PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNAL REVENUEGR. No. 155541. January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedent’s tax liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent “c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedent’s deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIR’s claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIR’s service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedent’s death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate.(2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedent’s death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment.(2) The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondent’s claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.

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 GOVERNMENTGR. 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.

TARIFF AND CUSTOMS LAWS; PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES

Chief State Prosecutor JOVENCITO R. ZUÑO, ATTY. CLEMENTE P. HERALDO, Chief of the Internal Inquiry and Prosecution Division-customs Intelligence and Investigation Service (IIPD-CIIS), and LEONITO A. SANTIAGO, Special Investigator of the IIPD-CIIS vs. JUDGE ARNULFO G. CABREDO, Regional Trial Court, Branch 15, Tabaco City, AlbayAM. No. RTJ-03-1779, April 30, 2003

Facts: Atty. Winston Florin, the Deputy Collector of Customs of the Sub-Port of Tabaco, Albay, issued on September 3, 2001 Warrant of Seizure and Detention (WSD) No. 06-2001against a shipment of 35, 000 bags of rice aboard the vessel M/V Criston for violation of Sec. 2530 of the Tariff and Customs Code of the Philippines (TCCP).A few days, after the issuance of the warrant of seizure and detention, Antonio Chua, Jr. and Carlos Carillo, claiming to be consignees of the subject goods, filed before the Regional Trial Court of Tabaco City, Albay a Petition with Prayer for the Issuance of Preliminary Injunction and Temporary Restraining Order (TRO). The said petition sought to enjoin the Bureau of Customs and its officials from detaining the subject shipment.By virtue of said TRO, the 35,000 bags of rice were released from customs to Antonio Chua, Jr. and Carlos Carillo.In his complaint, Chief State Prosecutor Zuño alleged that respondent Judge violated Administrative Circular No. 7-99, which cautions trial court judges in their issuance of TROs and writs of preliminary injunctions. Said circular reminds judges of the principle, enunciated in Mison vs. Natividad, that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle or put it to naught.

Issue: Whether or not the issuance of the TRO was illegal and beyond the jurisdiction of the RTC.

Held: The collection of duties and taxes due on the seized goods is not the only reason why trial courts are enjoined from issuing orders releasing imported articles under seizure and forfeiture proceedings by the Bureau of Customs. Administrative Circular No. 7-99 takes into account the fact that the issuance of TROs and the granting of writs of preliminary injunction in seizure and

forfeiture proceedings before the Bureau of Customs may arouse suspicion that the issuance or grant was fro considerations other than the strict merits of the case. Furthermore, respondent Judge’s actuation goes against settled jurisprudence that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle and put it to naught.Respondent Judge cannot claim that he issued the questioned TRO because he honestly believed tat the Bureau of Customs was effectively divested of its jurisdiction over the seized shipment. Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdiction over seizure and forfeiture cases, a taint of illegality is correctly imputed, the most that can be said is that under these circumstance, grave abuse of discretion may oust it of its jurisdiction. This does mean, however, that the trial court is vested with competence to acquire jurisdiction over these seizure and forfeiture cases. The proceedings before the Collector of Customs are not final. An appeal lies to the Commissioner of Customs and, thereafter, to the Court of Tax Appeals. It may even reach this Court through an appropriate petition for review. Certainly, the RTC is not included therein. Hence, it is devoid of jurisdiction.Clearly, therefore, respondent Judge had no jurisdiction to take cognizance of the petition and issue the questioned TRO.It is a basic principle that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings of dutiable goods. A studious and conscientious judge can easily be conversant with such an elementary rule.

NATURE OF FRANCHISE TAX; TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES BY THE LOCAL GOVERNMENT CODE

NATIONAL POWER CORPORATION vs. CITY OF CABANATUANGR. No. 149110, April 9, 2003

Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under Commonwealth Act 120. It is tasked to undertake the “development of hydroelectric generations of power and the production of electricity from nuclear, geothermal, and other sources, as well as, the transmission of electric power on a nationwide basis.”For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the former’s gross receipts for the preceding year.Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended.The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest. Respondent alleged that petitioner’s exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing the case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the petitioner to pay the city government the tax assessment.

Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a ‘non-profit organization’?(2) Is the NAPOCOR’s exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)?

Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code.To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is no engage din business.(2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used.

TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL TAXES” PROVISION

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) vs. CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as City Treasurer of DavaoGR. No. 143867, March 25, 2003

Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid “in lieu of all taxes

on this franchise or earnings thereof” pursuant to RA 7082. The exemption from “all taxes on this franchise or earnings thereof” was subsequently withdrawn by RA 7160 (LGC), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The LGC took effect on January 1, 1992.The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income receipts realized within the territorial jurisdiction of Davao City.Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained “in leiu of all taxes” provisos.In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which provides that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises. The law took effect on March 16, 1995.In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro exchange, it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax for the year 1997 and for the first to the third quarters of 1998.

Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.

Held: Petitioner contends that because their existing franchises contain “in lieu of all taxes” clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law “expressed in a language too plain to be mistaken” and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, “clear and unequivocal” way of communicating the legislative intent.Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment.Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.

