Tan vs. Del Rosario Jr.

Consolidated petitions assailing the constitutionality of RA No. 7496 or Simplified Net Income Taxation Scheme (SNIT).

ISSUES:

1. WON RA 7496 is unconstitutional (G.R. No. 109289)2. WON in RA 7496, respondents have exceeded their rule making authority in applying it to

general professional partnerships (G.R. No. 109446)

HOLDING AND RATIO:

ISSUE #1 (G.R. No. 109289): NO. The RA did not violate any constitutional provision.

Petitioner: The said law violates the ff. provisions of the 3 Constitutional provisions:

1.) Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.

- The title of the bill “ "Simplified Net Income Taxation Scheme for the Self-Employedand Professionals Engaged in the Practice of their Profession" is a misnomer

Court:

- The full text title of the bill is “An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended”

- Amended Sec. 21 of the National Internal Revenue Code speaks of imposing tax on taxable net income received from all sources of self-employed/ practicing professionals while Sec. 29 speaks of the allowed deductions from gross income of the said group of people. However, deductible items on income are now more limited as compared to the law before the said amendment.

- Petitioner contends that the law now impose taxes on gross as opposed to net income.- Court held that limiting the deductible items is still within the purview of the concept of net

income. It is still income less the expenses and then the remaining amount determines the tax to be paid. The amendment just limited the items that fall under the expenses.

- The objectives of the law on bill titles are: (a) to prevent log-rolling legislation intended to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the subjects of legislation. The above objectives of the fundamental law appear to us to have been sufficiently met.

2.) Petitioner contends that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships violating the ff. constitutional provisions:

Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.

Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws.

Court:

- Uniformity in taxation means those that are similarly situated are to be treated alike. There is uniformity as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class

- The court does not view the classification in this instance as arbitrary or inappropriate. Moreover, the legislature has the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. The Court only intervenes when there is a violation of the constitution, which in this case there is none.

ISSUE # 2 (G.R. No. 109446): NO. Respondents did not exceed authority.

- Petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. This is anchored on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships.

- Petitioners cited the deliberations in the HOR regarding the implementation of the said rule in which it was shown that framers did not intend for the bill to be applicable to business corporations or partnerships.

Court:

- A business partnership itself is not a taxpayer, the income tax is imposed on the partners themselves in their individual capacity which is computed on their distributive shares of partnership profits.

- There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession.

- RA 7496 should be takes as an amendatory legislation which is still under the National Internal Revenue Code. Under such code “income taxpayers” cover all persons with taxable income. It classifies taxpayers into: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income).

o Partnerships are, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above

categorization, are   by   law   assimilated   to   be   within   the   context   of,   and   so   legally contemplated as, corporations.

o SNIT is not intended to cover corporations and partnerships which are independently subject to the payment of income tax.

o SNIT speaks of general professional partnership which focuses on the partners themselves as individuals and not on the partnership.

WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. SO ORDERED.