Tax Week 3 Digests - Updated

7/28/2019 Tax Week 3 Digests - Updated

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g. Prohibition re: appropriation of proceeds of taxation

The use of tax levied for special purpose

Osmena v Orbos

(31 March 1993)

Ponente: Narvasa, CJ.

Facts:

On October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating aSpecial Account in the General Fund, designated as the Oil Price Stabilization Fund(OPSF). It was designed to reimburse oil companies for cost increases in crude oil andimported petroleum products resulting from exchange rate adjustments and fromincreases in the world market prices of crude oil.

Later, the OPSF was reclassified into a "trust liability account," by virtue of

Executive Order (E.O.) 1024, and ordered released from the National Treasury to theMinistry of Energy.

President Corazon C. Aquino, a mending PD 1956, promulgated Executive OrderNo. 137, expanding the grounds for reimbursement to oil companies for possible costunder recoveryincurred due to the reduction of domestic prices of petroleum products,the amount of the under recovery being left for determination by the Ministry of Finance.

Petitioner argues, among others, that "the monies collected pursuant to P.D.1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a'trust fund,' and that "if a special tax is collected for a specific purpose, the revenuegenerated therefrom shall 'be treated as a special fund' to be used only for the purposeindicated, and not channeled to another government objective." Further, that since "a

'special fund' consists of monies collected through the taxing power of a State, suchamounts belong to the State, although the use thereof is limited to the specialpurpose/objective for which it was created."

He also contends that the "delegation of legislative authority" to the EnergyRegulatory Board (ERB) violates Section 28 (2) of Article VI of the Constitution and,inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,limitations and restrictions must be quantitative, that is, the law must not only specifyhow to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limiton how much to tax."

Petitioner assumes that the Fund is formed from a tax undoubtedly because aportion thereof is taken from collections of ad valorem taxes and the increases thereon.

Thus, the petitioner seeks the corrective, prohibitive and coercive remediesprovided by Rule 65 of the Rules of Court.

Issues:

1. Were the reimbursements made to the oil companies out of the OPSF legal? No.Held & Ratio:

1. The petition assails the payment of certain items or accounts in favorof the petroleum companies (i.e., inventory losses, financing charges, fuel oil sales tothe National Power Corporation, etc.) because not authorized by law. Petitionercontends that "these claims are not embraced in the enumeration in 8 of P.D. 1956 .since none of them was incurred 'as a result of the reduction of domestic prices ofpetroleum products,'" and since these items are reimbursements for which the OPSFshould not have responded, the amount of the P12.877 billion deficit "should bereduced by P5,277.2 million." It is argued "that under the principle of ejusdem generis. . . the term 'other factors' (as used in 8 of P.D. 1956) . can only include such 'otherfactors' which necessarily result in the reduction of domestic prices of petroleumproducts."

The Court thus holds, that the reimbursement of financing charges is notauthorized by paragraph 2 of 8 of P.D. 1956, for the reason that they were notincurred as a result of the reduction of domestic prices of petroleum products. Underthe same provision, however, the payment of inventory losses is upheld as valid, beingclearly a result of domestic price reduction, when oil companies incur a costunderrecovery for yet unsold stocks of oil in inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the NationalPower Corporation is equally permissible, not as coming within the provisions of P.D.1956, but in virtue of other laws and regulations as held in Caltex 29 and which havebeen pointed to by the Solicitor General. At any rate, doubts about the propriety ofsuch reimbursements have been dispelled by the enactment of R.A. 6952, establishingthe Petroleum Price Standby Fund, 2 of which specifically authorizes thereimbursement of "cost underrecovery incurred as a result of fuel oil sales to theNational Power Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantivediscussion has been presented to show how this is prohibited by P.D. 1956. Nor hasthe Solicitor General taken any effort to defend the propriety of this refund. In fine,neither of the parties, beyond the mere mention of overpayment refunds, has at allbothered to discuss the arguments for or against the legality of the so-calledoverpayment refunds. To be sure, the absence of any argument for or against thevalidity of the refund cannot result in its disallowance by the Court. Unless theimpropriety or illegality of the overpayment refund has been clearly and specificallyshown, there can be no basis upon which to nullify the same.


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Disposition:

WHEREFORE, the petition is GRANTED insofar as i t prays for the nullification ofthe reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in allother respects.

Vote:

Cruz, Feliciano, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon,Bellosillo, Melo, Campos, Jr., and Quiason, JJ., concur.Gutierrez, Jr., J., is on leave.

-Wiggy

GASTON v. REPUBLIC PLANTERS BANK(March 15, 1988)

Doctrine: Revenues derived from taxes cannot be used for purely private purposes orfor the exclusive benefit of private persons.

Date: March 15, 1988

Nature: Petition for writ of mandamus before the Supreme Court

Ponente: Melencio-Herrera,J.

Facts:

1. Petitioners and intervenors are sugar producers, sugarcane planters andmillers, who have come to the Court in their individual capacities and inrepresentation of other sugar producers, planters and millers for the issuanceof writ of mandamus, praying that respondent Philippine Sugar Commission(PHILSUCOM), superseded by its co-respondent Sugar RegulatoryAdministration (SRA), and Republic Planters Bank (RPB), a commercialbanking corporation, be ordered to implement the privatization of the Bankby the transfer and distribution of the shares of stock of the said Bank, which isin the name of PHILSUCOM, to the sugar producers, millers and planters, who

are the true and beneficial owners thereof.a. Petitioners: The sugar producers, millers and planters from whom

the sugar levy was collected were the true and beneficial owner of theshares of stock of RPB, purchased using the [Sugar]Development andStabilization Fund. The monies collected were held in trustPHILSUCOM.

b. Respondents: PHILSUCOM and SRA argued that no trust results andthat the stabilization fees collected are considered government funds,that the transfer of shares of stock from PHILSUCOM to the sugarproducers would be irregular, if not illegal.

Issue:

1. Whether the stabilization fees collected from sugar planters and millerspursuant to Section 7 of P.D. No. 388 are funds in trust for them, or publicfunds. They are PUBLIC FUNDS

2. Whether the shares of stock of respondent Bank paid for with saidstabilization fees belong to PHILSUCOM, or to the different sugar plantersand millers from whom the fees were levied. It belongs to PHILSUCOM

Held:

1. The monies are public funds. The Supreme Court held that the stabilizationfees collected are in the nature of a tax which constitutes public funds, whichis within the power of the State to impose for the promotion of the sugarindustry (Lutz vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec.

7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a"Development and Stabilization Fund," almost Identical to the "SugarAdjustment and Stabilization Fund" created under Section 6 ofCommonwealth Act 567. The tax collected is not in a pure exercise of thetaxing power. It is levied with a regulatory purpose, to provide means for thestabilization of the sugar industry. The levy is primarily in the exercise of thepolice power of the State.

a. Special purpose of the levy: "financing the growth and developmentof the sugar industry and all its components, stabilization of thedomestic market including the foreign market

b. The fact that the State has taken possession of moneys pursuant tolaw is sufficient to constitute them state funds, even though they areheld for a special purpose.

c.

Having been levied for a special purpose, the revenues collected areto be treated as a special fund, to be, in the language of the statute,"administered in trust' for the purpose intended. Once the purposehas been fulfilled or abandoned, the balance, if any, is to betransferred to the general funds of the Government.

d. The character of the Stabilization Fund as a special fund isemphasized by the fact that the funds are deposited in thePhilippine National Bank and not in the Philippine Treasury,moneys from which may be paid out only in pursuance of anappropriation made by law.

2. There is no resulting trust. That the fees were collected from sugar producers,planters and millers, and that the funds were channelled to the purchase ofshares of stock in respondent Bank do not convert the funds into a trustformed for their benefit nor make them the beneficial owners of the sharesso purchased.

a. To rule in petitioners' favor would contravene the generalprinciple that revenues derived from taxes cannot be used for

purely private purposes or for the exclusive benefit of private

persons. The Stabilization Fund is to be utilized for the benefit ofthe entire sugar industry, "and all its components, stabilization ofthe domestic market," including the foreign market the industrybeing of vital importance to the country's economy and to nationalinterest.

b. There is no resulting trust. While the element of intent to create atrust is present, a resulting trust in favor of the sugar producers,millers and planters cannot be said to have ensued because thepresumptive intention of the parties is not reasonably ascertainable

from the language of the statute. The doctrine of resulting trust, as


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a general rule, arises where, and only where, such may be reasonablypresumed to be the intention of the parties.

c. There is no implied trust either. The essential idea of an implied trustinvolves a certain antagonism between the cestui que trust and thetrustee, even when the trust has not arisen out of fraud nor out of anytransaction of a fraudulent or immoral character. It is not clearlyshown from the statute that PHILSUCOM imposed on itself theobligation of holding the stabilization fund for the benefit of the sugarproduces. It must be categorically demonstrated that the very

administrative agency which is the source of such regulation wouldplace a burden on itself.

