G.R. No. L-22734 September 15, 1967COMMISSIONER OF INTERNAL REVENUE,petitioner,vs.MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA,respondent.Office of the Solicitor General for petitioner.Manuel B. Pineda for and in his own behalf as respondent.BENGZON, J.P.,J.:On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings were had in the Court of First Instance of Manila (Case No. 71129) wherein the surviving widow was appointed administratrix. The estate was divided among and awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. Pineda's share amounted to about P2,500.00.After the estate proceedings were closed, the Bureau of Internal Revenue investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed. Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate on the basis of information and data obtained from the aforesaid estate proceedings and issued an assessment for the following:1.Deficiency income tax

1945P135.83

1946436.95

19471,206.91P1,779.69

Add: 5% surcharge88.98

1% monthly interest from November 30, 1953 to April 15, 1957720.77

Compromise for late filing80.00

Compromise for late payment40.00

Total amount dueP2,707.44===========

2.Additional residence tax for 1945P14.50===========

3.Real Estate dealer's tax for the fourth quarter of 1946 and the whole year of 1947P207.50===========

Manuel B. Pineda, who received the assessment, contested the same. Subsequently, he appealed to the Court of Tax Appeals alleging that he was appealing "only that proportionate part or portion pertaining to him as one of the heirs."After hearing the parties, the Court of Tax Appeals rendered judgment reversing the decision of the Commissioner on the ground that his right to assess and collect the tax has prescribed. The Commissioner appealed and this Court affirmed the findings of the Tax Court in respect to the assessment for income tax for the year 1947 but held that the right to assess and collect the taxes for 1945 and 1946 has not prescribed. For 1945 and 1946 the returns were filed on August 24, 1953; assessments for both taxable years were made within five years therefrom or on October 19, 1953; and the action to collect the tax was filed within five years from the latter date, on August 7, 1957. For taxable year 1947, however, the return was filed on March 1, 1948; the assessment was made on October 19, 1953, more than five years from the date the return was filed; hence, the right to assess income tax for 1947 had prescribed. Accordingly, We remanded the case to the Tax Court for further appropriate proceedings.1In the Tax Court, the parties submitted the case for decision without additional evidence.On November 29, 1963 the Court of Tax Appeals rendered judgment holding Manuel B. Pineda liable for the payment corresponding to his share of the following taxes:Deficiency income tax1945P135.83

