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G.R. No. L-22814 August 28, 1968

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., Plaintiff-Appellant , vs. CITY OFBUTUAN, MEMBERS OF THE MUNICIPAL BOARD,THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF BUTUAN, Defendants- Appellees.

CONCEPCION, C.J.:chanrobles virtual law library

Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, dismissingplaintiff's complaint, with costs.chanroblesvirtualawlibrarychanrobles virtual law library

Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with officesand principal place of business in Quezon City. The defendants are the City of Butuan, its CityMayor, the members of its municipal board and its City Treasurer. Plaintiff - seeks to recoverthe sums paid by it to the City of Butuan - hereinafter referred to as the City and collected bythe latter, pursuant to its Municipal Ordinance No. 110, as amended by Municipal OrdinanceNo. 122, both series of 1960, which plaintiff assails as null and void, and to prevent theenforcement thereof. Both parties submitted the case for decision in the lower court upon astipulation to the effect:

1. That plaintiff's warehouse in the City of Butuan serves as a storage for its products the"Pepsi-Cola" soft drinks for sale to customers in the City of Butuan and all the municipalities inthe Province of Agusan. These "Pepsi-Cola Cola" soft drinks are bottled in Cebu City andshipped to the Butuan City warehouse of plaintiff for distribution and sale in the City of Butuanand all municipalities of Agusan. . chanroblesvirtualawlibrarychanrobles virtual law library

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which wassubsequently amended by Ordinance No. 122 and effective November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are incorporated herein as Exhibits"A" and "B", respectively.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

3. That Ordinance No. 110 as amended, imposes a tax on any person, association, etc., of

P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff paid under protest the amount of P4,926.63 from August 16 to December 31, 1960 and the amount of P9,250.40 from January1 to July 30, 1961. chanroblesvirtualawlibrarychanrobles virtual law library

4. That the plaintiff filed the foregoing complaint for the recovery of the total amount of P14,177.03 paid under protest and those that if may later on pay until the termination of thiscase on the ground that Ordinance No. 110 as amended of the City of Butuan is illegal, thatthe tax imposed is excessive and that it is unconstitutional. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan City, has

prepared a form to be accomplished by the plaintiff for the computation of the tax. A copy of the form is enclosed herewith as Exhibit "C".chanroblesvirtualawlibrarychanrobles virtual law library

6. That the Profit and Loss Statement of the plaintiff for the period from January 1, 1961 toJuly 30, 1961 of its warehouse in Butuan City is incorporated herein as Exhibits "D" to "D-1" to"D-5". In this Profit and Loss Statement, the defendants claim that the plaintiff is not entitledto a depreciation of P3,052.63 but only P1,202.55 in which case the profit of plaintiff will beincreased from P1,254.44 to P3,104.52. The plaintiff differs only on the claim of depreciationwhich the company claims to be P3,052.62. This is in accordance with the findings of therepresentative of the undersigned City Attorney who verified the records of the plaintiff. chanroblesvirtualawlibrary chanrobles virtual law library



7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24 bottles wasincreased to P1.92 which price is uniform throughout the Philippines. Said increase was madedue to the increase in the production cost of its manufacture.chanroblesvirtualawlibrarychanrobles virtual law library

8. That the parties reserve the right to submit arguments on the constitutionality and illegalityof Ordinance No. 110, as amended of the City of Butuan in their respective memoranda.

x x x x x x x x x

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", withinthe purview thereof. Section 2 provides for the payment by "any agent and/or consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of taxes at specifiedrates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the soft drinks andcarbonated beverages therein named, and "all other soft drinks or carbonated drinks." Section3-A, defines the meaning of the term "consignee or agent" for purposes of the ordinance.Section 4 provides that said taxes "shall be paid at the end of every calendar month."Pursuant to Section 5, the taxes "shall be based and computed from the cargo manifest or billof lading or any other record showing the number of cases of soft drinks, liquors or all othersoft drinks or carbonated drinks received within the month." Sections 6, 7 and 8 specify thesurcharge to be added for failure to pay the taxes within the period prescribed and the

penalties imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of lading orcargo manifest or record of soft drinks, liquors or carbonated drinks for sale in the City."Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks "receivedoutside" but "sold within" the City. Section 10 of the ordinance provides that the revenuederived therefrom "shall be alloted as follows: 40% for Roads and Bridges Fund; 40% for theGeneral Fund and 20% for the School Fund." chanrobles virtual law library

Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes of thenature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive andconfiscatory; (4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No.2264, upon the authority of which it was enacted, is an unconstitutional delegation of

legislative powers.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

The second and last objections are manifestly devoid of merit. Indeed - independently of whether or not the tax in question, when considered in relation to the sales tax prescribed byActs of Congress, amounts to double taxation, on which we need not and do not express anyopinion - double taxation, in general, is not forbidden by our fundamental law. We have notadopted, as part thereof, the injunction against double taxation found in the Constitution of the United States and of some States of the Union.1 Then, again, the general principle againstdelegation of legislative powers, in consequence of the theory of separation of powers2 issubject to one well-established exception, namely: legislative powers may be delegated tolocal governments - to which said theory does not apply 3 - in respect of matters of localconcern.chanroblesvirtualawlibrarychanrobles virtual law library

The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of softdrinks or carbonated drinks - in the production and sale of which plaintiff is engaged - or less

than P0.0042 per bottle, is manifestly too small to be excessive, oppressive, orconfiscatory.chanroblesvirtualawlibrarychanrobles virtual law library

The first and the fourth objections merit, however, serious consideration. In this connection, itis noteworthy that the tax prescribed in section 3 of Ordinance No. 110, as originallyapproved, was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks.

Thus, it would seem that the intent was then to levy a tax upon the sale of said merchandise.As amended by Ordinance No. 122, the tax is, however, imposed only upon "any agent and/orconsignee of any person, association, partnership, company or corporation engaged in



selling ... soft drinks or carbonated drinks." And, pursuant to section 3-A, which was insertedby said Ordinance No. 122:

... - Definition of the Term Consignee or Agent. - For purposes of this Ordinance, a consigneeof agent shall mean any person, association, partnership, company or corporation who acts inthe place of another by authority from him or one entrusted with the business of another or towhom is consigned or shipped no less than 1,000 cases of hard liquors or soft drinks everymonth for resale, either retail or wholesale.

As a consequence, merchants engaged in the sale of soft drink or carbonated drinks, are notsubject to the tax, unless they are agents and/or consignees of another dealer, who, in thevery nature of things, must be one engaged in business outside the City. Besides, the taxwould not be applicable to such agent and/or consignee, if less than 1,000 cases of soft drinksare consigned or shipped to him every month. When we consider, also, that the tax "shall bebased and computed from the cargo manifest or bill of lading ... showing the number of cases"- not sold - but "received " by the taxpayer, the intention to limit the application of theordinance to soft drinks and carbonated drinks brought into the City from outside thereof becomes apparent. Viewed from this angle, the tax partakes of the nature of an import duty,which is beyond defendant's authority to impose by express provision of law.4

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Even however, if the burden in question were regarded as a tax on the sale of said beverages,it would still be invalid, as discriminatory, and hence, violative of the uniformity required bythe Constitution and the law therefor, since only sales by "agents or consignees"of outside dealers would be subject to the tax. Sales by local dealers, not acting for or onbehalf of other merchants, regardless of the volume of their sales, and even if the sameexceeded those made by said agents or consignees of producers or merchants establishedoutside the City of Butuan, would be exempt from the disputed tax.chanroblesvirtualawlibrarychanrobles virtual law library

It is true that the uniformity essential to the valid exercise of the power of taxation does notrequire identity or equality under all circumstances, or negate the authority to classify theobjects of taxation.5 The classification made in the exercise of this authority, to be valid, must,however, be reasonable6 and this requirement is not deemed satisfied unless: (1) it is based

upon substantial distinctions which make real differences; (2) these are germane to thepurpose of the legislation or ordinance; (3) the classification applies, not only to presentconditions, but, also, to future conditions substantially identical to those of the present; and(4) the classification applies equally all those who belong to the same class.7


These conditions are not fully met by the ordinance in question. 8 Indeed, if its purpose weremerely to levy a burden upon the sale of soft drinks or carbonated beverages, there is noreason why sales thereof by sealers other than agents or consignees of producers ormerchants established outside the City of Butuan should be exempt from the tax. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