Dispositive: The Writ of mandamus is denied and the Petition hereby dismissed. Nocosts.

Vote: 14-0 (Fernan,J. took no part)

- Sandy (from the digest made by Wiggy)

h. Prohibition against taxation of religious, charitable entities and educational

entities

ABRA VALLEY COLLEGE V. AQUINO(June 15, 1988)ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs. HON.

JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, ProvincialTreasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF

PATERNO MILLARE, respondents.

NOTES:

Tax Involved: Real Estate Tax on the college lot and building Real Property Tax (Mamalateo) imposed on real property such as land, buildings,

machinery and other improvements not otherwise exempted. (Gee! Thanks CaptainObvious! Also, sister said Real Estate Tax and Real Property Tax are one and thesame thing so if maam objects blame my sister not me, okay?)

DOCTRINE:

The exemption in favor of property used exclusively for charitable or educationalpurposes is 'not limited to property actually indispensable' therefor, but extends tofacilities which are incidental to and reasonably necessary for the accomplishment of

said purposes.

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes"as provided for in Article VI, Section 22, paragraph 3 of the 1935 PhilippineConstitution, reasonable emphasis has always been made that exemption extendsto facilities which are incidental to and reasonably necessary for the

accomplishment of the main purposes.

NATURE: This is a petition for review on certiorari of the decision * of the defunct Courtof First InstancePONENTE: PARAS, J.:

FACTS:

Petitioner, an educational corporation and institution of higher learning dulyincorporated with the Securities and Exchange Commission in 1948, filed acomplaint to annul and declare void the "Notice of Seizure' and the "Notice ofSale" of its lot and building located at Bangued, Abra, for non-payment of realestate taxes and penalties amounting to P5,140.31.

Said "Notice of Seizure" of the college lot and building was issued for thesatisfaction of the said taxes thereon.

The "Notice of Sale" was caused to be served upon the petitioner by therespondent treasurers on July 8, 1972 for the sale at public auction of said collegelot and building, which sale was held on the same date.

The trial court among others, found the following:o that the school is recognized by the government and is offering Primary,

High School and College Courses, and has a school population of more thanone thousand students all in all;

o That the Director with his family is in the second floor of the main building;o that the annual gross income of the school reaches more than one hundred

thousand pesos.

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon.Eustaquio Z. Montero, filed a Memorandum for the Government on March 25,1974, and a Supplemental Memorandum on May 7, 1974, wherein they opined

"that based on the evidence, the laws applicable, court decisions andjurisprudence, the school building and school lot used for educational purposes ofthe Abra Valley College, Inc., are exempted from the payment of taxes.

The trial court disagreed because of the use of the second floor by the Director ofpetitioner school for residential purposes. He thus ruled for the government andrendered the assailed decision.

ISSUES: Whether or not the lot and building in question are used exclusively foreducational purposes and therefore exempt from paying real estate taxes.

HELD: Under the 1935 Constitution, the trial court correctly arrived at theconclusion that the school building as well as the lot where it is built, should be

taxed, not because the second floor of the same is being used by the Director and his

family for residential purposes, but because the first floor thereof is being used forcommercial purposes. However, since only a portion is used for purposes ofcommerce, it is only fair that half of the assessed tax be returned to the schoolinvolved.

RATIO/RULING:

Petitioner's Contention

the primary use of the lot and building for educational purposes, and not theincidental use thereof, determines and exemption from property taxes underSection 22 (3), Article VI of the 1935 Constitution

Respondent's Contention

private respondents maintain that the college lot and building in question whichwere subjected to seizure and sale to answer for the unpaid tax are used: (1) for


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the educational purposes of the college; (2) as the permanent residence of thePresident and Director thereof, Mr. Pedro V. Borgonia, and his family including thein-laws and grandchildren; and (3) for commercial purposes because the groundfloor of the college building is being used and rented by a commercial establishment,the Northern Marketing Corporation

COURT'S RULING

Due to its time frame, the constitutional provision which finds application in thecase at bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine

Constitution, which 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...o Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as

amended by Republic Act No. 409, otherwise known as the Assessment Law,provides that "(c) churches and parsonages or convents appurtenant thereto, andall lands, buildings, and improvements used exclusively for religious, charitable,

scientific or educational purposes."

The Court also cited a series of jurisprudence which dealt with the issue at hand:o YMCA of Manila vs. Collector of lnternal Revenue: this Court ruled that while it

may be true that the YMCA keeps a lodging and a boarding house and maintainsa restaurant for its members, still these do not constitute business in the

ordinary acceptance of the word, but an institution used exclusively forreligious, charitable and educational purposes, and as such, it is entitled to beexempted from taxation.

o Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte: It was clarified thatthe term "used exclusively" considers incidental use also. Thus, the exemptionfrom payment of land tax in favor of the convent includes, not only the landactually occupied by the building but also the adjacent garden devoted to theincidental use of the parish priest. The lot which is not used for commercialpurposes but serves solely as a sort of lodging place, also qualifies forexemption because this constitutes incidental use in religious functions.

o Herrera vs. Quezon City Board of assessment Appeals and Commissioner ofInternal Revenue vs. Bishop of the Missionary District: Moreover, theexemption in favor of property used exclusively for charitable or educationalpurposes is 'not limited to property actually indispensable' therefor, but extendsto facilities which are incidental to and reasonably necessary for the

accomplishment of said purposes.

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the phrase "exclusively used for educational purposes"as provided for in Article VI, Section 22, paragraph 3 of the 1935 PhilippineConstitution, reasonable emphasis has always been made that exemption extendsto facilities which are incidental to and reasonably necessary for the

accomplishment of the main purposes.o Otherwise stated, the use of the school building or lot for commercial purposes

is neither contemplated by law, nor by jurisprudence. Thus, while the use of thesecond floor of the main building in the case at bar for residential purposes ofthe Director and his family, may find justification under the concept ofincidental use, which is complimentary to the main or primary purpose educational, the lease of the first floor thereof to the Northern Marketing

Corporation cannot by any stretch of the imagination be consideredincidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have beenraised for the first time in this Court. That the matter was not taken up in the tocourt is really apparent in the decision of respondent Judge.o Indeed, it is axiomatic that facts not raised in the lower court cannot be taken

up for the first time on appeal. Nonetheless, as an exception to the rule, thisCourt has held that although a factual issue is not squarely raised below, stillin the interest of substantial justice, this Court is not prevented from

considering a pivotal factual matter.

DISPOSITION: PREMISES CONSIDERED, the decision of the Court of First Instance ofAbra, Branch I, is hereby AFFIRMED subject to the modification that half of theassessed tax be returned to the petitioner.

VOTE: SECOND DIVISION; Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ.,concur.

-David

LUNG CENTER OF THE PILIPPINES vs QUEZON CITY and CONSTANTINO P. ROSAS

(June 29, 2004)

Doctrine: Under the 1987 Constitution and RA 7160, in order to be entitled toexemption, the taxpayer is burdened to prove, by clear and unequivocal proof that (a)it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY, anEXCLUSIVELY used for charitable purposes.

Nature: Petition for review on certiorari of a decision of the Court of Appeals

Ponente: Callejo, Sr. J.

Facts:

- Petitioner is a non-stock and non-profit entity established on Jan. 16, 1981by virtue of PD 1823. It is the registered owner of a parcel of land at Q. Avecorner Elliptical Road, QC. The lot has an area of 121, 46 square meters.

- Erected on the said lot is a hospital known as the Lung Center of the Phils. Abig space at the ground floor is being leased to private parties, for canteenand small store spaces, and to medical or professional practitioners who usethe same as their private clinics.

- One half of the entire area of the left side of the building is vacant and idle,while a big portion on the right side, at the corner of Q. Ave ad EllipticalRoad, is being leased for commercial purposes to Elliptical Orchids andGarden Center.

- Petitioner accepts paying and non-paying patients. Aside from its income,from paying patients, it also receives annual subsidies from the government.

- June 7, 193: the land AND hospital building of the petitioner were assessedfor real property taxes1 in the amount if Php4,554,860 by the City Assessorof QC. On August 25, 1993, the petitioner filed a Claim for Exemption from

1 A property tax on local real estate


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real property taxes because it is a charitable institution, which was denied bythe respondent.