1946436.95

Real estate dealer's fixed tax 4th quarter of 1946 and whole year of 1947P187.50

The Commissioner of Internal Revenue has appealed to Us and has proposed to hold Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be due from the estate in the total amount of P760.28 instead of only for the amount of taxes corresponding to his share in the estate.1awphl.ntManuel B. Pineda opposes the proposition on the ground that as an heir he is liable for unpaid income tax due the estate only up to the extent of and in proportion to any share he received. He relies onGovernment of the Philippine Islands v. Pamintuan2where We held that "after the partition of an estate, heirs and distributees are liable individually for the payment of all lawful outstanding claims against the estate in proportion to the amount or value of the property they have respectively received from the estate."We hold that the Government can require Manuel B. Pineda to pay the full amount of the taxes assessed.Pineda is liable for the assessment as an heir and as a holder-transferee of property belonging to the estate/taxpayer. As an heir he is individually answerable for the part of the tax proportionate to the share he received from the inheritance.3His liability, however, cannot exceed the amount of his share.4As a holder of property belonging to the estate, Pineda is liable for he tax up to the amount of the property in his possession. The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes4afor which said estate is liable, pursuant to the last paragraph of Section 315 of the Tax Code, which we quote hereunder:If any person, corporation, partnership, joint-account (cuenta en participacion), association, or insurance company liable to pay the income tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner of Internal Revenue until paid with interest, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: . . .By virtue of such lien, the Government has the right to subject the property in Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the sum of P760.28. After such payment, Pineda will have a right of contribution from his co-heirs,5to achieve an adjustment of the proper share of each heir in the distributable estate.All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. This remedy was adopted inGovernment of the Philippine Islands v. Pamintuan,supra. In said case, the Government filed an action against all the heirs for the collection of the tax. This action rests on the concept that hereditary property consists only of that part which remains after the settlement of all lawful claims against the estate, for the settlement of which the entire estate is first liable.6The reason why in case suit is filed against all the heirs the tax due from the estate is levied proportionately against them is to achieve thereby two results: first, payment of the tax; and second, adjustment of the shares of each heir in the distributed estate aslessened by the tax.Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belonging to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due, the estate. This second remedy is the very avenue the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain availability is an imperious need.7And as afore-stated in this case the suit seeks to achieve only one objective: payment of the tax. The adjustment of the respective shares due to the heirs from the inheritance, as lessened by the tax, is left to await the suit for contribution by the heir from whom the Government recovered said tax.WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of contribution for his co-heirs. No costs. So ordered.Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. L-28896 February 17, 1988 FIRST DIVISIONCOMMISSIONER OF INTERNAL REVENUE,petitioner,vs.ALGUE, INC., and THE COURT OF TAX APPEALS,respondents.CRUZ,J.:Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.The main issue in this case is 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. The corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal Revenue was made on time and in accordance with law.We deal first with the procedural question.The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner.2On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest.3A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant.4On April 7, 1965, Atty. Guevara was finally 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.5Sixteen days later, on April 23, 1965, Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.6The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged.7It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment"8and renders hopeless a request for reconsideration,"9being "tantamount to an outright denial thereof and makes the said request deemed rejected."10But there is a special circumstance in the case at bar that prevents application of this accepted doctrine.The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.As the Court of Tax Appeals correctly noted,"11the protest filed by private respondent was notpro formaand was based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed, the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed.Now for the substantive question.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. 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.Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be personal holding company income12but later conformed to the decision of the respondent court rejecting this assertion.13In fact, as the said court found, the amount was earned through the joint efforts of the persons among whom it was distributed It has been established that 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.14Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties.15For 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 aforenamed individuals.16There 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.17The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved.18The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue. It is argued that no indication was made as to how such payments were made, whether by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.We find that these suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose.19It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, 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 P75,000.00.20Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation.We agree with the respondent court that the amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00.21After 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. This finding of the respondent court is in accord with the following provision of the Tax Code:SEC. 30.Deductions from gross income.--In computing net income there shall be allowed as deductions (a) Expenses:(1) In general.--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; ...22and Revenue Regulations No. 2, Section 70 (1), reading as follows:SEC. 70.Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows:Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders.23The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private respondent 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. This was no mean feat and should be, as it was, sufficiently recompensed.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. 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. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it 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. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner.ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMEDin toto,without costs.SO ORDERED.Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.Commissioner vs. Algue GRL-28890, 17 February 1988 First Division, Cruz (J); 4 concur Facts: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for years 1958 amd 1959. Algue filed a protest or request for reconsideration which was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition for review with the Coourt of Tax Appeals. Issue: Whether the assessment was reasonable. Held: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Every person who is able to pay must contribute his share in the running of the government. The Government, for his 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. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power. Tax collection, however, should be made in accordance with law as any arbitrariness will negate the very reason for government itself. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate that the law has not been observed. Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue Regulation 2: as to compensation for personal services) had been legitimately by Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an experimental enterprise or a business requiring millions of pesos. The assessment was not reasonable.G.R. Nos. 89898-99 October 1, 1990 THIRD DIVISIONMUNICIPALITY OF MAKATI,petitioner,vs.THE HONORABLE COURT OF APPEALS, HON. SALVADOR P. DE GUZMAN, JR., as Judge RTC of Makati, Branch CXLII ADMIRAL FINANCE CREDITORS CONSORTIUM, INC., and SHERIFF SILVINO R. PASTRANA,respondents.Defante & Elegado for petitioner.Roberto B. Lugue for private respondent Admiral Finance Creditors' Consortium, Inc.R E S O L U T I O NCORTS,J.:The present petition for review is an off-shoot of expropriation proceedings initiated by petitioner Municipality of Makati against private respondent Admiral Finance Creditors Consortium, Inc., Home Building System & Realty Corporation and one Arceli P. Jo, involving a parcel of land and improvements thereon located at Mayapis St., San Antonio Village, Makati and registered in the name of Arceli P. Jo under TCT No. S-5499.It appears that the action for eminent domain was filed on May 20, 1986, docketed as Civil Case No. 13699. Attached to petitioner's complaint was a certification that a bank account (Account No. S/A 265-537154-3) had been opened with the PNB Buendia Branch under petitioner's name containing the sum of P417,510.00, made pursuant to the provisions of Pres. Decree No. 42. After due hearing where the parties presented their respective appraisal reports regarding the value of the property, respondent RTC judge rendered a decision on June 4, 1987, fixing the appraised value of the property at P5,291,666.00, and ordering petitioner to pay this amount minus the advanced payment of P338,160.00 which was earlier released to private respondent.After this decision became final and executory, private respondent moved for the issuance of a writ of execution. This motion was granted by respondent RTC judge. After issuance of the writ of execution, a Notice of Garnishment dated January 14, 1988 was served by respondent sheriff Silvino R. Pastrana upon the manager of the PNB Buendia Branch. However, respondent sheriff was informed that a "hold code" was placed on the account of petitioner. As a result of this, private respondent filed a motion dated January 27, 1988 praying that an order be issued directing the bank to