tax_general principles cases

7/25/2019 Tax_General Principles Cases

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1G.R. Nos. 167274-75 July 21, 2008

COMMISSIONER OF INTERNAL REEN!E,Petitioner,vs.FORT!NE TO"ACCO COR#ORATION,Respondent.

D E C I S I O N

TINGA,J.:

Simple and uncomplicated is the central issue involved, yetwhoppin is the amount at sta!e in this case.

"#ter much wranlin in the Court o# $a% "ppeals &C$"' andthe Court o# "ppeals, (ortune $o)acco Corporation &(ortune$o)acco' was ranted a ta% re#und or ta% credit representinspeci*c ta%es erroneously collected #rom its to)acco products.$he ta% re#und is )ein re+claimed )y the Commissioner o#Internal Revenue &Commissioner' in this petition.

$he #ollowin undisputed #acts, summaried )y the Court o#"ppeals, are -uoted in the assailed Decision1dated /Septem)er 002

CAG.R. S# No. 80675

% %%%

Petitioneris a domestic corporation duly oranied ande%istin under and )y virtue o# the laws o# the Repu)lic o# thePhilippines, with principal address at (ortune "venue, Paran,3ari!ina City.

Petitioner is the manu#acturer4producer o#, amon others, the#ollowin ciarette )rands, with ta% rate classi*cation )asedon net retail price prescri)ed )y "nne% 5D5 to R.". No. /0,to wit2

6rand $a% Rate

Champion 3 100 P1.00

Salem 3 100 P1.00

Salem 3 7in P1.00

Camel ( 7in P1.00

Camel 8ihts 6o% 09s P1.00

Camel (ilters 6o% 09s P1.00

:inston ( 7ins P;.00

:inston 8ihts P;.00

Immediately prior to , the a)ove+mentionedciarette )rands were su)?ect to ad valorem ta% pursuant tothen Section 1 o# the $a% Code o# 1=>>, as amended.@owever, on , R.". No. /0 too! eAectwhere)y a shi#t #rom the ad valorem ta% &"B$' system to thespeci*c ta% system was made and su)?ectin the a#oresaidciarette )rands to speci*c ta% under Section 1 thereo#,now renum)ered as Sec. 1; o# the $a% Code o# 1==>,pertinent provisions o# which are -uoted thus2

S$%&'o( 145. C')*+s *( C')*+$&&$s-

&"' C')*+s. $here shall )e levied, assessed andcollected on ciars a ta% o# One peso &P1.00' perciar.

5&6' C')*+$&&$s *%$ /y *(. $here shall )elevied, assessesed and collected on ciarettespac!ed )y hand a ta% o# (orty centavos &P0.0' perpac!.

&C' C')*+$&&$s *%$ /y *%'($. $here shall)e levied, assessed and collected on ciarettespac!ed )y machine a ta% at the rates prescri)ed)elow2

&1' I# the net retail price &e%cludin thee%cise ta% and the value+added ta%' isa)ove $en pesos & P 10.00' per pac!, the ta%shall )e $welve &P1.00' per pac!F

&' I# the net retail price &e%cludin thee%cise ta% and the value added ta%' e%ceedsSi% pesos and (i#ty centavos & P G.;0' )utdoes not e%ceed $en pesos &P10.00' perpac!, the ta% shall )e Eiht Pesos & P /.00'per pac!.

&H' I# the net retail price &e%cludin thee%cise ta% and the value+added ta%' is (ivepesos & P ;.00' )ut does not e%ceed Si% Pesosand *#ty centavos & P G.;0' per pac!, the ta%shall )e (ive pesos & P ;.00' per pac!F

&' I# the net retail price &e%cludin thee%cise ta% and the value+added ta%' is)elow (ive pesos & P ;.00' per pac!, the ta%shall )e One peso & P 1.00' per pac!F

5Bariants o# e%istin )rands o# ciarettes which are introducedin the domestic mar!et a#ter the eAectivity o# R.". No. /0shall )e ta%ed under the hihest classi*cation o# any varianto# that )rand.

$he e%cise ta% #rom any )rand o# ciarettes within the ne%tthree &H' years #rom the eAectivity o# R.". No. /0 shall not)e lower than the ta%, which is due #rom each )rand onOcto)er 1, 1==G. Provided, however, that in cases were &sic'the e%cise ta% rate imposed in pararaphs &1', &', &H' and &'hereina)ove will result in an increase in e%cise ta% o# morethan seventy percent &>0', #or a )rand o# ciarette, theincrease shall ta!e eAect in two tranches2 *#ty percent &;0'o# the increase shall )e eAective in 1==> and one hundredpercent &100' o# the increase shall )e eAective in 1==/.

Duly reistered or e%istin )rands o# ciarettes or new )randsthereo# pac!ed )y machine shall only )e pac!ed in twenties.

T$ +*&$s o $3%'s$ &*3 o( %')*+s *( %')*+$&&$s u($+

*+*)+*s 1, 2 *( 4 $+$o, s*ll /$'(%+$*s$ /y &$l$ $+%$(& 129 o( J*(u*+y 1, 2000 .&Emphasis supplied'

New )rands shall )e classi*ed accordin to their current netretail price.

(or the a)ove purpose, J($& +$&*'l +'%$9 shall mean theprice at which the ciarette is sold on retail in twenty &0'ma?or supermar!ets in 3etro 3anila or )rands o# ciarettesmar!eted nationally', e%cludin the amount intended to coverthe applica)le e%cise ta% and value+added ta%. (or )randswhich are mar!eted only outside 3etro 3anila, the J($&+$&*'l +'%$9 shall mean the price at which the ciarette issold in *ve &;' ma?or supermar!ets in the reion e%cludin theamount intended to cover the applica)le e%cise ta% and the

value+added ta%.

$he classi*cation o# each )rand o# ciarettes )ased on itsaverae retail price as o# Octo)er 1, 1==G, as set #orth in"nne% 5D,5 shall remain in #orce until revised )y Conress.

*+'*(& o * /+*(shall re#er to a )rand on which a modi*eris pre*%ed and4or suK%ed to the root name o# the )randand4or a diAerent )rand which carries the same loo or desino# the e%istin )rand.

$o implement the provisions #or a twelve percent &1'increase o# e%cise ta% on, amon others, ciars and ciarettespac!ed )y machines )y +==, dated Decem)er 1G, 1===, whichprovides the increase on the applica)le ta% rates on ciar andciarettes as #ollows2

SEC$ION "R$IC8ES

PRESEN$SPECI(IC $"LR"$E PRIOR$O


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&6'Ciarettespac!ed )ymachine

&1' Net retailprice &e%cludinB"$ and e%cise'e%ceeds P10.00per pac!

P1.004pac! P1H.4 pac!

&'E%ceeds P10.00per pac!

P/.004pac! P/.=G4pac!

&H' Net retailprice &e%cludinB"$ and e%cise'is P;.00 to PG.;0per pac!

P;.004pac! P;.G04pac!

&' Net RetailPrice &e%cludinB"$ and e%cise' is

)elow P;.00 perpac!

P1.004pac! P1.14pac!

Revenue Reulations No. 1>+== li!ewise provides in the lastpararaph o# Section 1 thereo#, 5&&*& &$ ($ s$%':% &*3+*&$ o+ *(y $3's&'() /+*( o %')*+s, %')*+$&&$s *%$/y *%'($, 's&'ll$ s'+'&s, '($s *( $+$(&$l';uo+ s*ll (o& /$ lo$+ &*( &$ $3%'s$ &*3 &*& 's*%&u*lly /$'() *' +'o+ &o J*(u*+y 1, 2000., 000, petitioner *led with respondent9s"ppellate Division a claim #or re#und or ta% credit o# its

purportedly overpaid e%cise ta% #or the month o# +== is in accordance with the pertinent provisions o# Repu)lic"ct No. /0, now incorporated in Section 1; o# the $a%Code o# 1==>F and &' :hether or not petitioner is entitled toa re#und o#PH;,G;1,10.00 as alleed overpaid e%cise ta% #orthe month o# ,0;.00 was doc!eted as C"+.R. SP No./0G>;, whereas that assailin the rant o# re#und in theamount o# PH;;,H/;,=0.00 was doc!eted as C"+.R. SP No./H1G;. $he petitions were consolidated and eventually denied)y the Court o# "ppeals. $he appellate court also deniedreconsideration in its Resolution;dated 1 3arch 00;.

In its 3emorandumG dated Novem)er 00G, *led on )ehal#o# the Commissioner, the OKce o# the Solicitor eneral &OS'see!s to convince the Court that the literal interpretationiven )y the C$" and the Court o# "ppeals o# Section 1; o#
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Hthe $a% Code o# 1==> &$a% Code' would lead to a lower ta%imposa)le on 1 +==, which was issued pursuant to theun-uestioned authority o# the Secretary o# (inance topromulate rules and reulations #or the eAectiveimplementation o# the $a% Code,1interprets the a)ove+-uoted

provision and reQects the 1 increase in e%cise ta%es in the#ollowin manner2

SEC$IONDESCRIP$ION O("R$IC8ES

PRESEN$SPECI(IC $"LR"$ES PRIOR$O


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&6'Ciarettespac!ed )y3achine

&1' Net RetailPrice &e%cludinB"$ and E%cise'e%ceeds P10.00per pac!