- A petition was thereafter filed by petitioner before the Local Board ofAssessment Appeals of QC (QC-LBAA), contending that a minimum of 60% of itshospital beds are exclusively used for charity patients and that as a charitableinstitution, it is exempt from real property taxes. QC-LBAA denied. CentralBoard of Assessment of Appeals of QC (CBAA) affirmed the decision. CA alsoaffirmed.

Issues:- WON the petitioner is a charitable institution within the context of PD 1823and the 1987 Constitution and R 7160 Sec 234(b) YES

- WON the real properties of the petitioner are exempt for taxation. PARTLYHeld:

1. The test whether an enterprise is charitable or not is whether it exists to carryout a purpose reorganized in law as charitable or whether it is maintained forgain, profit, or private advantage. Under PD 1823, the petitioner is a non-profitand non-stock corporation which is to be administered by the Office of thePresident with the Ministry of Health and the Ministry of Human Settlements.The raison detre for the creation of the petitioner is stated in the decree

Whereas, for decades, respiratory diseases have been a priority concern, having been the

leading cause of illness and death in the Philippines

Whereas, there is an urgent need to consolidate and reinforce existing programs and efforts

at preventing and treating of people affected by lung disease.. through a Lung Center whichwill house and nurture the above related activities

Whereas to achieve the purpose, the Government intends to provide material and financial

support towards the establishment and maintenance of a Lung Center for the welfare and

benefit of the Filipino people.

The purpose for which the petitioner was created was spelled out in its Articles ofIncorporation, thus:Second: That the purpose for which such corporation is formed is as follows:

1. To construct, establish, administer, and conduct an integrated medical institutionwhich shall specialize in the treatment, care, and rehabilitation of lung and allied

diseases

2. To promote the undertaking of scientific research related to the prevention oflung or pulmonary ailments

3. To facilitate the dissemination of ideas and public acceptance of information onlung consciousness or awareness

It is clear that the medical services of the petitioner are rendered to the public in general,as any person, rich or poor, may fall sick or be injured or wounded and become a subjectof charity. As a general principle, a charitable institution does not lose its character assuch and its exemption from taxes simply because it derives from paying patients,whether out-patient, or confined in the hospital, or receives subsidies from thegovernment, so long as the money received is devoted or used altogether to thecharitable object which it is intended to achieve; and no money inures to the private

benefit of the persons managing or operating the institution.

In this case, the petitioner adduced substantial evidence that it spent its income,including the subsidies from the government for 1991 and 1992 for its patients andfor the operation of the hospital. It even incurred a net loss in 1991and 1992 from itsoperation.

2. Those portions of land leased to private entities (Elliptical Orchids andGarden Center) as well as those parts of the hospital leased to privateindividual (medical professionals etc.) are not exempt from real propertytaxes as these are not actually, directly, and exclusively used for charitable

purposes. On the other hand, the portions of the land occupied by thehospital and portions of the hospital used for its patients, whether paying ornon-paying are exempt from real property taxes. The settled rule in thisjurisdiction is that laws granting exemption from tax are construedstrictissimi juris against the taxpayer.

a. Petitioner relies on Sec. 2 of PD 1823. However, under the decree,the petitioner does not enjoy any property tax exemption privilegesfor its real properties as well as the building constructed thereon.

Sec 2: Tax Exemptions and Privileges: Being a non-stock and non-profit

corporation organized primarily to help combat the high incidence of lung andpulmonary diseases in the Phils, all donations, contributions, endowments, and

equipments and supplies to be imported by authorized entities or persons and by

the Board of Trustees of the Lung Center of the Philippines, for the actual use and

benefit of the Lung Center shall be exempt from income and gift taxes, the same

further deductible in full for the purpose of determining the maximum deductible

amount under Sec 30 par (h) of the NIRC.

The Lung center of the Phils shall be exempt from the payment of taxes, charges,

and feed imposed by the Government or any political subdivision or

instrumentality thereof with respect to equipment purchases made by, or for

Lung Center.

The rule ofexpressio unius est exclusion alterius does not apply. The exemptionmust not be enlarged by construction since the reasonable presumption is thatthe State granted in express terms all it intended to grant at all and that unlessthe privilege is limited to the very terms of the Statute the favor would beintended beyond what was meant.

On the other hand, under Sec 28(3), Article 6 of the Constitution, the taxexemption covers property taxes only. According to CJ Davide, then a member ofthe 1986 ConCom, what is exempted is not the institution itself. Those exemptedfrom real estate taxes are lands, buildings, and improvements actually, directly,and exclusively used for religious, charitable, or educational purposes.Consequently, this constitutional provision is implemented by RA 7160 (LocalGovernment Code) Sec 234(b).

b. Petitioner also relies on the ruling in Herrera v Quezon City Board ofAssessment Appeals but it should be noted that the said decision

was promulgated on September 30, 1961 before the 1973 an 1987Constitution took effect.


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Under the 1935 Constitution, all lands, buildings, and improvements usedexclusively for charitable purposes shall be exempt from taxation. However,under the 1973 and the present Constitution, for lands, buildings, andimprovements of the charitable institution to be considered exempt, the sameshould not only be exclusively used for charitable purposes; it is required thatsuch property be used actually and directly for such purposes.

Exclusive is defined as possessed and enjoyed to the exclusion of others. If real

property is used for one or more commercial purposes, it is not exclusively used forthe exempted purpose but is subject to taxation . The words dominant use andprincipal use cannot be substituted for the words exclusively.

What is meant by actual, direct, and exclusive use of the property for charitablepurposes is the direct and immediate and actual application of the property itself tothe purpose for which the charitable institution is organized. It is not the use of theincome from the real property that is determinative of whether the property is usedfor tax-exempt purposes.

In this case, while portions of the hospital are used for the treatment of patients andthe dispensation of medical services to them, whether paying or non-paying, otherportions thereof are being leased to private individuals for their clinics and canteen.A portion of the land was also leased to Elliptical Orchids and Garden Center,Indeed, the petitioners evidence showed that it collected Php1,136,483.45 asrentals in 1991 and Php1,679,999.28 for 1992 from the said leases.

Under the 1987 Constitution and RA 7160, in order to be entitled to exemption, thepetitioner is burdened to prove, by clear and unequivocal proof that (a) it is acharitable institution; and (b) its real properties are ACTULLY, DIRECTLY, anEXCLUSIVELY used for charitable purposes. Petitioner failed to discharge its burden.

Disposition: The petition is partially granted.

Vote: Davide, Puno, Panganiban, Quisumbing, Sandoval, Gutierrez, Carpio, Corona, Carpio-

Moraes, Azcuna, and Tinga concur.

Concurring/Dissenting Opinion: None.-Dana

i. Prohibition against taxation of non-stock, non-profit institution

CIR vs CA and YMCA

(Oct 14, 1998)

Ponente: PanganibanDoctrine: In order to claim exemption from income tax, a corporation orassociation must show that it is organized and operated exclusively for religious,

charitable, scientific, athletic, cultural or educational purposes or for the

rehabilitation of veterans, and that no part of its income inures to the benefit of

any private stockholder or individual.

Facts:

Private Respondent YMCA is a non-stock, non-profit institution, which conductsvarious programs and activities that are beneficial to the public, especially the youngpeople, pursuant to its religious, e ducational and charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80 fromleasing out a portion of its premises to small shop owners, like restaurants andcanteen operators, and P44,259.00 from parking fees collected from non-members.

On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment toprivate respondent, in the total amount of P415,615.01 including surcharge andinterest, for deficiency income tax, deficiency expanded withholding taxes on rentalsand professional fees and deficiency withholding tax on wages.

Private respondent formally protested the assessment and, as a supplement to itsbasic protest, filed a letter dated October 8, 1985.

In reply, the CIR denied the claims of YMCA.

CTA issued this ruling in favor of the YMCA. CA affirmed.

Petitioner argues that while the income received by the organizations enumerated inSection 27 (now Section 30) of the NIRC is, as a rule, exempted from the payment oftax "in respect to income received by them as such," the exemption does not apply toincome derived from any of their properties, real or personal, or from any of theiractivities conducted for profit, regardless of the disposition made of such income."Rental income derived by a tax-exempt organization from the lease of its properties,real or personal, [is] not, therefore, exempt from income taxation, even if such incomeis exclusively used for the accomplishment of its objectives."

ISSUE:WON the income derived from the rentals of real property owned by YMCA (a welfare,educational and charitable non-profit corporation) is subject to income tax underNIRC and the constitution.