deliver to respondent sheriff the amount equivalent to the unpaid balance due under the RTC decision dated June 4, 1987.Petitioner filed a motion to lift the garnishment, on the ground that the manner of payment of the expropriation amount should be done in installments which the respondent RTC judge failed to state in his decision. Private respondent filed its opposition to the motion.Pending resolution of the above motions, petitioner filed on July 20, 1988 a "Manifestation" informing the court that private respondent was no longer the true and lawful owner of the subject property because a new title over the property had been registered in the name of Philippine Savings Bank, Inc. (PSB) Respondent RTC judge issued an order requiring PSB to make available the documents pertaining to its transactions over the subject property, and the PNB Buendia Branch to reveal the amount in petitioner's account which was garnished by respondent sheriff. In compliance with this order, PSB filed a manifestation informing the court that it had consolidated its ownership over the property as mortgagee/purchaser at an extrajudicial foreclosure sale held on April 20, 1987. After several conferences, PSB and private respondent entered into a compromise agreement whereby they agreed to divide between themselves the compensation due from the expropriation proceedings.Respondent trial judge subsequently issued an order dated September 8, 1988 which: (1) approved the compromise agreement; (2) ordered PNB Buendia Branch to immediately release to PSB the sum of P4,953,506.45 which corresponds to the balance of the appraised value of the subject property under the RTC decision dated June 4, 1987, from the garnished account of petitioner; and, (3) ordered PSB and private respondent to execute the necessary deed of conveyance over the subject property in favor of petitioner. Petitioner's motion to lift the garnishment was denied.Petitioner filed a motion for reconsideration, which was duly opposed by private respondent. On the other hand, for failure of the manager of the PNB Buendia Branch to comply with the order dated September 8, 1988, private respondent filed two succeeding motions to require the bank manager to show cause why he should not be held in contempt of court. During the hearings conducted for the above motions, the general manager of the PNB Buendia Branch, a Mr. Antonio Bautista, informed the court that he was still waiting for proper authorization from the PNB head office enabling him to make a disbursement for the amount so ordered. For its part, petitioner contended that its funds at the PNB Buendia Branch could neither be garnished nor levied upon execution, for to do so would result in the disbursement of public funds without the proper appropriation required under the law, citing the case ofRepublic of the Philippines v. Palacio[G.R. No. L-20322, May 29, 1968, 23 SCRA 899].Respondent trial judge issued an order dated December 21, 1988 denying petitioner's motion for reconsideration on the ground that the doctrine enunciated inRepublic v. Palaciodid not apply to the case because petitioner's PNB Account No. S/A 265-537154-3 was an account specifically opened for the expropriation proceedings of the subject property pursuant to Pres. Decree No. 42. Respondent RTC judge likewise declared Mr. Antonio Bautista guilty of contempt of court for his inexcusable refusal to obey the order dated September 8, 1988, and thus ordered his arrest and detention until his compliance with the said order.Petitioner and the bank manager of PNB Buendia Branch then filed separate petitions forcertiorariwith the Court of Appeals, which were eventually consolidated. In a decision promulgated on June 28, 1989, the Court of Appeals dismissed both petitions for lack of merit, sustained the jurisdiction of respondent RTC judge over the funds contained in petitioner's PNB Account No. 265-537154-3, and affirmed his authority to levy on such funds.Its motion for reconsideration having been denied by the Court of Appeals, petitioner now files the present petition for review with prayer for preliminary injunction.On November 20, 1989, the Court resolved to issue a temporary restraining order enjoining respondent RTC judge, respondent sheriff, and their representatives, from enforcing and/or carrying out the RTC order dated December 21, 1988 and the writ of garnishment issued pursuant thereto. Private respondent then filed its comment to the petition, while petitioner filed its reply.Petitioner not only reiterates the arguments adduced in its petition before the Court of Appeals, but also alleges for the first time that it has actually two accounts with the PNB Buendia Branch, to wit:xxx xxx xxx(1) Account No. S/A 265-537154-3 exclusively for the expropriation of the subject property, with an outstanding balance of P99,743.94.