Eastern Theatrical Co

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British American Tobacco vs Camacho and Parayno

BRITISH AMERICAN TOBACCO, vs. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Departmentof Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner of the Bureau of Internal Revenues.

PHILIP MORRIS PHILIPPINES MANUFACTURING, INC., FORTUNE TOBACCO CORP., MIGHTY CORPORATION, and JT INTERNATIONAL [G.R. No. 163583. April 15, 2009.](Motion for Reconsideration of the 2008 case)

Facts: To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2 whichclassified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands,or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that theappropriate survey to determine their current net retail price is conducted. In June 2001 British American Tobaccointroduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with asuggested retail price of P9.90 per pack. 3 Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack.On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof forthe purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-

2003 5 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail pricesof new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky StrikeLights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack,respectively. Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack. Thus filed before theRegional Trial Court (RTC) of Makati, Branch 61, a petition for injunction with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil Case No. 03-1032. Said petition soughtto enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 andRevenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. The trial court rendered a decisionupholding the constitutionality of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and

Revenue Memorandum Order No. 6-2003Issue/ Held: W/N the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.- NORatio: In the instant case, there is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. And, for reasons already advertedto in our August 20, 2008 Decision, the four-fold test has been met in the present case. As held in the assailed Decision,the instant case neither involves a suspect classification nor impinges on a fundamental right. Consequently, the rationalbasis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protectionchallenge. It has been held that "in the areas of social and economic policy, a statutory classification that neitherproceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if thereis any reasonably conceivable state of facts that could provide a rational basis for the classification." Under the rationalbasis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest.Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from its

coverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply tofuture conditions as well. This is not the case here. The classification freeze provision uniformly applies to all cigarettebrands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brandfrom its operation nor single out a brand for the purpose of imposition of excise taxes.

Commissioner on Internal Revenue vs Fortune Tobacco Corporation

ABAKADA Guro Party List vs Ermita



Facts: On May 24, 2005, the President signed into lawRepublic Act 9337 or the VAT Reform Act. Before thelawtook effect on July 1, 2005, the Court issued a TRO

enjoining government from implementing the law inresponse to a slew of petitions for certiorari and prohibitionquestioning the constitutionality of the new law.

The challenged section of R.A. No. 9337 is the commonproviso in Sections 4, 5 and 6: “That the President, uponthe recommendation of the Secretary of Finance, shall,effective January 1, 2006, raise the rate of value-added

tax to 12%, after any of the following conditions has beensatisfied:

(i) Value-added tax collection as a percentage of GrossDomestic Product (GDP) of the previous year exceeds twoand four-fifth percent (2 4/5%);

or (ii) National government deficit as a percentage of GDPof the previous year exceeds one and one-half percent(1½%)”

Petitioners allege that the grant of stand-by authority to thePresident to increase the VAT rate is an abdicationbyCongress of its exclusive power to tax because suchdelegation is not covered by Section 28 (2), Article VI

Consti. They argue that VAT is a tax levied on the sale or exchange ofgoods and services which can’t be includedwithin the purview of tariffs under the exemptiondelegation since this refers to customs duties, tolls or tribute payable upon merchandise to the government and



usually imposed on imported/exported goods. They alsosaid that the President has powers to cause, influence or create the conditions provided by law to bring about the

conditions precedent. Moreover, they allege that noguiding standards are made by law as to how theSecretary of Finance will make the recommendation.

Issue: Whether or not the RA 9337's stand-by authority tothe Executive to increase the VAT rate, especially onaccount of the recommendatory power granted to theSecretary of Finance, constitutes undue delegation of

legislative power? NO

Issue 2: Whether or not there is a violation of the due process and equal protection under

Article III Sec. 1 of the Constitution.

Held: The powers which Congress is prohibited fromdelegating are those which are strictly, or inherently andexclusively, legislative. Purely legislative power which cannever be delegated is the authority to make a completelaw- complete as to the time when it shall take effect andas to whom it shall be applicable, and to determine theexpediency of its enactment. It is the nature of the power and not the liability of its use or the manner of its exercisewhich determines the validity of its delegation.

