G.R. No. L-7859        December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma, plaintiff-appellant, vs.J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.

REYES, J.B L., J.:

Facts:

This case was initiated in the Court of First Instance of Negros Occidental to test the legality of

the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment

Act. 

Promulgated in 1940, the due to the threat to our industry by the imminent imposition of export

taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its

preferential position in the United States market"; wherefore, the national policy was expressed

"to obtain a readjustment of the benefits derived from the sugar industry by the component

elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the

loss of its preferential position in the United States market and the imposition of the export

taxes." 

In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the

manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3

levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded

to others for a consideration, on lease or otherwise a tax equivalent to the difference between the

money value of the rental or consideration collected and the amount representing 12 per centum

of the assessed value of such land. 

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio

Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40

paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-

1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of

the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax

may be constitutionally levied. The action having been dismissed by the Court of First Instance,

the plaintiffs appealed the case directly to this Court (Judiciary Act, section 17). 

ISSUE: Whether or not the CA No. 567 or Sugar Adjustment Act is constitutional and for public

purpose. 

HELD: The basic defect in the plaintiff's position is his assumption that the tax provided for in

Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and

particularly of section 6, will show that the tax is levied with a regulatory purpose, to provide

means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the

act is primarily an exercise of the police power. 

This Court can take judicial notice of the fact that sugar production is one of the great industries

of our nation, sugar occupying a leading position among its export products; that it gives

employment to thousands of laborers in fields and factories; that it is a great source of the state's

wealth, is one of the important sources of foreign exchange needed by our government, and is

thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,

protection and advancement, therefore redounds greatly to the general welfare. Hence it was

competent for the legislature to find that the general welfare demanded that the sugar industry

should be stabilized in turn; and in the wide field of its police power, the lawmaking body could

provide that the distribution of benefits therefrom be readjusted among its components to enable

it to resist the added strain of the increase in taxes that it had to sustain. 

Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter

of public concern, it follows that the Legislature may determine within reasonable bounds what

is necessary for its protection and expedient for its promotion. Here, the legislative discretion

must be allowed fully play, subject only to the test of reasonableness; and it is not contended that

the means provided in section 6 of the law bear no relation to the objective pursued or are

oppressive in character. If objective and methods are alike constitutionally valid, no reason is

seen why the state may not levy taxes to raise funds for their prosecution and attainment.

Taxation may be made the implement of the state's police power. 

That the tax to be levied should burden the sugar producers themselves can hardly be a ground of

complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be

benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the

power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held

that "inequalities which result from a singling out of one particular class for taxation, or

exemption infringe no constitutional limitation". 

From the point of view we have taken it appears of no moment that the funds raised under the

Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry,

since it is that very enterprise that is being protected. It may be that other industries are also in

need of similar protection; that the legislature is not required by the Constitution to adhere to a

policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270,

84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown

because there are other instances to which it might have been applied;" and that "the legislative

authority, exerted within its proper field, need not embrace all the evils within its reach".

G.R. No. L-21183             September 27, 1968

VICTORIAS MILLING CO., INC., plaintiff-appellant, vs.THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL, defendant-appellant.

SANCHEZ, J.:

Facts:

Ordinance 1 (1956) was approved by the municipal council of Victorias by way of an

amendment to 2 municipal ordinances separately imposing license taxes on operators of sugar

centrals and sugar refineries. The changes were: (1) with respect to sugar centrals, by increasing

the rates of license taxes; and (2) as to sugar refineries, by increasing the rates of license taxes as

well as teh range of graduated schedule of annual output capacity. Victorias Milling questioned

the validity of Ordinance 1 as it, among others, allegedly singled out Victorias Milling Co. since

it is the only operator of a sugar central and a sugar refinery within the jurisdiction of the

municipality.

Issue: Whether Ordinance 1 is discriminatory.

Held: The ordinance does not single out Victorias as the only object of the ordinance but is made

to apply to any sugar central or sugar refinery which may happen to operate in the municipality.

