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Pascual v. Sec. of Public Works

Congress passed an RA appropriating P85K for the construction of Pasig feeder road terminals.

The Provincial Governor of Rizal filed an action for declaratory relief and injunction, claiming that at the time of the passage and approval of the Act,

these feeder roads had not yet been constructed and were not connected to any government property or main highway. The feeder roads were actually

within the Antonio Subdivision, which was owned by Jose Zulueta, a member of the Senate of the Philippines. Zulueta, before the passage of the Act,

had offered to donate the property to the municipality of Pasig, but the deed of donation was executed only several months afterthe RA was passed.

Hence, Congress appropriated public funds for the construction of feeder roads that were, at the time the law was passed, private property.

ISSUE: Whether the appropriation is valid.

HELD:

The appropriation is invalid.

The taxing power must be exercised for public purposes only and not for the advantage of private individuals. The right of the legislature to appropriate

public funds is correlative with its right to tax. As the Constitution prohibits taxation except for a public purpose, so also no appropriation of state funds

can be made other than for a public purpose.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interests as opposed

to the furtherance of the advantage of individuals, although such advantage to individuals might incidentally serve the public.

Even if subsequently, Zulueta executed the deed of donation in favor of the municipality, making the roads public property, the appropriation is still

invalid. The validity of the statute depends upon the powers of Congress at the time of its passage, not upon events occurring after. At the time the bill

was passed, the road was still private property.

Therefore, the appropriation sought a private purpose and was null and void. The subsequent donation could not have cured this nullity.


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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES,petitioner,vs.VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR and CITY

TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA,J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other videogram operators adversely affected.It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to

regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 andtook effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994 amended the National InternalRevenue Code providing, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback, regardless of length,an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors Association of the Philippines,and Philippine Motion Pictures Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in

the case, over petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that their"survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment

in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes orany technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have

caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales,contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in

government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition ofvideograms, and such earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million intaxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry,particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and

unemployment due to the shutdown of numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environmentconducive to growth and development of all business industries, including the movie industry which has an accumulated investmentof about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition ofthe movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an

additional source of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution ofvideograms;


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6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to themoral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of theyouth for civic efficiency and the development of moral character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which haveflaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economicrecovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER and the same is

not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of

the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections inseriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" 1 is sufficiently compliedwith if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary that the title express each

and every end that the statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subjectmatter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An act having a single general

subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with orforeign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general

object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the powerof legislation. 4 It should be given practical rather than technical construction. 5

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province

shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or dispositionof a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the

tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax iscollected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan

Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which isthe regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor

foreign to that general subject and title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout theDECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled

distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure.The title of the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in itsPreamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body ofthe DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyondserious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The powerto impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictionswhatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in

general, a sufficient security against erroneous and oppressive taxation. 10


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The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogramestablishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue.It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed

or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thusshifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because ofthe rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an

objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor oneindustry over another. 11

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 "inequitieswhich result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation". 12 Taxationhas been made the implement of the state's police power. 13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former President under Amendment No. 6 of

the 1973 Constitution providing that "whenever in the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, orwhenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his

judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shallform part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently summarizes the justification in that graveemergencies corroding the moral values of the people and betraying the national economic recovery program necessitated bold emergency measures to

be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise oflegislative power under the said Amendment still pends resolution in several other cases, we reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE ofauthority to the BOARD to "solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the

heads or personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely aconferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is between the delegation of power to

make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercisedunder and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the

decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject tothe direction and control of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the

DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one which "alters the legal rules ofevidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense." It is petitioner's

position that Section 15 of the DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the effectivity of this Decreewithin which to register with and secure a permit from the BOARD to engage in the videogram business and to register with the

BOARD all their inventories of videograms, including videotapes, discs, cassettes or other technical improvements or variationsthereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person

engaged in the videogram business without the required proof of registration by the BOARD, shall be prima facie evidence ofviolation of the Decree, whether the possession of such videogram be for private showing and/or public exhibition.

raises immediately aprima facie evidence of violation of the DECREE when the required proof of registration of any videogram cannot be presentedand thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case ofVallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption of innocencemay be overcome by a contrary presumption founded upon the experience of human conduct, and enacting what evidence shall besufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A

TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts havebeen proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proofprovided there be a rational connection between the facts proved and the ultimate facts presumed so that the inference of the onefrom proof of the others is not unreasonable and arbitrary because of lack of connection between the two in common

experience". 16


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Applied to the challenged provision, there is no question that there is a rational connection between the fact proved, which is non-registration, and theultimate fact presumed which is violation of the DECREE, besides the fact that the prima faciepresumption of violation of the DECREE attaches onlyafter a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence as if it were a nuisance. Being arelatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE is to protect the moribund movie

industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; theerosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic

films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the fact thatthe activities of video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in

business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the contrary, video establishments areseen to have proliferated in many places notwithstanding the 30% tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE. These considerations, however, are

primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This

is as it ought to be. The principle of separation of powers has in the main wisely allocated the respective authority of eachdepartment and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on amatter left to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, asthere ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy precisely to

maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise

insofar as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear violation of the Constitutionwhich would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.


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G.R. No. 84818 December 18, 1989

PHILIPPINE COMMUNICATIONS SATELLITE

CORPORATION,petitioner, vs. JOSE LUIS A. ALCUAZ,asNTC Commissioner, andNTC, respondents.

DOCTRINE: Fundamental is the rule that delegation of legislative

power may be sustained only upon the ground that some standard forits exercise is provided and that the legislature in making thedelegation has prescribed the manner of the exercise of the delegated

power.

In case of a delegation of rate-fixing power, the only standard which

the legislature is required to prescribe for the guidance of theadministrative authority is that the rate be reasonable and just.

However, it has been held that even in the absence of an expressrequirement as to reasonableness, this standard may be implied.

As a general rule, notice and hearing are not essential to the validity ofadministrative action where the administrative body acts in theexercise of executive, administrative, or legislative functions; but

where a public administrative body acts in a judicial or quasi-judicialmatter, and its acts are particular and immediate rather than generaland prospective, the person whose rights or property may be affected

by the action is entitled to notice and hearing. (Albert vs. Public

Service Commission).