P1.004pac! P1H.4pac!

&' Net RetailPrice &e%cludinB"$ and E%cise'is PG.;1 upto P10.00 perpac!

P/.004pac! P/.=G4pac!

&H' Net RetailPrice &e%cludinB"$ and e%cise'is P;.00 to PG.;0per pac!

P;.004pac! P;.G04pac!

&' Net RetailPrice &e%cludinB"$ and e%cise'is )elow P;.00per pac!'

P1.004pac! P1.14pac!

$his ta)le reQects Section 1; o# the $a% Code inso#ar as itmandates a 1 increase eAective on 1 +== went #urther andadded that 5$he new speci*c ta% rate #or any e%istin )rando# ciars, ciarettes pac!ed )y machine, distilled spirits, winesand #ermented li-uor shall not be lower than the excise taxthat is actually being paid prior to January 1, 2000.51H

Parenthetically, Section 1; states that durin the transition

period, i.e., within the ne%t three &H' years #rom the eAectivityo# the $a% Code, the e%cise ta% #rom any )rand o# ciarettesshall not )e lower than the ta% due #rom each )rand on 1Octo)er 1==G. $his -uali*cation, however, is conspicuouslya)sent as reards the 1 increase which is to )e applied onciars and ciarettes pac!ed )y machine, amon others,eAective on 1 H provides. $heirinterpretation muddled up the intent o# Conress to rant amere discount privilee and not a sales discount. $he Court,

stri!in down the revenue reulation, held that anadministrative aency issuin reulations may not enlare,alter or restrict the provisions o# the law it administers, and itcannot enra#t additional re-uirements not contemplated )ythe leislature. $he Court emphasied that ta% administratorsare not allowed to e%pand or contract the leislative mandateand that the 5plain meanin rule5 or verbalegisin statutoryconstruction should )e applied such that where the words o# astatute are clear, plain and #ree #rom am)iuity, it must )eiven its literal meanin and applied without attemptedinterpretation.

"s we have previously declared, rule+ma!in power must )econ*ned to details #or reulatin the mode or proceedins inorder to carry into eAect the law as it has )een enacted, and itcannot )e e%tended to amend or e%pand the statutoryre-uirements or to em)race matters not covered )y thestatute. "dministrative reulations must always )e inharmony with the provisions o# the law )ecause any resultindiscrepancy )etween the two will always )e resolved in #avoro# the )asic law.1>

In Commissioner of Internal evenue v. $ichel J. !huillier%awnshop, Inc.,1/Commissioner > $a%

Code, as amended )y E%ecutive Order &E.O.' No. >H, onpawnshops. $he Commissioner anchored the imposition onthe de*nition o# lendin investors provided in the 1=>> $a%Code which, accordin to him, was )road enouh to includepawnshop operators. @owever, the Court noted thatpawnshops and lendin investors were su)?ected to diAerentta% treatments under the $a% Code prior to its amendment )ythe e%ecutive orderF that Conress never intended to treatpawnshops in the same way as lendin investorsF and that theparticularly involved section o# the $a% Code e%plicitlysu)?ected lendin investors and dealers in securities only topercentae ta%. "nd so the Court aKrmed the invalidity o# thechallened circulars, stressin that 5administrative issuancesmust not override, supplant or modi#y the law, )ut mustremain consistent with the law they intend to carry out.5 1=

In %hilippine &an' of Communications v. Commissioner ofInternal evenue,0the then actin Commissioner issued R3C>+/;, chanin the prescriptive period o# two years to tenyears #or claims o# e%cess -uarterly income ta% payments,there)y creatin a clear inconsistency with the provision o#Section H0 o# the 1=>> $a% Code. $he Court nulli*ed thecircular, rulin that the 6IR did not simply interpret the lawFrather it leislated uidelines contrary to the statute passed)y Conress. $he Court held2

It )ears repeatin that Revenue memorandum+circulars areconsidered administrative rulins &in the sense o# morespeci*c and less eneral interpretations o# ta% laws' which areissued #rom time to time )y the Commissioner o# InternalRevenue. It is widely accepted that the interpretation placedupon a statute )y the e%ecutive oKcers, whose duty is to

en#orce it, is entitled to reat respect )y the courts.Nevertheless, such interpretation is not conclusive and will )einored i# ?udicially #ound to )e erroneous. $hus, courts willnot countenance administrative issuances that override,instead o# remainin consistent and in harmony with, the lawthey see! to apply and implement.1

In Commissioner of Internal evenue v. C(, et al. ,the centralissue was the validity o# R3O +/> which had construed theamnesty coverae under E.O. No. 1 &1=/G' to include onlyassessments issued )y the 6IR a#ter the promulation o# thee%ecutive order on "uust 1=/G and not assessmentsmade to that date. Resolvin the issue in the neative, theCourt held2

% %% all such issuances must not override, )ut must remainconsistent and in harmony with, the law they see! to applyand implement. "dministrative rules and reulations areintended to carry out, neither to supplant nor to modi#y, thelaw.H

% %%

I#, as the Commissioner arues, E%ecutive Order No. 1 hadnot )een intended to include 1=/1+1=/; ta% lia)ilities alreadyassessed &administratively' prior to "uust 1=/G, the lawcould have simply so provided in its e%clusionary clauses. Itdid not. $he conclusion is unavoida)le, and it is that thee%ecutive order has )een desined to )e in the nature o# aeneral rant o# ta% amnesty su)?ect only to the casesspeci*cally e%cepted )y it.
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;In the case at )ar, the OS9s arument that )y 1 $he rule is that ta%e%emptions must )e strictly construed such that thee%emption will not )e held to )e con#erred unless the termsunder which it is ranted clearly and distinctly show that suchwas the intention./

" claim #or ta% re#und may )e )ased on statutes rantin ta%e%emption or ta% re#und. In such case, the rule o# strictinterpretation aainst the ta%payer is applica)le as the claim#or re#und parta!es o# the nature o# an e%emption, aleislative race, which cannot )e allowed unless ranted inthe most e%plicit and cateorical lanuae. $he ta%payermust show that the leislature intended to e%empt him #romthe ta% )y words too plain to )e mista!en.=

$a% re#unds &or ta% credits', on the other hand, are not#ounded principally on leislative race )ut on the lealprinciple which underlies all -uasi+contracts a)horrin aperson9s un?ust enrichment at the e%pense o# another. H0$hedynamic o# erroneous payment o# ta% *ts to a tee theprototypic -uasi+contract, solutioinde)iti, which covers notonly mista!e in #act )ut also mista!e in law.H1

$he overnment is not e%empt #rom the application o# solutioinde)iti.HIndeed, the ta%payer e%pects #air dealin #rom theovernment, and the latter has the duty to re#und without anyunreasona)le delay what it has erroneously collected.HHI# theState e%pects its ta%payers to o)serve #airness and honesty inpayin their ta%es, it must hold itsel# aainst the same

standard in re#undin e%cess &or erroneous' payments o# suchta%es. It should not un?ustly enrich itsel# at the e%pense o#ta%payers.H"nd so, iven its essence, a claim #or ta% re#undnecessitates only preponderance o# evidence #or itsappro)ation li!e in any other ordinary civil case.

nder the $a% Code itsel#, apparently in reconition o# thepervasive -uasi+contract principle, a claim #or ta% re#und may)e )ased on the #ollowin2 &a' erroneously or illeallyassessed or collected internal revenue ta%esF &)' penaltiesimposed without authorityF and &c' any sum alleed to have)een e%cessive or in any manner wron#ully collected.H;

:hat is controllin in this case is the well+settled doctrine o#strict interpretation in the imposition o# ta%es, not the similardoctrine as applied to ta% e%emptions. $he rule in theinterpretation o# ta% laws is that a statute will not )econstrued as imposin a ta% unless it does so clearly,e%pressly, and unam)iuously. " ta% cannot )e imposedwithout clear and e%press words #or that purpose. "ccordinly,the eneral rule o# re-uirin adherence to the letter inconstruin statutes applies with peculiar strictness to ta% lawsand the provisions o# a ta%in act are not to )e e%tended )yimplication. In answerin the -uestion o# who is su)?ect to ta%statutes, it is )asic that in case o# dou)t, such statutes are to)e construed most stronly aainst the overnment and in#avor o# the su)?ects or citiens )ecause )urdens are not to )e

imposed nor presumed to )e imposed )eyond what statutese%pressly and clearly import.HG"s )urdens, ta%es should not)e unduly e%acted nor assumed )eyond the plain meanin o#the ta% laws.H>

:@ERE(ORE, the petition is DENIED. $he Decision o# the Courto# "ppeals in C" .R. SP No. /0G>;, dated / Septem)er00, and its Resolution, dated 1 3arch 00;, are "((IR3ED.No pronouncement as to costs.