REMEDIES OF A TAXPAYER UNDER THE NIRC; POWER OF THE CTA TO REVIEW RULINGS OR OPINIONS OF COMMISSIONER

COMMISSIONER OF INTERNAL REVENUE vs. LEALGR. No. 113459, November 18, 2002

Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on dealers in securities and lending investors, the Commissioner of Internal Revenue issued Memorandum Order (RMO) No. 15-91 dated March 11, 1991, imposing five percent (5%) lending investor’s tax on pawnshops based on their gross income and requiring all investigating units of the Bureau to investigate and assess the lending investor’s tax due from them. The issuance of RMO No. 15-91 was an offshoot of petitioner’s evaluation that the nature of pawnshop business is akin to that of lending investors.Subsequently, petitioner issued Revenue Memorandum Circular No. 43-91 dated May 27, 1992, subjecting the pawn ticket to the documentary stamp tax as prescribed in Title VII of the Tax Code.Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of Josefina Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and RMC No. 43-91 but the same was denied with finality by petitioner in October 30, 1991.Consequently, on March 18, 1992, respondent filed with the RTC a petition for prohibition seeking to prohibit petitioner from implementing the revenue orders.Petitioner, through the Office of the Solicitor-General, filed a motion to dismiss the petition on the ground that the RTC has no jurisdiction to review the questioned revenue orders and to enjoin their implementation. Petitioner contends that the subject revenue orders were issued pursuant to his power “to make rulings or opinions in connection with the Implementation of the provisions of internal revenue laws.” Thus, the case falls within the exclusive appellate jurisdiction of the Court of Tax Appeals, citing Sec. 7(1) of RA 1125.The RTC issued an order denying the motion to dismiss holding that the revenue orders are not assessments to implement a Tax Code provision, but are “in effect new taxes (against pawnshops) which are not provided for under the Code,” and which only Congress is empowered to impose. The Court of Appeals affirmed the order issued by the RTC.

Issue: Whether or not the Court of Tax Appeals has jurisdiction to review rulings of the Commissioner implementing the Tax Code.

Held: The jurisdiction to review rulings of the Commissioner pertains to the Court of Tax Appeals and NOT to the RTC. The questioned RMO and RMC are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of the Pawnshops.Under RA 1125, An Act Creating the Court of Tax Appeals, such rulings of the Commissioner of Internal Revenue are appealable to that court:Sec. 7 Jurisdiction – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided--1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue.xxxxxx

tax remedies; section 220; who should institute appeal in tax cases

TAXATION IICOMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS

G.R. No. L-29059 December 15, 1987

FACTS: By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the amount of P359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957.

On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private respondent, the latter moved for a writ of execution to enforce the said judgment.

The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge.

On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund.

ISSUE:

Whether or not the judgment debt can be enforced against private respondent’s sales tax liability, the latter still being questioned.

RULING:

The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed.

The Tax Code provides: Sec. 291. Injunction is not available to restrain collection of tax. - No court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

It goes without saying that this injunction is available not only when the assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level. There is all the more reason to apply the rule here because it appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still due from the private respondent.

COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX APPEALS

G.R. No. L-28896 February 17, 1988

FACTS: The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased

the PSEDC properties. For this sale, Algue received as agent a commission of P126, 000.00, and it was from this commission that the P75, 000.00 promotional fees were paid to the a forenamed individuals.

The petitioner contends that the claimed deduction of P75, 000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees.

ISSUE:

Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns.

RULING:

The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government.

C.N. HODGES vs. MUNICIPAL BOARD OF THE CITY OF ILOILO

G.R. No. L-18129 January 31, 1963

FACTS: On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of 1960, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act, requiring any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale of the motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been paid.

C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles in the City of Iloilo, is one of those affected by the enactment of the ordinance, and believing that the same is invalid for having been passed in excess of the authority conferred by law upon the municipal board, he filed on June 27, 1960 a petition for declaratory judgment with the Court of First Instance of Iloilo praying that said ordinance be declared void ab initio.

The court a quo rendered decision on December 8, 1960 holding that that part of the ordinance which requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1% of the selling price is valid, but the portion thereof which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264. Both parties have appealed.

ISSUE:

Whether or not the ordinance in question is valid even with regard to the portion which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office of said city.

RULING:

The City of Iloilo has the authority and power to approve the ordinance in question for it merely imposes a percentage tax on the sale of a second-hand motor vehicle that may be carried out within the city by any person, firm, association or corporation owning or dealing with it who may come within the jurisdiction.

The requirement of the ordinance cannot be considered a tax in the light viewed by the court a quo for the same is merely a coercive measure to make the enforcement of the contemplated sales tax more effective. Well-settled is the principle that taxes are imposed for the support of the government in return for the general advantage and protection which the government affords to taxpayers and their property. Taxes are the lifeblood of the government.

ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD

G.R. No. L-4376 May 22, 1953

FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor

vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1) while it levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.

The respondents contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation.

ISSUE:

Whether or not the ordinance is null and void

RULING:

The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

ESSO STANDARD EASTERN, INC v. COMMISSIONER OF INTERNAL REVENUE

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

FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340, 822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221, 033.00 only, disallowing the claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses.

Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense. However, Esso’s appeal was denied.

ISSUE: 

(1) Whether or not the margin fees are taxes.

(2) Whether or not the margin fees are necessary and ordinary business expenses.

RULING:

(1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation.

(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively