EMILIO Y. HILADO, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, RESPONDENTS; G.R. No. L-9408, October 31, 1956; Bautista Angelo J

Facts:

On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12, 837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. On the basis of said return, an assessment notice demanding the payment of P9, 419 was sent to petitioner, who paid the tax in monthly installments, the last payment having been made on January 2, 1953.

Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared voids his general Circular No. V-123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. The deduction was disallowed and the CIR demanded from him P3, 546 as deficiency income tax for said year. The petition for reconsideration filed by petitioner was denied so he filed a petition for review with the CTA. The SC affirmed the assessment made by the CIR. Hence, this appeal.

Issue: 1. whether Hilado can claim compensation during the war; and

2. Whether the internal revenue laws can been enforced during the war

Ruling:

1. No. Assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second

place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. As of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which cannot give rise to any enforceable right.

2. Yes. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy

ISSUE

Whether the Secretary of Finance acted with valid authority in revoking General Circular No. V-123 and approving in lieu thereof, General Circular No. V-139.

HELD

Yes. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of a statute by those administering it is not binding on their successors if the latter becomes satisfied that a different construction should be given. General Circular No. V-123, having been issued on a wrong construction by the law, cannot give rise to a vested right that can be invoked by a taxpayer. A vested right cannot spring from a wrong interpretation.

An administrative officer cannot change a law enacted by Congress. Once a regulation which merely interprets a statute is determined erroneous, it becomes a nullity. The CIR’s erroneous construction of the law does not preclude or stop the Government from collecting a tax legally due.

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Under Art. 2254 of the Civil Code, no vested/acquired right can arise from acts/omissions which are against the law or which infringe upon the rights of others.

CHAMBER OF REAL ESTATE AND BUILDERS’ ASSOCIATION, INC. VS. EXECUTIVE SECRETARY- MINIMUM CORPORATE INCOME TAX

Constitutionality; justifiable controversy. A dispute ripens into a judicial controversy by the mere enactment of a questioned law or the approval of a challenged act, even without any other overt act. Thus, there is no need to wait until the concerned taxpayers have shut down their operations as a result of the questioned minimum corporate income tax (MCIT) or creditable withholding tax (CWT). Chamber of Real Estate and Builders’ Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010.

FACTS:

Petitioner Chamber of Real Estate and Builders’ Associations, Inc. (CREBA), an association of real estate developers and builders in the Philippines, questioned the validity of Section 27(E) of the Tax Code which imposes the minimum corporate income tax (MCIT) on corporations. Under the Tax Code, a corporation can become subject to theMCIT at the rate of 2% of gross income, beginning on the 4thtaxable year immediately following the year in which it commenced its business operations, when such MCIT is greater than the normal corporate income tax. If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT.CREBA argued, among others, that the use of gross income asMCIT base amounts to a confiscation of capital because gross income, unlike net income, is not realized gain.CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise known as the Consolidated Withholding Tax Regulations, which prescribe the rules and procedures for the collection of CWT on sales of real properties classified as ordinary assets, on the grounds that these regulations:

Use gross selling price (GSP) or fair market value(FMV) as basis for determining the income tax on the sale of real estate classified as ordinary

assets, instead of the entity’s net taxable income as provided for under the Tax Code;

Mandate the collection of income tax on a per transaction basis, contrary to the Tax Code provision which imposes income tax on net income at the end of the taxable period;

Go against the due process clause because the government collects income tax even when the net income has not yet been determined; gain is never assured by mere receipt of the selling price; and

Contravene the equal protection clause because the CWT is being charged upon real estate enterprises, but not on other business enterprises, more particularly, those in the manufacturing sector, which do business similar to that of a real estate enterprise

CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as it levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real properties; (3) the government collects income tax even when the net income has not yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other enterprises, more particularly those in the manufacturing sector.

ISSUE:

Are the impositions of the MCIT on domestic corporations and CWT on income from sales of real properties classified as ordinary assets unconstitutional?

HELD:

NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct expenses from gross sales.

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Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can suspend the imposition of MCIT in justifiable instances.

The regulations on CWT did not shift the tax base of a real estate business’ income tax from net income to GSP or FMV of the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors reasonably known to the buyer in connection with the performance of the duties as a withholding agent.

Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry is, by itself, a class on its own and can be validly treated different from other businesses.

Sison vs Ancheta

GR No. L-59431, 25 July 1984

Facts:

Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes said provision as arbitrary amounting to class legislation, oppressive and capricious in character. It therefore violates both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation.

Issue: Whether or not the assailed provision violates the equal protection and due process clauses of the Constitution while also violating the rule that taxes must be uniform and equitable.

Held: The petition is without merit.

On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness but his mere allegation does not suffice and there must be a factual foundation of such unconstitutional taint.

On equal protection - it suffices that the laws operate equally and uniformly on all persons under similar circumstances, both in the privileges conferred and the liabilities imposed.

On the matter that the rule of taxation shall be uniform and equitable - this requirement is met when the tax operates with the same force and effect in every place where the subject may be found." Also, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly unattainable." When the problem of classification became of issue, the Court said: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation..." As provided by this Court, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform.

Sarasola v Trinidad

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988

Facts:

· Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities

· On Jan. 14, 1965, the corp. received a letter from the CIR regarding its delinquency income taxes from 1958-1959, amtg to P83, 183.85

· A letter of protest or reconsideration was filed by Algue Inc on Jan 18

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· On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground of the pending protest

· Since the protest was not found on the records, a file copy from the corp. was produced and given to BIR Agent Reyes, who deferred service of the warrant

· On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served

· On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals

· CIR contentions:

- The claimed deduction of P75, 000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense

- Payments are fictitious because most of the payees are members of the same family in control of Algue and that there is not enough substantiation of such payments

· CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75, 000.00 deductions claimed by Algue as legitimate business expenses in its income tax returns

Ruling:

· Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in accordance with law.

· RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged

· During the intervening period, the warrant was premature and could therefore not be served.

· Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on conformed to the decision of CTA

· There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no distribution of dividends was involved

· CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction

· Algue Inc. was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. At the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75, 000.00. This arrangement was understandable in view of the close relationship among the persons in the family corporation

· The amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of P50, 000.00 as clear profit from the transaction. 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.

· Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered xxx

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· The burden is on the taxpayer to prove the validity of the claimed deduction

· In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos.

· 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. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values

· Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor

Algue Inc.’s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code and should therefore not have been disallowed by the CIR.

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005

FACTS:

Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned

provisions contain a uniform p ro v is o authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional.

ISSUES:

1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution.

3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the Constitution.

RULING:

1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.

2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.

3. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.

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Gerochi, et al. v. DOE

Facts:

RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought to impose a universal charge on all end-users of electricity for the purpose of funding NAPOCOR’s projects, was enacted and took effect in 2001.

Petitioners contest the constitutionality of the EPIRA, stating that the imposition of the universal charge on all end-users is oppressive and confiscatory and amounts to taxation without representation for not giving the consumers a chance to be heard and be represented.

Issue: Whether or not the universal charge is a tax.

Held:

NO. The assailed universal charge is not a tax, but an exaction in the exercise of the State’s police power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding electrification. Moreover, the Special Trust Fund feature of the universal charge reasonably serves and assures the attainment and perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the viability of the country’s electric power industry), further boosting the position that the same is an exaction primarily in pursuit of the State’s police objectives

If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax.

The taxing power may be used as an implement of police power. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.

MATALIN COCONUT CO., INC. vs. MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR

Facts:1. The Municipal Council of Malabang, Lanao del Sur enacted the

Municipal Ordinance No. 45-46 imposing a police inspection fee of P0.30 per sack of Cassava Starch produced and shipped out of the said Municipality where penalties are imposed for violations thereof.