The fact that Victorias Milling is actually the sole operator of a sugar central and a sugar refinery

does not make the ordinance discriminatory. The ordinance is unlike that in Ormoc Sugar

Company vs. Municipal Board of Ormoc City, which specifically spelled out Ormoc Sugar as the

subject of the taxation, the name of the company herein was never mentioned in the ordinance.

VILLEGAS v. HIU CHIONG TSAI PAO HOG.R. No. L-29646, November 10, 1978Fernandez,J,:

FACTS:

On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537.

The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).

Section 1 of the said city ordinance prohibits aliens from being employed or to engage or

participate in any position or occupation or business enumerated therein, whether permanent,

temporary or casual, without first securing an employment permit from the Mayor of Manila and

paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions

of foreign countries, or in the technical assistance programs of both the Philippine Government

and any foreign government, and those working in their respective households, and members of

religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila, filed a petition

with the CFI of Manila to declare City Ordinance No. 6537 as null and void for being

discriminatory and violative of the rule of the uniformity in taxation.

The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present

petition.

ISSUE:

            Whether or not City Ordinance No. 6537 is a tax or revenue measure.

RULING:

Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure

because its principal purpose is regulatory in nature has no merit. While it is true that the first

part which requires that the alien shall secure an employment permit from the Mayor involves

the exercise of discretion and judgment in the processing and approval or disapproval of

applications for employment permits and therefore is regulatory in character the second part

which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure.

There is no logic or justification in exacting P50.00 from aliens who have been cleared for

employment. It is obvious that the purpose of the ordinance is to raise money under the guise of

regulation.

G.R. No. L-18994             June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs.HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price,respondents.

LABRADOR, J.:

Facts:

InDomingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory

the order of the Court of First Instance of Leyte for the payment of estate and inheritance taxes,

charges and penalties amounting to P40,058.55 by the Estate of the late Walter Scott Price. The

petition for execution filed by the fiscal, however, was denied by the lower court. The Court held

that the execution is unjustified as the Government itself is indebted to the Estate for 262,200;

and ordered the amount of inheritance taxes be deducted from the Government’s indebtedness to

the Estate.

Issue: Whether a tax and a debt may be compensated.

Held: The court having jurisdiction of the Estate had found that the claim of the Estate against

the Government has been recognized and an amount of P262,200 has already been appropriated

by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government

for inheritance taxes and the claim of the intestate for services rendered have already become

overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by

operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are

extinguished to the concurrent amount.

G.R. No. L-26521      December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs.CITY OF ILOILO, defendants-appellants.

CASTRO, J.:

Facts:

On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing

license tax fees upon tenement house (P25); tenement house partly engaged or wholly engaged in

and dedicated to business in Baza, Iznart, and Aldeguer Streets (P24 per apartment); and

tenement house, partly or wholly engaged in business in other streets (P12 per apartment). The

validity of such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four

tenement houses containing 34 apartments. The Supreme Court held the ordinance to be ultra

vires. On 15 January 1960, however, the municipal board, believing that it acquired authority to

enact an ordinance of the same nature pursuant to the Local Autonomy Act, enacted Ordinance

11 (series of 1960), Eusebio and Remedios Villaniueva assailed the ordinance anew.

Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.

Held: The Court has ruled that tenement houses constitute a distinct class of property; and that

taxes are uniform and equal when imposed upon all property of the same class or character

within the taxing authority. The fact that the owners of the other classes of buildings in Iloilo are

not imposed upon by the ordinance, or that tenement taxes are imposed in other cities do not

violate the rule of equality and uniformity. The rule does not require that taxes for the same

purpose should be imposed in different territorial subdivisions at the same time. So long as the

burden of tax falls equally and impartially on all owners or operators of tenement houses

similarly classified or situated, equality and uniformity is accomplished. The presumption that

tax statutes are intended to operate uniformly and equally were not overthrown herein.

