1. Lung Center of the Philippines vs. Quezon City [GR No. 144104 June 29, 2004]

Facts: Lung Center of the Philippines is a non-stock and non-profit entity established by virtue

of PD No. 1823. It is the registered owner of the land on which the Lung Center of the

Philippines Hospital is erected. A big space in the ground floor of the hospital is being leased to

private parties, for canteen and small store spaces, and to medical or

professional practitioners who use the same as their private clinics. Also, a big portion on the

right side of the hospital is being leased for commercial purposes to a private enterprise known

as the Elliptical Orchids and Garden Center. 

When the City Assessor of Quezon City assessed both its land and hospital building for real

property taxes, the Lung Center of the Philippines filed a claim for exemption on its averment

that it is a charitable institution with a minimum of 60% of its hospital beds exclusively used for

charity patients and that the major thrust of its hospital operation is to serve charity patients. The

claim for exemption was denied, prompting a petition for the reversal of the resolution of the

City Assessor with the Local Board of Assessment Appeals of Quezon City, which denied the

same. On appeal, the Central Board of Assessment Appeals of Quezon City affirmed the local

board’s decision, finding that Lung Center of the Philippines is not a charitable institution and

that its properties were not actually, directly and exclusively used for charitable purposes. Hence,

the present petition for review with averments that the Lung Center of the Philippines is a

charitable institution under Section 28(3), Article VI of the Constitution, notwithstanding that it

accepts paying patientsand rents out portions of the hospital building to private individuals and

enterprises. 

Issue: Is the Lung Center of the Philippines a charitable institution within the context of the

Constitution, and therefore, exempt from real property tax? 

Held: The Lung Center of the Philippines is a charitable institution. To determine whether an

enterprise is a charitable institution or not, the elements which should be considered include the

statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of

administration, the nature of the actual work performed, that character of the services rendered,

the indefiniteness of the beneficiaries and the use and occupation of the properties. 

However, under the Constitution, in order to be entitled to exemption from real property tax,

there must be clear and unequivocal proof that (1) it is a charitable institution and (2)its real

properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.

While portions of the hospital are used for treatment ofpatients and the dispensation of medical

services to them, whether paying or non-paying, other portions thereof are being leased to private

individuals and enterprises. 

Exclusive is defined as possessed and enjoyed to the exclusion of others, debarred

from participation or enjoyment. If real property is used for one or more commercial purposes, it

is not exclusively used for the exempted purposes but is subject to taxation. 

2. Luzon Stevedoring Corp. vs. Court of Tax Appeals GR L-30232, 29 July 1988 Second Division, Paras (J): 4 concur

Facts: Luzon Stevedoring Corp. imported various engine parts and other equipment for tugboat repair and maintenance in 1961 and 1962. It paid the assessed compensation tax under protest. Unable to secure a tax refund from the Commissioner (for the amount of P33,442.13), it filed a petition for review with the Court of Tax Appeals (CTA). The CTA denied the petition, as well as the motion for reconsideration filed thereafter.

Issue: Whether the corporation is exempt from the compensation tax.

Held: As the power of taxation is a high prerogative of sovereignty, the relinquishment of such is never presumed and any reduction or dimunition thereof with respect to its mode or its rate, must be strictly construed, and the same must be couched in dear and unmistakable terms in order that it may be applied. The corporation’s tugboats do not fall under the categories of passenger or cargo vessels to avail of the exemption from compensation tax in Section 190 of the Tax Code. It may be further noted that the amendment of Section 190 of Republic Act 3176 was intended to provide incentives and inducements to bolster the shipping industry and not the business of stevedoring, in which the corporation is engaged in.

Luzon Stevedoring Corp. is not exempt from compensating tax under Section 190, and is thus not entitled to refund.

3. WALTER LUTZ v. J. ANTONIO ARANETA,

G.R No. L-7856. December 22, 1955

FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of the deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal Revenue the total sum of fourteen thousand six hundred sixty six and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an increase of the existing tax on the manufacture of sugar on a graduated basis, on each picul of sugar manufacturer; while section 3 levies on the owners or persons in control of the land devoted tot he cultivation of sugarcane and ceded to others for 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. It was alleged 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 was dismissed by the CFI thus the plaintiff appealed directly to the Supreme Court.

ISSUE:

Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.

RULING:

Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in the fields and factories; that it is a great source of the state's wealth, is one of the important source 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 be stabilized in turn; and in the wide field of its police power, the law-making 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.

The subject 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 a valid exercise of police power.

4. PHILEX MINING CORP. v. CIRGR No. 125704, August 28, 1998294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.  To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

5. Maceda vs. Macaraig GR 88291, 31 May 1991 En Banc, Gancayco (J): 6 concur, 2 took no part, 1 dissents

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.”

6. SSS vs. Bacolod City GR L-35726, 21 July 1982 Second Division, Escolin (J): 5 concur

Facts: The Social Security System (SSS) is a government agency created under RA 1161. In pursuance of its operations, SSS maintains a number of regional offices, one of which is a 5-storey building occupying 4 parcels of land in Bacolod City. Said building and lands were assessed for taxation. For failure to pay the realty taxes thereon, the city levid upon said properties. SSS sought reconsideration on the ground that SSS is a government-owned and -controlled corporation and is exempt from payment of real estate taxes.

Issue: Whether SSS property in Bacolod City is tax-exempt.

Held: The distinction whether the government-owned or controlled corporation exercises ministrant or proprietory function is of no relevance as the exemption does not relate to legal fees but on realty taxes. The Charter of Bacolod City does not contain any qualification whatsoever in providing fro the exemption from real estate taxes of lands and building owned by the Government/ It is axiomatic that when public property is involved, exemption is the rule and taxation is the exception. PD 24, amending the Social Security Act of 1954, has already removed all doubts as to the exemption of the SS from taxation (Section 16).