WHEREFORE, the decision appealed from is hereby reversed, and another one shall be enteredannulling Ordinance No. 110, as amended by Ordinance No. 122, and sentencing the City of Butuan to refund to plaintiff herein the amounts collected from and paid under protest by thelatter, with interest thereon at the legal rate from the date of the promulgation of thisdecision, in addition to the costs, and defendants herein are, accordingly, restrained and

prohibited permanently from enforcing said Ordinance, as amended. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

G.R. No. L-59431 July 25, 1984



ANTERO M. SISON, JR., Petitioner , vs. RUBEN B. ANCHETA, Acting Commissioner,Bureau of Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of InternalRevenue; MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance, Respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibitionproceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showingof its constitutional infirmity. The assailed provision further amends Section 21 of the NationalInternal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)taxable compensation income, (b) taxable net income, (c) royalties, prizes, and otherwinnings, (d) interest from bank deposits and yield or any other monetary benefit fromdeposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted grossincome. 2 Petitioner 3as taxpayer alleges that by virtue thereof, "he would be undulydiscriminated against by the imposition of higher rates of tax upon his income arising from the

exercise of his profession vis-a-vis those which are imposed upon fixed income or salariedindividual taxpayers. 4 He characterizes the above sction as arbitrary amounting to classlegislation, oppressive and capricious in character 5For petitioner, therefore, there is atransgression of both the equal protection and due process clauses 6 of the Constitution aswell as of the rule requiring uniformity in taxation. 7


The Court, in a resolution of January 26, 1982, required respondents to file an answer within10 days from notice. Such an answer, after two extensions were granted the Office of theSolicitor General, was filed on May 28, 1982. 8 The facts as alleged were admitted but not theallegations which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in their] Special and AffirmativeDefenses." 9 The answer then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the

State's power to tax. The authorities and cases cited while correctly quoted or paraghraph donot support petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

This Court finds such a plea more than justified. The petition must be dismissed. chanroblesvirtualawlibrarychanrobles virtual lawlibrary

1. It is manifest that the field of state activity has assumed a much wider scope, The reasonwas so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to beleft to private enterprise and initiative and which the government was called upon to enteroptionally, and only 'because it was better equipped to administer for the public welfare thanis any private individual or group of individuals,' continue to lose their well-defined boundariesand to be absorbed within activities that the government must undertake in its sovereigncapacity if it is to meet the increasing social challenges of the times." 11 Hence the need formore revenues. The power to tax, an inherent prerogative, has to be availed of to assure theperformance of vital state functions. It is the source of the bulk of public funds. To praphrase

a recent decision, taxes being the lifeblood of the government, their prompt and certainavailability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty.It is the strongest of all the powers of of government." 13 It is, of course, to be admitted thatfor all its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution

sets forth such limits . Adversely affecting as it does properly rights, both the due process andequal protection clauses inay properly be invoked, all petitioner does, to invalidate inappropriate cases a revenue measure. if it were otherwise, there would -be truth to the 1803dictum of Chief Justice Marshall that "the power to tax involves the power to destroy." 14 In a



separate opinion in Graves v. New York , 15 Justice Frankfurter, after referring to it as an 1,unfortunate remark characterized it as "a flourish of rhetoric [attributable to] the intellectualfashion of the times following] a free use of absolutes."16 This is merely to emphasize that itis riot and there cannot be such a constitutional mandate. Justice Frankfurter could rightfullyconclude: "The web of unreality spun from Marshall's famous dictum was brushed away by onestroke of Mr. Justice Holmess pen: 'The power to tax is not the power to destroy while thisCourt sits." 17 So it is in the Philippines. chanroblesvirtualawlibrarychanrobles virtual law library

3. This Court then is left with no choice. The Constitution as the fundamental law overridesany legislative or executive, act that runs counter to it. In any case therefore where it can bedemonstrated that the challenged statutory provision - as petitioner here alleges - fails to

abide by its command, then this Court must so declare and adjudge it null. The injury thus iscentered on the question of whether the imposition of a higher tax rate on taxable net incomederived from business or profession than on compensation is constitutionally infirm. chanroblesvirtualawlibrarychanrobles virtual lawlibrary