The rule is that the power of the State to regulate the conduct andbusiness of public utilities is limited by the consideration that it is not

the owner of the property of the utility, or clothed with the generalpower of management incident to ownership, since the private right ofownership to such property remains and is not to be destroyed by theregulatory power. The power to regulate is not the power to destroy

useful and harmless enterprises, but is the power to protect, foster,promote, preserve, and control with due regard for the interest, first

and foremost, of the public, then of the utility and of its patrons. Anyregulation, therefore, which operates as an effective confiscation of

private property or constitutes an arbitrary or unreasonableinfringement of property rights is void, because it is repugnant to the

constitutional guaranties of due process and equal protection of the

laws. (73 C.J.S 1005)

Hence, the inherent power and authority of the State, or its authorized

agent, to regulate the rates charged by public utilities should be subjectalways to the requirement that the rates so fixed shall be reasonableand just. A commission has no power to fix rates which areunreasonable or to regulate them arbitrarily. This basic requirement of

reasonableness comprehends such rates which must not be so low as tobe confiscatory, or too high as to be oppressive.

FACTS:REGALADO, J.:

RA 5514 granted PHILCOMSAT a franchise to establish,

construct, maintain and operate equipment and facilities forinternational satellite communications. As well as authority to

construct and operate facilities needed to delivertelecommunications services from the communications satellite

system and ground terminals.

By designation, petitioner is also the sole signatory for the

Philippines in INTELSAT and INMARSAT, 2 global commercial

telecommunications satellite corporations collectively establishedby various states in line with the principles set forth by the UN.The satellite services provided by petitioner enable saidinternational carriers to serve the public with indispensable

communication services, such as overseas telephone, telex,facsimile, telegrams, high speed data, live television in full color,

and television standard conversion from European to Americanor vice versa.

Petitioner was initially exempted from the jurisdiction of NTC

but pursuant to EO 196 (June 17, 1987), petitioner was placed

under the jurisdiction, control and regulation of respondent NTC.

Respondent NTC now required petitioner to apply for th

requisite certificate of public convenience and necessity covering

its facilities and the services it renders, as well as the

corresponding authority to charge rates.

After twice extending the provisional authority to continue

operating its existing facilities (September 16, 1987; Septembe16, 1988), to render the services it was then offering, and to

charge the rates it was then charging. The 3rd provisional authoritygranted by NTC directed the petitioner to charge modifiedreduced rates through a reduction of fifteen percent (15%)

on the present authorized rates.

PHILCOMSAT assails this order as undue delegation olegislative power, particularly the adjudicatory powers of NTC

The exercise of which requires an express conferment by thelegislative body.

That if constitutional, the same was ultra vires because (a) the

questioned order violates procedural due process for having beenissued without prior notice and hearing; and (b) the rate reductionit imposes is unjust, unreasonable and confiscatory, thuconstitutive of a violation of substantive due process.

ISSUES:

1. Is the order mandating a reduction of certain rates unduedelegation of quasi-judicial power to respondent NTC? NO.

2. Was there a violation of procedural due process? YES.

3. Was there a violation of substantive due process? YES.

HELD: When respondent NTC establishes a rate, its act must both be

non- confiscatory and must have been established in the manneprescribed by the legislature; otherwise, in the absence of a fixedstandard, the delegation of power becomes unconstitutional.

Pursuant to EO 546 and 196, NTC is empowered to determine

and prescribe rates pertinent to the operation of public service

communications which necessarily include the power topromulgate rules and regulations in connection therewith.

Respondent NTC, in the exercise of its rate-fixing power, i

limited by the requirements of public safety, public interest

reasonable feasibility and reasonable rates, which conjointly morethan satisfy the requirements of a valid delegation of legislativepower is provided for by EO 546.

RE PROCEDURAL DUE PROCESS: Petitioner argues that thfunction involved in the rate fixing-power of NTC is adjudicatory and

hence quasi-judicial, not quasi- legislative; thus, notice and hearing arenecessary and the absence thereof results in a violation of due process.

The order in question which was issued by respondent Alcuaz

contains all the attributes of a quasi-judicial adjudication. Theorder pertains exclusively to petitioner and to no other. Further, itis premised on a finding of fact that there is merit in a reduction


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of some of the rates charged without affording petitioner thebenefit of an explanation as to what particular aspect or aspects ofthe financial statements warranted a corresponding rate reduction.

SC believes that an immediate reduction in the rates wouldadversely affect petitioners operations and the quality of its

service to the public considering the maintenance requirements,the projects it still has to undertake and the financial outlayinvolved. Notably, petitioner was not even afforded theopportunity to cross-examine the inspector who issued the report

on which respondent NTC based its questioned order.

NTC categorically admitted that the questioned order was issued

pursuant to its quasi-judicial functions but insists that notice and

hearing are not necessary since the assailed order is merelyincidental to the entire proceedings, therefore, temporary innature. This postulate is bereft of merit.

While respondents may fix a temporary rate pending final

determination of the application of petitioner, such rate-fixing

order, temporary though it may be, is not exempt from thestatutory procedural requirements of notice and hearing, as wellas the requirement of reasonableness. Assuming that such poweris vested in NTC, it may not exercise the same in an arbitrary and

confiscatory manner. Categorizing such an order as temporary in

nature does not perforce entail the applicability of a different ruleof statutory procedure than would otherwise be applied to anyother order on the same matter unless otherwise provided by the

applicable law. The applicable statutory provision is Section16(c) of the Public Service Act

(c) To fix and determine individual or joint rates, ...which shall be imposed, observed and followed thereafterby any public service; ...

An order of respondent NTC prescribing reduced rates, even for a

temporary period, could be unjust, unreasonable or evenconfiscatory, especially if the rates are unreasonably low, sincethe utility permanently loses its just revenue during the prescribed

period. In fact, such order is in effect final insofar as the revenueduring the period covered by the order is concerned.

RE SUSBTANTIVE DUE PROCESS: Petitioner contends that the rate

reduction is confiscatory in that its implementation would virtuallyresult in a cessation of its operations and eventual closure of business.

NTC perfunctorily declared that based on the financiastatements, there is merit for a rate reduction without anyelucidation on what implications and conclusions werenecessarily inferred by it from said statements. Nor did it deign to

explain how the data reflected in the financial statementsinfluenced its decision to impose a rate reduction.

On the other hand, petitioner may likely suffer a severe drawbackwith the consequent detriment to the public service, should the

order of respondent NTC turn out to be unreasonable andimprovident.

Consequently SC holds that the challenged order, particularly on

the issue of rates provided therein, being violative of the dueprocess clause is void and should be nullified.

WHEREFORE, the writ prayed for is GRANTED and the orderof respondents is hereby SET ASIDE.

GUTIERREZ, JR., J., concurring:

Senators and Congressmen are directly elected by the peopleAdministrative officials are not. If the members of an administrative

body are, as is so often the case, appointed not on the basis ocompetence and qualifications but out of political or persona

considerations, it is not only the sense of personal responsibility to theelectorate affected by legislation which is missing. The expertise and

experience needed for the issuance of sound rules and regulationwould also be sorely lacking.