HELD:YES. The exemption claimed by YMCA is expressly disallowed by the very wording ofthe last paragraph of the then section 27 of the NIRC which mandates that the incomeof exempt organizations (such as the YMCA) from any of their properties, real orpersonal, be subject to the tax imposed by the same Code. The last paragraph of saidsection unequivocally subjects to tax the rent income of the YMCA from its realproperty. Thus the Court is duty-bound to abide strictly by its literal meaning and torefrain from resorting to any convoluted attempt at construction.

The CA committed reversible error when it allowed on reconsideration, the taxexemption claimed by YMCA on income it derived from renting out its real property,on the solitary but unconvincing ground that the said income is not collected for profitbyt is merely incidental to its operation. The law does not make a distinction. The

rental income is taxable regardless of whence such income is derived and how it isused or disposed of. Where the law does not distinguish, neither should we.


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On YMCAs argument that the constitution gives tax exemption on charitable institutions,the Court is not persuaded. Justice Hilario Davide, Jr., stressed during the Concomdebates that what is exempted is not the institution itself; those exempted from realestate taxes are lands, buildings and improvements actually, directly and exclusivelyused for religious charitable or education purposes. Father Joaquin Bernas adhered tothe same view (in short, only property taxes).

YMCA is only exempt from payment of property tax, but not income tax on the rentals

from its property. Laws allowing tax exemptions are construed strictissimi juris as taxesare the lifeblood of the government.

ADDITIONAL: For YMCA to be granted the exemption it claims, it must prove withsubstantial evidence that 1) it falls under the classification non-stock, non-profiteducational institution; and 2) the income it seeks to be exempted from taxation is usedactually, directly and exclusively for educational purposes. Such was not proven by theYMCA.

Sec. 27 of the NIRC (NOW SEC. 26) provides:

Exemptions from tax on corporations- the following organizations shall not be taxedunder this title in respect to income received by them as such-

(g) Civic league organization not organized for profit but operated exclusively for thepromotion of social welfare(h) club organized and operated exclusively for pleasure, recreation, and other non-profittable purposes, no part of the net income of which inures to the benefit of anyprivate stockholder or member

xxx

Notwithstanding the provisions in the preceding paragraphs, the income of whateverkind and character of the foregoing organization from any of their properties, real orpersonal, or from any of their activities conducted for profit, regardless of the dispositionmade of such income, shall be subject to the tax imposed under this code.

-Kester

j. Others

i. Grant of tax exemption

ii. Veto of appropriation, revenue, tariff bills by the president

Gonzales v. Macaraig, Jr.

(Nov. 19. 1990)

Petitioners : Members and ex-officio members of Committee on Finance of the Senate ; assubstantial taxpayers

Respondents : Members of the Cabinet tasked with the implementation of GeneralAppropriations Act of 1989

FACTS

December 16, 1988 Congress passed House Bill 19186 or the GeneralAppropriations Bill for 1989

o Congress eliminated or decreased certain items included in theproposed budget of the President

Congress presented the Bill to the President for approval December 29, 1988 President signed the HB into law RA 6688

o But 7 Special Provisions + Section 55 (a general provision) werevetoed.

CASEPetition for Prohibition/ Mandamus assailing the constitutionality or legality of thePresidential veto of Section 55

Section 55 of Appropriations Act of 1989 (kindly refer to SCRA p. 459) Reasons for the Presidential veto:

o That it violates Sec. 25 (5) of Art. VI of the Constitutiono Section would nullify the constitutional and statutory authority of

the President (as well as the Senate Pres, Speaker, Chief Justice and

Heads of Constitutional Commissions) to augment any item in thegeneral appropriations law for their respective offices from savingsin other items of their respective appropriations.

o Careful view shows that in almost all cases, the budgets of agencieshave been reduced = consequence is the inability to augment anyitem of appropriation even in cases of calamity or in the event ofurgent need .

Issue : WON the veto by the President of Sec 55 and subsequently of Sec 16 of 1990Appropriations bills is unconstitutional and without effect? NO. Court upheld theExecutive veto.

PET-

Presidents line-veto power is limited items and does not cover provisions- When a President objects to a provision, she cannot exercise item-veto but

should veto the entire bill- Item veto does not carry with it the power to strike out conditions or

restrictions- Power of augmentation must be provided for by law

SOL GEN

- Political question- Petitioners had a political remedy override the veto- Sec 55 is a rider because it is extraneous to the Appropriations Act, therefore,

veto is proper

- Power to augment items had already been provided by the Budget Law-

President is empowered to veto provisions or other distinct and severableparts of an Appropriations Bill


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COURT

1. Judicial determination- there is an actual case between the Congress and the Executive Dept.- the Court does not assert is superiority over other co-ordinate departments but

only discharges its solemn and sacred duty to determine esentially the scope ofintersecting powers.

2. The extent of Presidents item-veto power- REFER to Article VI Section 27 of 1987 Constitution:o Par 1 refers to the general veto power of the President and if

exercised would result in the veto of the entire bill, as a general ruleo Par 2 referres to the item veto power or the line-veto power ; it

allows the exercise of the veto over a particulat item/s in anappropriation, revenue, or tariff bill ; the Pres. may not veto less thenall of an item in an Appropriations Bill

o The power given to the Executive to disapprove any item or itemsdoes not grant the authority to veto a part of an item and to approvethe remaining portion of the same item.

item refers to the particulars, the details, the distinctand severable parts of the bill ; it is an indivisible sum ofmoney dedicated to a stated purpose ; means an item which

in itself is a specific appropriation of money, not somegeneral provision of law- Notwithstanding the elimination in Article VI Sec 27 (2) of the any reference to

the veto of a provision, the extent of the veto power defined by the 1935 Consti2has not changed. The eliminated proviso merely pronounces the basic principlethat a distinct and severable part of a bill may be the subject of a separate veto.

3. Inappropriateness of the so-called Provisions- Section 55 and Section 16 (FY 90) are not provisions in the budgetary sense of

the term. REFER to Article VI Sec 25 (2).- A provision should relate specifically to some particular appropriation therein ;

the challenged provisions fall short of the requirement because :o Does not relate to any particular or distinctive appropriationo Disproved or reduced items are nowhere to be found on the face of

the Billo Vetoed sections are more of an expression of a Congressional policy

on augmentation from savings rather then a budgetary appropriationo Although labeled as provisions the should be treated as items for

the purpose of the Presidents veto power.

4. Inappropriateness of the so-called Conditions/Restrictions- The Legislature may include in Appropriation Bills qualifications, conditions,

limitations or restrictions on expenditure of funds and the Executive is not

2xxx When a provision of an appropriation bill affects one or ore items of the same, the President can

not veto the provisions without the same vetoing the particular item or items to which it relates xxx

allowed to veto a condition or provision of an appropriation while allowingthe appropriation itself to stand

- Bolinao case veto of a condition not including veto of the items to which thecondition related was invalid and without effect.

o Case is inapplicable because the vetoed provisions are actuallygeneral law measures more appropriate for substantive andseparate legislation, neither of the contested provisions showsnecessary connection with a schedule of expenditures, thefore, notin the budgetary sense of the term, conditions or restrictions

5. The power of augmentation and the validity of the veto- Statutory authority (by virtue of the Budget Reform Decree of 1977) has

been granted to the heads of different branches of government andconstitutional commissions and they are granted with considerableflexibility in the use of public funds and resources.

- It does not vest the executive to rewrite the entire budget, the leewaygranted being delimited to transfers within the department or branchconcerned from sourcing to come only from savings.

- Power of augmentation from savings cannot be considered a specificappropriation of money.

6. If the legislature indeed believed that the exercise of veto powers were

unconstitutional, the remedy is laid down by the Constitution that is to override bytwo-thirds of members of the Congress but they made no attempt to override thePresidential veto.

-Maeiii. Non-impairment of the jurisdiction of the Supreme Court

San Miguel Corporation v. Avelino

SAN MIGUEL CORPORATION, petitioner, vs. HONORABLE CELSO AVELINO,PRESIDING JUDGE OF CFI CEBU, BRANCH XIII and THE CITY OF

MANDAUE, respondents.(March 14, 1979)

NOTES:

Kind of tax: specific tax on total volume of beer produced (imposed by Citythrough Mandaue City Tax Code)

Justice Fernando was basically saying, nice try, SMC. Even though your goodcounsel was careful not to in effect imply that the judiciary has no power to ruleon the validity of the tax ordinance and instead focused on the failure of therespondent judge to rule properly on its motion to dismiss (judge did not sayanything about the ground raised by SMC that it was without jurisdiction, butinstead said there was nothing at this stage of the proceeding which merited thegranting of an MTD. An unusual way to put it, as SC couldnt very well decipherthe grounds relied upon by the judge to deny the same.). Even Congress cantremove from judiciary the power to decide validity of tax and impost laws,because its in the Constitution. CFI Judge does have jurisdiction to entertain thecollection of suit of City against SMC.


