute the products covered by the Agreement and and distribute to shareholders of the OLD corporation one share for
secure assistance in management, marketing and production from each share held by them in said corporation. It was expressly declare
SC Johnson and Son USA. that the merger of the OLD corp and NEW corp was necessary to
continue the exhibition of moving pictures at the Lyric and Capitol
For the use of trademark or technology, respondent was obliged to even after expiration of the corporate existence of the OLD corp. , in
pay SC Johnson and Son, USA royalties based on a percentage of view of its pending booking contracts, not to mention its collecting
net sales and subjected the same to 25% withholding tax on royalty bargaining agreements with its employees.
Pursuant to said resolution, a deed of assignment providing the On January 3, 1976, a deed of exchange was executed between
conveyance and transfer of the OLD to the NEW corp in exchange of lessors Delfin and Pelagia Pacheco and defendant Delpher Trades
the latter’s shares of stock to be distributed among the share holders Corporation whereby the former conveyed to the latter the leased
on the basis of one stock for each stockholder held in the OLD corp. property together with another parcel of land for 2,500 shares of
Thereafter, the resolution was duly approved by the stockholders of stock of defendant corporation with a total value of P1,500,000.00
the NEW CORP in special meeting in 1959. The deed of assignment On the ground that it was not given the first option to buy the leased
has retroactive effect on Jan. 1, 1959. property pursuant to the proviso in the lease agreement, respondent
BIR examined later the series of transactions made by the private Hydro Pipes Philippines, Inc., filed an amended complaint for
respondents. BIR averred that the merger was not undertaken for a reconveyance of Lot. No. 1095 in its favor under conditions similar to
bonafide business purpose but merely to avoid liability for capital those whereby Delpher Trades Corporation acquired the property
gains tax on the exchange of the OLD for the new shares of stock . from Pelagia Pacheco and Delphin Pacheco.
Accordingly, CIR imposed the deficiency assessments against the The CFI of Bulacan ruled in favor of the plaintiff.
private respondents. Private respondents requested for The IAC affirmed the decision of the CFI.
reconsideration but it was denied.
Petitioner further posited that the deed of assignment concluded was ISSUE:
intended merely to evade the burden of taxation, the petitioner Whether or not the "Deed of Exchange" of the properties executed by
pointed out that the NEW corp did not actually issue stocks in the Pachecos on the one hand and the Delpher Trades Corporation
exchange of the properties of the OLD corp. and that the exchange on the other was meant to be a contract of sale which, in effect,
was only on the paper. Consequently, as there was no merger, the prejudiced the private respondent's right of first refusal over the
automatic dissolution of the OLD corp on its expiry date resulted in its leased property included in the "deed of exchange."
liquidation , for which the respondents are now liable in taxes on their
capital gains. ARGUMENTS:
CTA: Reversed petitioner’s decision. Eduardo Neria, a CPA and son-in-law of the late Pelagia
Issue: Whether the merger is valid? Pacheco testified that Delpher Trades Corporation is a family
Held: YES. There was a VALID merger although the actual transfer of corporation and that the corporation was organized by the children of
the properties subject of the deed of assignment was not made on the two spouses (spouses Pelagia Pacheco and Benjamin
the date of the merger. In the nature of things, this was not possible. Hernandez and spouses Delfin Pacheco and Pilar Angeles in order to
It was necessary for the OLD corp to surrender its net assets first to perpetuate their control over the property through the corporation and
the NEW CORP before the latter could issue its own stock to the as a means to avoid taxes.
shareholders of the OLD corp. because the NEW corp had to Under this factual backdrop, the petitioners contend that there was
increase its capitalization for this purpose. The required adoption of actually no transfer of ownership of the subject parcel of land since
the resolution to this effect at the special meeting in 1959, the the Pachecos remained in control of the property. Thus, the
registration of such issuance with the SEC and approval by the body. petitioners allege: "Considering that the beneficial ownership and
All these took place AFTER the date of the merger but they were control of Petitioner Corporation remained in the hands of the original
deemed part and parcel of and indispensable to the validity and co-owners, there was no transfer of actual ownership interests over
enforceability of the deed of assignment. Thus, there was no the land when the same was transferred to Petitioner Corporation in
impediment to the exchange of of property for stock between the 2 exchange for the latter's shares of stock. The transfer of ownership, if
coprorations being considered to have been effected on the date of anything, was merely in form but not in substance. In reality,
merger and that in fact , was the intention and the reason why the Petitioner Corporation is a mere alter ego or conduit of the Pacheco
deed of assignment was made retroactive on Ja. 1, 1959. Such co-owners
retroaction provided in effect all transactions set forth in the merger On the other hand, the private respondent argues that Delpher
agreement shall be deemed to be taking place simultaneously on Jan Trades Corporation is a corporate entity separate and distinct from
1, 1959, when the deed of assignment became operative. the Pachecosn and that there was actual transfer of ownership
Additionally, there was no indication that the scheme adopted by interests over the leased property when the same was transferred to
private respondents was to evade tax burdens because it is clear that Delpher Trades Corporation in exchange for the latter's shares of
the purpose of the merger was to continue the business of the OLD stock.