7. Villegas vs, Hiu Chiong Tsai Pao Ho GR L-29646, 10 November 1978 En Banc, Fernandez (J): 4 concur, 3 concur in result, 1 took no part

Facts: The Municipal Board of Manila enacted Ordinance 6537 requiring aliens (except those employed in the diplomatic and consular missions of foreign countries, in technical assistance programs of the government and another country, and members of religious orders or congregations) to procure the requisite mayor’s permit so as to be employed or engage in trade in the City of Manila. The permit fee is P50, and the penalty for the violation of the ordinance is 3 to 6 months imprisonment or a fine of P100 to P200, or both.

Issue: Whether the ordinance imposes a regulatory fee or a tax.

Held: The ordinance’s purpose is clearly to raise money under the guise of regulation by exacting P50 from aliens who have been cleared for employment. The amount is unreasonable and excessive because it fails to consider difference in situation among aliens required to pay it, i.e. being casual, permanent, part-time, rankand-file or executive. [ The Ordinance was declared invalid as it is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus deprived of their rights to life, liberty and property and therefore violates the due process and equal protection clauses of the Constitution. Further, the ordinance does not lay down any criterion or standard to guide the Mayor in the exercise of his discretion, thus conferring upon the mayor arbitrary and unrestricted powers. ]

8. Victorias Milling Co. vs. Municipality of Victorias GR L-21183, 27 September 1968 En Banc, Sanchez (J): 9 concur

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.

9. TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES OF ELECTRIC COOPERATIVES BY THE LOCAL GOVERNMENT CODE

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THE SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT GR. No. 143076. June 10, 2003

Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric cooperatives organized and existing under PD 269, as amended, and registered with the National Electrification Administration (NEA).

Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party.

From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the Philippine Government, acting through the National Economic council (now National Economic Development Authority) and the NEA, entered into six loan agreements with the government of the United States of America, through the United States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan.Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax.

Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines?(2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments? 

Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the existing

conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938.

First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, the government is the one that funds those so-called electric cooperatives, while in the latter, the members make equitable contribution as source of funds.

a. Capital Contributions by Members – Nowhere in PD 269 doe sit require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00. 

b. Extent of Government Control over Cooperatives – The extent of government control over electric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric cooperatives o ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation.Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that “every local government unit shall enjoy local autonomy,” does not mean that the exercise of the power by the local governments is beyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the local government units and to limit exemptions from local taxation to entities specifically provided therein.Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class.

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions

under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.

10. Nitafan vs. CIR [GR L-78780, 23 July 1987]Facts: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue the deduction of withholding taxes from salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by the Supreme Court en banc on 4 December 1987.Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53, respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They seek to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, from making any deduction of withholding taxes from their salaries. With the filing of the petition, the Court deemed it best to settle the issue through judicial pronouncement, even if it had dealt with the matter administratively. 

Issue: Whether or not members of the Judiciary are exempt from income taxes.

Held: NO. Intent to delete express grant of exemption of income taxes to members of Judiciary

The salaries of members of the Judiciary are subject to the generalincome tax applied to all taxpayers. This intent was somehow and inadvertently not clearly set forth in the final text of the Constitution as approved and ratified in February, 1987 (infra, pp. 7-8). Although the intent may have been obscured by the failure to include in the General Provisions a proscription against exemption of any public officer or employee, including constitutional officers, from payment of income tax, the Court since then has authorized the continuation of the deduction of the withholding tax from the salaries of the members of the Supreme Court, as well as from the salaries of all other members of the Judiciary. The Court hereby makes of record that it had then discarded the ruling in Perfecto vs. Meer and Endencia vs. David.

The 1973 Constitution has provided that “no salary or any form of emolument of any public officer or employee, including constitutional officers, shall be exempt from payment of income tax (Section 6, Article XV)” which was not present in the 1987 Constitution. The deliberations of the 1986 Constitutional Commission relevant to Section 10, Article VIII (The salary of the Chief Justice and of the Associate Justices of the Supreme Court, and of judges of lower courts shall be fixed by law. During their continuance in office, theirsalary shall not be decreased), negate the contention that the intent of the framers is to revert to the original concept of “non-diminution” of salaries of judicial officers. 

Equality of branches of government effected by modifications in provision.

The term “diminished” be changed to “decreased” and that the words “nor subjected to income tax” be deleted so as to give substance to equality among the three branches in the government. A period (.) after “decreased” was made on the understanding that the salary of justices is subject to tax. With the period, the doctrine in Perfecto vs. Meer and Endencia vs. David is understood not to apply anymore. Justices and judges are not only the citizens whose income have been reduced in accepting service in government and yet subjected to income tax. Such is true also of Cabinet membersand all other employees.  Constitutional construction adopts the intent of the framers and people adopting the law.

The ascertainment of the intent is but in keeping with the fundamental principle of constitutional construction that the intent of the framers of the organic law and of the people adopting it should be given effect. The primary task in constitutional construction is to ascertain and thereafter assure the realization of the purpose of the framers and of the people in the adoption of the Constitution. It may also be safely assumed that the people in ratifying the Constitution were guided mainly by the explanation offered by the framers. In the case at bar, Section 10, Article VIII is plain that the Constitution authorizes Congress to pass a law fixing another rate of compensation of Justices and Judges but such rate must be higher than that which they are receiving at the time of enactment, or if lower, it would be applicable only to those appointed after its approval. It would be a strained construction to read into the provision an exemption from taxation in the light of the discussion in the Constitutional Commission. 

11.