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DOCTRINE: A judge of the Court of First Instance has the authority to decide on thevalidity of a city tax ordinance even after its validity had been contested before theSecretary of Justice and an opinion thereon had been rendered.

NATURE: Petition for certiorari and prohibition after MTD was denied by RespondentJudge

PONENTE: FERNANDO

FACTS:1. Mandaue City, in accordance with PD 231 (which ordered local governments toimplement its own tax code), enacted in 1973, to take effect January1974, thechallenged ordinance, the Mandaue City Tax Code.

2. The City Treasurer, on April 1974, demanded from petitioner payment of the saidspecific tax on the total volume of beer it produced in the City of Mandaue.

3. On April 8, 1974, SMC contested the collection of said specific tax on the groundthat Section 12 (e) (7) in relation to Section 12 (e) (1) and (2), Mandaue CityOrdinance No. 97 (Mandaue City Tax Code) is illegal and void because it imposed aspecific tax beyond its territorial jurisdiction.

4. The matter was then referred by the City to its City Fiscal, pursuant to the PD 231Section 473. City Fiscal sustained the ordinances validity.

5. Then came appeal to the Secretary of Justice, then Acting Justice Secretary Macaraig,who opined that it is :of doubtful validity.

6. A suit of collection was filed by City, where it squarely put in issue the validity ofsaid ordinance, thus contesting the opinion of Secretary.

7. Motion to dismiss by SMC was denied by judge, saying there was no justifiablereason at this stage of the proceedings to dismiss the case.

8. SMC filed present petition for certiorari and prohibition.Argument of SMC: the collection suit is not the appeal provided for in the last sentence ofSection 47 of PD 231.City: collection suit cannot be viewed as anything other than an appeal of the Secretarysopinion.

ISSUES:(1) Whether the filing of such action after such opinion was rendered may be

considered "an appeal" under the Presidential Decree. Hence, the denial of therespondent judge of SMCs motion to dismiss was actually proper.More properly, issue is whether the City can still file the case in court for collection of thetax it wished to impose on SMC after the Acting Secretary had already rendered anopinion that the ordinance was of doubtful validity.

HELD/RATIO:

(1) Denial of motion to dismiss was proper.

3Section 47 of the Local Tax Code (PD 231) provides that any question or issue raised against the

legality of any tax ordinance, or portion thereof, shall be referred for opinion to the city fiscal in thecase of tax ordinance of a city. The opinion of the city fiscal is appealable to the Secretary of Justice,whose decision shall be final and executory unless contested before a competent court within thirty(30) days.

Petitioner would deny jurisdiction of respondent judge to pass upon the validity of achallenged ordinance in an appropriate action. It is opposed to and is not inconformity with the accepted juridical norm that the validity of a statute, an executiveorder or ordinance is a matter for the judiciary to decide and that whenever in thedisposition of a pending case such a question becomes unavoidable, then it is not onlythe power of the court but the duty of the Court to resolve such a question.

In the pending suit by respondent City, sought to be dismissed by petitionercorporation, it specifically prayed "that Ordinance No. 97, Series of 1973, of the herein

plaintiff is valid, legal, and enforceable in accordance with law; Since both under theConstitution and the Judiciary Act, respondent Judge is vested with jurisdiction tomake such a declaration, it would be, at the very least, premature for the correctivepower of this Tribunal to be interposed , just because he did not, "at [that] stage of theproceedings," grant the motion to dismiss on the allegation that there was lack ofjurisdiction. The authorities support squarely the procedure followed by respondentCity to remove doubts as to the validity of the ordinance in question. Even more inpoint are these two decisions with reference to the municipal power to imposespecific taxes on beverages manufactured within its territorial boundaries, City ofBacolod v. Gruet and City of Naga v. Court of Appeals.

There is this reinforcement to the conclusion reached. To so construe Section 47would be to raise a serious constitutional question For it would in effect bar whatotherwise would be a proper case cognizable by a court precisely in the exercise of theconceded power of judicial review just because the procedure contended for which isthat of an "appeal" under the circumstances a term vague and ambiguous, was notfollowed. Petitioner may not be sufficiently aware of the implications of such aproposition. It would run counter to the well-settled doctrine that between twopossible modes of constructions, the one which would not be in conflict with what isordained by the Constitution is to be preferred. Every intendment of the law shouldlean towards its validity, not its invalidity. The judiciary, as noted by Justice Douglas,should favor that interpretation of legislation which gives it the greater chance ofsurviving the test of constitutionality.

The inherent weakness of this suit for certiorari and prohibition is likewisediscernible from the fact that the then Acting Secretary of Justice Macaraig limitedhimself to a finding that the ordinance in question was "of doubtful validity. That is far

from a categorical declaration of its being repugnant to the Constitution or itsbeing ultra vires. That betrays a realization that unless and until the judiciary speaks inno uncertain terms, the presumption of validity continues. Misgivings as to thelikelihood of an alleged infringement of any binding norm do not suffice. There is thisaphorism from Justice Malcolm "To doubt is to sustain. That is merely to accordrecognition to the well-settled and binding doctrine that only in a ve ry clear case is t hejudiciary justified in nullifying a statute, or ordinance.

COURTS RULING: Petition dismissed. Case before judge should be conducted asspeedily as circumstances permit.

DISPOSITION:

VOTE: 2nd Division; Barredo, Antonio, Aquino, Concepcion, Santos and Abad Santos, JJ.,

concur.-Ann


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iv. Revenue bills shall originate from the House of Representatives

v. Infringement of press freedom

vi. Grant of franchise

ARTURO M. TOLENTINO vs. THE SECRETARY OF FINANCE and THE COMMISSIONEROF INTERNAL REVENUE

G.R. No. 115455October 30, 1995

Mendoza, J.

Doctrine: Even though such taxation may affect particular contracts, as it may increasethe debt of one person and lessen the security of another, or may impose additionalburdens upon one class and release the burdens of another, still the tax must be paidunless prohibited by the Constitution, nor can it be said that it impairs the obligation ofany existing contract in its true legal sense.

Facts:

These are motions seeking reconsideration of our decision dismissing the petitions filedin these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwiseknown as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all,have been filed by the several petitioners in these cases.

CREBA (Chamber of Real Estate and Builders Association, Inc), one of the petitioners,asserts that R.A. No. 7716 impairs the obligations of contracts. It is claimed that theapplication of the tax to existing contracts of the sale of real property by installment oron deferred payment basis would result in substantial increases in the monthlyamortizations to be paid because of the 10% VAT. The additional amount, it is pointedout, is something that the buyer did not anticipate at the time he entered into thecontract.

Issue/Held:

WON R.A. No. 7716 impairs the obligations of contractsNO

Ratio:

In a previous case, this Court has held: Authorities from numerous sources are cited bythe plaintiffs, but none of them show that a lawful tax on a new subject, or an increasedtax on an old one, interferes with a contract or impairs its obligation, within the meaningof the Constitution. Even though such taxation may affect particular contracts, as it mayincrease the debt of one person and lessen the security of another, or may imposeadditional burdens upon one class and release the burdens of another, still the tax mustbe paid unless prohibited by the Constitution, nor can it be said that it impairs theobligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-

Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws butalso "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a

postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22SCRA 135, 147 (1968)) Contracts must be understood as having been made inreference to the possible exercise of the rightful authority of the government and noobligation of contract can extend to the defeat of that authority. (Norman v. Baltimoreand Ohio R.R., 79 L. Ed. 885 (1935))

Disposition: motions for reconsideration are denied with finality

-Barbie

5. Who may question the validity of a tax measure of expenditure of taxes

taxpayers suit

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, vs. THE COMMISSION ON

ELECTIONS(January 27, 1983)

DOCTRINE:As taxpayers, petitioners may not file the instant petition, for nowheretherein is it alleged that tax money is being illegally spent. The act complained of is theinaction of the COMELEC to call a special election, as is allegedly its ministerial dutyunder the constitutional provision above cited, and therefore, involves no expenditureof public funds. It is only when an act complained of, which may include a legislative

enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed.What the case at bar seeks is one that entailsexpenditure of public funds which may be illegal because it would be spent for apurpose that of calling a special election which, as will be shown, has no authorityeither in the Constitution or a statute.