I believe that in the exercise of quasi-legislative powers, administrative

agencies, much, much more than Congress, should hold hearings andshould be given guidelines as to when notices and hearings ar

essential even in quasi-legislation.


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MANILA GAS CORPORATION, plaintiff-appellant,vs.THE COLLECTOR OF INTERNAL REVENUE, defendant-

appellee.

G.R. No. L-42780 January 17, 1936

Trial Court for CIR, Affirmed by SC

Doctrine: RE: DIVIDENDS: Dividends of a domestic corporation

which are paid and delivered in cash to foreign corporations asstockholders are subject to the payment of the income taxnotwithstanding the exemption clause in the charter of the corporation.

RE: SITUS: If an interest in property is taxed, the situs of either the

property or interest must be found within the state. If an income istaxed, the recipient thereof must have a domicile within the state or the

property or business out of which the income issues must be situatedwithin the state so that the income may be said to have a situs therein.

Facts:

Manila Gas is a corporation organized under Philippine Laws. It

operates a gas plant in Manila and furnishes gas service to the peopleof Manila and its surrounding areas via a franchise granted by the

Philippine Government. Manila gas is associated with Islands Gas(from New York) and General Finance (from Zurich, Switzerland).

Both of which are not Philippine residents.

The terms of franchise of Manila Gas included an exemption clause

which states:

The grantee shall annually on the fifth day of January of each yearpay to the City of Manila and the municipalities in the Province ofRizal in which gas is sold, two and one half per centum of the gross

receipts within said city and municipalities, respectively, during thepreceding year. Said payment shall be in lieu of all taxes, Insular,

provincial and municipal, except taxes on the real estate, buildings,plant, machinery, and other personal property belonging to the

grantee

For 1930-32, Manila Gas paid dividends to their foreign partners (thepartners were stockholders of MG). These dividends had income taxeswithheld by the Philippine Government.

Pursuant to the above stated exemption clause, MG filed a case withthe TC of Manila against the CIR to recover P56,757.37 (the amount

withheld). The TC dismissed the complaint and pronounced that thedividends were taxable.

Not satisfied, MG filed the present appeal.

ISSUES:

1) W/N the State can tax the Dividends though they were to bepaid to foreign corporations (SC: YES. See SITUS)

2) W/N the Dividends were taxable (SC: YES. See Doctrinere: Dividends)

HELD:

ISSUE I: The approved doctrine is that no state may tax anything not

within its jurisdiction without violating the due process clause of theconstitution. The taxing power of a state does not extend beyond itsterritorial limits, but within such it may tax persons, property, income,or business. If an interest in property is taxed, the situs of either the

property or interest must be found within the state. If an income istaxed, the recipient thereof must have a domicile within the state

or the property or business out of which the income issues must

be situated within the state so that the income may be said to

have a situs therein.

ISSUE II: The Manila Gas Corporation operates its business entirely

within the Philippines. Its earnings, therefore come from local sources.The place of material delivery of the interest to the foreigncorporations paid out of the revenue of the domestic corporation

is of no particular moment. The place of payment even if

conceded to be outside of the country cannot alter the fact that

the income was derived from the Philippines. The word "source"conveys only one idea, that of origin, and the origin of the income wasthe Philippines.

Therefore, the Collector of Internal Revenue was justified inwithholding income taxes on interest on bonds and other indebtedness

paid to non-resident corporations because this income was receivedfrom sources within the Philippine Islands as authorized by the Income

Tax Law.

(SIDE COMMENT NUNG PONENTE NA PARANG EWAN) Before

concluding, it is but fair to state that the writer's opinion on the firstsubject and the first assigned error herein discussed is accurately setforth, but that his opinion on the second subject and the secondassigned error is not accurately reflected, because on this last division

his views coincide with those of the appellant. However, in the interestof the prompt disposition of this case, the decision has been written upin accordance with instructions received from the court.

Judgment affirmed, with the cost of this instance assessed against theappellant.


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G.R. No. 153793 August 29, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,vs.JULIANE BAIER-NICKEL, as represented by Marina Q. Guzman (Attorney-in-fact) Respondent.

FACTS:

Respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic corporation engaged in[m]anufacturing, marketing on wholesale only, buying or otherwise acquiring, holding, importing and exporting, selling and disposing embroideredtextile products. Through JUBANITEXs General Manager, Marina Q. Guzman, the corporation appointed and engaged the services of respondent as

commission agent. It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts. In1995, respondent received the amount of P1,707,772.64, representing her sales commission income from which JUBANITEX withheld the

corresponding 10% withholding tax amounting to P170,777.26, and remitted the same to the Bureau of Internal Revenue (BIR). On October 17, 1997respondent filed her 1995 income tax return reporting a taxable income of P1,707,772.64 and a tax due of P170,777.26. Respondent filed a claim to

refund the amount of P170,777.26 alleged to have been mistakenly withheld and remitted by JUBANITEX to the BIR. Respondent contended that hersales commission income is not taxable in the Philippines because the same was a compensation for her services rendered in Germany and therefore

considered as income from sources outside the Philippines. The CTA rendered a decision denying her claim. It held that the commissions received byrespondent were actually her remuneration in the performance of her duties as President of JUBANITEX and not as a mere sales agent thereof. Theincome derived by respondent is therefore an income taxable in the Philippines because JUBANITEX is a domestic corporation. On petition with theCourt of Appeals, the latter reversed the Decision of the CTA, holding that respondent received the commissions as sales agent of JUBANITEX and not

as President thereof. And since the source of income means the activity or service that produce the income, the sales commission received byrespondent is not taxable in the Philippines because it arose from the marketing activities performed by respondent in Germany. Petitioner maintainthat the income earned by respondent is taxable in the Philippines because the source thereof is JUBANITEX, a domestic corporation located in the Cityof Makati. It further argued that since respondent is the President of JUBANITEX, any remuneration she received from said corporation should be

construed as payment of her overall managerial services to the company and should not be interpreted as a compensation for a distinct and separateservice as a sales commission agent. Respondent, on the other hand, claims that the income she received was payment for her marketing services. Shecontended that income of nonresident aliens like her is subject to tax only if the source of the income is within the Philippines. Source, according torespondent is the situs of the activity which produced the income. And since the source of her income were her marketing activities in Germany, the

income she derived from said activities is not subject to Philippine income taxation.

ISSUE: Whether respondents sales commission income is taxable in the Philippines.