SO ORDERED.

T=IR> >IISION

COMMISSIONER OF INTERNAL G.R. No. 15?647

REEN!E, $+sus

CENTRAL L!@ON >R!G #+oul)*&$

COR#ORATION, R$so($(&

A+'l 15, 2005

>ECISION$he 0 percent discount re-uired )y the law to )e iven tosenior citiens is a tax credit, not merely a tax deduction#rom

the ross income or ross sale o# the esta)lishmentconcerned. " tax creditis used )y a private esta)lishmentonly a#ter the ta% has )een computedF a tax deduction, )e#orethe ta% is computed. R" >H unconditionally rants a taxcreditto all covered entities. $hus, the provisions o# therevenue reulation that withdraw or modi#y such rant arevoid. 6asic is the rule that administrative reulations cannotamend or revo!e the law.T$ C*s$6e#ore us is a Petition #or Review 1under Rule ; o# the Ruleso# Court, see!in to set aside the "uust =, 00Decisionand the "uust 11, 00H ResolutionHo# the Courto# "ppeals &C"' in C"+R SP No. G>H=. $he assailed Decisionreads as #ollows2

B=EREFORE, premisesconsidered, the Resolution appealed #romis AFFIRME>in toto. No costs.

$he assailed Resolution denied petitioners 3otion #orReconsideration.T$ F*%&s

$he C" narrated the antecedent #acts as #ollows2

Respondent is a domestic corporationprimarily enaed in retailin o# medicinesand other pharmaceutical products. In 1==G,it operated si% &G' drustores under the)usiness name and style 3ercury Dru.
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G(rom entitled Central)!u"on* #rug Corporation vs. Commissionerof Internal evenuepromulated on 3ay H1,001, to wit2

@owever, Sec. = clearlydoes not apply in theinstant case )ecause theta% souht to )e re#undedor credited )y petitionerwas not erroneously paidor illeally collected. :eta!e e%ception to the C$"ssweepin )ut un#oundedstatement that )oth ta%re#und and ta% credit aremodes o# recoverin ta%eswhich are eithererroneously or illeallypaid to the overnment.

$a% re#unds or credits donot e%clusively pertain toilleally collected orerroneously paid ta%es asthey may )e othercircumstances where are#und is warranted. $heta% re#und provided underSection = dealse%clusively with illeallycollected or erroneouslypaid ta%es )ut there areother possi)le situations,such as the re#und o#e%cess estimatedcorporate -uarterlyincome ta% paid, or that o#e%cess input ta% paid )y aB"$+reistered person, orthat o# e%cise ta% paid onoods locally produced ormanu#actured )ut actuallye%ported. $he standardsand mechanics #or therant o# a re#und or creditunder these situations arediAerent #rom that under

Sec. =. Sec. .a' o#R.". >H, is yet anotherinstance o# a ta% creditand it does not in any wayre#er to illeally collectedor erroneously paid ta%es,% % %.>

Rul'() o &$ Cou+& o A$*ls$he C" aKrmed in totothe Resolution o# the Court o# $a%"ppeals &C$"' orderin petitioner to issue a ta% creditcerti*cate in #avor o# respondent in the reduced amounto# P=0H,0H/.H=. It reasoned that Repu)lic "ct No. &R"' >Hre-uired neither a ta% lia)ility nor a payment o# ta%es )yprivate esta)lishments prior to the availment o# a ta% credit.

3oreover, such credit is not tantamount to an unintended)ene*t #rom the law, )ut rather a ?ust compensation #or theta!in o# private property #or pu)lic use.@ence this Petition./

T$ Issu$s

Petitioner raises the #ollowin issues #or ourconsideration2

:hether the Court o# "ppeals erred inholdin that respondent may claim the 0sales discount as a ta% credit instead o# as adeduction #rom ross income or ross sales.:hether the Court o# "ppeals erred inholdin that respondent is entitled to are#und.=

$hese two issues may )e summed up in only one2 whetherrespondent, despite incurrin a net loss, may still claim the 0percent sales discount as a ta% credit.T$ Cou+&s Rul'()

$he Petition is not meritorious.Sol$ Issu$Claim of 20 Percent Sales Discount as T*3C+$'& Despite N$& Loss

Section a' o# R" >H10rants to senior citiens theprivilee o# o)tainin a 0 percent discount on their purchaseo# medicine #rom any private esta)lishment in the country.11$he latter may then claim the cost o# the discount as a taxcredit.16ut can such credit )e claimed, even thouh anesta)lishment operates at a loss:e answer in the aKrmative.T*3 C+$'& versus T*3 >$u%&'o("lthouh the term is not speci*cally de*ned in our $a% Code,1Htax creditenerally re#ers to an amount that is su)tracteddirectly #rom ones total ta% lia)ility.1It is an allowance
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>aainst the ta% itsel#1;or a deduction #rom what is owed 1G)ya ta%payer to the overnment. E%amples o# tax creditsarewithheld ta%es, payments o# estimated ta%, and investmentta% credits.1>

+ax creditshould )e understood in relation to other ta%concepts. One o# these is tax deduction++ de*ned as asu)traction #rom income #or ta% purposes,1/or an amountthat is allowed )y law to reduce income prior to theapplication o# the ta% rate to compute the amount o# ta%which is due.1="n e%ample o# a tax deductionis any o# theallowa)le deductions enumerated in Section H0o# the $a%Code." tax creditdiAers #rom a tax deduction. On the one hand,a tax creditreduces the ta% due, includin ++ wheneverapplica)le ++ the income taxthat is determined a#ter applyinthe correspondin ta% rates to taxable income.1" taxdeduction, on the other, reduces the income that is su)?ect tota%in order to arrive at taxable income.H$o thin! o# the#ormer as the latter is to avoid, i# not entirely con#use, theissue. " tax creditis used only *&$+the ta% has )eencomputedF a tax deduction, /$o+$.Tax Liability Reuire! for T*3 C+$'&Since a tax credit is used to reduce directly the ta% that is

due, there ouht to )e a ta% lia)ility /$o+$the tax creditcan)e applied. :ithout that lia)ility, any tax creditapplication will)e useless. $here will )e no reason #or deductin the latterwhen there is, to )ein with, no e%istin o)liation to theovernment. @owever, as will )e presented shortly,the existenceo# a ta% credit or its grant)y law is not thesame as the availmentor useo# such credit. :hile the rant ismandatory, the availment or use is not.I# a net lossis reported )y, and no other ta%es are currentlydue #rom, a )usiness esta)lishment, there will o)viously )e nota% lia)ility aainst which any tax creditcan )e applied.(orthe esta)lishment to choose the immediate availment o# a taxcreditwill )e premature and impractica)le. Nevertheless, theirre#uta)le #act remains that, under R" >H, Conress hasranted without conditions a tax credit)ene*t to all covered

esta)lishments."lthouh this tax credit)ene*t is availa)le, it need not )eused )y losin ventures, since there is no ta% lia)ility thatcalls #or its application. Neither can it )e reduced to nil )y the-uic! yet callow stro!e o# an administrative pen, simply)ecause no reduction o# ta%es can instantly )e eAected. 6y itsnature, the tax creditmay still )e deducted #rom a future, notapresent, ta% lia)ility, without which it does not have anyuse. In the meantime, it need not move. 6ut it )reathes.Prior Tax Payments "ot Reuire! for T*3 C+$'&:hile a ta% lia)ility is essential to the availment or useo#any tax credit, prior ta% payments are not. On the contrary,#or the existence or grantsolely o# such credit, neither a ta%lia)ility nor a prior ta% payment is needed. $he $a% Code is in#act replete with provisions rantin or allowin tax credits,even thouh no ta%es have )een previously paid.(or e%ample, in computin the estate tax due, Section /G&E'allows a tax credit++ su)?ect to certain limitations ++ #or estateta%es paid to a #orein country. "lso #ound in Section 101&C' isa similar provision #or donors ta%es ++ aain when paid to a#orein country ++ in computin #or the donors tax due.$he tax creditsin )oth instances allude to the prior paymento# ta%es, even i# not made to our overnment.nder Section 110, a B"$ &Balue+"dded $a%'+ reisteredperson enain in transactions ++ whether or not su)?ect tothe B"$ ++ is also allowed a tax creditthat includes a rata)leportion o# any input ta% not directly attri)uta)le to eitheractivity. $his input ta% may either)e the B"$ on the purchase