NATURE: Petition for mandamus/representative suitPONENTE: DE CASTRO, J.:

FACTS:

This is a petition for mandamus filed by Lozada and Igot as a representative suit forand in behalf of those who wish to participate in the election irrespective of party

affiliation, to compel the respondent COMELEC to call a special election to fill up theexisting 12 vacancies in the Interim Batasan Pambansa. The petition is based onSection 5(2), Article VIII of the 1973 Constitution:

(2) In case a vacancy arises in the Batasang Pambansa eighteen months or morebefore a regular election, the Commission on Election shall call a special election to beheld within sixty (60) days after the vacancy occurs to elect the Member to serve theunexpired term.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and atransient voter of Quezon City, Metro Manila, who desires to run for the position in theBatasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he hasstanding sCOMELEC: 1) petitioners lack standing to file the instant petition for theyare not the proper parties to institute the action; 2) this Court has no jurisdiction to


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entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does notapply to the Interim Batasan Pambansa.

ISSUES: W/N: Lozada and Igot has standing to sue as taxpayers. They do notW/N: they have standing to sue as voters. They do notW/N: the court has jurisdiction over the COMELEC. They do not.W/N: The Contitutional provision requiring a special election applies to the InterimBatasang Pamabansa? It does not.

RATIO:1. As taxpayers, petitioners may not file the instant petition, for nowhere therein is italleged that tax money is being illegally spent. The act complained of is the inaction ofthe COMELEC to call a special election, as is allegedly its ministerial duty under theconstitutional provision above cited, and therefore, involves no expenditure of publicfunds. It is only when an act complained of, which may include a legislative enactment orstatute, involves the illegal expenditure of public money that the so-called taxpayer suitmay be allowed. 1 What the case at bar seeks is one that entails expenditure of publicfunds which may be illegal because it would be spent for a purpose that of calling aspecial election which, as will be shown, has no authority either in the Constitution or astatute.

2.As voters, neither have petitioners the requisite interest or personality to qualify themto maintain and prosecute the present petition. The unchallenged rule is that the personwho impugns the validity of a statute must have a personal and substantial interest inthe case such that he has sustained, or will sustain, direct injury as a result of itsenforcement. In the case before Us, the alleged inaction of the COMELEC to call a specialelection to fill-up the existing vacancies in the Batasan Pambansa, standing alone, wouldadversely affect only the generalized interest of all citizens. Petitioners' standing to suemay not be predicated upon an interest of the kind alleged here, which is held incommon by all members of the public because of the necessarily abstract nature of theinjury supposedly shared by all citizens. Concrete injury, whether actual or threatened, isthat indispensable element of a dispute which serves in part to cast it in a formtraditionally capable of judicial resolution. When the asserted harm is a "generalizedgrievance" shared in substantially equal measure by all or a large class of citizens, thatharm alone normally does not warrant exercise of jurisdiction.

3. The court only has jurisdiction to review decisions by certiorari. It was not shown thatthe petitioners asked the COMELEC to perform its alleged duty and the court denied thesame. Even mandamus will not lie as there was no clear showing that it has unlawfullyneglected the performance of a ministerial duty or that the petitioners had the right tosaid duty.

It is obvious that the holding of special elections in several regional districts wherevacancies exist, would entail huge expenditure of money. Only the Batasan Pambansa canmake the necessary appropriation for the purpose, and this power of the BatasanPambansa may neither be subject to mandamus by the courts much less may COMELECcompel the Batasan to exercise its power of appropriation. From the role BatasanPambansa has to play in the holding of special elections, which is to appropriate thefunds for the expenses thereof, it would seem that the initiative on the matter must come

from said body, not the COMELEC, even when the vacancies would occur in the regularnot interim Batasan Pambansa. The power to appropriate is the sole and exclusive

prerogative of the legislative body, the exercise of which may not be compelledthrough a petition for mandamus. What is more, the provision of Section 5(2), ArticleVIII of the Constitution was intended to apply to vacancies in the regular NationalAssembly, now Batasan Pambansa, not to the Interim Batasan Pambansa, as willpresently be shown.

4. Perhaps the strongest reason why the aforecited provision of the Constitution is notintended to apply to the Interim National Assembly as originally envisioned by the1973 Constitution is the fact that as passed by the Constitutional Convention, the

Interim National Assembly was to be composed by the delegates to the ConstitutionalConvention, as well as the then incumbent President and Vice-President, and themembers of the Senate and House of Representatives of Congress under the 1935Constitution. With such number of representatives representing each congressionaldistrict, or a province, not to mention the Senators, there was felt absolutely no needfor filing vacancies occurring in the Interim National Assembly, considering theuncertainty of the duration of its existence.

DISPOSITIVE: WHEREFORE, the petition is hereby dismissed.

SO ORDERED.

VOTE: Aquino, Concepcion Jr., Guerrero, Plana, Escolin Vasquez, Relova and Gutierrez,Jr., JJ., concur.

Fernando, CJ., Makasiar, and Melencio-Herrera, JJ., concurs in the result.

Teehankee, J., took no part.

Abad Santos, J., I reserve my vote.-Jamie

MACEDA v. MACARAIG(May 31, 1993)

DOCTRINE: As a taxpayer petitioner may file the instant petition following the rulingin Lozada when it involves illegal expenditure of public money.

NATURE: : Petition for certiorari, prohibition and mandamus with prayer for a writ ofpreliminary injunctionPONENTE: Gancayco,J.FACTS:

The National Power Corporation was created by CA 120. In 1949, it was given taxexemption by RA 358. NPC was further strengthened by RA 6395 in 1971. In 1984, PD1931 was passed removing the tax exemption of NPC and other GOCCs. There was areservation, however, that the president or the Minister of Finance uponrecommendation by the Fiscal Incentives Review Board may restore or modify theexemption. In 1985, the tax exemption was revived. It was again removed in 1987 byvirtue of EO 93 w/c again provided that upon FIRB recommendation it can again berestored. In the same year, FIRB resolved to restore the exemption. The same wasapproved by Cory through exec sec Macaraig acting as her alter ego.

Petitioner is now questioning the grant of tax exemptions to NPC, among other is sues.


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It is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must showhe has sustained direct injury as a result of the action and that it is not sufficient for himto have a mere general interest common to all members of the public.

ISSUE: WON petitioner Maceda has legal standing to file this suit.HELD:

The Court however agrees with the petitioner that as a taxpayer he may file the

instant petition following the ruling in Lozada when it involves illegal expenditureof public money. The petition questions the legality of the tax refund to NPC by way oftax credit certificates and the use of said assigned tax credits by respondent oilcompanies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

Assuming petitioner has the personality to file the petition, public respondents alsoallege that the proper remedy for petitioner is an appeal to the Court of Tax Appealsunder Section 7 of R.A. No. 125 instead of this petition. However Section 11 of said lawprovides

Sec. 11. Who may appeal; effect of appealAny person, association orcorporation adversely affected by a decision or ruling of theCommissioner of Internal Revenue, the Collector of Customs(Commissioner of Customs) or any provincial or City Board ofAssessment Appeals may file an appeal in the Court of Tax Appealswithin thirty days after receipt of such decision or ruling.

From the foregoing, it is only the taxpayer adversely affected by a decision or ruling ofthe Commissioner of Internal Revenue, the Commissioner of Customs or any provincialor city Board of Assessment Appeal who may appeal to the Court of Tax Appeals.Petitioner does not fall under this category.

-Jenin

GONZALES v MARCOS

(July 31, 1975)

Doctrine: In this case, there was that absence of the "requisite pecuniary or monetaryinterest." The petitioner, judged by orthodox legal learning, has not satisfied theelemental requisite for a taxpayer's suit. Moreover, even on the assumption that publicfunds raised by taxation were involved, it does not necessarily follow that such kind of anaction to assail the validity of a legislative or executive act has to be passed upon. ThisCourt, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as towhether or not it should be entertained." The lower court thus did not err in so viewingthe situation.

Nature: An appeal by certiorari from an order of dismissal by the Court of First Instanceof Manila.

Ponente: FERNANDO,J.

Facts:

- President Marcos issued Executive Order No. 30 of a trust for the benefit ofthe Filipino people under the name and style of the Cultural Center of thePhilippines entrusted with the task to construct a national theatre, a nationalmusic hall, an arts building and facilities, to awaken our people'sconsciousness in the nation's cultural heritage and to encourage itsassistance in the preservation, promotion, enhancement and developmentthereof, with the Board of Trustees to be appointed by the President, theCenter having as its estate the real and personal property vested in it as well

as donations received, financial commitments that could thereafter becollected, and gifts that may be forthcoming in the future.- The Board of Trustees did accept donations from the private sector and did

secure from the Chemical Bank of New York a loan of $5 million guaranteedby the National Investment & Development Corporation as well as $3.5million received from President Johnson of the United States in the conceptof war damage funds, all intended for the construction of the Cultural Centerbuilding estimated to cost P48 million.