Maceda vs. Macaraig

GR 88291, 31 May 1991

En Banc, Gancayco (J)

Facts:

Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the

development of hydraulic power and the production of power from other sources. RA 358 (1949)

granted NAPOCOR tax and duty exemption privileges. RA 6395 (1971) revised the charter of

the NAPOCOR, tasking it to carry out the policy of the national electrification, and provided in

detail NAPOCOR’s tax exceptions. PD 380 (1974) specified that NAPOCOR’s exemption

includes all taxes, etc. imposed “directly or indirectly.” PD 938 integrated the exemptions in

favor of GOCCs including their subsidiaries; however, empowering the President or the Minister

of Finance, upon recommendation of the Fiscal Incentives Review Board (FIRB) to restore,

partially or completely, the exemptions withdrawn or revised. The FIRB issued Resolution 10-85

(7 February 1985) restoring the duty and tax exemptions privileges of NAPOCOR for period 11

June 1984- 30 June 1985. Resolution 1-86 (1January 1986) restored such exemption indefinitely

effective 1 July 1985. EO 93 (1987) again withdrew the exemption. FIRB issued Resolution 17-

87 (24 June 1987) restoring NAPOCOR’s exemption, which was approved by the President on 5

October 1987.

Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products

sold and delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on

their sales of oil products to NAPOCOR only in 1984. NAPOCOR claimed for a refund

(P468.58 million). Only portion thereof, corresponding to Caltex, was approved and released by

way of a tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and Caltex

amounting to P410.58 million was denied. NAPOCOR moved for reconsideration, starting that

all deliveries of petroleum products to NAPOCOR are tax exempt, regardless of the period of

delivery.

Issue: Whether NAPOCOR cease to enjoy exemption from indirect tax when PD 938 stated the

exemption in general terms.

Held: NAPOCOR is a non-profit public corporation created for the general good and welfare,

and wholly owned by the government of the Republic of the Philippines. From the very

beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax treatment “to

enable the corporation to pay the indebtness and obligation” and effective implementation of the

policy enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is evident that the

provisions of PD 938 were not intended to be strictly construed against NAPOCOR. On the

contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt

status of NAPOCOR. It is recognized principle that the rule on strict interpretation does not

apply in the case of exemptions in favor of government political subdivision or instrumentality.

In the case of property owned by the state or a city or other public corporations, the express

exception should not be construed with the same degree of strictness that applies to exemptions

contrary to the policy of the state, since as to such property “exception is the rule and taxation

the exception.”

CIR vs Filinvest Development Corporation G.R. No. 163653July 19, 2011

Perez, J.:

Facts:

Filinvest Development Corporation extended advances in favor of its affiliates and supported the

same with instructional letters and cash and journal vouchers. The BIR assessed Filinvest for

deficiency income tax by imputing an “arm’s length” interest rate on its advances to affiliates.

Filinvest disputed this by saying that the CIR lacks the authority to impute theoretical interest

and that the rule is that interests cannot be demanded in the absence of a stipulation to the effect.

ISSUE:

Can the CIR impute theoretical interest on the advances made by Filinvest to its affiliates?

HELD:

NO. Despite the seemingly broad power of the CIR to distribute, apportion and allocate gross

income under (now) Section 50 of the Tax Code, the same does not include the power to impute

theoretical interests even with regard to controlled taxpayers’ transactions. This is true even if

the CIR is able to prove that interest expense (on its own loans) was in fact claimed by the

lending entity. The term in the definition of gross income that even those income “from whatever

source derived” is covered still requires that there must be actual or at least probable receipt or

realization of the item of gross income sought to be apportioned, distributed, or allocated.

Finally, the rule under the Civil Code that “no interest shall be due unless expressly stipulated in

writing” was also applied in this case.

The Court also ruled that the instructional letters, cash and journal vouchers qualify as loan

agreements that are subject to DST.

G.R. No. L-25299             July 29, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.ITOGON-SUYOC MINES, INC., and THE COURT OF TAX APPEALS, respondents.