or importation o# oods or services that is merely due #rom ++not necessarily paid )y ++ such B"$+reistered person in thecourse o# trade or )usinessF orthe transitional input ta%determined in accordance with Section 111&"'. $he latter typemay in #act )e an amount e-uivalent to only eiht percent o#the value o# a B"$+reistered persons )einnin inventory o#oods, materials and supplies, when such amount ++ ascomputed ++ is hiher than the actual B"$ paid on the saiditems.;Clearly #rom this provision, the tax creditre#ers to aninput ta% that is either due only or iven a value )y merecomparison with the B"$ actually paid ++ then later prorated.No ta% is actually paid prior to the availment o# such credit.In Section 111&6', a one and a hal# percent input taxcreditthat is merely presumptive is allowed. (or the purchase

o# primary aricultural products used as inputs ++ either in theprocessin o# sardines, mac!erel and mil!, or in themanu#acture o# re*ned suar and coo!in oil ++ and #or thecontract price o# pu)lic wor! contracts entered into with theovernment, aain, no prior ta% payments are needed #or theuse o# the tax credit.3ore important, a B"$+reistered person whose sales are ero+rated or eAectively ero+rated may, under Section 11&"',apply #or the issuance o# a tax creditcerti*cate #or the amounto# credita)le input ta%es merely due ++ aain not necessarilypaid to ++ the overnment and attri)uta)le to such sales, tothe e%tent that the input ta%es have not )een applied aainstoutput ta%es.G:here a ta%payeris enaed in ero+rated or eAectively ero+rated sales andalso in ta%a)le or e%empt sales, the amount o# credita)leinput ta%es due that are not directly and entirely attri)uta)leto any one o# these transactions shall )e proportionatelyallocated on the )asis o# the volume o# sales. Indeed, inavailin o# such tax credit#or B"$ purposes, this provision ++as well as the one earlier mentioned ++ shows that the priorpayment o# ta%es is not a re-uisite.It may )e arued that Section /&6'&;'&)' o# the $a% Code isanother illustration o# a tax creditallowed, even thouh noprior ta% payments are not re-uired. Speci*cally, in thisprovision, the imposition o# a *nal withholdin ta% rate on

cash and4or property dividends received )y a nonresident#orein corporation #rom a domestic corporation is su)?ectedto the condition that a #orein tax creditwill )e iven )y thedomiciliary country in an amount e-uivalent to ta%es that aremerely deemed paid.>"lthouh true, this provision actuallyre#ers to the tax creditas a conditiononly #or the impositiono# a lower ta% rate, not as a deduction#romthe correspondinta% lia)ility. 6esides, it is not our overnment )ut thedomiciliary country that credits aainst the income ta%paya)le to the latter )y the #orein corporation, the ta% to )e#oreone or spared./

In contrast, Section H&C'&H', in relation to Section H&C'&>'&)',cateorically allows as credits, aainst the income ta%imposa)le under $itle II, the amount o# income ta%es merelyincurred ++ not necessarily paid ++ )y a domestic corporation

durin a ta%a)le year in any #orein country. 3oreover,Section H&C'&;' provides that #or such ta%es incurred )ut notpaid, a tax creditmay )e allowed, su)?ect to the conditionprecedent that the ta%payer shall simply ive a )ond withsureties satis#actory to and approved )y petitioner, in suchsum as may )e re-uiredF and #urther conditioned uponpayment )y the ta%payer o# any ta% #ound due, uponpetitioners redetermination o# it.In addition to the a)ove+cited provisions in the $a% Code,there are also ta% treaties and special laws that rant orallow tax credits, even thouh no prior ta% payments have)een made.nder the treaties in which the tax creditmethod is used as arelie# to avoid dou)le ta%ation, income that is ta%ed inthe state of sourceis also ta%a)le in the state of residence,)ut the ta% paid in the #ormer is merely allowed as a creditaainst the ta% levied in the latter. ="pparently, payment ismade to the state of source, not thestate of residence. No ta%,there#ore, has )eenpreviouslypaid to the latter.nder special laws that particularly aAect )usinesses, therecan also )e tax creditincentives. $o illustrate, the incentivesprovided #or in "rticle / o# Presidential Decree No. &PD' 1>/=,as amended )y 6atas Pam)ansa6l. &6P' H=1, include taxcreditse-uivalent to either *ve percent o# the net valueearned, or *ve or ten percent o# the net local content o#e%ports.H0In order to avail o# such credits under the said lawand still achieve its o)?ectives, no prior ta% payments arenecessary.(rom all the #oreoin instances, it is evident that prior ta%

payments are not indispensa)le to the availment o# a taxcredit. $hus, the C" correctly held that the availment underR" >H did not re-uire prior ta% payments )y privateesta)lishments concerned.H1@owever, we do not aree withits *ndinHthat the carry+over o# tax creditsunder the saidspecial law to succeedin ta%a)le periods, and even theirapplication aainst internal revenue ta%es, did not necessitatethe e%istence o# a ta% lia)ility.$he e%amples a)ove show that a ta% lia)ility is certainlyimportant in the availment or use, not the existence or grant,o# a tax credit. Reardin this matter, a private esta)lishmentreportin a net lossin its *nancial statements is no diAerent#rom another that presents a net income. 6oth are entitled tothe tax creditprovided #or under R" >H, since the law itsel#
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/accords that unconditional )ene*t. @owever, #or the losinesta)lishment to immediately apply such credit, where no ta%is due, will )e an improvident usance.Sections 2.i an! # of Revenue Re$ulations "o. 2%'rroneousR" >H speci*cally allows private esta)lishments to claimas tax creditthe amount o# discounts they rant.HHIn turn,the Implementin Rules and Reulations, issued pursuantthereto, provide the procedures #or its availment. H$o denysuch credit, despite the plain mandate o# the law and thereulations carryin out that mandate, is inde#ensi)le.irst, the de*nition iven )y petitioner is erroneous. It re#ersto tax creditas the amount representin the 0 percentdiscount that shall )e deducted )y the said esta)lishments#rom their gross income#or income ta% purposes and #romtheir gross sales#or value+added ta% or other percentae ta%purposes.H;In ordinary )usiness lanuae, the taxcreditrepresents the amount o# such discount. @owever, themanner )y which the discount shall )e credited aainst ta%eshas not )een clari*ed )y the revenue reulations.6y ordinary acceptation, a discount is an a)atement orreduction made #rom the ross amount or value o# anythin.HG$o )e more precise, it is in )usiness parlance a deduction

or lowerin o# an amount o# moneyFH>or a reduction #rom the#ull amount or value o# somethin, especially a price.H/In)usiness there are many !inds o# discount, the most commono# which is that aAectin the income statementH=or *nancialreport upon which the income taxis )ased.(usiness Discounts De!ucte! from G+oss S*l$s" cash discount, #or e%ample, is one ranted )y )usinessesta)lishments to credit customers#or their prompt payment.0It is a reduction in price oAered to the purchaser i#payment is made within a shorter period o# time than thema%imum time speci*ed.1"lso re#erred to as a salesdiscounton the part o# the seller and apurchase discountonthe part o# the )uyer, it may )e e%pressed in suchterms as ;410, n4H0.

" -uantity discount, however, is a reduction in price allowed#or purchases made in lare -uantities, ?usti*ed )y savins inpac!ain, shippin, and handlin.HIt is also calleda volume or bul' discount.

" percentae reduction #rom the list price % %% allowed )ymanu#acturers to wholesalers and )y wholesalers toretailers;is !nown as a trade discount. No entry #or it need)e made in the manual or computeried boo's of accounts,since the purchase or sale is already valued at the net priceactually chared the )uyer.G$he purpose #or the discount isto encourae tradin or increase sales, and the prices atwhich the purchased oods may )e resold are also suested.>Even a chain discount++ a series o# discounts #rom one listprice ++ is recorded at net. /

(inally, a!in to a trade discountis a functional discount. It is asuppliers price discount iven to a purchaser )ased on thelatters role in the #ormers distri)ution system. =$his roleusually involves warehousin or advertisin.6ased on this discussion, we *nd that the nature o# a salesdiscountis peculiar. "pplyin enerally accepted accountinprinciples &""P' in the country, this type o# discount isreQected in the income statement;0as a line item deducted ++alon with returns, allowances, re)ates and other similare%penses ++ #rom gross salesto arrive at net sales.;1$his typeo# presentation is resorted to, )ecause the accountsreceivableand sales*ures that arise #rom sales discounts, ++as well as #rom -uantity, volumeor bul' discounts++ arerecorded in the manual and computeried boo's ofaccountsand reQected in the *nancial statements at the ross

amounts o# the invoices.;$his manner o# recordin creditsales ++ !nown as the gross method++ is most widely used,)ecause it is simple, more convenient to apply than the netmethod, and produces no material errors over time.;H

@owever, under the net methodused inrecordin trade, chain or functional discounts, only the netamounts o# the invoices ++ a#ter the discounts have )eendeducted ++ are recorded in the boo's of accounts;andreQected in the *nancial statements. " separate line itemcannot )e shown,;;)ecause the transactions themselvesinvolvin )oth accounts receivableand saleshave already)een entered into, net o# the said discounts.