(2) Account No. S/A 263-530850-7 for statutory obligations and other purposes of the municipal government, with a balance of P170,098,421.72, as of July 12, 1989.xxx xxx xxx[Petition, pp. 6-7;Rollo, pp. 11-12.]Because the petitioner has belatedly alleged only in this Court the existence of two bank accounts, it may fairly be asked whether the second account was opened only for the purpose of undermining the legal basis of the assailed orders of respondent RTC judge and the decision of the Court of Appeals, and strengthening its reliance on the doctrine that public funds are exempted from garnishment or execution as enunciated inRepublic v. Palacio[supra.] At any rate, the Court will give petitioner the benefit of the doubt, and proceed to resolve the principal issues presented based on the factual circumstances thus alleged by petitioner.Admitting that its PNB Account No. S/A 265-537154-3 was specifically opened for expropriation proceedings it had initiated over the subject property, petitioner poses no objection to the garnishment or the levy under execution of the funds deposited therein amounting to P99,743.94. However, it is petitioner's main contention that inasmuch as the assailed orders of respondent RTC judge involved the net amount of P4,965,506.45, the funds garnished by respondent sheriff in excess of P99,743.94, which are public funds earmarked for the municipal government's other statutory obligations, are exempted from execution without the proper appropriation required under the law.There is merit in this contention. The funds deposited in the second PNB Account No. S/A 263-530850-7 are public funds of the municipal government. In this jurisdiction, well-settled is the rule that public funds are not subject to levy and execution, unless otherwise provided for by statute [Republic v. Palacio,supra.; The Commissioner of Public Highways v. San Diego, G.R. No. L-30098, February 18, 1970, 31 SCRA 616]. More particularly, the properties of a municipality, whether real or personal, which are necessary for public use cannot be attached and sold at execution sale to satisfy a money judgment against the municipality. Municipal revenues derived from taxes, licenses and market fees, and which are intended primarily and exclusively for the purpose of financing the governmental activities and functions of the municipality, are exempt from execution [SeeViuda De Tan Toco v. The Municipal Council of Iloilo, 49 Phil. 52 (1926): The Municipality of Paoay, Ilocos Norte v. Manaois, 86 Phil. 629 (1950); Municipality of San Miguel, Bulacan v. Fernandez, G.R. No. 61744, June 25, 1984, 130 SCRA 56]. The foregoing rule finds application in the case at bar. Absent a showing that the municipal council of Makati has passed an ordinance appropriating from its public funds an amount corresponding to the balance due under the RTC decision dated June 4, 1987, less the sum of P99,743.94 deposited in Account No. S/A 265-537154-3, no levy under execution may be validly effected on the public funds of petitioner deposited in Account No. S/A 263-530850-7.Nevertheless, this is not to say that private respondent and PSB are left with no legal recourse. Where a municipality fails or refuses, without justifiable reason, to effect payment of a final money judgment rendered against it, the claimant may avail of the remedy ofmandamusin order to compel the enactment and approval of the necessary appropriation ordinance, and the corresponding disbursement of municipal funds therefor [SeeViuda De Tan Toco v. The Municipal Council of Iloilo,supra; Baldivia v. Lota, 107 Phil. 1099 (1960); Yuviengco v. Gonzales, 108 Phil. 247 (1960)].In the case at bar, the validity of the RTC decision dated June 4, 1987 is not disputed by petitioner. No appeal was taken therefrom. For three years now, petitioner has enjoyed possession and use of the subject property notwithstanding its inexcusable failure to comply with its legal obligation to pay just compensation. Petitioner has benefited from its possession of the property since the same has been the site of Makati West High School since the school year 1986-1987. This Court will not condone petitioner's blatant refusal to settle its legal obligation arising from expropriation proceedings it had in fact initiated. It cannot be over-emphasized that, within the context of the State's inherent power of eminent domain,. . . [j]ust compensation means not only the correct determination of the amount to be paid to the owner of the land but also the payment of the land within a reasonable time from its taking. Without prompt payment, compensation cannot be considered "just" for the property owner is made to suffer the consequence of being immediately deprived of his land while being made to wait for a decade or more before actually receiving the amount necessary to cope with his loss [Cosculluela v. The Honorable Court of Appeals, G.R. No. 77765, August 15, 1988, 164 SCRA 393, 400.Seealso Provincial Government of Sorsogon v. Vda. de Villaroya, G.R. No. 64037, August 27, 1987, 153 SCRA 291].The State's power of eminent domain should be exercised within the bounds of fair play and justice. In the case at bar, considering that valuable property has been taken, the compensation to be paid fixed and the municipality is in full possession and utilizing the property for public purpose, for three (3) years, the Court finds that the municipality has had more than reasonable time to pay full compensation.WHEREFORE, the Court Resolved to ORDER petitioner Municipality of Makati to immediately pay Philippine Savings Bank, Inc. and private respondent the amount of P4,953,506.45. Petitioner is hereby required to submit to this Court a report of its compliance with the foregoing order within a non-extendible period of SIXTY (60) DAYS from the date of receipt of this resolution.The order of respondent RTC judge dated December 21, 1988, which was rendered in Civil Case No. 13699, is SET ASIDE and the temporary restraining order issued by the Court on November 20, 1989 is MADE PERMANENT.SO ORDERED.Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.Municipalityof Makativ. Court of Appeals GR # 89898-9 10/01/90