It made unlawful for any company, person, or group of persons to ship out goods – specifically Cassava Starch or Flour without paying to the Municipal Treasurer (or his duly authorized representatives) a fee fixed by the Ordinance and a police inspection fee of P0.30 (shouldered by the shipper if moving the goods outside the Municipality).

In case of violations, the Ordinance prescribed the payment of a fine of P100 < P1,000; an additional payment of P1.00 per sack that was illegally shipped; or imprisonment of 20 days, or both, depends in the discretion of the Court.

2. Validity of the Ordinance was challenged by Matalin Coconut Inc., alleging being violative of R.A. 2264, unreasonable, oppressive and confiscatory.

Purakan Plantation Companty is also affected, crippling its operations to transport its goods to the port through the said Municipality.

3. Trial Court decided the Municipal Ordinance is null and void; ordered the Municipal Treasurer refund the payments it made from the period of: Sept. 27, ’66 to May 2, ’67 with a total amount of: P25,000.00 and subsequent payments; and, prohibiting the collection of P0.30 police inspection fees.

Issue: Whether the said Ordinance is valid.

Held: Invalid.

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The Court ruled that tax should be based on sales, not in the quantity of goods that have yet to be sold. Moreover, for taxes to be valid, it should be levied “for public purposes, just, and uniform.”

The imposition of a police inspection fee of P0.30 per bag was found to be unjust and unreasonable.

LUTZ v. ARANETA GR No. L-7859, December 22, 1955 98 PHIL 148

FACTS:

Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be stabilized by imposition of emergency measures.

ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar industry?

HELD:

Yes. 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 to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in 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.

Held: Yes. The act is primarily an exercise of the police power. It is shown in the Act that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry.

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.”

The funds raised under the Act 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; but the legislature is not required by the Constitution to adhere to a policy of “all or none.”

ISSUE:

Whether the tax is valid in supporting an industry.

HELD:

The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and stabilization of the threatened sugar industry. The act is primarily an exercise of police power, and is not a pure exercise of taxing power. As sugar production is one of the great industries of the Philippines; and that its promotion, protection and advancement redounds greatly to the general welfare, the legislature found that the general welfare demanded that the industry should be stabilized, and provided that the distribution of benefits there from be readjusted among its component to enable it to resist the added strain of the increase in tax that it had to sustain. Further, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of living and working conditions in sugar mills and plantations, without any part of such money being channeled directly to private persons, constitute expenditure of tax money for private purposes.

The tax is valid.

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NATIONAL TELECOMMUNICATIONS COMMISSION, petitioner, vs. HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, respondents.

FACTS:

Sometime in 1988, the National Telecommunications Commission (NTC) served on the Philippine Long Distance Telephone Company (PLDT) assessment notices and demands for payment in connection to Section 40 (e) (f) and (g) of the Revised NTC Schedule of Fees and Charges. The PLDT challenged the assessments of the NTC. Then NTC rendered a Decision denying the protest of PLDT. On May 12, 1994, PLDT appealed to the Court of Appeals. The CA ordered the NTC to recompute its assessments and demands for payment. On November 20, 1996, NTC moved for partial reconsideration for the Decision of the CA with respect to the basis of the assessment under Section 40 (e) but the CA denied its motion. Thus, petitioner found its way to this court.

ISSUE:

Whether the Court of Appeals erred in holding that the computation of supervision and regulation fees under Section 40 (F) of the Public Service Act should be based on the par value of the subscribed capital stock.

HELD:

Yes. Concise and clear is the ruling of this Court in the case of Philippine Long Distance Telephone Company vs. Public Service Commission, 66 SCRA 341, that the basis for computation of the fee to be charged by NTC on PLDT, is " the capital stock subscribed or paid and not, alternatively, the property and equipment."The law in point is clear and categorical. There is no room for construction. It simply calls for application. It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and Taxation, the distinction between police power and the power to tax, which could be significant if the exercising authority were mere political subdivisions (since delegation by it to such political subdivisions of one power does not necessarily include the other), would not be of any moment when, as in the case under consideration, Congress itself exercises the power. All that is to be done

would be to apply and enforce the law when sufficiently definitive and not constitutional infirm.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE.

SO ORDERED.

Republic vs. Philippine Rabbit Bus Lines

G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner, vs.THE HONORABLE COMMISSION ON AUDIT, HONORABLECOMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLECOMMISSIONER ALBERTO P. CRUZ, respondents.

Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue / special / regulatoryPonente: Davide, Jr. J.

DOCTRINE:

A taxpayer may not offset taxes due from the claims that he may have against the government.

QUICK FACTS

: Caltex Philippines questions the decisions of COA for disallowing the offsetting of its claims for reimbursement with its due OPSFremittance

FACTS:

The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended by EO 137 for the purpose of minimizing frequent price changes brought about by exchange rate adjustments. It will be used to reimburse the oil companies for cost increase and possible cost under recovery incurred due to reduction of domestic prices.COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an early release of its reimbursement certificates which the latter denied.COA disallowed recover of financing charges, inventory losses and sales tomarcopper and atlas but allowed the recovery of product sale or those arising from export sales. Petitioner’s Contention: Department of Finance issued Circular No. 4-88

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allowing reimbursement. Denial of claim for reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to Government) allows offsetting. Amounts due do not arise as a result of taxation since PD 1956 did not create source of taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions distinguishes it from tax. Respondent’s Contention: Based on Francia v. IAC, there’s no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law.

ISSUE: WON Caltex is entitled to offsetting

DECISION: NO. COA AFFIRMED

HELD:

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Technically, the oil companies merely act as agents for the Government in the latter’s collection since the taxes are, in reality, passed unto the end-users – the consuming public. Their primary obligation is to account for and remit the taxes collection to the administrator of the OPSF.

there is not merit in Caltex’s contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may believed with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State.

The oil industry is greatly imbued with public interest as it vitally affects the general welfare.

PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation

Caltex Philippines vs. Commission on Audit (COA)

GR 92585, 8 May 1992

En Banc, Davide (J): 12 concur, 2 took no part

Facts:

In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further off seting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration.

Issue: Whether the amounts due from Caltex to the OPSF may be off setted against Caltex’ outstanding claims from said funds.

Held: Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

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Francia vs. IAC 162 SCRA 753

FACTS:

Francia was the registered owner of a house and lot in Pasay City. A portion of said property was expropriated by the republic. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. He contended that his tax delinquency had been extinguished by legal compensation since the government owed him ₱4,116 when a portion of his land was expropriated.

ISSUE: can there be off-setting of debts and taxes?

RULING:

No. there can be no off-setting of taxes original the claims against the claims that the taxpayer may have against the government. Taxes cannot be the subject of compensation. The government and the taxpayer are not mutually creditor and debtors of each other and a claim for each other and a claim for taxes is not such a debt demand, contract or judgment as is allowed to be set-off. Furthermore, the tax was due to the city government. While the expropriation effected by the national government. In fact, the expropriation payment was already deposited with the PNB long before the sale at public auction of his property was conducted.

ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT, ET AL.G.R. No. L-67649, June 28, 1988

Facts:

On October 15, 1977, a 125 square meter portion of Francis’s property was expropriated by the Republic of the Philippines for the sum of P4, 116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No.464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2, 400.00.

Issue: May compensation take place?

Ruling:

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 was being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and acclaim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

PHILEX V. CIR (tax v. ordinary debt)

FACTS:

BIR asked Philex to pay tax for 1991-1992 in the total

Amount of P123, 821,982.52. Philex refused 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 P119,977,037.02 plus interest. Therefore asking for an off-set. Philex filed a case with the CTA.

Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992and 1994

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities, since both had already become “due and demandable, as well as fully liquidated;” hence, legal compensation can properly take place.