- First there was an order of dismissal of a suit for prohibition filed in theCourt of First Instance of Manila, with stress laid on the funds administeredby the Center as coming from donations and contributions, with not a singlecentavo raised by taxation, and the absence of any pecuniary or monetaryinterest of petitioner that could in a ny wise be prejudiced distinct from thoseof the general public. Moreover, reference was made to the admission bypetitioner of the desirability of the objective of Executive Order No. 30, hisobjection arising from the alleged illegality of its issuance.

- It was contended that Executive Order No. 30 represented the legitimateexercise of executive power, there being no invasion of the legislativedomain and that it was supplementary to rather than a disregard of RepublicAct No. 4165 creating the National Commission on Culture. It was likewiseraised that petitioner did not have the requisite personality to contest as ataxpayer the validity of the executive order in question, as the funds held bythe Cultural Center came from donations and contributions, not one centavobeing raised by taxation.There was a second motion to dismiss on the part ofrespondents (2) On October 5, 1972, Presidential Decree No. 15 ... waspromulgated creating the Cultural Center of the Philippines, defining itsobjectives, powers and functions and other purposes. Section 4, thereof was

amended by Presidential Decree No. 179 ... enacted on April 26, 1973. It issubmitted that it is now moot and academic to discuss the constitutionalityof Executive Order No. 30 considering the promulgation of PD Nos. 15 and179, done by the President in the exercise of legislative powers undermartial law. Executive Order No. 30 has ceased to exist while PD Nos. 15 and179 meet all the constitutional arguments raised in the petition at bar.

Issues:- WON that Executive Order No. 30 represented the legitimate exercise of

executive power, there being no invasion of the legislative domain.- WON the petitioner did not have the requisite personality to contest as a

taxpayer the validity of the executive order in question, as the funds held bythe Cultural Center came from donations and contributions, not one centavo

being raised by taxation.


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Held:

- The petition cannot succeed. Both on procedural and substantive grounds, acase for prohibition was not made out, notwithstanding the valiant efforts ofpetitioner. With this latest manifestation, that Executive Order No. 30 had beensuperseded by Presidential Decree Nos. 15 and 179, the moot and academiccharacter of this appeal by certiorari became rather obvious. To repeat, thepetition must fail.

Ratio:

-

There was that absence of the "requisite pecuniary or monetary interest." Thestand of the lower court finds support in judicial precedents. This is not toretreat from the liberal approach followed in Pascual v. Secretary of PublicWorks,foreshadowed by People v. Verawhere the doctrine of standing was firstfully discussed. It is only to make clear that petitioner, judged by orthodoxlegal learning, has not satisfied the elemental requisite for a taxpayer's

suit. Moreover, even on the assumption that public funds raised by

taxation were involved, it does not necessarily follow that such kind of an

action to assail the validity of a legislative or executive act has to be

passed upon. This Court, as held in the recent case of Tan v. Macapagal,"is notdevoid of discretion as to whether or not it should be entertained." The lowercourt thus did not err in so viewing the situation.

- There was soe exchange of diplomatic notes between the Republic of thePhilippines and the United States as to the use of a special fund coming fromthe latter for a Philippine cultural development project. Then, as set forth in theorder of dismissal, it explained why no constitutional objection could be validlyinterposed. Thus: "When the President, therefore, acted by disposing of amatter of general concern (Section 63, Rev. Adm. Code) in accord with theconstitutional injunction to promote arts and letters (Section 4, Article XIV,Constitution of the Philippines) and issued Executive Order No. 30, he simplycarried out the purpose of the trust in establishing the Cultural Center of

the Philippines as the instrumentality through which this agreement

between the two governments would be realized. Needless to state, the

President alone cannot and need not personally handle the duties of a

trustee for and in behalf of the Filipino people in relation with this trust. He can do this by means of an executive order by creating as he did, a group ofpersons, who would receive and administer the trust estate, responsible to the

President. As head of the State, as chief executive, as spokesman in domesticand foreign affairs, in behalf of the estate as parens patriae, it cannot besuccessfully questioned that the President has authority to implement for thebenefit of the Filipino people by creating the Cultural Center consisting ofprivate citizens to administer the private contributions and donations given notonly by the United States government but also by private persons.

- It would be an unduly narrow or restrictive view of such a principle if thepublic funds that accrued by way of donation from the United States and

financial contributions for the Cultural Center project could not be legally

considered as "governmental property." They may be acquired under theconcept ofdominium, the state as a persona in law not being deprived of such anattribute, thereafter to be administered by virtue of its prerogative ofimperium.

- As contended by the Solicitor General, the matter, as of that date, becamemoot and academic. Executive Order No. 30 was thus superseded. Theinstitution known as the Cultural Center is other than that assailed in this suit.

In that sense a coup de grace was administered to this proceeding. Thelabored attempt of petitioner could thus be set at rest. This particularlitigation is at an end. There is, too, relevance in the observation that theaforesaid decree is part of the law of the land. So the Constitution provides.

- It only remains to be added that respondents as trustees lived up fullyto the weighty responsibility entrusted to them. The task imposed onthem was performed with competence, fidelity, and dedication. That was tobe expected. From the inception of the Marcos Administration, the First Ladyhas given unsparingly of herself in the encouragement and support of

literary, musical, and artistic endeavors and in the appreciation of our richand diverse cultural heritage. The rest of the then Board of Trustees, namedas the other respondents, were equally deserving of their being chosen forthis worthy project.

- Constitutional provision that arts and letters shall be under Statepatronage. For equally important as the encouragement and support fortalented Filipinos with a creative spark is the diffusion of the opportunity forthe rest of their countrymen to savour the finer things in life. Who knows, ifstate efforts along these lines are diligently pursued, that what was said byJustice Holmes about France could apply to the Philippines. Thus: "We havenot that respect for art that is one of the glories of France."

Disposition: WHEREFORE, this appeal by certiorari to review the lower court's orderof dismissal dated December 4, 1969 is dismissed. No costs.

Vote: Makalintal, C.J., Barredo, Esguerra, Muoz Palma, Aquino, Concepcion Jr. and

Martin JJ., concur. Castro and Makasiar, JJ., took no part. Teehankee and Antonio, JJ., are

on leave.

Concurring/Dissenting Opinion: None.

-JP

DIAZ V. SECRETARY

G.R. No. 19300719 July 2011

Renato V. Diaz and Aurora Ma. F. Timbol petitioners v.The Secretary of Finance and the Commissioner of Internal Revenue, respondents

Abad,J.

DOCTRINE: "The Court has ample power to waive technical requirements when thelegal questions to be resolved are of great importance to the public. The same may be

said of the requirement of locus standi which is a mere procedural requisite."

NATURE: Petition for Prohibition under R65

FACTS:

Petitioners Diaz and Timbol filed a petition for declaratory relief assailing thevalidity of the pending imposition of VAT on the collection of tollway operators


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Petitioners claim that since the VAT would result in increased toll fees, they havean interest as regular users of tollways in stopping the BIR action.

Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 NationalInternal Revenue Code or the NIRC) at the House of Representatives.

Timbol, on the other hand, claims that she served as Assistant Secretary of theDepartment of Trade and Industry and consultant of the Toll Regulatory Board

(TRB) in the past administration

Petitioners claim thato Congress did not, when it enacted the NIRC, intend to include toll fees

within the meaning of "sale of services"

o That are subject to VAT; that a toll fee is a "users tax," not a sale ofservices;

o That to impose VAT on toll fees would amount to a tax on publicservice;

oAnd that, since VAT was never factored into the formula forcomputing toll fees, its imposition would violate the non-impairmentclause

The Court issued a TRO to enjoin implementation The government through the OSG contends that:

o The NIRC imposes VAT on all kinds of services of franchise grantees,including tollway operations, except where the law providesotherwise;

o That the Court should seek the meaning and intent of the law f rom thewords used in the statute;

o And that the imposition of VAT on tollway operations has been thesubject as early as 2003 of several BIR rulings and circulars

o It further claims that the petitioners have no right to invoke the non-impairment clause as they have no interest in existing Toll OperatingAgreements (TOAs) between the government and the tollwayoperators. And at any rate, the non-impairment clause cannot limitthe States taxing power which is deemed written into every contract

ISSUES:

1. W/N a petition for declaratory relief can be treated as one for prohibition?2. W/N petitioners have standing to file the action?3. W/N he government is unlawfully expanding VAT coverage by including tollwayoperators and tollway operations in the terms "franchise grantees" and "sale of services"

under Section 108 of the Code?

4. W/N the imposition of VAT on tollway operatorsa) amounts to a tax on tax and not a tax on services;b) will impair the tollway operators right to a reasonable return of investment undertheir TOAs; andc) is not administratively feasible and cannot be implemented?