The exceptions are:

(a) delegation of tariff powers to President under Constitution



(b) delegation of emergency powers to President under Constitution

(c) delegation to the people at large

(d) delegation to local governments

(e) delegation to administrative bodies

For the delegation to be valid, it must be complete and itmust fix a standard. A sufficient standard is one which

defines legislative policy, marks its limits, maps out itsboundaries and specifies the public agency to apply it.

In this case, it is not a delegation of legislative power BUTa delegation of ascertainment of facts upon whichenforcement and administration of the increased rateunder the law is contingent. The legislature has made theoperation of the 12% rate effective January 1, 2006,

contingent upon a specified fact or condition. It leaves theentire operation or non-operation of the 12% rate uponfactual matters outside of the control of the executive. Nodiscretion would be exercised by the President.Highlighting the absence of discretion is the fact that theword SHALL is used in the common proviso. The use of the word SHALL connotes a mandatory order. Its use in a

statute denotes an imperative obligation and isinconsistent with the idea of discretion.

Thus, it is the ministerial duty of the President toimmediately impose the 12% rate upon the existence of any of the conditions specified by Congress. This is a



duty, which cannot be evaded by the President. It is aclear directive to impose the 12% VAT rate when thespecified conditions are present.

Congress just granted the Secretary of Finance theauthority to ascertain the existence of a fact--- whether byDecember 31, 2005, the VAT collection as a percentage of GDP of the previous year exceeds 2 4/5 % or the nationalgovernmentdeficit as a percentage of GDP of the previousyear exceeds one and 1½%. If either of these twoinstances has occurred,the Secretary of Finance, by

legislative mandate, must submit such information to thePresident.

In making his recommendation to the President on theexistence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is acting as the agent of the

legislative department, to determine and declare the eventupon which its expressed will is to take effect. TheSecretary of Finance becomes the means or tool by whichlegislative policy is determined and implemented,considering that he possesses all the facilities to gather data and information and has a much broader perspectiveto properly evaluate them. His function is to gather andcollate statistical data and other pertinent information and

verify if any of the two conditions laid out by Congress ispresent.

Congress does not abdicate its functions or undulydelegate power when it describes what job must be done,



who must do it, and what is the scope of his authority; inour complex economy that is frequently the only way inwhich the legislative process can go forward.

There is no undue delegation of legislative power but onlyof the discretion as to the execution of a law. This isconstitutionally permissible. Congress did not delegate thepower to tax but the mere implementation of the law.

Held ISSUE 2:

The power of the State to make reasonable and natural classifications for the purposes of taxation

has long been established. Whether it relates to the subject of taxation, the kind of property, the

rates to be levied, or the amounts to be raised, the methods of assessment, valuation and

collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will not

interfere with such power absent a clear showing of unreasonableness, discrimination, or

arbitrariness.

D. Non-Impairments of Contracts

Section 10. No law impairing the obligation of contracts shall be passed.

Republic of the Philippines vs Caguioa

Meralco vs Province of Laguna

Cagayan Electric Power and Light Co., Inc. Vs Commissioner on Internal Revenue

Cagayan Electric vs. CommissionerFacts:

Cagayan Electric Power & Light Co., Inc is the holder of a legislative franchise, Republic Act No.3247, under which its payment of 3% tax on its gross earnings from the sale of electric current is"in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income,franchise, and poles, wires, transformers, and insulators of the grantee, from which taxes and

assessments the grantee is hereby expressly exempted. On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by making liable for

income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said sectionand section 27 of the Tax Code notwithstanding the "provisions of existing special or generallaws to the contrary". Thus, franchise companies were subjected to income tax in addition tofranchise tax.

On August 4, 1969, petitioner’s franchise was amended thereby reenacting the tax exemption inits original charter.



By reason of the amendment to section 24 of the Tax Code, the Commissioner of InternalRevenue required the petitioner to pay deficiency income taxes for 1968-to 1971. The petitionercontested the assessments. The Commissioner cancelled the assessments for 1970 and 1971 butinsisted on those for 1968 and 1969.

The petitioner filed a petition for review with the Tax Court, which on February 26, 1982 held thepetitioner liable only for the income tax for the period from January 1 to August 3, 1969 or before

the passage of Republic Act No. 6020 which reiterated its tax exemption. The petitioner appealedto the Supreme Court.