$he term sales discountsis not e%pressly de*ned in the $a%Code, )ut one provision adverts to amounts whose sum ++alon with sales returns, allowancesand cost of goodssold;G++ is deducted #rom gross salesto come up withthe gross income,protor margin;>derived #rom )usiness.;/In another provision therein, sales discountsthat areranted and indicated in the invoices at the time o# sale ++ andthat do not depend upon the happenin o# any #uture event ++may )e e%cluded #rom the gross saleswithin the same -uarterthey were iven.;=:hile determinative only o# the B"$, thelatter provision also appears as a suita)le re#erence point #orincome ta% purposes already em)raced in the #ormer. "#terall, these two provisions aKrm that sales discountsareamounts that are always deducti)le #rom gross sales.Reason for t)e Senior Citi*en Discount: T)e La+, "otPrompt Payment" distinuishin #eature o# the implementin rules o# R" >His the private esta)lishments outriht deduction o# thediscount #rom the invoice price o# the medicine sold to thesenior citien.G0It is, there#ore, e%pected that #or each retailsale made under this law, the discount period lasts no morethan a day, )ecause such discount is iven ++ and the netamount thereo# collected ++ immediately upon per#ection o#the sale.G1"lthouh prompt payment is made #or an arms+lenth transaction )y the senior citien, the real and

compellin reason #or the private esta)lishment ivin thediscount is that the law itsel# ma!es it mandatory.:hat R" >H rants the senior citien is a mere discountprivilee, not a sales discountor any o# the a)ove discounts inparticular. Prompt payment is not the reason #or &althouh anecessary conse-uence o#' such rant. $o )e sure, theprivilee en?oyed )y the senior citien must )e e-uivalent tothe tax credit)ene*t en?oyed )y the private esta)lishmentrantin the discount. Tet, under the revenue reulationspromulated )y our ta% authorities, this )ene*t has )eenerroneously li!ened and con*ned to a sales discount.$o a senior citien, the monetary eAect o# the privilee may)e the same as that resultin #rom a sales discount. @owever,to a private esta)lishment, the eAect is diAerent #rom a

simple reduction in price that results #rom such discount. Inother words, the tax credit)ene*t is not the same as a salesdiscount. $o repeat #rom our earlier discourse, this )ene*tcannot and should not )e treated as a tax deduction.$o stress, the eAect o# a sales discounton the incomestatementand income tax returno# an esta)lishment covered)y R" >H is diAerent #rom that resultin #romtheavailmentor useo# its tax credit)ene*t. :hile the #ormeris a deduction before, the latter is a deduction after,the income taxis computed. "s mentioned earlier, a discountis not necessarily a sales discount, and a tax credit#or asimple discount privilee should not )e automatically treatedli!e a sales discount. /bilex non distinguit,necnosdistingueredebemus . :here the law does notdistinuish, we ouht not to distinuish.Sections .i and o# Revenue Reulations No. &RR' +=de*ne tax creditas the 0 percent discount deducti)le#rom gross income#or income taxpurposes, or #romgrosssales#or B"$ or other percentae ta% purposes. In eAect,the tax credit)ene*t under R" >H is related to a salesdiscount. $his contrived de*nition is improper, considerinthat the latter has to )e deducted #rom gross salesin order tocompute the gross incomein the income statementandcannot )e deducted aain, even #or purposes o# computinthe income tax.:hen the law says that the cost o# the discount may )eclaimed as a tax credit, it means that the amount ++ whenclaimed ++ shall )e treated as a reduction #rom any ta%lia)ility, plain and simple. $he option to avail o# the taxcredit)ene*t depends upon the e%istence o# a ta% lia)ility,

)ut to limit the )ene*t to a sales discount++ which is not evenidentical to the discount privilee that is ranted )y law ++does not de*ne it at all and serves no use#ul purpose. $hede*nition must, there#ore, )e stric!en down.La+s "ot -men!e! by Re$ulationsecond, the law cannot )e amended )y a mere reulation. In#act, a reulation that operates to create a rule out o#harmony withthe statute is a mere nullityF Git cannot prevail.It is a cardinal rule that courts will and should respect thecontemporaneous construction placed upon a statute )y thee%ecutive oKcers whose duty it is to en#orce it % % %. GHIn the
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=scheme o# ?udicial ta% administration, the need #or certaintyand predicta)ility in the implementation o# ta% laws is crucial.GOur ta% authorities *ll in the details that Conress may nothave the opportunity or competence to provide.G;$hereulations these authorities issue are relied upon )yta%payers, who are certain that these will )e #ollowed )y thecourts.GGCourts, however, will not uphold these authoritiesinterpretations when clearly a)surd, erroneous or improper.In the present case, the ta% authorities have iven theterm tax creditin Sections .i and o# RR += a meaninutterly in contrast to what R" >H provides. $heirinterpretation has muddled up the intent o# Conress inrantin a mere discount privilee, not a sales discount. $headministrative aency issuin these reulations may notenlare, alter or restrict the provisions o# the law itadministersF it cannot enra#t additional re-uirements notcontemplated )y the leislature.G>

In case o# conQict, the law must prevail.G/" reulationadopted pursuant to law is law.G=Conversely, a reulation orany portion thereo# not adopted pursuant to law is no law andhas neither the #orce nor the eAect o# law.>0

-vailment of T*3 C+$'& oluntary

+hird, the word mayin the te%t o# the statute>1implies that

theavaila)ility o# the tax credit)ene*t is neither unrestricted normandatory.>$here is no a)solute riht con#erred uponrespondent, or any similar ta%payer, to avail itsel# o# the taxcreditremedy whenever it choosesF neither does it impose aduty on the part o# the overnment to sit )ac! and allow animportant #acet o# ta% collection to )e at the sole control anddiscretion o# the ta%payer.>H(or the ta% authorities to compelrespondent to deduct the 0 percent discount #rom eitherits gross incomeor its gross sales>is, there#ore, not only toma!e an imposition without )asis in law, )ut also to )latantlycontravene the law itsel#.:hat Section .a o# R" >H means is that the taxcredit)ene*t is merely permissive, not imperative.Respondent is iven two options ++ either to claim or not to

claim the cost o# the discounts as a tax credit. In #act, it mayeven inore the credit and simply consider the esture as anact o# )ene*cence, an e%pression o# its social conscience.

rantin that there is a ta% lia)ility and respondent claimssuch cost as a tax credit, then the tax creditcan easily )eapplied. I# there is none, the credit cannot )e used and will?ust have to )e carried over and revalidated>;accordinly. I#,however, the )usiness continues to operate at a loss and noother ta%es are due, thus compellin it to close shop, thecredit can never )e applied and will )e lost altoether.In other words, it is the e%istence or the lac! o# a ta% lia)ilitythat determines whether the cost o# the discounts can )eused as a tax credit. R" >H does not ive respondent the

un#ettered riht to avail itsel# o# the credit whenever itpleases. Neither does it allow our ta% administrators toe%pand or contract the leislative mandate. $he plainmeanin rule or verbalegisin statutory construction is thusapplica)le % %%. :here the words o# a statute are clear, plainand #ree #rom am)iuity, it must )e iven its literal meaninand applied without attempted interpretation.>G

T*3 C+$'& (ene/t Deeme!

Jus& Co$(s*&'o(ourth, Sections .i and o# RR += deny the e%ercise )y theState o# its power o# eminent domain. 6e it stressed that theprivilee en?oyed )y senior citiens does notcome directly#rom the State, )ut rather #rom the privateesta)lishments concerned. "ccordinly, the tax credit)ene*t

ranted to these esta)lishments can )e deemed as theirustcompensation#or private property ta!en )y the State #orpu)lic use.>>

$he concept o#public useis no loner con*ned to thetraditional notion o# use by the public, )ut held synonymouswithpublic interest,public benet,public welfare, andpublicconvenience.>/$he discount privilee to which our seniorcitiens are entitled is actually a )ene*t en?oyed )y theeneral pu)lic to which these citiens )elon. $he discountsiven would have entered the coAers and #ormed part o#the gross saleso# the private esta)lishments concerned, wereit not #or R" >H. $he permanent reduction in their totalrevenues is a #orced su)sidy correspondin to the ta!in o#private property #orpublic use or benet.