FERNANDO, J.:

Facts:

Itogon-Suyoc Mines filed its income tax return for the fiscal year 1959 to 1960. Four months

later, it filed an amended income tax return, reporting a loss. It thus sought a refund from the

Commissioner. When it filed its income tax return on the next year, it deducted an amount

representing alleged tax credit for overpayment for the preceding fiscal year. The Commissioner

imposed an amount P1,512.83 as 1% monthly interest on the amount of P13,155.20 from January

to December 1962. The basis for such assessment was allegedly the absence of a legal right to

deduct said amount before the tax credit or refund is approved by the Commissioner.

Issue: Whether the assessment on interest was justified.

Held: The Tax Code provides that interest upon the amount determined as a deficiency shall be

assessed and shall be paid upon notice and demand from the Commissioner at the rate therein

specified. It made clear, however, in an earlier provision found in the same section that if in any

preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if

not refunded, may be deducted from the tax to be paid. Although the imposition of monthly

interest does not constitute penalty but a just compensation to the State for the delay in paying

the tax and for the concomitant use by the taxpayer of funds that rightfully should be in

government’s hands; in light of the overpayment for 1959 and 1960, it cannot be said that the

taxpayer was guilty of delay enabling it to utilize the money.

The company is entitled to refund.

G.R. No. 179343               January 21, 2010

FISHWEALTH CANNING CORPORATION, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

CARPIO MORALES, J.:

FACTS:

Petitioner was assessed for income tax, Value Added Tax and withholding tax. After Court of

Tax Appeals issued a Final Decision on Disputed Assessment, Petitioner filed a Letter of

Reconsideration with the CIR instead of appealing the same to the Court of Tax Appeals within

30 days. The CIR then issued a Preliminary Collection Letter which prompted the Petitioner to

file its Petition with the Court of Tax Appeals. CIR argued that the Petition with the Court of Tax

Appeals was filed out of time.

ISSUE:

Did the filing of a Reconsideration toll the running of the 30-day period to appeal to the Court of

Tax Appeals?

HELD:

NO. A Motion for Reconsideration of the denial of the administrative protest does not toll the

30-day period to appeal to the Court of Tax Appeals. 

G.R. No. 139736 October 17, 2005

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

CHICO-NAZARIO, J.:

Facts:

Petitioner BPI, sold $500,000 in 1985 to the Central Bank for the total amount of

$1,000,000.O n   O c t o b e r   1 9 8 9 ,   t h e B I R   a s s e s s e d   B P I f o r   t a x

d e f i c i e n c y   o f   d o c u m e n t a r y   t a x o n   i t s aforementioned sales of foreign bills

of exchange. BPI filed and protested the assessment on1989 through its counsel. BPI did

not receive any immediate reply to its protest. On 1992 BIR issued a warrant of

Distraint and/or Levy against the petitioner. The warrant was served on 1992 but never heard

anything from the BIR until the 1997 when the reconsideration wasdenied.BPI filed a petition for

Review with the CTA and raised prescription as a defense. It alleged that the right to collect

must be done within 3 years only, but the BIR waited more than 7years to deny the

protest. BIR reiterated its position and remained silent as regards the issue on

prescription.CTA rendered the decision in favor BIR stating that the action has not

prescribed but the sale of foreign currency is not subject to documentary stamp tax. Further

the assessment was order for cancellation because the transaction between BPI and the Central

Bank was tax exempt.  T h e C A s u s t a i n e d t h e f i n d i n g o f t h e C A T t h a t t h e

a c t i o n h a s n o t y e t p r e s c r i b e d , b u t i t adopted the position of the BIR that the sale of

foreign currency was not tax exempt.

Issue :

Whether or not the BIR had a right to collect from BPI.

Held:

 The Supreme Court ruled that the action for collection had already prescribed. The period to

collect the deficiency is limited to 3 years as provided by Section 203 of the Tax Code. The

statute of limitation on collection may be interrupted or suspended by a valid

waiver executed in accordance with paragraph (d) of Sections 223 and 224 of the

Tax Code as amended. The purpose of the limitation is to protect the taxpayer form the

prolonged and unreasonable assessment and investigation by the BIR.