HELD:Yes. Section 25 of the NIRC provides that non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on

their income received from all sources within the Philippines. Thus, the keyword in determining the taxability of non-resident aliens is the incomes

source. Source of income relates to the property, activity or service that produced the income. With respect to rendition of labor or personal service,

as in the instant case, it is the place where the labor or service was performed that determines the source of the income. There is therefore no merit in

petitioners interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the

income. The decisive factual consideration here is not the capacity in which respondent received the income, but the sufficiency of evidence to prove

that the services she rendered were performed in Germany. The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed

strictissimi juris against the taxpayer. The faxed documents presented by respondent did not constitute substantial evidence, or that relevant evidence

that a reasonable mind might accept as adequate to support the conclusion that it was in Germany where she performed the income producing service

which gave rise to the reported monthly sales in the months of March and May to September of 1995. She thus failed to discharge the burden of proving

that her income was from sources outside the Philippines and exempt from the application of our income tax law. Petition GRANTED.


10/27

CIR v. Marubeni Corporation

Marubeni was a Japanese corporation engaged in the import and export, trading, and construction business. It completed two contracts in1984, the income from which it did not declare.

One of the contracts was with NDC in connection with the construction of a wharf/port complex in Leyte. The other contract was with the

Philippine Phosphate Fertilizer Corp (Philfos) for the construction of an ammonia storage complex also in Leyte.

The CIR then made an assessment on Marubeni's deficiency taxes. It found that the NDC and Philpos contracts were made on a turn-keybasis (a job in which the contractor agrees to complete the work of building and installation to the point of readiness or occupancy; in othe

words, the products are brought to the client complete and ready for use) amounting to about P960M+. The two contracts were divided into two parts the offshore portion and the onshore portion. All materials and equipment in the contrac

under the offshore portion were manufactured and completed in Japan. After manufacture, these were transported to Leyte and installed to thepier with the use of bolts.

CIR found that Marubeni was liable for contractor's tax on the offshore portion.

Marubeni filed a petition with the CTA, arguing that the income derived from the offshore portion should be exempt from tax since it wasderived outside of the Philippine jurisdiction.

I: W/N income of Marubeni is taxable even if it claims that it was earned outside of the Philippines. NO, Marubeni is NOT liable for the

contractors tax.

R: A contractors tax is in the nature of an excise tax on the exercise of a privilege of selling services or labor rather than a sale of products. It

is directly collectible from the person exercising the privilege. Being an excise tax, it can be levied by the taxing authority only when the acts

privileges or business are done or performed within the jurisdiction of said authority. Like property taxes, it cannot be imposed on anoccupation or privilege outside the taxing district.

In this case, the ship loaders, boats and mobile equipment used in the construction projects were all designed, engineered and fabricated in Japan. Theywere merely shipped to Leyte and assembled there. While the construction and installation work were completed within the Philippines, some pieces ofequipment and supplies were completely designed and engineered in Japan. Since these services were rendered outside the taxing jurisdiction of thePhilippines, they are therefore not subject to the contractors tax.


11/27

G.R. No. L-46720 June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY,

Petitioner-Appellant, vs. CIR,Respondent-Appellee.

DOCTRINE: Section 1536 of the Administrative Code, as amended,

provides that every transmission by virtue of inheritance of any share

issued by any corporation of sociedad anonima organized or

constituted in the Philippines, is subject to the tax therein provided.

The maximMOBILIA SEQUUNTUR PERSONAM, upon which the

rule that intangibles have only one situs for the purpose of inheritance

tax, and that such situs is in the domicile of the decedent at the time of

his death, has been described as a mere fiction of law having its origin

in consideration of general convenience and public policy, and cannot

be applied to limit or control the right of the state to tax property

within its jurisdiction and must yield to established fact of legal

ownership, actual presence and control elsewhere, and cannot be

applied if to do so result in inescapable and patent injustice.

FACTS:MORAN, J.:

Birdie Lillian Eye died (1932) in LA, California, her alleged last

residence and domicile. She left her one-half conjugal share in

70,000 shares of stock in the Benguet Consolidated Mining

Company, an anonymous partnership (sociedad anonima),

organized under the laws of the Philippines.

She left a will which was admitted to probate in California where

her estate was administered and settled. Petitioner-appellant,

Wells Fargo Bank & Union Trust Company, was appointed

trustee by the said will. The Federal and State of California's

inheritance taxes due on said shares have been duly paid.

Respondent CIR sought to subject anew the aforesaid shares of

stock to the Philippine inheritance tax. Petitioner-appellantobjected. Wherefore, a petition for a declaratory judgment was

filed in the lower court.

CFI-Manila held that the transmission by will of the said 35,000

shares of stock is subject to Philippine inheritance tax. Hence,

this appeal by the petitioner.

Petitioner concedes:(1) Philippine inheritance tax is not a tax

property, but upon transmission by inheritance, and (2) that as to

real and tangible personal property of a non-resident decedent,

located in the Philippines, the Philippine inheritance tax may be

imposed upon their transmission by death, for the self-evident

reason that, being a property situated in this country, its transfer isupon Philippine laws.

It is contended that as to intangibles, like the shares of stock in

question, their situs is in the domicile of the owner, transmission

by death necessarily takes place under his domiciliary laws.

ISSUE: May the CIR imposed an inheritance tax on the shares o

stock of a decedent who is domiciled in California? YES.

HELD:

The question involved is essentially not one of due-processbut of the power of the Philippine Government to tax. If tha

power be conceded, the guaranty of due process cannot certainly

be invoked to frustrate it, unless the law involved is challenged on

considerations repugnant to such guaranty of due process or tha

of the equal protection of the laws: as when the law is alleged to

be arbitrary, oppressive or discriminatory.

The relaxation of the original rule rests on either of tw

fundamental considerations:

o (1) upon the recognition of the inherent power of each

government to tax persons, properties and rights within

its jurisdiction and enjoying, thus, the protection of itlaws; and

o (2) upon the principle that intangibles, a single location

in space is hardly possible, considering the multiple

distinct relationships which may be entered into with

respect thereto.

In the instant case, the actual situs of the shares of stock is in the

Philippines, the corporation being domiciled therein. And besides

the certificates of stockhave remained in this country up to the

time when the deceased died in California, and they were in

possession of thesecretary of theBenguet Consolidated, to whom

they have been delivered and indorsed in blank. This indorsementgave the secretary the right to vote the certificates at the genera

meetings of the stockholders, to collect dividends, and dispose of

the shares in the manner she may deem fit, without prejudice to

her liability to the owner for violation of instructions.

For all practical purposes, the secretary had the legal title to the

certificates of stock held in trust for the true owner thereof. The

owner residing in California has extended here her activities with

respect to her intangibles so as to avail herself of the protection

and benefit of the Philippine laws. Accordingly, the jurisdiction

of the Philippine Government to tax must be upheld.

Judgment is AFFIRMED.