HELD/RATIO1. YES

The Court has treated the action as one for prohibition despite being filed as apetition for declaratory relief

This is notwithstanding the opposition of the OSG saying that the Court has notoriginal jurisdiction over petitions for declaratory relief

The OSG further claims that the requirement that the petitioners have no otherplain speedy and adequate remedy in the ordinary course of law has not beenmet. Petitioners may appeal to the Secretary of Finance

But the Court declared that there have been precedents for treating the action asone for prohibition especially if the action raises far-reaching and importantquestions which need to be resolved for the public good

This is so in the case of VAT on toll roads. Its imposition will not only impact thehalf million motorists who use these roads daily but more so the governmentseffort to raise revenue

Treating this issue together with the second, that of standing, the Court held:2. YES

The Court did not declare in categorical language that the petitioners arepossessed of standing to file the action

Instead, it held thatto dismiss the petition and resolve the issues later, after thechallenged VAT has been imposed, could cause more mischief both to the tax-payingpublic and the government.

A belated declaration of nullity of the BIR action would make any attempt torefund to the motorists what they paid an administrative nightmare with no

solution.

Consequently, it is not only the right, but the duty of the Court to take cognizance ofand resolve the issues that the petition raises.

Further, even if the petition does not strictly comply with the requirements of aRule 65 petition for prohibition, the Court has ample power to disregard suchtechnicalities when the legal questions to be resolved are of such great

importance to the public

Such wide latitude is also true of the requirements for standing in similar actions


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NOTES (use at own risk): While the Court did not make a categorical pronouncement ofpossession of standing, it may be inferred that petitioners, being motorists, have therequisite standing. They are stand to be directly prejudiced by the imposition of VAT ontolls for such burden is shifted to the motorist (albeit the liability is on the tollwayoperator). This issue on standing is similar to the case of KMU Labor Center v. Garcia (GRNo. 115381) where the petitioners were members of the riding public. The Court in thatcase held:

Petitioner, whose members had suffered and continue to suffer grave and irreparable injury and

damage from the implementation of the questioned memoranda, cir culars and/or orders, has shown thatit has a clear legal right that was violated and continues to be violated with the enforcement of the

challenged memoranda, circulars and/or orders. KMU members, who avail of the use of buses, trains andjeepneys everyday, are directly affected by the burdensome cost of arbitrary increase in passenger fares.They are part of the millions of commuters who comprise the riding public. Certainly, their right s must be

protected, not neglected nor ignored.

It is worth noting that petitioners in this case (as in the KMU case) qualify even whenmeasured using the standard of real-party in interest in civil cases. Not only do they havea material interest in the case but they stand to suffer direct injury as a result ofgovernment action. However, from the standpoint of a tax-payer suit, it does not seemclear that petitioners may sue. For it has been held in the case ofLozada v. COMELECthatthe actual or imminent expenditure of public funds is indispensable to the maintenanceof a taxpayer suit. In this case, nowhere is it alleged that the Government will or isdisbursing funds. In fact it is the reverse. However, the Court also held in Gonzales v.Narvasa(G.R. No. 140835) that a taxpayer may maintain a suit when there is an exerciseof Congress taxing or spending power. In any event, the importance of the question

involved in this case leads the Court to adopt a liberal stance as to procedure andstanding.3. NO

The phrase sale or exchange of services means the performance of all kinds of servicesin the Philippines for others for a fee, remuneration or consideration including xxx

services of franchise grantees of electric utilities, telephone and telegraph, radio and

television broadcasting and all other franchise grantees except those under Section

119 of this Code.

The enumeration in the code is not exclusive. It encompasses all other servicessubject only to the qualification that it is rendered in the Philippines

PD 1112 or the Toll Operation Decree establishes the legal basis for the services thattollway operators render. Essentially, tollway operators construct, maintain, and

operate expressways, also called tollways, at the operators expense. In consideration for constructing tollways at their expense, the operators are

allowed to collect fees from motorists using the tollways until such operatorscould fully recover their expenses and earn reasonable returns from theirinvestments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for thelatters use of the tollway facilities over which the operator enjoys private

proprietary rights that its contract and the law recognize. In this sense, the tollway

operator is no different from the service providers under Section 108 who allow othersto use their properties or facilities for a fee

Further, toll operators are franchise grantees. While they may not posses legislativefranchises, they are nonetheless granted franchises by the regulatory body alsoknown as Toll Operation Certificates

Hence the imposition of the VAT does not expand the NIRC coverage as tolloperators are properly franchise grantees and transactions with them areproperly sales of service

4. NO

Petitioners, basing their argument on the case ofMIAA v. CA contend that the VATis in essence a tax on a tax

However, the Court clarified that the decision in MIAA did not establish the rulethat toll fees were in the nature of taxes. The issue in that case was whetherairport lands were subject to public auction to satisfy tax liability

Tollway fees are not taxes. Indeed, they are not assessed and collected by the BIRand do not go to the general coffers of the government.

A tax is imposed under the taxing power of the government principally for thepurpose of raising revenues to fund public expenditures. Toll fees, on the other hand,

are collected by private tollway operators as reimbursement for the costs and

expenses incurred in the construction, maintenance and operation of the tollways,

as well as to assure them a reasonable margin of income. Although toll fees are

charged for the use of public facilities, therefore, they are not government exactions

that can be properly treated as a tax.

Furthermore, even assuming that toll fees are a tax, the VAT cannot be classifiedas a tax on a tax due to its very nature. It is an indirect tax. The seller is primarilyliable for the payment of the tax but he may shift the burden of the tax to the end-user.

That is to say that the operator must be the one to pay the government the tax(hence is liable). However, he may add the cost of the tax to the cost of theservice, the total of which is paid by the end-user. In effect the end-user suffersthe burden of the tax.

Once shifted, it loses its character of a tax and merely becomes part of the price ofthe services or goods. The user never becomes directly liable for the tax. Thus itcannot be deemed as a tax on a tax

Also, petitioner Timbol does not possess the standing to invoke the non-impairment clause. She will neither be prejudiced by nor be affected by the allegeddiminution in return of investments that may result from the VAT imposition. She

has no interest at all in the profits to be earned under the TOAs. The interest in and

right to recover investments solely belongs to the pr ivate tollway investors.

Furthermore, the allegation that the investors rate of recovery will be affected ispresumptuous and speculative. In any case, it is the investors themselves whohave the right to question the exaction should their interest be so affected


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Finally, the allegation that the imposition will be administratively impossible toimplement is premature. BIR has not yet laid out the manner in which it is to beimplemented.

Administrative feasibility is one of the canons of a sound tax system. It simply meansthat the tax system should be capable of being effectively administered and enforced

with the least inconvenience to the taxpayer. Non-observance of the canon, however,

will not render a tax imposition invalid "except to the extent that specific

constitutional or statutory limitations are impaired."

DISPOSITION: Petition DISMISSED, temporary restraining order SET ASIDE.Votes: Corona, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Peralta, Del Castillo,Villarama, Jr., Perez, Mendoza, JJ., concur

-Raffy

F. Tax Systems

1. Classification

Progressive system v. progressive rate of tax

Tolentino v. Secretary of Finance, supra

2. Basic principles of a sound tax system

CHAVES vs. ONGPIN

(June 6, 1990)

DOCTRINE: Fiscal adequacy, which is one of the characteristics of a sound tax system,requires that sources of revenues must be adequate to meet government expendituresand their variations.

NATURE: Petition seeking to declare unconstitutional Executive Order No. 73 providingfor the collection of real property taxes;PONENTE: Medialdea, J.

FACTS:

The petitioner is a taxpayer and an owner of three parcels of land and is claimingthat Executive Order No. 73 accelerated the application of the general revision ofassessments to January 1, 1987 thereby mandating an excessive increase in realproperty taxes by 100% to 400% on improvements, and up to 100% on land;

o Chavez argues that the unreasonable increase in real property taxes byE.O. No. 73 amounts to a confiscation of property repugnant to theconstitutional guarantee of due process;

The intevenors, Realty Owners Association of the Philippines, claim that PresidentialDecree No. 464 is unconstitutional insofar as it imposes an additional one percent(1%) tax on all property owners to raise funds for education, as real property tax isadmittedly a local tax for local governments;

ISSUES:

1. Does the constitutional attack on EO 73 have legal basis? NO.2. Does the tax amount to a confiscation of property? NO.

RATIO:

1. The attack on Executive Order No. 73 has no legal basis as the general revision ofassessments is a continuing process mandated by Sec

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Tax Week 3 Digests - Updated