"s a result o# the 0 percent discount imposed )y R" >H,respondent )ecomes entitled to aust compensation. $histerm re#ers not only to the issuance o# a tax creditcerti*cateindicatin the correct amount o# the discounts iven, )ut alsoto the promptness in its release. E-uivalent to the payment o#property ta!en )y the State, such issuance ++ when not donewithin a reasonable time#rom the rant o# the discounts ++cannot )e considered asust compensation. In eAect,respondent is made to suAer the conse-uences o# )einimmediately deprived o# its revenues while awaitin actualreceipt, throuh the certi*cate, o# the e-uivalent amount itneeds to cope with the reduction in its revenues. >=

6esides, the ta%ation power can also )e used as an implement#or the e%ercise o# the power o# eminent domain./0$a%measures are )ut en#orced contri)utions e%acted on pain o#penal sanctions/1and clearly imposed #or apublic purpose./In recent years, the power to ta% has indeed )ecome amost eAective tool to realie social ?ustice,public welfare, andthe e-uita)le distri)ution o# wealth./H

:hile it is a declared commitment under Section 1 o# R">H, social ?ustice cannot )e invo!ed to trample on the rihtso# property owners who under our Constitution and laws arealso entitled to protection. $he social ?ustice consecrated inour Constitution is not intended to ta!e away rihts #rom a

person and ive them to another who is not entitled thereto./(or this reason, a ?ust compensation #or income that ista!en away #rom respondent )ecomes necessary. It is inthe tax creditthat our leislators *nd support to realie social?ustice, and no administrative )ody can alter that #act.$o put it diAerently, a private esta)lishment that merely)rea!s even/;++ without the discounts yet ++ will surely startto incur losses )ecause o# such discounts. $he same eAect ise%pected i# its mar!+up is less than 0 percent, and i# all itssales come #rom retail purchases )y senior citiens. "side#rom the o)servation we have already raised earlier, it willalso )e rossly un#air to an esta)lishment i# the discounts will)e treated merely as deductions #rom either its grossincomeor itsgross sales. Operatin at a loss throuh no #aulto# its own, it will realie that the tax creditlimitation under RR

+= is inutile, i# not improper. :orse, pro*t+eneratin)usinesses will )e put in a )etter position i# they availthemselves o# tax creditsdenied those that are losin,)ecause no ta%es are due #rom the latter.rant of T*3 C+$'& 1nten!e! by t)e Le$islatureifth, R" >H itsel# see!s to adopt measures where)y seniorcitiens are assisted )y the community as a whole and toesta)lish a proram )ene*cial to them. /G$hese o)?ectives areconsonant with the constitutional policy o# ma!in health % %%services availa)le to all the people at aAorda)le cost />and o#ivin priority #or the needs o# the % %% elderly. //Sections .iand o# RR +=, however, contradict these constitutionalpolicies and statutory o)?ectives.(urthermore, Conress has allowed all private esta)lishmentsa simple tax credit, not a deduction. In #act, no cash outlay isre-uired #rom the overnment #or theavailmentor useo# suchcredit. $he deli)erations on (e)ruary ;, 1== o# the 6icameralCon#erence Committee 3eetin on Social


10/32

10that privatehospitals, di)aanon Uyan

3S. "DBEN$O. 7aya lanpo sir, and ma

discounts ponilaaAectinovernment andpu)licinstitutions, so,puwedenaponatinhindiisamayunma lessdeductions nta%a)le income.

$@E C@"IR3"N. &Rep. nico'.

Puwedena.Tuna)out the privatehospitals.Tunisininitnatin

3S. "DBEN$O. Sinitnapo)ayun 1; on

credit.&inaudi)le4did notuse themicrophone'.

SEN. "N"R". @indi pa, hindi pa.$@E C@"IR3"N. &Rep. nico' "h, Udi pa

)anaisamanatinSEN. "N"R". Oo. Tou want to insert that$@E C@"IR3"N &Rep. nico'. Tun an

proposal niSenator Shahani,e.

SEN. "N"R". In the case o# private

hospitals they otthe rant o# 1;

discount,provided that,the privatehospitals canclaim thee%pense as a ta%credit.

REP. "INO. Tah could )e allowed as

deductions in theperpetrations o#&inaudi)le'income.

SEN. "N"R". I+ta% credit

nalannatinparawalan cash+outano

REP. "INO. Oo, ta% credit. $ama, O!ay.

@ospitals )a olahatnesta)lishmentsna covered.

$@E C@"IR3"N. &Rep. nico'. Sa!uwanlan

yon, as privatehospitals lan.

REP. "INO. "no)ayun esta)lishments na

coveredSEN. "N"R". Restaurant lodin houses,

recreationcenters.

REP. "INO. "ll esta)lishments covered

siuroSEN. "N"R". (rom all

esta)lishments."lisinnanatin UTun!uwan !unanon. Can weo )ac! toSection ha

REP. "INO. Oho.

SEN. "N"R". 8etter ". $o capture that

thouht, weUll saythe rant o# 0discount #rom allesta)lishments etcetera, et cetera,provided thatsaidesta)lishments +provided thatprivateesta)lishmentsmay claim thecost as a ta%credit. anon)aUyon

REP. "INO. Tah.SEN. "N"R". Dahil!un overnment, they

donUt need toclaim it.

$@E C@"IR3"N. &Rep. nico'. $a% credit.SEN. "N"R".(s a tax credit )rather* than

a 'uwan deduction, O!ay.

REP. "INO O!ay.SEN. "N"R". Sie O!ay. Di su)?ect to style

nalansa 8etter"5./=

Special La+ ver eneral La+ixth and last, R" >H is a special law that should prevailover the $a% Code ++ a eneral law. % %% $he rule is that on aspeci*c matter the special law shall prevail over the enerallaw, which shall)e resorted to only to supply de*ciencies in the #ormer.=0In

addition, where there are two statutes, the earlier specialand the later eneral ++ the terms o# the eneral )road enouhto include the matter provided #or in the special ++ the #actthat one is special and the other is eneral creates apresumption that the special is to )e considered as remaininan e%ception to the eneral,=1one as a eneral law o# theland, the other as the law o# a particular case. =It is a canono# statutory construction that a later statute, general in itstermsand not e%pressly repealin aprior specialstatute, willordinarily not aAect the special provisions o# such earlierstatute.=H

R" >H is an earlier law not e%pressly repealed )y, andthere#ore remains an e%ception to, the $a% Code ++ a later law.:hen the #ormer states that a tax creditmay )e claimed, thenthe re-uirement o# prior ta% payments under certainprovisions o# the latter, as discussed a)ove, cannot )e madeto apply. Neither can the instances o# or re#erences to a taxdeductionunder the $a% Code=)e made to restrict R" >H.No provision o# any revenue reulation can supplant or modi#ythe acts o# Conress.:@ERE(ORE, the Petition is here)y D'"1'D. $he assailedDecision and Resolution o# the Court o# "ppeals-331R4'D.No pronouncement as to costs.SO ORDERED.

G.R. Nos. L-4?8?-46 A+'l 26, 1??1

JOSE ". L. REES *( E>M!N>O A. REES,petitioners,vs.#E>RO ALMAN@OR, ICENTE A"A> SANTOS, JOSE

RODO, '( &$'+ %**%'&'$s *s *o'(&$ *( A%&'()M$/$+s o &$ CENTRAL "OAR> OF ASSESSMENTA##EALS TERESITA =. NO"LEJAS, ROM!LO M. >ELROSARIO, RA!L C. FLORES, '( &$'+ %**%'&'$s *s*o'(&$ *( A%&'() M$/$+s o &$ "OAR> OFASSESSMENT A##EALS o M*('l* *( NICOLAS CATIIL'( 's %**%'&y *s C'&y Ass$sso+ o M*('l*, respondents.

$his is a petition #or review on certiorarito reverse the > decision o# the Central 6oard o# "ssessment"ppeals1in C6"" Cases Nos. >+>= entitled 5


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113anila and City "ssessor o# 3anila5 which aKrmed the 3arch=, 1=>G decision o# the 6oard o# $a% "ssessment "ppeals in6$"" Cases Nos. G1, G1+"+H o# the Civil Code #or two years#rom its eAectivity there)y disallowin the e?ectment o#lessees upon the e%piration o# the usual leal period o# lease.On Octo)er 1, 1=>, Presidential Decree No. 0 amendedR.". No. GH;= )y ma!in a)solute the prohi)ition to increase

monthly rentals )elow PH00.00 and )y inde*nitely suspendinthe a#orementioned provision o# the Civil Code, e%ceptinleases with a de*nite period. Conse-uently, the Reyeses,petitioners herein, were precluded #rom raisin the rentals and#rom e?ectin the tenants. In 1=>H, respondent City "ssessoro# 3anila re+classi*ed and reassessed the value o# the su)?ectproperties )ased on the schedule o# mar!et values dulyreviewed )y the Secretary o# (inance. $he revision, ase%pected, entailed an increase in the correspondin ta% ratespromptin petitioners to *le a 3emorandum o# Disareementwith the 6oard o# $a% "ssessment "ppeals. $hey averred thatthe reassessments made were 5e%cessive, unwarranted,ine-uita)le, con*scatory and unconstitutional5 considerinthat the ta%es imposed upon them reatly e%ceeded theannual income derived #rom their properties. $hey arued thatthe income approach should have )een used in determinin

the land values instead o# the compara)le sales approachwhich the City "ssessor adopted &ollo, pp. =+10+"'. $he 6oardo# $a% "ssessment "ppeals, however, considered theassessments valid, holdin thus2

:@ERE(ORE, and considerin that the appellantshave #ailed to su)mit concrete evidence which couldovercome the presumptive reularity o# theclassi*cation and assessments appear to )e inaccordance with the )ase schedule o# mar!et valuesand o# the )ase schedule o# )uildin unit values, asapproved )y the Secretary o# (inance, the casesshould )e, as they are here)y, upheld.