12/27

GR No. L-23794 February 17, 1968

ORMOC SUGAR COMPANY, INC.,Plaintiff-Appellant, vs. THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OFORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of Ormoc City and ORMOC CITY,Defendants-Appellees.

FACTS:

In 1964, Ormoc City passed a bill which read: There shall be paid to the City Treasurer on any and all productions of centrifugal sugar milled at the

Ormoc Sugar Company Incorporated, in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to the United States of Americaand other foreign countries. Though referred to as a production tax, the imposition actually amounts to a tax on the export of centrifugal sugar

produced at Ormoc Sugar Company, Inc. For production of sugar alone is not taxable; the only time the tax applies is when the sugar produced isexported. Ormoc Sugar paid the tax (P7,087.50) in protest averring that the same is violative of Sec 2287 of the Revised Administrative Code which

provides: It shall not be in the power of the municipal council to impose a tax in any form whatever, upon goods and merchandise carried into themunicipality, or out of the same, and any attempt to impose an import or export tax upon such goods in the guise of an unreasonable charge for

wharfage, use of bridges or otherwise, shall be void. And that the ordinance is violative to equal protection as it singled out Ormoc Sugar As beingliable for such tax impost for no other sugar mill is found in the city.

ISSUE: Whether there has been a violation of equal protection.

HELD:

The SC held in favor of Ormoc Sugar. The SC noted that even if Sec 2287 of the RAC had already been repealed by a latter statute (Sec 2 RA 2264)

which effectively authorized LGUs to tax goods and merchandise carried in and out of their turf, the act of Ormoc City is still violative of equalprotection. The ordinance is discriminatory for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and noneother. At the time of the taxing ordinances enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, theclassification, to be reasonable, should be in terms applicable to future conditions as well. Yes. Equal protection clause applies only to persons or things

identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is based upon

substantial distinctions; 2) these are germane to thepurpose of the law; 3) the classification applies not only to present conditions, but also to futureconditions substantially identical to those present; and 4) the classification applies only to those who belong to the same class. The taxing ordinanceshould not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, from the coverage of the

tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc SugarCompany, Inc. as the entity to be levied upon


13/27

Tiu v. CA: Equal Protection of the Laws

Congress passed RA 7227 which created the Subic Special Economic Zone, granting tax and duty incentives (tax and duty-free importationsof raw materials, capital and equipment) to businesses and residents within the area encompassed by the zone.

The law provides that no local and national taxes shall be imposed within the zone. In lieu of taxes, 3% of the gross income of enterprises

operating within the zone shall be remitted to the National Government, 1% to the local government units, and 1% to a development fund tobe utilized for the development of municipalities outside Olangapo and Subic.

Pres. Ramos later issued an EO specifying a secured area area within the zone in which the privileges were operative.

o EO97

tax and duty-free importations will only apply to raw materials, capital goods and equipment brought in by business

enterprises into the SSEZ. Except for import tax and duties, all business are required to pay the specified taxes in Section 12(c) of RA7227.

o EO97-A the tax incentives are only applicable to business enterprises and individuals residing within the secured area.

Petitioners outside the secured area challenged the constitutionality of this EO for allegedly being violative of their right to equal protectionof the laws.

They assert that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly

occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which the special privilegegranted to the entire zone would apply to the present fenced-in former Subic Naval Base only. It has hereby excluded the residents of the

first two components of the zone from enjoying the benefits granted by the law.

I: W/N the EO confining the application of the privileges under RA 7227 within the secured area and excluding the residents of the zone

outside the secured area violates the equal protection clause. NO.

R: There are real and substantive distinctions between the circumstances obtaining inside and outside the Subic Naval base, thereby justifying

avalid and reasonable classification.

For a valid classification, the following requisites must be present:1. it must rest on substantial differences;

2. must be germane to the purpose of the law;

3. must not be limited to existing conditions only; and

4. must apply equally to all members of the same class.

In this case, the purpose of the law is to accelerate the conversion of military reservations into productive areas (economic or industrialareas) . Thus, the lands covered under the Military Bases Agreement are its object.

To achieve purpose, Congress deemed it necessary to extend economic incentives to attract and encourage investors. It was thus reasonable

for the President to have delimited the application of some incentives to the confines of the former Subic military base, since it is this specificarea which the government intends to transform and develop into a self-sustaining industrial and economic zone, particularly for the use of big

foreign and local investors to use as operational bases for their businesses and industries. These big investors possess the capital necessary to

spur economic growth and generate employment opportunities.

There are substantial differences between the big investors who are being lured to establish and operate their industries in the so-calledsecured area and the present business operators outside the area.

Big investors lured into secured areas Present biz operators outside the are

-billion-peso investments & thousand of

new jobs

-national economic impact

-

-no such magnitude

-only local economic impact

-biz activities outside secured areas are

not likely to have any impact in

achieving purpose of law which is to turn

former military base to productive use for

the benefit of the Phil economy

There is, then, hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227


14/27

CITY OF BAGUIO, plaintiff-appellee,vs.FORTUNATO DE LEON, defendant-appellant.

G.R. No. L-24756 October 31, 1968

DOCTRINE: Equality and uniformity in taxation means that alltaxable articles or kind or property of the same class shall be taxed at

the same rate. A tax in considered uniform when it operates with thesame force and effect in every place where the subject may be found.Where the statute or ordinance in question applies equally to all

persons, firms and corporations placed in a similar situation, there is

no infringement of the rule on equality. Inequalities which result froma singling out of one particular class for taxation or exemption,

infringe no constitutional limitation.

Facts:

De Leon is a real estate dealer in Baguio and was "engaged in therental of his property in Baguio" deriving income therefrom.

Empowered by the amendment (by the Congress via RA329) to its

charter which allowed it to fix the license fee and regulate "businesses,trades and occupations as may be established or practiced in the City,"Baguio issued Ordinance No. 218 wherein it imposed an annuallicense fee of P50 for his business.

Despite such an ordinance and several demands from the City Govt,de Leon failed to pay the license fees. Hence, the City of Baguio fileda case against him to compel him to pay the amount of P300 as license

fee covering the period from the first quarter of 1958 to the fourthquarter of 1962.

De Leon did not agree with the ordinance and said that such was

unconstitutional because allows double taxation. As such, it wasviolative of his right to due process.

The City court of Baguio upheld the validity of the ordinance and held

de Leon liable for the license fees.

Unsatisfied, de Leon filed the current appeal.