4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mereallegation, as here. does not suffice. There must be a factual foundation of suchunconstitutional taint. Considering that petitioner here would condemn such a provision asvoid or its face, he has not made out a case. This is merely to adhere to the authoritativedoctrine that were the due process and equal protection clauses are invoked, considering that

they arc not fixed rules but rather broad standards, there is a need for of such persuasivecharacter as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is soarbitrary that it finds no support in the Constitution. An obvious example is where it can beshown to amount to the confiscation of property. That would be a clear abuse of power. Itthen becomes the duty of this Court to say that such an arbitrary act amounted to theexercise of an authority not conferred. That properly calls for the application of the Holmesdictum. It has also been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh andunreasonable, it is subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denialof this constitutional mandate whether the assailed act is in the exercise of the lice power orthe power of eminent domain is to demonstrated that the governmental act assailed, far frombeing inspired by the attainment of the common weal was prompted by the spirit of hostility,or at the very least, discrimination that finds no support in reason. It suffices then that thelaws operate equally and uniformly on all persons under similar circumstances or that allpersons must be treated in the same manner, the conditions not being different, both in theprivileges conferred and the liabilities imposed. Favoritism and undue preference cannot beallowed. For the principle is that equal protection and security shall be given to every personunder circumtances which if not Identical are analogous. If law be looked upon in terms of burden or charges, those that fall within a class should be treated in the same fashion,whatever restrictions cast on some in the group equally binding on the rest." 20 That sameformulation applies as well to taxation measures. The equal protection clause is, of course,inspired by the noble concept of approximating the Ideal of the laws benefits being availableto all and the affairs of men being governed by that serene and impartial uniformity, which isof the very essence of the Idea of law. There is, however, wisdom, as well as realism in thesewords of Justice Frankfurter: "The equality at which the 'equal protection' clause aims is not adisembodied equality. The Fourteenth Amendment enjoins 'the equal protection of the laws,'and laws are not abstract propositions. They do not relate to abstract units A, B and C, but areexpressions of policy arising out of specific difficulties, address to the attainment of specificends by the use of specific remedies. The Constitution does not require things which aredifferent in fact or opinion to be treated in law as though they were the same." 21 Hence theconstant reiteration of the view that classification if rational in character is allowable. As amatter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes,went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to



select the subjects of taxation, and it has been repeatedly held that 'inequalities which resultfrom a singling out of one particular class for taxation, or exemption infringe no constitutionallimitation.'" 23

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7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution:"The rule of taxation shag be uniform and equitable." 24This requirement is met according toJustice Laurel in Philippine Trust Company v. Yatco, 25decided in 1940, when the tax "operateswith the same force and effect in every place where the subject may be found. " 26He likewiseadded: "The rule of uniformity does not call for perfect uniformity or perfect equality, becausethis is hardly attainable." 27 The problem of classification did not present itself in that case. Itdid not arise until nine years later, when the Supreme Court held: "Equality and uniformity in

taxation means that all taxable articles or kinds of property of the same class shall be taxed atthe same rate. The taxing power has the authority to make reasonable and naturalclassifications for purposes of taxation, ... . 28As clarified by Justice Tuason, where "thedifferentiation" complained of "conforms to the practical dictates of justice and equity" it "isnot discriminatory within the meaning of this clause and is therefore uniform." 29 There is quitea similarity then to the standard of equal protection for all that is required is that the tax"applies equally to all persons, firms and corporations placed in similar situation." 30

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8. Further on this point. Apparently, what misled petitioner is his failure to take into

consideration the distinction between a tax rate and a tax base. There is no legal objection toa broader tax base or taxable income by eliminating all deductible items and at the same timereducing the applicable tax rate. Taxpayers may be classified into different categories. Torepeat, it. is enough that the classification must rest upon substantial distinctions that makereal differences. In the case of the gross income taxation embodied in Batas Pambansa Blg.135, the, discernible basis of classification is the susceptibility of the income to the applicationof generalized rules removing all deductible items for all taxpayers within the class and fixinga set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense,these taxpayers are e not entitled to make deductions for income tax purposes because theyare in the same situation more or less. On the other hand, in the case of professionals in thepractice of their calling and businessmen, there is no uniformity in the costs or expensesnecessary to produce their income. It would not be just then to disregard the disparities bygiving all of them zero deduction and indiscriminately impose on all alike the same tax rates

on the basis of gross income. There is ample justification then for the Batasang Pambansa toadopt the gross system of income taxation to compensation income, while continuing thesystem of net income taxation as regards professional and business income. chanroblesvirtualawlibrarychanrobles virtual law library