Issue: WON Cagayan Electric is liable for income tax (aside from franchise tax) from January to August1969.No.Ratio:

The petitioner’s exemption was restored by the subsequent enactment of Republic Act No.6020 on August 4, 1969. The Tax Court thus acted correctly in holding petitioner liable forincome tax from January 1 to August 3, 1969, the period when its tax exemption wasmodified by Republic Act No. 5431.

The SC however noted that the 1969 assessment was highly controversial. The Commissioner

at the outset was not certain as to petitioner's income tax liability. For this reason, the Courtheld that Cagayan Electric should be liable only for tax proper and should not be held liablefor the surcharge and interest.

Issue 2 : Whether the withdrawal of the franchise’s tax exemption violates the non-impairmentclause of the Constitution.

Congress could impair the company’s legislative franchise by making it liable for income tax.The Constitution provides that a franchise is subject to amendment, alteration or repeal by theCongress when the public interest so requires. RA 3247 itself provides that the franchise issubject to amendment, etc. By Congress.

The enactment of RA 5431 had the effect of withdrawing the company’s exemption from incometax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income tax for the period of 1 January to 3 August 1969.

Casanovas vs Hord

Facts: The Spanish Govt. by virtue of a royal decree granted the

plaintiff certain mines. The plaintiff is now the owner of those mines.The

Collector of Internal Revenue imposed tax on the properties, contending that they

were valid perfected mine concessions and it falls within the provisions of sec.134

of Act No. 1189 known as Internal Revenue Act. The plaintiff paid under protest. Hebrought an action against the defendant Collector of Internal Revenue to recover

the sum of Php. 9, 600 paid by him as taxes. Judgment was rendered in favor of

the defendant, so the plaintiff appealed.

Issue: Whether or Not Sec. 164 is void or valid.



Held: The deed constituted a contract between the Spanish Government

and the plaintiff. The obligation of which contract was impaired by the enactment of

sec. 134 of the Internal Revenue Law infringing sec. 5 of the Act of Congress whichprovides that “no law impairing the obligation of contracts shall be enacted”. Sec.

134 of the Internal Revenue Law of 1904 is void because it impairs the obligation

of contracts contained in the concessions of mine made by the Spanish

Government. Judgment reversed.

Philippine Rural Electric Cooperatives Association vs DILG and DOF

Philippine Rural Electric Cooperative Association Inc. (PHILRECA), et. al. vs. Secretary of

Department of Interior and Local Government (DILG) [GR 143076, 10 June 2003]

En Banc, Puno (J): 13 concur

Facts: Under Presidential Decree (PD) 269, as amended, or the National Electrification Administration

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, PD 269 aims to “promote, encourage and assist all public service entities

engaged in supplying electric service, particularly electric cooperatives” by “giving every tenable

support and assistance” to the electric cooperatives coming within the purview of the law. From 1971

to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the

Philippine Government, acting through the National Economic Council (now National EconomicDevelopment Authority) and the NEA (National Electrification Administration), entered into 6 loan

agreements with the government of the United States of America through the United States Agency for

International Development (USAID) with electric cooperatives, including Agusan Del Norte Electric

Cooperative, Inc. (ANECO); Iloilo I Electric Cooperative, Inc. (ILECO I); and Isabela I Electric Cooperative,

Inc. (ISELCO I), as beneficiaries. The 6 loan agreements involved a total amount of approximately

US$86,000,000.00. These loan agreements are existing until today. 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. On 23 May 2000, a class suit was filed by the Philippine Rural Electric

Cooperatives Association, Inc. (PHILRECA); ANECO, ILECO I and ISELCO I; in their own behalf and in

behalf of other electric cooperatives organized and existing under PD 269, against the

Secretary of the Department of Interior and Local Government (DILG) and the Secretary of theDepartment of Finance, through a petition for prohibition, contending that pursuant to the provisions of

PD 269, as amended, and the provision in the loan agreements, they are exempt from payment of local

taxes, including payment of real property tax.