ISSUES:

W/N the Ordinance was valid (SC: YES)W/N it the Ordinance favored double taxation and inequality (SC: NO)

HELD:

ISSUE I: on July 15, 1948, Republic Act No. 329 was enactedamending the charter of said city and adding to its power to license the

power to tax and to regulate. And it is precisely having in view this

amendment that Ordinance No. 99 was approved in order to increasethe revenues of the city. In our opinion, the amendment above advertedto empowers the city council not only to impose a license fee but alsoto levy a tax for purposes of revenue, more so when in amending

section 2553 (b), the phrase 'as provided by law' has been removed by

section 2 of Republic Act No. 329. The city council of Baguio,therefore, has now the power to tax, to license and to regulate providedthat the subjects affected be one of those included in the charter. In this

sense, the ordinance under consideration cannot be considered ultravires whether its purpose be to levy a tax or impose a license fee. Theterminology used is of no consequence."

It would be an undue and unwarranted emasculation of the above

power thus granted if defendant-appellant were to be sustained in hiscontention that no such statutory authority for the enactment of the

challenged ordinance could be discerned from the language used in the

amendatory act. That is about all that needs to be said in upholding thelower court, considering that the City of Baguio was not devoid ofauthority in enacting this particular ordinance.

ISSUE II: Justice Holmes made clear in this language: "The objectionto the taxation as double may be laid down on one side. ... The 14th

Amendment [the due process clause] no more forbids double taxationthan it does doubling the amount of a tax, short of confiscation or

proceedings unconstitutional on other grounds." With that decisionrendered at a time when American sovereignty in the Philippines was

recognized, it possesses more than just a persuasive effect. To some, itdelivered the coup de grace to the bogey of double taxation as a

constitutional bar to the exercise of the taxing power. It would seemthough that in the United States, as with us, its ghost as noted by an

eminent critic, still stalks the juridical state. In a 1947 decision,however, we quoted with approval this excerpt from a leading

American decision: "Where, as here, Congress has clearly expressedits intention, the statute must be sustained even though double taxationresults."

At any rate, it has been expressly affirmed by us that such an

"argument against double taxation may not be invoked where one taxis imposed by the state and the other is imposed by the city ..., it beingwidely recognized that there is nothing inherently obnoxious in therequirement that license fees or taxes be exacted with respect to the

same occupation, calling or activity by both the state and the politicalsubdivisions thereof."

The above would clearly indicate how lacking in merit is this argumenbased on double taxation.

Now, as to the claim that there was a violation of the rule of uniformityestablished by the constitution. According to the challenged ordinance,

a real estate dealer who leases property worth P50,000 or above mustpay an annual fee of P100. If the property is worth P10,000 but not

over P50,000, then he pays P50 and P24 if the value is less thanP10,000. On its face, therefore, the above ordinance cannot be assailed

as violative of the constitutional requirement of uniformity.InPhilippine Trust Company v. Yatco, Justice Laurel, speaking for the

Court, stated: "A tax is considered uniform when it operates with thesame force and effect in every place where the subject may be found."

WHEREFORE, the lower court decision is hereby affirmed. Costsagainst defendant-appellant.


15/27

The City of Manila enacted an ordinance imposing a fee on the price of every admission ticket sold by

cinematographers, theatres, vaudeville companies and boxing exhibitions.

These fees shall be delivered by the operator 2 days after the performance. Otherwise, a violation should resultto imprisonment and fine.

Thus, 12 corporations engaged in motion picture business filed a complaint assailing the said ordinance for

violating the principle of equality and uniformity of taxation because it did NOT tax other places of amusement,such as racetracks, cabarets, circuses, etc.

I: W/n the ordinance violates the rule on equality and uniformity of taxation.

R: Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shallbe taxed at the same rate.

The taxing power has the authority to make reasonable and natural classifications for purposes of taxation.

Thus, the fact that some places of amusement are taxed while others like theatres and cinematographs are notdoes not violate uniformity and equality in taxation.

Petitioners argued that the Revised Administrative Code confers upon the City of Manila the power to impose atax on business but NOT on amusement and, consequently, the ordinance was beyond the City's power to enact.

HOWEVER, the assumption is based on an arbitrary labeling of the kind of tax authorized by the said Code. The very factthat the said Code includes includes theaters, cinematographs, etc. will show conclusively that the power to taxamusement is expressly included within the power granted by the said Code.


16/27

G.R. No. L-22421 March 18, 1967

IMUS ELECTRIC CO., INC.,Petitioner, vs. CTAandCIR,Respondents.

DOCTRINE: The status of petitioner's municipal franchises as property and property right is dependent upon or qualified by the nature and limitationsof the authority under which said franchises were granted by the municipal corporations concerned. Such authority shall be `subject to the power ofCongress to alter, modify or repeal the same'. In effecting such alteration, our legislative department has merely exercised a power expressly

reserved thereto by said franchises, and has acted in conformity therewith, not in violation of the provisions thereof or to the detriment of the rightsthereby vested in petitioner herein.

FACTS:BENGZON, J.P., J.:

The Municipal Council of Imus granted (1930) the petitionerImus Electric Co., Inc. the franchise to operate in that municipality an electric plant

imposing a franchise tax of 1% of its gross receipts for the first 20 years and 2% for the next fifteen (15) years.

RA 39 amended (1949) Sec. 259 of the Tax Code imposing a tax of 5% upon which such franchises are conferred.

Imus Electric paid franchise tax at the rate of 5% of its gross receipts until 1953 when it filed a claim for refund of payments made at the aforesaid

rate of 5% for the period 1948-1951.

Said claim for refund was granted as to period from 1950 -1951. Nonetheless, CIR assessedImus Electric demanding payment of deficiency tax

and surcharge.

Upon refusal of the Commissioner to reconsider the assessment, Imus Electricpetitioned the CTA for the review of the Commissioner's ruling

alleging that:

o (1) The franchise is a private contract which would be impaired by the application of Section 259 and this would be in violation of the

non-impairment clause of the Constitution; and

o (2) Section 259 of the Tax Code is a general law which has not repealed the franchise and as such applies only to charter provisions

which do not specify the rate of franchise tax to be paid.

CTA affirmed the CIRs decision declaring petitioner subject to the franchise tax of 5%. Hence this petition

ISSUE: Has Section 259 of the Tax Code repealed the corresponding provision in petitioner's franchise violating the non-impairment clause? YES i

was repealed, but no violation since the right is expressly reserved.

HELD: As held in Lealda case: As amended by RA 39, Section 259 of the Tax Code became the basic tax law not only because it was entitled "Taxon Corporate Franchises" but also because it "fixed the rate of franchise tax to be paid by holders of all existing and future franchises."

The status of petitioner's municipal franchises as property and property right is dependent upon or qualified by the nature and limitations of the authority

under which said franchises were granted by the municipal corporations concerned. Such authority shall be `subject to the power of Congress to altermodify or repeal the same'.