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the(1) lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2)the force of controlling doctrines on due process, equal protection, and uniformity in taxationand (3) the reasonableness of the distinction between compensation and taxable net incomeof professionals and businessman certainly not a suspect classification,chanrobles virtual lawlibrary

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la

Fuente and Cuevas, JJ., concur.chanroblesvirtualawlibrary chanrobles virtual law library

Teehankee, J., concurs in the result.chanroblesvirtualawlibrary chanrobles virtual law library

Plana, J., took no part.

G.R. No. L-18276 January 12, 1967



C. N. HODGES, petitioner-appellee, vs. THE MUNICIPAL BOARD OF THE CITY OF ILOILO;Honorable Rodolfo Ganzon, in his capacity as City Mayor of the City of Iloilo; and theCITY OF ILOILO, respondents-appellants.

CASTRO, J.:chanrobles virtual law library

The respondents, on appeal by writ of error, ask Us to review a judgment of the Court of First,Instance of Iloilo, in an action for declaratory relief, annulling ordinance 31, series of 1960, of the City of Iloilo and ordering the said City to reimburse to the petitioner C. N. Hodgeswhatever amounts he had paid to the former by reason of the operation of the ordinance. chanroblesvirtualawlibrarychanrobles virtual

lawlibrary

The parties are agreed on the antecedent facts. On June 7, 1960, invoking Republic Act 2264,otherwise known as the Local Autonomy Act, the municipal board of the City of Iloilo enactedordinance 31, entitled "An Ordinance Imposing Municipal Tax On The Sale of Real PropertySituated In The City of Iloilo", which ordains that "Any person, firm, association or corporationwho shall sell real property situated in the City of Iloilo shall pay a real property sales tax of one-half (�) of one percent (1%) of the contract price and/or consideration before such sale

could be registered and the ownership thereof transferred in the Office of the Register of Deeds of Iloilo" (section 1) It is therein expressly provided that the tax is to be paid to the citytreasurer "within five (5) days from the sale", subject to the payment of a surcharge of 20%

of the tax due in case of default, and such payment, the receipt whereof is made part of thedocuments on the sale, "shall be a requirement for the registration ... of the sale in the Officeof the Register of Deeds or the Office of the City Treasurer of the City of Iloilo" (sections 3 and4). Penal sanction consisting of a fine of not less than fifty pesos (P50) nor more than twohundred pesos (P200) or imprisonment of not less than five (5) days nor more than thirty (30)days, at the discretion of the court, is prescribed for any infraction of the said ordinance(section 7). By its terms, the ordinance took effect on July 1, 1960. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The petitioner C. N. Hodges, who was engaged in the business of buying and selling realestate in the city and the Province of Iloilo, stood to be subjected to the tax thus imposed.Contending that the ordinance was beyond the corporate powers of the respondent City, he

instituted on June 28, 1960 - prior to the effectivity date of the ordinance - an action fordeclaratory relief to test the validity thereof. Meanwhile after the ordinance became effective,the petitioner paid taxes imposed under the authority thereof upon sales of real estate madeby him. He accordingly amended his petition to include the City itself as a party-respondent,as well as to incorporate therein a prayer for the reimbursement to him of the amounts thusfar paid by him pursuant to the ordinance.chanroblesvirtualawlibrarychanrobles virtual law library

In their return to the petition, the respondents justified the enactment of the ordinance notonly under the city charter but also upon the authority vested in the respondent City bysection 2 of the Local Autonomy Act. By way of special defense, they contended that thepetition states no cause of action for declaratory relief.chanroblesvirtualawlibrarychanrobles virtual law library