With the passage of the Local Government Code, however, they allege that their tax exemptions have

been invalidly withdrawn, in violation of the equal protection clause and impairing the obligation of

contracts between the Philippine Government and the United States Government.



Issue: Whether the Local Government Code unduly discriminated against electric cooperatives organized

and existing under PD 269, in violation of the equal protection clause, by providing a different tax

treatment between the former and cooperatives created under RA 6938.

Held: 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 laws is not

violated by a law based on reasonable classification.

Classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the

purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members

of the same class. There is reasonable classification under the Local Government Code to justify the

different tax treatment between electric cooperatives covered by PD 269, as amended, and electric

cooperatives under RA 6938 (Cooperative Code of the Philippines).

First, nowhere in PD 269, as amended, does it require cooperatives to make equitable contributions to

capital. Under the Cooperative Code, the articles of cooperation of a cooperative applying for

registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has

been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up

share capital be less than P2,000.00. Second, another principle adhered to by the Cooperative Code is

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. In contrast, PD 269, as amended by PD 1645, is replete with provisions

which grant the NEA, upon the happening of certain events, 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 PD 269, as amended, is largely a function of the role of the NEA as

a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from

various sources to finance the development and operations of the electric cooperatives. Consequently,amendments to PD 269 were primarily geared to expand the powers of the NEA over the electric

cooperatives to ensure that loans granted to them would be repaid to the government. In contrast,

cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations with

minimal government intervention or regulation. Lastly, the transitory provisions of RA 6938 are

indicative of the recognition by Congress of the fundamental distinctions between electric cooperatives

organized under PD 269, as amended, and cooperatives under the new Cooperative Code. Article 128 of

the Cooperative Code provides that all cooperatives registered under previous laws shall be deemed

registered with the CDA upon submission of certain requirements within one year. However,

cooperatives created under PD 269, as amended, are given three years within which to qualify and

register with the CDA, after which, provisions of PD 1645 which expand the powers of the NEA over

electric cooperatives, would no longer apply.

Non-Imprisonment for non-payment of poll tax

Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.

Freedom of Religion

American Bible Society vs City of Manila

American Bible Society vs. City of Manila



GR No. L-9637 | April 30, 1957

Facts:

American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly

registered and doing business in the Philippines through its Philippine agency established in Manila in

November, 1898

City of Manila is a municipal corporation with powers that are to be exercised in conformity with the

provisions of Republic Act No. 409, known as the Revised Charter of the City of Manila

American Bible Society has been distributing and selling bibles and/or gospel portions throughout the

Philippines and translating the same into several Philippine dialect

City Treasurer of Manila informed American Bible Society that it was violating several Ordinances for

operating without the necessary permit and license, thereby requiring the corporation to secure the

permit and license fees covering the period from 4Q 1945-2Q 1953

To avoid closing of its business, American Bible Society paid the City of Manila its permit and license

fees under protest

American Bible filed a complaint, questioning the constitutionality and legality of the Ordinances 2529

and 3000, and prayed for a refund of the payment made to the City of Manila. They contended:

a. They had been in the Philippines since 1899 and were not required to pay any license fee or sales tax

b. it never made any profit from the sale of its bibles

City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of the

Ordinances in question

Trial Court dismissed the complaint

American Bible Society appealed to the Court of Appeals

Issue 1: Whether or not the said ordinances are constitutionaland valid (contention: it restrains the free exercise andenjoyment of the religious profession and worship of appellant).

Held: Section 1, subsection (7) of Article III of theConstitution, provides that:

(7) No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the

free exercise and enjoyment of religious profession andworship, without discrimination or preference, shall forever be allowed. No religion test shall be required for theexercise of civil or political rights.



The provision aforequoted is a constitutional guaranty of the free exercise and enjoyment of religious professionand worship, which carries with it the right to disseminate

religious information.

It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in someinstances a little bit higher than the actual cost of the samebut this cannot mean that appellant was engaged in thebusiness or occupation of selling said "merchandise" for profit. For this reason. The Court believe that the

provisions of City of ManilaOrdinance No. 2529, asamended, cannot be applied to appellant, for in doing so itwould impair its free exercise and enjoyment of itsreligious profession and worship as well as its rights of dissemination of religious beliefs.