For all intents and purposes, said legal provision alters the pertinent provisions of said franchises. In effecting such alteration, our legislative department

has merely exercised, however, a power expressly reserved thereto by said franchises, and has acted, therefore, in conformity therewith, not in violationof the provisions thereof or to the detriment of the rights thereby vested in petitioner herein.

Wherefore, the judgment appealed from is AFFIRMED with the modification that the 25% surcharge imposed on petitioner should be, and iseliminated, thereby reducing the tax from a total of P30,940.33 (with surcharge) to P24,752.26.


17/27

Philippine Rural Electric Cooperatives Association, Inc.; Agusan del Norte Electric Cooperative, Inc.; Iloilo I Electric Cooperative, Inc.; and

Isabela I Electric Cooperative, Inc.,petitioners, v.The Secretary, DILG, and The Secretary, Department of Finance, respondents.

FACTS:

A class suit was filed by petitioners in their own behalf and for other electric cooperatives organized and existing under P.D. No. 269 who aremembers of petitioner PHILRECA.

PHILRECA is an association of 119 electric cooperatives throughout the country. Petitioners ANECO, ILECO I and ISELCO I are non-stock, non-

profit electric cooperatives organized and existing under P.D. No. 269 and registered with the National Electrification Administration (NEA).

Under P.D. No. 269, as amended (NEA Decree), it is the declared policy of the State to provide the total electrification of the Philippines on an

area coverage basis the same being vital to the people and the sound development of the nation.

Pursuant to this policy, P.D. No. 269 aims to promote, encourage and assist all public service entities engaged in supplying electric serviceparticularly electric cooperatives by giving every tenable support and assistance to the electric cooperatives coming within the purview of the law.

Section 39 of P.D. No. 269 exempts them from the payment of all National Government, local government, and municipal taxes and fee, including

franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings inwhich it may be party.

From 1971 to 1978, in order to finance the electrification projects envisioned by P.D. No. 269, the Philippine Government, acting through the

National Economic Council (now NEDA) and the NEA, entered into 6 loan agreements with the United States Agency for InternationaDevelopment (USAID) with electric cooperatives, including petitioners ANECO, ILECO I and ISELCO I, as beneficiaries.

The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the

proceeds of the loan.

Petitioners contend that pursuant to the provisions of P.D. No. 269 and provision in the loan agreements, they are exempt from payment of locataxes, including payment of real property tax. With the passage of the LGC, they allege that their tax exemptions have been invalidly withdrawn.

Petitioners assail Sections 193 and 234 of the LGC, on the ground that the provisions discriminate against them, in violation of the equal protectionclause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the PhilippineGovernment and the United States Government.

ISSUES:

(1)Does the LGC violate the equal protection clause since the provisions unduly discriminate against petitioners who are duly registeredcooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines? NO

(2)Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments? NO

HELD:

(1) THERE IS NO VIOLATION OF THE EQUAL PROTECTION CLAUSE

The pertinent parts of Sections 193 and 234 of the LGC provide:

Section 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions or incentives granted to, orpresently enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local wate

districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are herebywithdrawn upon the effectivity of this Code.

Section 234.Exemptions from real property tax. The following are exempted from payment of the real property tax:

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons whethenatural or juridical, including all government-owned and controlled corporations are hereby withdrawn upon effectivity of this Code.

Petitioners argue that the provisions are unconstitutional for violating the equal protection clause, being unduly discriminating against petitioners

who are duly registered cooperatives under P.D. No. 269 and not under R.A. No. 6938 or the Cooperative Code of the Philippines. They maintainthat electric cooperatives registered with the NEA under P.D. No. 269 and electric cooperatives registered with the Cooperative DevelopmentAuthority (CDA) under R.A. No. 6938 are similarly situated because:

o Petitioners are: a) registered with the NEA which is a government agency like the CDA; b) like CDA-registered cooperatives, operate for

service to their member-consumers; and c) prior to the enactment of the LGC, were already tax-exempt.

The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same protection of laws which

is enjoyed by other persons or other classes in the same place and in like circumstances. Thus, the guaranty of the equal protection of the lawsis not violated by a law based on reasonable classification.


18/27

Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existingconditions only; and (4) apply equally to all members of the same class.

There is reasonable classification under the LGC to justify the different tax treatment between electric cooperatives covered by P.D. No. 269 andelectric cooperatives under R.A. No. 6938.

First, substantial distinctions exist between cooperatives under P.D. No. 269 and cooperatives under R.A. No. 6938. These distinctions are

manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are notpresent in the type of cooperative associations created under P.D. No. 269.

a. Capital Contributions by Members

A COOPERATIVE under R.A. No. 6938 is defined as: A duly registered association of persons with a common bond of interest, who have

voluntarily joined together to achieve a lawful common or social economic end, making equitable contributions to the capital required

and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.

The above definition provides for the following elements of a cooperative: a) association of persons; b) common bond of interest; c

voluntary association; d) lawful common social or economic end; e) capital contributions; f) fair share of risks and benefits; g) adherence to

cooperative values; and g) registration with the appropriate government authority.

The importance of capital contributions by members of a cooperative under R.A. No. 6938 was one of the key factors which distinguished

electric cooperatives under P.D. No. 269 from electric cooperatives under the Cooperative Code. Senate deliberations:

o Electric cooperatives as they exist today would not fall under the term cooperative as used in this bill because the concept of a

cooperative is that which adheres and practices certain cooperative principles.

o One of the most important requirements is the principle where members bind themselves to help themselves. It is because of their

collectivity that they can have some economic benefits. In this particular case [cooperatives under P.D. No. 269], the government i

the one that funds these so-called electric cooperatives.o Cooperatives under P.D. No. 269, do not make substantial contribution to the capital required. It is the government that puts in

the capital, in most cases.

o Making equitable contributions to the capital required would exclude electric cooperatives (P.D. No. 269). Because the membership does

not make equitable contributions.

o The measure of their qualifying as a cooperative would be the requirement that a member of the electric cooperative must

contribute a pro rata share of the capital of the cooperative in cash to be a cooperative.

UnderP.D. No. 269, cooperatives are not required to make equitable contributions to capital and to qualify as a member (under P.D. No.

269), only the payment of a P5.00 membership fee is required (refundable the moment the member is no longer interested).

Under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds

of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorizedshare capital has been subscribedand at least 25% of the total subscription has been paid and in no case shall the paid-up share capita

be less than Two thousand pesos (P2,000.00).

b. Extent of Government Control over Cooperatives

The Cooperative Code adhered to the principle of subsidiarity. Pursuant to this principle, the government may only engage in

development activities where cooperatives do not possess the capability nor the resources to do so and only upon the request of such

cooperatives

Accordingly, the CDA is the primary government agency tasked to promote and regulate the institutional development of cooperatives.