corp, whose corporate life was about to expire, thru the NEW corp. to
which all assets and obligations of the former had been transferred. RULING:
The NEW CORP continues to do so today after taking over the No, it was not meant to be a contract of sale.
business of the OLD corp 27 years ago. After incorporation, one becomes a stockholder of a corporation by
subscription or by purchasing stock directly from the corporation or
45. DELPHER TRADES CORPORATION, and DELPHIN from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47
PACHECO vs. Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at
INTERMEDIATE APPELLATE COURT and HYDRO PIPES bar, in exchange for their properties, the Pachecos acquired 2,500
PHILIPPINES, INC., original unissued no par value shares of stocks of the Delpher Trades
G.R. No. L-69259, January 26, 1988 Corporation. Consequently, the Pachecos became stockholders of
the corporation by subscription "The essence of the stock
FACTS: subscription is an agreement to take and pay for original unissued
shares of a corporation, formed or to be formed.
In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the It is to be stressed that by their ownership of the 2,500 no par shares
owners of 27,169 square meters of real estate Identified as Lot. No. of stock, the Pachecos have control of the corporation. Their equity
1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), capital is 55% as against 45% of the other stockholders, who also
Province of Bulacan (now Metro Manila) which is covered by Transfer belong to the same family group.
Certificate of Title No. T-4240 of the Bulacan land registry. In effect, the Delpher Trades Corporation is a business conduit of the
On April 3, 1974, the said co-owners leased to Construction Pachecos. What they really did was to invest their properties and
Components International Inc. the same property and providing that change the nature of their ownership from unincorporated to
during the existence or after the term of this lease the lessor should incorporated form by organizing Delpher Trades Corporation to take
he decide to sell the property leased shall first offer the same to the control of their properties and at the same time save on inheritance
lessee and the letter has the priority to buy under similar conditions. taxes.
4 months later, lessee Construction Components International, Inc. The records do not point to anything wrong or objectionable about
assigned its rights and obligations under the contract of lease in favor this "estate planning" scheme resorted to by the Pachecos. "The
of Hydro Pipes Philippines, Inc. with the signed conformity and legal right of a taxpayer to decrease the amount of what otherwise
consent of lessors Delfin Pacheco and Pelagia Pacheco. could be his taxes or altogether avoid them, by means which the law
The contract of lease, as well as the assignment of lease were permits, cannot be doubted.
annotated at the back of the title, as per stipulation of the parties.
The "Deed of Exchange" of property between the Pachecos and depends upon the substance of the transaction rather them mere
Delpher Trades Corporation cannot be considered a contract of sale. formalities.
There was no transfer of actual ownership interests by the Pachecos
to a third party. The Pacheco family merely changed their ownership 47. Collector v. UST (1958)
from one form to another. The ownership remained in the same
hands. Hence, the private respondent has no basis for its claim of a FACTS:
light of first refusal under the lease contract.
On October 17, 1950, UST requested in writing from the respondent
DISPOSITIVE PORTION the refund of the sum of on account of the following: The amount paid
WHEREFORE, the instant petition is hereby GRANTED, The by the other departments to the UST Press was for the purposes of
questioned decision and resolution of the then Intermediate Appellate accounting only and does not legally constitute gross receipts subject
Court are REVERSED and SET ASIDE. The amended complaint in to the percentage tax The printing and binding of the fall under the
Civil Case No. 885-V-79 of the then Court of First Instance of exception provided for in Section 191 in relation to Section 183(a) of
Bulacan is DISMISSED. No costs. the Tax Code.

46. CIR v. Estate of Benigno Toda Jr. (2004) CTA applied the doctrine of equitable recoupment.
G.R. No. 147188
ISSUE:
FACTS:
March 2, 1989: Cibeles Insurance Corp. (CIC) authorized Benigno P. W/N THE CTA ERRED IN APPLYING THE DOCTRINE OF
Toda Jr., President and Owner of 99.991% of outstanding capital EQUITABLE RECOUPMENT IN THE CASE?
stock, to sell the Cibeles Building and 2 parcels of land which he sold
to Rafael A. Altonaga on August 30, 1987 for P 100M who then sold it Held:
on the same day to Royal Match Inc. for P 200M.