With respect to Ordinance No. 3000, as amended, the

Court do not find that it imposes any charge upon theenjoyment of a right granted by the Constitution, nor taxthe exercise of religious practices.

It seems clear, therefore, that Ordinance No. 3000 cannotbe considered unconstitutional, however inapplicable tosaid business, trade or occupation of the plaintiff. Asto OrdinanceNo. 2529 of the City of Manila, as amended,is also not applicable, so defendant is powerless to licenseor tax the business of plaintiff Society.

Issue 2: WON American Bible Society liable to pay sales tax for the distribution and sale of bibles

Ruling: NO



Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity engaged in any of

the business, trades or occupation enumerated under Sec. 3 must obtain a Mayor’s permit and license

from the City Treasurer. American Bible Society’s business is not among those enumerated

However, item 79 of Sec. 3 of the Ordinance provides that all other businesses, trade or occupation

not mentioned, except those upon which the City is not empowered to license or to tax P5.00

Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax

said business, trade or occupation.

2 provisions of law that may have bearing on this case:

a. Chapter 60 of the Revised Administrative Code, the Municipal Board of the City of Manila is

empowered to tax and fix the license fees on retail dealers engaged in the sale of books

b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general merchandise, including

importers and indentors, except those dealers who may be expressly subject to the payment of some

other municipal tax. Further, Dealers in general merchandise shall be classified as (a) wholesale

dealers and (b) retail dealers. For purposes of the tax on retail dealers, general merchandise shall be

classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential

commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but

where commodities of different classes are sold in the same establishment, it shall not be compulsory

for the owner to secure more than one license if he pays the higher or highest rate of tax prescribed by

ordinance. Wholesale dealers shall pay the license tax as such, as may be provided by ordinance

The only difference between the 2 provisions is the limitation as to the amount of tax or license fee

that a retail dealer has to pay per annum

As held in Murdock vs. Pennsylvania, The power to impose a license tax on the exercise of these

freedoms provided for in the Bill of Rights, is indeed as potent as the power of censorship which this

Court has repeatedly struck down. It is not a nominal fee imposed as a regulatory measure to defray

the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax

levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the

constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is

almost uniformly recognized as the inherent vice and evil of this flat license tax.

Further, the case also mentioned that the power to tax the exercise of a privilege is the power tocontrol or suppress its enjoyment. Those who can tax the exercise of this religious practice can make

its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax

the privilege of engaging in this form of missionary evangelism can close all its doors to all those who

do not have a full purse

Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal Revenue

Code,Corporations or associations organized and operated exclusively for religious, charitable, . . . or

educational purposes, . . .: Provided, however, That the income of whatever kind and character from

any of its properties, real or personal, or from any activity conducted for profit, regardless of the

disposition made of such income, shall be liable to the tax imposed under this Code shall not be taxed

The price asked for the bibles and other religious pamphlets was in some instances a little bit higher

than the actual cost of the same but this cannot mean that American Bible Society was engaged in thebusiness or occupation of selling said "merchandise" for profit

Therefore, the Ordinance cannot be applied for in doing so it would impair American Bible Society’s

free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination

of religious beliefs.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision

appealed from, sentencing defendant return to plaintiff the sum of P5,891.45 unduly collected

from it



Prohibition against Taxation of Real Property of Charitable institutions, churches, parsonages or

convents, mosques and non-profit cemeteries

Section 28.

1. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressivesystem of taxation.

2. The Congress may, by law, authorize the President to fix within specified limits, and subjectto such limitations and restrictions as it may impose, tariff rates, import and export quotas,tonnage and wharfage dues, and other duties or imposts within the framework of the nationaldevelopment program of the Government.

3. Charitable institutions, churches and personages or convents appurtenant thereto, mosques,non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, andexclusively used for religious, charitable, or educational purposes shall be exempt fromtaxation.

4. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress.

LLADOC vs COMMISSIONER OF INTERNAL REVENUE

Facts: In 1957, the MB Estate Inc. of Bacolod City donated P10,000 in cash to the parish priest of

Victorias, Negros Occidental; the amount spent for the construction of a new Catholic Church in the

locality,m as intended. In1958, MB Estate filed the donor’s gift tax return. In 1960, the Commissioner

issued an assessment for donee’s gift tax against the parish. The priest lodged a protest to the

assessment and requested the withdrawal thereof.