In contrast, P.D. No. 269is replete with provisions which grant the NEA, the power to control and take over the management

and operations of cooperatives registered under it.

The extent of government control over electric cooperatives covered by P.D. No. 269 is largely a function of the role of the NEA as a

primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance thedevelopment and operations of the electric cooperatives. Consequently, amendments were primarily geared to expand the powers othe NEA over the electric cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperativeunder R.A. No. 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or

regulation.

The classification of tax-exempt entities in the LGC is germane to the purpose of the law. The Constitutional mandate that every local

government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments, is beyond regulation by CongressWhile each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the

discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy.

Section 193 of the LGC is indicative of the legislative intent to vest broad taxing powers upon local government units and to limit exemptionsfrom local taxation to entities specifically provided therein.

(2) THERE IS NO VIOLATION OF THE NON-IMPAIRMENT CLAUSE


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It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligation of contracts does not prohibit every change in

existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must besubstantial. Substantial impairment pertains to:

o A law which changes the terms of a legal contract between parties, either in the time or mode of performance, or imposes new

conditions, or dispenses with those expressed, or authorizes for its satisfaction something different from that provided in its terms, is lawwhich impairs the obligation of a contract and is therefore null and void.

Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to

non-parties.

The provisions under the loan agreements, do not grant any tax exemption in favor of the borrower or the beneficiary either on the proceeds of the

loan itself or the properties acquired through the said loan. It simply states that the loan proceeds and the principal and interest of the loan, uponrepayment by the borrower, shall be without deduction of any tax or fee that may be payable under Philippine law as such tax or fee willbe absorbed by the borrower with funds other than the loan proceeds.

Further, the provision states that with respect to any payment made by the borrower to (1) any contractor or any personnel of such contractor or any

property transaction and (2) any commodity transaction using the proceeds of the loan, the tax to be paid, if any, on such transactions shall beabsorbed by the borrower and/or beneficiary through funds other than the loan proceeds.

The import of the tax provision in the loan agreements cited by petitioners is twofold:(1) the borrower is entitled to receive from and is obliged to

pay the lender the principal amount of the loan and the interest thereon in full, without any deduction of the tax component thereof imposedunder applicable Philippine law and any tax imposed shall be paid by the borrower with funds other than the loan proceeds and (2) with

respect to payments made to any contractor, its personnel or any property or commodity transaction entered into pursuant to the loan agreemenand with the use of the proceeds thereof, taxes payable under the said transactions shall be paid by the borrower and/or beneficiary with theuse of funds other than the loan proceeds.

The quoted provision does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The

provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the

loan. Thus, the withdrawal by the LGC under Sections 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair theobligation of the borrower, the lender or the beneficiary under the loan agreements as in fact, no tax exemption is granted therein.

WHEREFORE, the petition is DENIED and the TRO issued is LIFTED.


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ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON. JUAN P. AQUINO, Judge, CFI, Abra

ARMIN M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO

MILLARE, respondents.

Petition for review on certiorari of the CFIs decision decreeing the valid the seizure and sale of the Municipal Treasurer of Bangued, Abra, the

Provincial Treasurer of the lot and building of the Abra Valley Junior College, Inc.

FACTS:

ABRA VALLEY COLLEGE, an educational corporation and institution of higher learning incorporated with the SEC in 1948, filed a

complaintto annul and declare void the "Notice of Seizure and the "Notice of Sale" of its lot and building at Banguet, Abra, for non

payment of real estate taxes (RET) and penalties amounting to P5,140.31.

The "Notice of Seizure" by respondents Municipal Treasurer and Provincial Treasurer was issued for the satisfaction of the said taxes. The

"Notice of Sale" was served to the petitioner on 7/8/1972 for the sale at public auction of the college lot and building, which sale was held on thesame date.

Dr. Paterno Millare (then Municipal Mayor) offered the highest bid of P6,000.00 which was accepted. The certificate of sale wa

correspondingly issued to him. [Subsequently, filed a motion to dismiss the complaint]

[Treasurers Answer to the Complaint Amender Answer Millares Answer]

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge ordered the respondents provincial and

municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale. Hence, on December 14, 1972, petitioner, through DirectoBorgonia, deposited with the trial court the sum of P6,000.00.

On April 12, 1973, the parties entered into a STIPULATION OF FACTS adopted and embodied by the trial court in its questioned decision.

Aside from the Stipulation of Facts, the trial court found the following:

o (a) that the school is recognized by the government and is offering Primary, High School and College Courses, and has a schoo

population of more than one thousand students all in all;o (b) that it is located right in the heart of the town of Bangued, a few meters from the plaza and about 120 meters from the CFI

building;

o (c) that the elementary pupils are housed in a two-storey building across the street;

o (d) that the high school and college students are housed in the main building;

o (e) that the Director with his family is in the second floor of the main building; and

o (f) that the annual gross income of the school reaches more than one hundred thousand pesos.

The succeeding Provincial Fiscal filed a Memorandum for the Government and a Supplemental Memorandum, wherein they opined "that based on

the evidence, the laws applicable, court decisions and jurisprudence, the school building and school lot used for educational purposes of the Abra

Valley College, Inc., are exempted from the payment of taxes."

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school for residential purposes. He thu

ruled for the government and rendered the assailed decision.

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental use, determines and exemption from

property taxes under Section 22 (3), Article VI of the 1935 Constitution.

On the other hand, private respondents maintain that the college lot and building which were subjected to seizure and sale to answer for the unpaid

tax are used:o (1) for the educational purposes of the college;

o (2) as the permanent residence of the President and Director thereof, Mr. Borgonia and his family including the in-laws and

grandchildren; and

o (3) for commercial purposes because the ground floor of the college building is being used and rented by a commercia

establishment, the Northern Marketing Corporation.

ISSUES:

(1) Was there a valid seizure and sale of the college lot and building? YES

(2) Was petitioner exempted from paying property taxes and realty taxes? NO

HELD:

PERTINENT LAWS which grants exemption for "cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings,

and improvements used exclusively for religious, charitable or educational purposes:


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o The Constitutional provision (Sec. 22, par. 3, Article VI, 1935 Constitution) which expressly grants exemption from realty taxes

o Assessment Law which exempts from real property tax

Petitioner argues that the primary use of the school lot and building is the basic and controlling guide, norm and standard to determine tax

exemption, and not the mere incidental use thereof.

In YMCA of Manila vs. Collector of lnternal Revenue (1916), this Court ruled that while it may be true that the YMCA keeps a lodging and a

boarding house and

Documents

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