G.R. No. 151857. April 28, 2005

CALAMBA STEEL CENTER, INC. (formerly JS STEEL CORPORATION), Petitioners, vs.COMMISSIONER OF INTERNAL REVENUE, Respondents.

PANGANIBAN, J.:

Facts:

Petitioner is a domestic corporation engaged in the manufacture of steel blanks for the

useb y   m a n u f a c t u r e r   o f   a u t o m o t i v e s ,   e l e c t r i c a l ,   e l e c t r o n i c s   i n   i n d u s t r i a l  

a n d   h o u s e h o l d appliances.In it’s amended Corporate Annual Income Tax Return on

1996 it declared a net taxable income of Php 9.4 Million, tax credits of Php 6.7 Million and

tax due in the amount of Php 3.3Million. It also reported quarterly payments for the second and

third quarters of 1995 in the amount of Php 2.3 M and Php 1.08 M respectively. The petitioner

contended in the 1997 case that it is entitled to a refund. The refund was due to the income tax

withheld and remitted in its behalf by withholding agents. Such withheld as indicated in the 1997

return were no utilized in 1996 due to its income loss for the three quarters of 1996.

Issue:

Whether or not a tax refund may be claimed even beyond the taxable year following the tax credit

arises.

Held:

 Yes. But the claimant must prove that it is entitled to such refund. Tax refund has the same

nature of tax exemption and such must be construed strictly against the one

claiming it. NIRC provided that the only limitation as regards the tax refund is that such must

be made within two years for the payment. Calamba steel had complied with such

requirement. The act of the counsel in submitting the final adjustment after the trial has been

conducted was accepted by the court because the rules of ordinary procedure are applied

suppletorily.Moreover the Court said that Judicial notice could have been taken by the CA and

the CTA of the 1996 final adjustment return made by Calamba Steel in another case

pending in the CTA.

CIR vs. CTA, July 21, 1994, 234 SCRA 348

Facts:

A   p e t i t i o n   f o r   r e v i e w   o f   t h e   d e c i s i o n   o f   t h e   B I R   d e n y i n g   t a x  

r e f u n d   o f   Citytrust was filed with the CTA. It was submitted for decision based

solely on the p l e a d i n g s a n d e v i d e n c e s u b m i t t e d b y C i t y t r u s t . C I R w a s

d e n i e d i t s d a y i n C o u r t b e c a u s e o f i t s i n a b i l i t y t o p r e s e n t e v i d e n c e b y

r e a s o n o f t h e f a i l u r e o f i t s T a x Credit/Refund Division to transmit records

of the case to the Solicitor General. The CTA rendered its decision ordering BIR to grant

a refund to City trust, CA affirmed.

Issue:

Is the neglect, omission, error or mistake committed by the officers or agents of the State binding

upon the Government?

Held:

No, it is a long and firmly settled rule of law that the Government is not bound by the errors

committed by its agents. In the performance of its government functions, the State cannot be

estopped by the neglect of its agents and officers.  Although the Government may

generally be estopped through the affirmative acts of public officers acting within

their authority, their neglect or omission of public duties as exemplified in this case

will not and should not produce that effect. Nowhere is the aforestated rule truer than in

the field of taxation. It is axiomatic that the Government cannot and must not be

estopped particularly in matters involving taxes.  Taxes are the lifeblood of the

nationthroughwhichtheg o v e r n m e n t a g e n c i e s   c o n t i n u e s   t o   o p e r a t e   a n d   w i t h  

w h i c h   t h e   S t a t e   a f f e c t s   i t s functions for the welfare of its constituents. The

errors of certain administrative officers should never be allowed to jeopardize the

Government’sfinancialposition,e s p e c i a l l y   i n   t h e c a s e   a t   b a r w h e r e   t h e a m o u n t  

i n v o l v e s   m i l l i o n s   o f   p e s o s   t h e collection whereof, if justified, stands to be prejudiced

just because of bureaucratic lethargy.