CIC included gains from sale of real property of P 75,728.021 in its YES. With this doctrine available and enforceable to both parties,
annual income tax return while Altonaga paid a 5% capital gains tax The tax collector would be tempted to delay and neglect the
of P 10M collection of taxes within the period set by the law confident that
July 12, 1990: Toda sold his shares to Le Hun T. Choa for P 12.5M when it finally wakes up from its lethargy, it could still recover the tax
evidenced by a deed of ale of shares of stock which provides that the it failed to collect by having it set off or recouped from any tax which
buyer is free from all income tax liabilities for 1987, 1988 and 1989. it may have illegally collected from the same taxpayer
Toda Jr. died 3 years later.
March 29, 1994: BIR sent an assessment notice and demand letter As regards the taxpayer, he may also be tempted to delay and
to CIC for deficiency of income tax of P 79,099, 999.22 neglect the filing of the corresponding suit for refund of a tax illegally
January 27, 1995: BIR sent the same to the estate of Toda Jr. or erroneously collected, trusting that he can always recover or be
Estate filed a protest which was dismissed - fraudulent sale to evade credited with the same or part thereof by refusing to pay a valid tax
the 35% corporate income tax for the additional gain of P 100M and assessed against him and compelling the Government to set-off the
that there is in fact only 1 sale. Since it is falsity or fraud, the same against a tax payment he could no longer recover.
prescription period is 10 years from the discovery of the falsity or
fraud as prescribed under Sec. 223 (a) of the NIRC. 48. Philex Mining vs CIR
CTA: No proof of fraudulent transaction so the applicable period is 3 PHILEX MINING CORP. v. CIR
years after the last day prescribed by law for filing the return. GR No. 125704, August 28, 1998
294 SCRA 687
ISSUE: W/N there is falsity or fraud resulting to tax evasion rather
than tax avoidance so the period for assessment has not prescribed. FACTS:
Petitioner Philex Mining Corp. assails the decision of the Court of
RULING: YES. Estate shall be liable since NOT yet prescribed. Appeals affirming the Court of Tax
Tax avoidance and tax evasion are the two most common ways used Appeals decision ordering it to pay the amount of P110.7 M as excise
by taxpayers in escaping from taxation. ax avoidance is the tax tax liability for the period from the 2nd
saving device within the means sanctioned by law. This method quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest
should be used by the taxpayer in good faith and at arms length. Tax from 1994 until fully paid pursuant to
evasion, on the other hand, is a scheme used outside of those lawful Sections 248 and 249 of the Tax Code of 1977. Philex protested the
means and when availed of, it usually subjects the taxpayer to further demand for payment of the tax liabilities
or additional civil or criminal liabilities. stating that it has pending claims for VAT input credit/refund for the
Tax evasion connotes the integration of three factors: taxes it paid for the years 1989 to 1991 in
(1) the end to be achieved, i.e., the payment of less than that known the amount of P120 M plus interest. Therefore these claims for tax
by the taxpayer to be legally due, or the non-payment of tax when it credit/refund should be applied against the
is shown that a tax is due tax liabilities.
(2) an accompanying state of mind which is described as being evil,
in bad faith, willfull,or deliberate and not accidental; and ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis
(3) a course of action or failure of action which is unlawful. claims of tax refund of the petitioner?
All are present in this case. The trial balance showed that RMI
debited P 40M as "other-inv. Cibeles Building" that indicates RMI HELD: No. Philex's claim is an outright disregard of the basic
Paid CIC (NOT Altonaga) principle in tax law that taxes are the lifeblood of the
Fraud in its general sense, is deemed to comprise anything government and so should be collected without unnecessary
calculated to deceive, including all acts, omissions, and concealment hindrance. Evidently, to countenance Philex's
involving a breach of legal or equitable duty, trust or confidence justly whimsical reason would render ineffective our tax collection system.
reposed, resulting in the damage to another, or by which an undue Too simplistic, it finds no support in law or in jurisprudence.
and unconscionable advantage is taken of another. To be sure, Philex cannot be allowed to refuse the payment of its tax
Here, it is obvious that the objective of the sale to Altonaga was to liabilities on the ground that it has a pending tax claim for refund or
reduce the amount of tax to be paid especially that the transfer from credit against the government which has not yet been [Link]
him to RMI would then subject the income to only 5% individual cannot be subject to compensation for the simple reason that the
capital gains tax, and not the 35% corporate income tax. government and the taxpayer are not creditors and debtors of each
Generally, a sale of or exchange of assets will have an income tax other. There is a material distinction between a tax and debt. Debts
incidence only when it is consummated but such tax incidence are due to the Government
in its corporate capacity, while taxes are due to the Government in its as will give effect to the legislative intention and so as to avoid an
sovereign capacity. xxx There can be no off-setting of taxes against unjust or absurd conclusion.