SO ORDERED.&Decision o# the 6oard o# $a%"ssessment "ppeals, ollo, p. '.

$he Reyeses appealed to the Central 6oard o# "ssessment"ppeals.13wphi1$hey su)mitted, amon others, thesummary o# the yearly rentals to show the income derived#rom the properties. Respondent City "ssessor, on the otherhand, su)mitted three &H' deeds o# sale showin the diAerentmar!et values o# the real property situated in the samevicinity where the su)?ect properties o# petitioners arelocated. $o )etter appreciate the locational and physical#eatures o# the land, the 6oard o# @earin Commissionersconducted an ocular inspection with the presence o# tworepresentatives o# the City "ssessor prior to the healin o# thecase. Neither the owners nor their authoried representativeswere present durin the said ocular inspection despite propernotices served them. It was #ound that certain parcels o# landwere )elow street level and were aAected )y the tides & ollo,pp. +;'.

On >, the Central 6oard o# "ssessment "ppealsrendered its decision, the dispositive portion o# which reads2

:@ERE(ORE, the appealed decision inso#ar as thevaluation and assessment o# the lots covered )y $a%Declaration Nos. &;/H;' PD+;/>, &;/H=', &;/H1' PD+;/ and PD+H/ is aKrmed.

(or the lots covered )y $a% Declaration Nos. &1H0'PD+1H, PD+1;0=, 1G and &1' PD+GG, the appealedDecision is modi*ed )y allowin a 0 reduction intheir respective mar!et values and applyin therein

the assessment level o# H0 to arrive at thecorrespondin assessed value.

SO ORDERED. &Decision o# the Central 6oard o#"ssessment "ppeals, ollo, p. >'

PetitionerUs su)se-uent motion #or reconsideration wasdenied, hence, this petition.

$he Reyeses assined the #ollowin error2

$@E @ONOR"68E 6O"RD ERRED IN "DOP$IN $@E5CO3P"R"68E S"8ES "PPRO"C@5 3E$@OD IN (ILIN$@E "SSESSED B"8E O( "PPE88"N$SU PROPER$IES.

$he petition is impressed with merit.

$he cru% o# the controversy is in the method used in ta%assessment o# the properties in -uestion. Petitioners maintainthat the 5Income "pproach5 method would have )een morerealistic #or in disreardin the eAect o# the restrictionsimposed )y P.D. 0 on the mar!et value o# the propertiesaAected, respondent "ssessor o# the City o# 3anila unlaw#ullyand un?usti*a)ly set increased new assessed values at levelsso hih and successive that the resultin annual real estateta%es would admittedly e%ceed the sum total o# the yearlyrentals paid or paya)le )y the dweller tenants under P.D. 0.@ence, petitioners protested aainst the levels o# the valuesassined to their properties as revised and increased on theround that they were ar)itrarily e%cessive, unwarranted,ine-uita)le, con*scatory and unconstitutional &ollo, p. 10+"'.

On the other hand, while respondent 6oard o# $a% "ssessment"ppeals admits in its decision that the income approach isused in determinin land values in some vicinities, itmaintains that when income is aAected )y some sort o# pricecontrol, the same is re?ected in the consideration and study o#land values as in the case o# properties aAected )y the RentControl 8aw #or they do not pro?ect the true mar!et value inthe open mar!et &ollo, p. 1'. $hus, respondents optedinstead #or the 5Compara)le Sales "pproach5 on the roundthat the value estimate o# the properties predicated uponprices paid in actual, mar!et transactions would )e a uni#orm

and a more credi)le standards to use especially in case o#mass appraisal o# properties &Ibid.'. Otherwise stated, pu)licrespondents would have this Court completely inore theeAects o# the restrictions o# P.D. No. 0 on the mar!et value o#properties within its coverae. In any event, it isun-uestiona)le that )oth the 5Compara)le Sales "pproach5and the 5Income "pproach5 are enerally accepta)le methodso# appraisal #or ta%ation purposes &$he 8aw on $rans#er and6usiness $a%ation )y @ector S. De 8eon, 1=// Edition'.@owever, it is conceded that the propriety o# one as aainstthe other would o# course depend on several #actors. @ence,as early as 1=H in the case o# "rmy M Navy Clu), 3anila v.:enceslao $rinidad, .R. No. 1==> & Phil. H/H', it has )eenstressed that the assessors, in *ndin the value o# theproperty, have to consider all the circumstances and elementso# value and must e%ercise a prudent discretion in reachin

conclusions.

nder "rt. BIII, Sec. 1> &1' o# the 1=>H Constitution, thenen#orced, the rule o# ta%ation must not only )e uni#orm, )utmust also )e e-uita)le and proressive.

ni#ormity has )een de*ned as that principle )y which allta%a)le articles or !inds o# property o# the same class shall )eta%ed at the same rate &Churchill v. Concepcion, H Phil. =G=1=1G'.

Nota)ly in the 1=H; Constitution, there was no mention o# thee-uita)le or proressive aspects o# ta%ation re-uired in the1=>H Charter &(ernando 5$he Constitution o# the Philippines5,p. 1, Second Edition'. $hus, the need to e%amine closelyand determine the speci*c mandate o# the Constitution.

$a%ation is said to )e e-uita)le when its )urden #alls on those)etter a)le to pay. $a%ation is proressive when its rate oesup dependin on the resources o# the person aAected &Ibid.'.

$he power to ta% 5is an attri)ute o# sovereinty5. In #act, it isthe stronest o# all the powers o# overnment. 6ut #or all itsplenitude the power to ta% is not uncon*ned as there arerestrictions. "dversely eAectin as it does property rihts,)oth the due process and e-ual protection clauses o# theConstitution may properly )e invo!ed to invalidate inappropriate cases a revenue measure. I# it were otherwise,there would )e truth to the 1=0H dictum o# Chie#


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1)rushed away )y one stro!e o# 3r. ;,000.00

deduction claimed )y private respondent "lue as leitimate

)usiness e%penses in its income ta% returns. $he corollary

issue is whether or not the appeal o# the private respondent

#rom the decision o# the Collector o# Internal Revenue was

made on time and in accordance with law.

:e deal *rst with the procedural -uestion.

$he record shows that on , 1=G;, "tty. uevara was

*nally in#ormed that the 6IR was not ta!in any action on the

protest and it was only then that he accepted the warrant o#

distraint and levy earlier souht to )e served.5Si%teen dayslater, on "pril H, 1=G;, "lue *led a petition #or review o# the

decision o# the Commissioner o# Internal Revenue with the

Court o# $a% "ppeals.6

$he a)ove chronoloy shows that the petition was *led

seasona)ly. "ccordin to Rep. "ct No. 11;, the appeal may

)e made within thirty days a#ter receipt o# the decision or

rulin challened.7 It is true that as a rule the warrant o#

distraint and levy is 5proo# o# the *nality o# the

assessment5 8and renders hopeless a re-uest #or

reconsideration,5

?

)ein 5tantamount to an outriht denialthereo# and ma!es the said re-uest deemed re?ected.5 106ut

there is a special circumstance in the case at )ar that

prevents application o# this accepted doctrine.

$he proven #act is that #our days a#ter the private respondent

received the petitionerUs notice o# assessment, it *led its letter

o# protest. $his was apparently not ta!en into account )e#ore

the warrant o# distraint and levy was issuedF indeed, such

protest could not )e located in the oKce o# the petitioner. It

was only a#ter "tty. uevara ave the 6IR a copy o# the

protest that it was, i# at all, considered )y the ta% authorities.

Durin the intervenin period, the warrant was premature and

could there#ore not )e served.

"s the Court o# $a% "ppeals correctly noted,5 11the protest

*led )y private respondent was notpro formaand was )ased

on stron leal considerations. It thus had the eAect o#

suspendin on


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1HNow #or the su)stantive -uestion.

$he petitioner contends that the claimed deduction o#

P>;,000.00 was properly disallowed )ecause it was not an

ordinary reasona)le or necessary )usiness e%pense. $he Court

o# $a% "ppeals had seen it diAerently. "reein with "lue, it

held that the said amount had )een leitimately paid )y the

private respondent #or actual services rendered. $he payment

was in the #orm o# promotional #ees. $hese were collected )y

the Payees #or their wor! in the creation o# the Beeta)le OilInvestment Corporation o# the Philippines and its su)se-uent

purchase o# the properties o# the Philippine Suar Estate

Development Company.