ISSUE:

WON there should be an offset?

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HELD: NO.

“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.DE BTS are due to the Government in its corporate capacity, while TAXES are due to the Government in its sovereign capacity.”

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.

A distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is

Contingent on the result of the lawsuit it filed against the government. Moreover, Philex’s theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayer’s credit and offset their tax liabilities.

Progressive Development Corporation vs. Quezon City

Facts:

The City Council of QC passed an ordinance known as the Market Code of QC, which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC.

In case of failure of the owners of the market spaces to pay the tax for three consecutive months, the City shall revoke the permit of the privately-owned market to operate.

Progressive Development Corp, owner and operator of Farmer’s Market, filed a petition for prohibition against QC on the ground that the tax imposed by the Market Code was in reality a tax on income, which the municipal corporation was prohibited by law to impose.

Issue: Whether or not the supervision fee is an income tax or a license fee.

Held:

It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily for purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising revenues.

If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also obtained does not make the imposition a tax.

To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety, and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences.

In this case, the Farmers’ Market is a privately-owned market established for the rendition of service to the general public. It warrants close supervision and control by the City for the protection of the health of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying public, etc.

Since the purpose of the ordinance is primarily regulation and not revenue generation, the tax is a license fee. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax does not, by itself, convert the license tax into a prohibited tax on income.

Such basis actually has a reasonable relationship to the probable costs of regulation and supervision of Progressive’s kind of business, since ordinarily, the higher the amount of rentals, the higher the volume of items sold.

The higher the volume of goods sold, the greater the extent and frequency of supervision and inspection may be required in the interest of the buying public.

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Apostolic Prefect of Mt. Province vs. Treasurer of Baguio 71 Phil. 547 Exemptions from Taxation – Assessment

FACTS:

In 1937, an ordinance (Ord. 137) was passed in the City of Baguio. The said ordinance sought to assess properties of property owners within the defined city limits. Apostolic Prefect of Mt. Province (APMP), on the other hand, is a religious corporation duly established under Philippine laws. Pursuant to the ordinance, it contributed a total amount of P1, 019.37. It filed the said contribution in protest. APMP later averred that it should be exempt from the said special contribution since as a religious institution, it has a constitutionally guaranteed right not to be taxed including its properties.

ISSUE: Whether or not APMP is exempt from taxes.

HELD:

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Based on Justice Cooley’s words: “While the word ‘tax’ in its broad meaning, includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway. A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a tax.” In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for the benefits of the inhabitants of the city.

ISSUE:

Whether or not APMP is exempt from taxes

HELD:

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Based on Justice Cooley’s words: "While the word 'tax' in its broad meaning, includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed.

The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality.

The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway.

A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a tax." In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for the benefits of the inhabitants of the city.

Diaz vs. Secretary of Finance (2011)

Facts:

Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of toll way operators. Court treated the case as one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not as ale of services; that to

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impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate then on-impairment clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including toll way operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on toll way operations has been the subjects early as 2003 of several BIR rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and toll way operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts.

Issue:

May toll fees collected by toll way operators be subjected to VAT (Are toll way operations a franchise and/or a service that is subject to VAT)?

Ruling:

When a toll way operator takes a toll fee from a motorist, the fee is in effect for the latter's use of thetollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the toll way operator is no different from the service providers under Section108 who allow others to use their properties or facilities for fee.Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Toll way operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private toll way operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the toll ways, as well as to assure them a reasonable margin of income. Although toll fees are charged for

the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.

National Development Co. vs. Commissioner L-53961, 30 June 1987

En Banc, Cruz (J): 14 concur

Facts:

The National Development Co. (NDC) entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in cash and through irrevocable letters of credit. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the shipbuilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax in the total amount of P5, 115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of distrait and levy after negotiations failed

Issue:

Whether the NDC is liable for deficiency tax.

Held:

The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of the Tax Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of the government and so should be liable for its omission.

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