the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government 50. CIR VS. PASCOR REALTY
owes him an amount equal to or greater than the tax GR NO.178697, June 29, 1999
being collected. The collection of a tax cannot await the results of a
lawsuit against the government. FACTS:

It appears that by virtue of Letter of Authority No. 001198, then BIR

49. CIR vs ESSO Standard Eastern (G.R. No. L-28502-03. Commissioner Jose U. Ong authorized Revenue Officers Thomas T.
April 18, 1989) Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the
books of accounts and other accounting records of Pascor Realty
COMMISSIONER OF INTERNAL REVENUE, petitioner, and Development Corporation. (PRDC) for the years ending 1986,
vs. 1987 and 1988. The said examination resulted in a recommendation
ESSO STANDARD EASTERN, INC. and THE COURT OF TAX for the issuance of an assessment in the amounts of P7,498,434.65
APPEALS, respondents. and P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner of Internal Revenue filed a
Ponente: NARVASA criminal complaint before the Department of Justice against the
PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio,
FACTS: alleging evasion of taxes in the total amount of P10,513,671.00.
Respondent overpaid its 1959 income tax by P221,033.00. It was Private respondents PRDC, et. al. filed an Urgent Request for
granted a tax credit by the Commissioner accordingly on 1964. Reconsideration/Reinvestigation disputing the tax assessment and
However, ESSOs payment of its income tax for 1960 was found to be tax liability.
short by P367,994.00. The Commissioner (of Internal Revenue)
wrote to ESSO demanding payment of the deficiency tax, together ISSUE:
with interest thereon for the period from 1961 to 1964. ESSO paid
under protest the amount alleged to be due, including the interest as (1) Whether or not the criminal complaint for tax evasion can be
reckoned by the Commissioner. It protested the computation of construed as an assessment.
interest, contending it was more than that properly due. It claimed (2) Whether or not an assessment is necessary before criminal
that it should not have been required to pay interest on the total charges for tax evasion may be instituted.
amount of the deficiency tax, P367,994.00, but only on the amount of HELD:
P146,961.00—representing the difference between said deficiency, 1. No. Petitioner argues that the filing of the criminal
P367,994.00, and ESSOs earlier overpayment of P221,033.00 (for complaint with the Department of Justice cannot in any way be
which it had been granted a tax credit). ESSO thus asked for a construed as a formal assessment of private respondents tax
refund. The Internal Revenue Commissioner denied the claim for liabilities. This position is based on Section 205 of the National
refund. ESSO appealed to the Court of Tax Appeals which ordered Internal Revenue Code[10 (NIRC), which provides that remedies for
payment to ESSO of its refund-claim representing overpaid interest. the collection of deficient taxes may be by either civil or criminal
The Commissioner argued the tax credit of P221,033.00 was action. Likewise, petitioner cites Section 223(a) of the same Code,
approved only on year 1964, it could not be availed of in reduction of which states that in case of failure to file a return, the tax may be
ESSOs earlier tax deficiency for the year 1960; as of that year, 1960, assessed or a proceeding in court may be begun without
there was as yet no tax credit to speak of, which would reduce the assessment.
deficiency tax liability for 1960. In support of his position, the 2. No. Section 222 of the NIRC specifically states that in
Commissioner invokes the provisions of Section 51 of the Tax Code. cases where a false or fraudulent return is submitted or in cases of
failure to file a return such as this case, proceedings in court may be
ISSUE: commenced without an assessment. Furthermore, Section 205 of the
same Code clearly mandates that the civil and criminal aspects of the
Whether or not the interest on delinquency should be applied on the case may be pursued simultaneously.
full tax deficiency of P367,994.00 despite the existence of Said Section 222 states that an assessment is not necessary before
overpayment in the amount of P221,033.00. a criminal charge can be filed. This is the general rule. Private
respondents failed to show that they are entitled to an exception.
HELD: Moreover, the criminal charge need only be supported by a prima
facie showing of failure to file a required return. This fact need not be
NO. Petition was denied. Decision of CTA was affirmed. proven by an assessment.

RATIO:

The fact is that, as respondent Court of Tax Appeals has stressed, as

early as 1960, the Government already had in its hands the sum of
P221,033.00 representing excess payment. Having been paid and
received by mistake, as petitioner Commissioner subsequently
acknowledged, that sum unquestionably belonged to ESSO, and the
Government had the obligation to return it to ESSO That
acknowledgment of the erroneous payment came some four (4)
years afterwards in nowise negates or detracts from its actuality. The
obligation to return money mistakenly paid arises from the moment
that payment is made, and not from the time that the payee admits
the obligation to [Link] obligation to return money mistakenly
paid arises from the moment that payment is made, and not from the
time that the payee admits the obligation to reimburse. The obligation
of the payee to reimburse an amount paid to him results from the
mistake, not from the payee’s confession of the mistake or
recognition of the obligation to reimburse.
A literal interpretation is to be rejected if it would be unjust or lead to
absurd results. Statutes should receive a sensible construction, such