Issue: Whether the Catholic Parish is tax exempt.

Held: The phrase “exempt from taxation” should not be interpreted to mean exemption from all kinds

of taxes. The exemption is only from the payment of taxes assessed on such properties as property

taxes as contradistinguished from excise taxes. A donee’s gift tax is not a property tax but an excise

tax imposed on the transfer of property by way of gift inter vivos. It does not rest upon general

ownership, but an excise upon the use made of the properties, upon the exercise of the privilege of

receiving the properties. The imposition of such excise tax on property used for religious purpose do

not constitute an impairment of the Constitution.

The tax exemption of the parish, thus, does not extend to excise taxes.

Abra Valley College Inc. vs Aquino

FACTS: Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities

and Exchange Commission in 1948, filed a complaint to annul and declare void the “Notice of Seizure’ and the

“Notice of Sale” of its lot and building located a t Bangued, Abra, for non-payment of real estate taxes and penalties

amounting to P5,140.31. Said “Notice of Seizure” by respondents Municipal Treasurer and Provincial Treasurer,

defendants below, was issued for the satisfaction of the said taxes thereon.



The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The

trial court ruled for the government, holding that the second floor of the building is being used by the director for

residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial

establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an

appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before the

Supreme Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational purposes.

HELD: Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from

realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and

improvements used exclusively for religious, charitable or educational purposes.ﾝ Reasonable emphasis has always

been made that the exemption extends to facilities which are incidental to and reasonably necessary for the

accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither

contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the Northern

Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be

returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercialpurposes (leased) and the second floor being used as incidental to education (residence of the director).

HERRERA vs QUEZON CITY BOARD OF ASSESSMENT APPEALS

Herrera vs. Quezon City Board of Assessment Appeals

The Director of Bureau of Hospitals authorized the petitioners to establish and operate the St. Catherine’s Hospital. Petitio ners

sent a letter to the QC Assessor requesting exemption from payment of real estate tax on the lot, building and other

improvement comprising the hospital on the ground that it was established for charitable and humanitarian purposes, not for

commercial gain. Exemption was granted for the years 1953 to 1955.

Subsequently, the QC Assessor notified the petitioners that the said properties were reclassified from exempt to taxable, and

assessed them for real property taxes. Petitioner appealed the assessment to the respondent, which affirmed the decision of

the Assessor.

Issue: whether or not the lot, building and other improvements occupied by the St. Catherine Hospital are exempt from the real

property tax.

Ruling:

In this case, the building involved in this case is principally used as a hospital. It is used mainly as a surgical and orthopedic

hospital. The hospital admits both charity and pay patients. Petitioners also operate within the premises of the hospital a

School of midwifery wherein the students therein are charged a matriculation. The students practice both in St. Catherine’s and

St. Mary’s Hospital, the latter also owned by petitioners. A separate set of accounting books is maintained by the school for

midwifery distinct from that kept by the hospital.

It must be noted that of the 32 beds in the hospital, 20 are for charity patients. However, the income realized from pay patients

is spent for improvement of the charity wards. The admission of pay patients does not detract from the charitable character of

Where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted

to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprive the hospital of its

benevolent character



a hospital, if all its funds exclusively to the maintenance of the institution as a public charity. Where rendering charity is its

primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes

of the institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character.

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is not limited to property

actually indispensable therefore but extends to facilities which are incidental to and reasonably necessary for the

accomplishment of the said purposes, such as, in the case of hospitals, "a school for training nurses, a nurses' home, property

use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, andrecreational facilities for student nurses, interns and residents".

The St. Catherine's Hospital is, therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from

claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income derived from pay-patients is

devoted to the improvement of the charity wards. The existence of "St. Catherine's School of Midwifery" does not, and cannot,

affect the exemption to which St. Catherine's Hospital is entitled under our fundamental law

Bishop of Nueva Segovia vs Provincial Board of Ilocos Norte

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