Facts:An expropriation proceeding for a piece of land filed by the Municipality of Makati against Admiral Financial and Credit Corp resulted with the Municipality having to pay P 5,291,666.00 less initial payments by the municipality.After that, private respondent filed a writ for execution for the balance.Regional Trial Court granted the motion and directed the bank to deliver the said balance.Subsequent motions for reconsideration and appeal to the respondent Court of Appeals by the municipality in order to stop the garnishment.

Issues:Whether or notthe court can validly subject government accounts/property to garnishment.Whether or not the the court erred with the decision of assessing the higher amount as to how much the municipality is willing to pay.

Held:The court ruled that the Municipality of Makati's accounts or property cannot be held for garnishment as government's fund, held for public use, cannot be held for garnishment.However, the court still held the Municipality liable for the assessed value of the land and improvements because theprivate respondent should be entitled to just compensation.G.R. No. L-59431 July 25, 1984 EN BANCANTERO M. SISON, JR.,petitioner,vs.RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance,respondents.Antero Sison for petitioner and for his own behalf.The Solicitor General for respondents.FERNANDO,C.J.:The success of the challenge posed in this suit for declaratory relief or prohibition proceeding1on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed provision further amends Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income.2Petitioner3as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his professionvis-a-visthose which are imposed upon fixed income or salaried individual taxpayers.4He characterizes the above sction as arbitrary amounting to class legislation, oppressive and capricious in character5For petitioner, therefore, there is a transgression of both the equal protection and due process clauses6of the Constitution as well as of the rule requiring uniformity in taxation.7The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on May 28, 1982.8The facts as alleged were admitted but not the allegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and Affirmative Defenses."9The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The authorities and cases cited while correctly quoted or paraghraph do not support petitioner's stand."10The prayer is for the dismissal of the petition for lack of merit.This Court finds such a plea more than justified. The petition must be dismissed.1. It is manifest that the field of state activity has assumed a much wider scope, The reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to private enterprise and initiative and which the government was called upon to enter optionally, and only 'because it was better equipped to administer for the public welfare than is any private individual or group of individuals,' continue to lose their well-defined boundaries and to be absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the increasing social challenges of the times."11Hence the need for more revenues. The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain availability is of the essence.122. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of of government."13It is, of course, to be admitted that for all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits . Adversely affecting as it does properly rights, both the due process and equal protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy."14In a separate opinion inGraves v. New York,15Justice Frankfurter, after referring to it as an 1, unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times following] a free use of absolutes."16This is merely to emphasize that it is riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while this Court sits."17So it is in the Philippines.3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or executive, act that runs counter to it. In any case therefore where it can be demonstrated that the challenged statutory provision as petitioner here alleges fails to abide by its command, then this Court must so declare and adjudge it null. The injury thus is centered on the question of whether the imposition of a higher tax rate on taxable net income derived from business or profession than on compensation is constitutionally infirm.4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they arc not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail.185. It is undoubted that the due process clause 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. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds.196. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this constitutional mandate whether the assailed act is in the exercise of the lice power or the power of eminent domain is to demonstrated that the governmental act assailed, far from being inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination that finds no support in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the principle is that equal protection and security shall be given to every person under circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the rest."20That same formulation applies as well to taxation measures. The equal protection clause is, of course, inspired by the noble concept of approximating the Ideal of the laws benefits being available to all and the affairs of men being governed by that serene and impartial uniformity, which is of the very essence of the Idea of law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not a disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out of specific difficulties, address to the attainment of specific ends by the use of specific remedies. The Constitution does not require things which are different in fact or opinion to be treated in law as though they were the same."21Hence the constant reiteration of the view that classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta,22this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation.'"237. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of taxation shag be uniform and equitable."24This requirement is met according to Justice Laurel inPhilippine Trust Company v. Yatco,25decided in 1940, when the tax "operates with the same force and effect in every place where the subject may be found. "26He likewise added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable."27The problem of classification did not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation, ... .28As clarified by Justice Tuason, 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."29There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation."308. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough that the classification must rest upon substantial distinctions that make real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of classification is the susceptibility of the income to the application of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of factual foundation to show the arbitrary character of the assailed provision;31(2) the force of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between compensation and taxable net income of professionals and businessman certainly not a suspect classification,WHEREFORE, the petition is dismissed. Costs against petitioner.Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and Cuevas, JJ., concur.Teehankee, J., concurs in the result.Plana, J., took no part.Sison vs. Ancheta GR L-59431, 25 July 1984 En Banc, Fernando (J): 9 concur, 2 concur in result, 1 concur in separate opinion, 1 took no part Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the Constitution as well as the rule requiring uniformity in taxation. Issue: Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation. Held: There is a need for proof of such persuasive character as would lead to a conclusion that there was a violation of the due process and equal protection clauses. Absent such showing, the presumption of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Where the differentitation conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be classified into different categories, such as recipients of compensation income as against professionals. Recipients of compensation income are not entitled to make deductions for income tax purposes as there is no practically no overhead expense, while professionals and businessmen have no uniform costs or expenses necessaryh to produce their income. There is ample justification to adopt the gross system of income taxation to compensation income, while continuing the system of net income taxation as regards professional and business income.