Parenthetically, it may )e o)served that the petitioner had

Oriinally claimed these promotional #ees to )e personal

holdin company income 12)ut later con#ormed to the

decision o# the respondent court re?ectin this assertion.1In#act, as the said court #ound, the amount was earned throuh

the ?oint eAorts o# the persons amon whom it was distri)uted

It has )een esta)lished that the Philippine Suar Estate

Development Company had earlier appointed "lue as its

aent, authoriin it to sell its land, #actories and oil

manu#acturin process. Pursuant to such authority, "l)ertouevara, 0 &1', readin as

#ollows2

SEC. >0. Compensation for personal

services.++"mon the ordinary and

necessary e%penses paid or incurred in

carryin on any trade or )usiness may )e

included a reasona)le allowance #or salaries

or other compensation #or personal services

actually rendered. $he test o# deducti)ilityin the case o# compensation payments is

whether they are reasona)le and are, in

#act, payments purely #or service. $his test

and deducti)ility in the case o#

compensation payments is whether they are

reasona)le and are, in #act, payments purely

#or service. $his test and its practical

application may )e #urther stated and

illustrated as #ollows2

"ny amount paid in the #orm o#

compensation, )ut not in #act as the

purchase price o# services, is not deducti)le.

&a' "n ostensi)le salary paid )y acorporation may )e a distri)ution o# a

dividend on stoc!. $his is li!ely to occur in

the case o# a corporation havin #ew

stoc!holders, Practically all o# whom draw

salaries. I# in such a case the salaries are in

e%cess o# those ordinarily paid #or similar

services, and the e%cessive payment

correspond or )ear a close relationship to

the stoc!holdins o# the oKcers o#

employees, it would seem li!ely that the

salaries are not paid wholly #or services

rendered, )ut the e%cessive payments are a

distri)ution o# earnins upon the stoc!. . . .

&Promulated (e). 11, 1=H1, H0 O.. No. 1/,H;.'

It is worth notin at this point that most o# the payees were

not in the reular employ o# "lue nor were they its

controllin stoc!holders. 2

$he Solicitor eneral is correct when he says that the )urden

is on the ta%payer to prove the validity o# the claimed

deduction. In the present case, however, we *nd that the onus

has )een dischared satis#actorily. $he private respondent has

proved that the payment o# the #ees was necessary and

reasona)le in the liht o# the eAorts e%erted )y the payees in

inducin investors and prominent )usinessmen to venture in

an e%perimental enterprise and involve themselves in a new)usiness re-uirin millions o# pesos. $his was no mean #eat

and should )e, as it was, suKciently recompensed.

It is said that ta%es are what we pay #or civiliation society.

:ithout ta%es, the overnment would )e paralyed #or lac! o#

the motive power to activate and operate it. @ence, despite

the natural reluctance to surrender part o# oneUs hard earned

income to the ta%in authorities, every person who is a)le to

must contri)ute his share in the runnin o# the overnment.

$he overnment #or its part, is e%pected to respond in the

#orm o# tani)le and intani)le )ene*ts intended to improve


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1the lives o# the people and enhance their moral and material

values. $his sym)iotic relationship is the rationale o# ta%ation

and should dispel the erroneous notion that it is an ar)itrary

method o# e%action )y those in the seat o# power.

6ut even as we concede the inevita)ility and indispensa)ility

o# ta%ation, it is a re-uirement in all democratic reimes that

it )e e%ercised reasona)ly and in accordance with the

prescri)ed procedure. I# it is not, then the ta%payer has a riht

to complain and the courts will then come to his succor. (or allthe awesome power o# the ta% collector, he may still )e

stopped in his trac!s i# the ta%payer can demonstrate, as it

has here, that the law has not )een o)served.

:e hold that the appeal o# the private respondent #rom the

decision o# the petitioner was *led on time with the

respondent court in accordance with Rep. "ct No. 11;. "nd

we also *nd that the claimed deduction )y the private

respondent was permitted under the Internal Revenue Code

and should there#ore not have )een disallowed )y the

petitioner.

"CCORDIN8T, the appealed decision o# the Court o# $a%

"ppeals is "((IR3EDin toto,without costs.

SO ORDERED.

G.R. No. L-26521 >$%$/$+ 28, 1?68

E!SE"IO ILLAN!EA, ET AL.,plaintiA+appellee,vs.CIT OF ILOILO,de#endants+appellants.

"ppeal )y the de#endant City o# Iloilo #rom the decision o# theCourt o# (irst Instance o# Iloilo declarin illeal Ordinance 11,series o# 1=G0, entitled, 5"n Ordinance Imposin 3unicipal8icense $a% On Persons Enaed In $he 6usiness O# Operatin

$enement @ouses,5 and orderin the City to re#und to theplaintiAs+appellees the sums o# collected #rom them under thesaid ordinance.

On Septem)er H0, 1=G the municipal )oard o# Iloilo Cityenacted Ordinance /G, imposin license ta% #ees as #ollows2&1' tenement house &casa de vecindad', P;.00 annuallyF &'tenement house, partly or wholly enaed in or dedicated to)usiness in the streets o#


15/32

1;tenement houses who #ail to pay the ta%, &c' it constitutes notonly dou)le ta%ation, )ut tre)le at that and &d' it violates therule o# uni#ormity o# ta%ation.

$he issues posed in this appeal are2

1. Is Ordinance 11, series o# 1=G0, o# the City o# Iloilo,illeal )ecause it imposes dou)le ta%ation

. Is the City o# Iloilo empowered )y the 8ocal

"utonomy "ct to impose tenement ta%es

H. Is Ordinance 11, series o# 1=G0, oppressive andunreasona)le )ecause it carries a penal clause

. Does Ordinance 11, series o# 1=G0, violate the ruleo# uni#ormity o# ta%ation

1. $he pertinent provisions o# the 8ocal "utonomy "ctare hereunder -uoted2

SEC. . "ny provision o# law to the contrarynotwithstandin, all chartered cities, municipalitiesand municipal districts shall have authority to imposemunicipal license ta%es or #ees upon personsenaed in any occupation or )usiness, or e%ercisinprivilees in chartered cities, municipalities ormunicipal districts )y re-uirin them to securelicences at rates *%ed )y the municipal )oard or citycouncil o# the city, the municipal council o# themunicipality, or the municipal district council o# themunicipal districtF to collect #ees and chares #orservices rendered )y the city, municipality ormunicipal districtF to reulate and impose reasona)le#ees #or services rendered in connection with any)usiness, pro#ession or occupation )ein conductedwithin the city, municipality or municipal district andotherwise to levy #or pu)lic purposes, ?ust anduni#orm ta%es, licenses or #eesF %rovided, $hatmunicipalities and municipal districts shall, in nocase, impose any percentae ta% on sales or otherta%es in any #orm )ased thereon nor impose ta%es onarticles su)?ect to speci*c ta%, e%cept asoline, under

the provisions o# the National Internal RevenueCodeF%rovided, however, $hat no city, municipality ormunicipal district may levy or impose any o# the#ollowin2

&a' Residence ta%F

&)' Documentary stamp ta%F

&c' $a%es on the )usiness o# persons enaed in theprintin and pu)lication o# any newspaper,maaine, review or )ulletin appearin at reularintervals and havin *%ed prices #or #or su)scriptionand sale, and which is not pu)lished primarily #or thepurpose o# pu)lishin advertisementsF

&d' $a%es on persons operatin waterwor!s, irriationand other pu)lic utilities e%cept electric liht, heatand powerF

&e' $a%es on #orest products and #orest concessionsF

' $a%es on estates, inheritance, i#ts, leacies, andother ac-uisitions mortis causaF

&' $a%es on income o# any !ind whatsoeverF

&h' $a%es or #ees #or the reistration o# motor vehiclesand #or the issuance o# all !inds o# licenses orpermits #or the drivin thereo#F

&i' Customs duties reistration, whar#ae dues on

wharves owned )y the national overnment,tonnae, and all other !inds o# customs #ees, charesand dutiesF

&?' $a%es o# any !ind on )an!s, insurance companies,and persons payin #ranchise ta%F and

&!' $a%es on premiums paid )y owners o# propertywho o)tain insurance directly with #orein insurancecompanies.

" ta% ordinance shall o into eAect on the *#teenthday a#ter its passae, unless the ordinance shallprovide otherwise2 %rovided, however, $hat the

Secretary o# (inance shall have authority to suspendthe eAectivity o# any ordinance within one hundredand twenty days a#ter its passae, i#, in his opinion,the ta% or #ee therein levied or imposed is un?ust,e%cessive, oppressive, or con*scatory, and when thesaid Secretary e%ercises this authority the eAectivityo# such ordinance shall )e suspended.

In such event, the municipal )oard or city council inthe case o# cities and the municipal council ormunicipal district council in the case o# municipalitiesor municipal districts may appeal the decision o# theSecretary o# (inance to the court durin thependency o# which case the ta% levied shall )econsidered as paid under protest.

It is now settled tha

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