G.R. No. L-10405December 29, 1960 EN BANCWENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal,petitioner-appellant,vs.THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL.,respondents-appellees.Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant.Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.CONCEPCION,J.:Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued, without costs.On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and Highway 54), which projected feeder roads "do not connect any government property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question were private property at the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and, therefore, voidab initio"; that said appropriation of P85,000.00 was made by Congress because its members were made to believe that the projected feeder roads in question were "public roads and not private streets of a private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned appropriation", respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donation copy of which is annexed to the petition of the four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of the nature of a contract; that, such, said donation violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null and voidab initio, for the construction of the projected feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation."Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the above-mentioned feeder roads project, and from making and securing any new and further releases on the aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from making and securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any further payments out of said illegally appropriated funds.Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of public funds for the improvements of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in question because "there is no actualbona fidecase . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct injury."Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for anything but a public purpose", that the instructions and improvement of the feeder roads in question, if such roads where private property, would not be a public purpose; that, being subject to the following condition:The within donation is hereby madeupon the condition that the Government of the Republic of the Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it being expressly understood that should the Government of the Republic of the Philippines violate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.)which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed.At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the projected feeder roads aforementioned, which, admittedly, were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the President on June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads at his own expenses,1and would "greatly enhance or increase the value of the subdivision" of said respondent. The lower court held that under these circumstances, the appropriation in question was "clearly for a private, not a public purpose."Respondents do not deny the accuracy of this conclusion, which is self-evident.2However, respondent Zulueta contended, in his motion to dismiss that:A law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation of public funds for the improvement of what we, in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government established under the Constitution of the Republic of the Philippines and the system of checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative enactments deemed violative of the Constitution or organic laws.3As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling Case Law, is this:It is a general rule thatthe legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion.Incidentalto the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.)The rule is set forth in Corpus Juris Secundum in the following language:In accordance with the rule that thetaxing power must be exercised for public purposes only, discussedsuprasec. 14, money raised by taxation can be expendedonly for public purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.)Explaining the reason underlying said rule, Corpus Juris Secundum states:Generally, under the express or implied provisions of the constitution,public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose,no appropriation of state funds can be made for other than for a public purpose.x x x x x x x x xThe test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals mightincidentallyserve the public. (81 C.J.S. pp. 1147; emphasis supplied.)Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a necessary corollary to our democratic system of government, which, as such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.netThis notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that petitioner may not contest the legality of the donation above referred to because the same does not affect him directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises.The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether said roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation.Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are inherent in his person, including therefore, his right to the annulment of said contract, even though such creditors are not affected by the same, except indirectly, in the manner indicated in said legal provision.Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds,5upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering anunconstitutionalact constitutes amisapplicationof such funds," which may be enjoined at the request of a taxpayer.6Although there are some decisions to the contrary,7the prevailing view in the United States is stated in the American Jurisprudence as follows:In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons individually affected, but alsotaxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.)However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar asfederallaws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under thecompositesystem of government existing in the U.S., the states of the Union are integral part of the Federation from aninternationalviewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by representatives ofeach stateof the Union, not of the people of the U.S., except insofar as the former represented the people of the respective States, and the people of each State has, independently of that of the others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of, and, in this sense,throughthe respective states of the Union of which they are citizens. The peculiar nature of the relation between said people and the Federal Government of the U.S. is reflected in the election of its President, who is chosen directly,notby the people of the U.S., but by electors chosen byeach State, in such manner as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.netThe relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of each state and the government thereof, except that the authority of the Republic of the Philippines over the people of the Philippines ismore fully directthan that of the states of the Union, insofar as thesimpleandunitarytype of our national government is not subject to limitations analogous to those imposed by the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public funds which has been upheld by the Federal Supreme Court (Cramptonvs.Zabriskie, 101 U.S. 601) has greater application in the Philippines than that adopted with respect to acts of Congress of the United States appropriating federal funds.Indeed, in the Province of Tayabasvs.Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodiovs.President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for backpay of members of Congress. However, in Rodriguezvs.Treasurer of the Philippines and Barredovs.Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such position in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political subdivision,8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines.Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ of preliminary injunction should have been maintained.Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C. Zulueta. It is so ordered.Paras, C.J., Bengzon, Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and Dizon, JJ., concur.Pascual vs. Secretary of Public Works and Communications GR L-10405, 29 December 1960 En Banc, Concepcion (J): 10 concur Facts: RA 920 (Act appropriating funds for public works) was enacted in 1953 containing an item (Section 1 c[a]) for the construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals (the projected and planned subdivision roads, which were not yet constructed, within Antonio Subdivision owned by Senator Jose C. Zulueta). Zulueta donated said parcels of land to the Government 5 months after the enactment of RA 920, on the condition that if the Government violates such condition the lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity of the donation and the Constitutionality of the item in RA 920, it being not for a public purpose. Issue: Whether the item in the appropriation is valid. Held: The right of the legislature to appropriate funds is correlative with its right to tax, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a public purpose. The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occupying, or acts performed, subsequently thereto, unless the latter consist of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Herein, inasmuch as the land on which the projected feeder roads were to be constructed belonged to Senator Zulueta at the time RA 920 was passed by Congress, or approved by the President, and the disbursement of said sum became effective on 20 June 1953 pursuant to Section 13 of the Act, the result is that the appropriating sough a private purpose and hence, null and void.G.R. No. L-7859December 22, 1955 EN BANCWALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio Jayme Ledesma,plaintiff-appellant,vs.J. ANTONIO ARANETA, as the Collector of Internal Revenue,defendant-appellee.Ernesto J. Gonzaga for appellant.Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.REYES, J.B L.,J.:This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits derived from the sugar industry by the component elements thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the United States market and the imposition of the export taxes."In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section 3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land.According to section 6 of the law SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law.First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the preferntial position of the Philippine sugar in the United States market, and ultimately to insure its continued existence notwithstanding the loss of that market and the consequent necessity of meeting competition in the free markets of the world;Second, to readjust the benefits derived from the sugar industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane, and the laborers in the factory and in the field so that all might continue profitably to engage therein;lawphi1.netThird, to limit the production of sugar to areas more economically suited to the production thereof; andFourth, to afford labor employed in the industry a living wage and to improve their living and working conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular session of the National Assembly, make the necessary disbursements from the fund herein created (1) for the establishment and operation of sugar experiment station or stations and the undertaking of researchers (a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise, authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies.Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17).The basic defect in the plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power.This Court can take judicial notice of the fact that sugar production is one of the great industries of our nation, sugar occupying a leading position among its export products; that it gives employment to thousands of laborers in fields and factories; that it is a great source of the state's wealth, is one of the important sources of foreign exchange needed by our government, and is thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (128 Sp. 857).Once it is conceded, as it must, that the protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) 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 (Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).From the point of view we have taken it appears of no moment that the funds raised under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; that the legislature is not required by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied;" and that "the legislative authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).Even from the standpoint that the Act is a pure tax measure, 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 and solution of allied problems, as well as to the improvements of living and working conditions in sugar mills or plantations, without any part of such money being channeled directly to private persons, constitutes expenditure of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).The decision appealed from is affirmed, with costs against appellant. So ordered.Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.Lutz vs. Araneta GR L-7859, 22 December 1955 First Division, Reyes JBL (J): 8 concur Facts: AWalter Lutz, as Judicial Administrator of the Intestate Estate of Antonio Jayme Ledesma, sought to recover the sum of P14,6666.40 paid by the estate as taxes from the Commissioner under Section e of Commonwealth Act 567 (the Sugar Adjustment Act), alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry exclusively, which is in his opinion not a public purpose. Issue: Whether the tax is valid in supporting an industry. Held: The tax is levied with a regulatory prupose, 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 therefrom 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 diectly to private persons, constitute expenditure of tax money for private purposes. The tax is valid.G.R. No. L-4060 August 29, 1952 EN BANCDR. ESTEBAN MEDINA, DR. JOSE DE LA ROSA, MR. ENRIQUE SANTAMARIA, and BENGUET DEVELOPMENT CO., INC.,plaintiffs-appellants,vs.CITY OF BAGUIO,defendant-appellee.Francisco A. Reyes for appellants.Acting City Atty. Santiago C. Gregorio for appellee.BAUTISTA ANGELO,J.:Plaintiffs brought this action in the Court of First Instance of Baguio seeking to nullify Ordinances Nos. 62, 99 and 100 of the City Council of Baguio on the ground that they were enacted without authority or power, and are oppressive, unjust and unreasonable, and to recover the taxes and fees they had paid as itemized in the complaint.Esteban Medina is the owner and operator of Pines Theater, a duly licensed movie houses in the City of Baguio. Jose Y. de la Rosa is the owner and operator of Plaza Theater, another duly licensed movie house in the city. Enrique Santamaria is the owner and operator under a contract of lease of Session Theater, also a duly licensed movie houses in said city, while Benguet Development Co., Inc., is an operator of a gasoline station engaged in selling gasoline, petroleum and imported oil products within the city.Under Ordinance No. 99, Esteban Medina paid under protest a municipal license for 1949 for two quarters in the amount of P1,200, and Jose Y. de la Rosa paid under protest a municipal license for the same year in the amount of P1,800 for three quarters. Under Ordinance No. 62, Esteban Medina paid an additional tax of P4,896.60 during the months of July, August, September and November, 1949. Enrique Santamaria also paid an additional tax of P1,855.05 during the months of July and August of the same year. The Benguet Development Co., Inc., on the other hand, paid under Ordinance No. 100 the amount of P3,554.44 as specific tax for gasoline and oil sold from September 20, 1948, to November 17, 1949.After trial, the court rendered decision declaring Ordinances Nos. 99 and 100 valid and legal but rendering Ordinance No. 62 null and void while denying the claim of the plaintiffs for reimbursement of the different amoun