Subscribing to the position assumed by the petitioner, the trial court ruled as heretoforestated.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Hence, the present recourse.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The preliminary procedural issue of non-exhaustion of administrative remedies is raised by theappellants, but the vertex of the present controversy is whether or not the questionedordinance is ultra vires views vis-a-vis the corporate powers of the appellant City. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

1. On the preliminary issue, the appellants argue that the court a quo acquired no jurisdictionover the case because the appellee failed to exhaust administrative remedies, moreparticularly that indicated in the penultimate and last paragraphs of section 2 of the LocalAutonomy Act, to wit:



A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinanceshall provide otherwise: Provided , however , That the Secretary of Finance shall have authorityto suspend the effectivity of any ordinance within one hundred and twenty days after itspassage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessiveoppressive or confiscatory, and when, the said secretary exercises this authority the effectivityof such ordinance shall be suspended.chanroblesvirtualawlibrarychanrobles virtual law library

In such event the municipal board or city council in the case of cities and the municipal councilor municipal district council in the case of municipalities and municipal districts may appeal thedecision of the Secretary of Finance to the court during the pendency of which case the taxlevied shall be considered as paid under protest.

Nothing in the foregoing quotation even remotely applies to the situation at hand. Theauthority vested in the Secretary of Finance to suspend the effectivity of a tax ordinance islimited to cases wherein the tax or fee thereby levied is "unjust, excessive, oppressive orconfiscatory". Nowhere in the pleadings below was the tax imposed by the questionedordinance challenged by the appellee upon any of these specific bases. He chose to prosecutehis case upon the ground that the ordinance was beyond the corporate powers of the appellantCity to enact. This is a purely legal question; no relief of an administrative nature is or wouldhave been available to the appellee from the Secretary of Finance (Pascual vs. Provincial

Board of Nueva Ecija, G.R. L-11959, October 31, 1959; citing, Monda�o vs. Silvosa, 51 Off.Gaz., p. 2884). Besides, it does not appear from the aforequoted legal precept that it is themandatory duty of a party adversely affected, assuming that the matter comes within thepurview of the law, to invoke the suspension authority of the Secretary of Finance. The saidSecretary, from the text of the law, may exercise the prerogative vested in him upon his owninitiative, i.e "if, in his opinion" the tax or fee levied suffers from any of the infirmitiesenumerated. Accordingly, it cannot be said that recourse to the Secretary of Finance is aprerequisite to an action in court. And the rule requiring exhaustion of administrative remediesapplies only "when there is an express legal provision requiring exhaustion of administrativestep as a condition precedent to taking action in court" (Azuelo vs. Arnaldo, et al., 58 O.G.,No. 26, pp. 4738, 4740). At all events, even assuming that the recourse indicated by theappellants were indeed a requirement, the same does not appear to be exclusive. It isdiscretionary upon the court to permit an aggrieved party to institute a court action withoutfirst resorting to an administrative remedy for the purpose (Hoskyns vs. National City Bank of

New York, et al., 85 Phil. 201). Finding, as We do, after reading the record, that there existshere a justiciable controversy between real parties asserting adverse legal interests which isripe for judicial determination (Caltex Philippines, Inc. vs. Palomar, G.R. L-19650, September29, 1966), the recourse to the courts was in no way premature. There is, therefore, no roomfor the application of the doctrine of exhaustion of administrative remedies to the case atbar.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Prescinding from the foregoing, it seems necessary to correct the impression of the appellantsthat failure to exhaust administrative remedies goes into the jurisdiction of the trial court. Thefact of the matter is that such discrepancy, if any, merely implies absence of a cause of action(Pineda vs. Court of First Instance of Davao, et al., 59 O.G., No. 33, pp. 5266, 5271; AtlasConsolidated Mining and Development Corporation vs. Mendoza, et al., 59 O.G., No. 11, pp.1729, 1733). This point specially acquires pertinence when it is noted that while the appellantsset up in their answer the defense of want of a cause of action, the same was based upon the

alleged inexistence of a justiciable controversy. The absence of a cause of action upon theground of non-exhaustion of administrative remedies does not appear to have been posed inissue below. It is thus likewise too late to invoke it at this stage. Hence, the result stands thesame.chanroblesvirtualawlibrarychanrobles virtual law library

2. No special difficulty attends the resolution of, the main issue. Heretofore, We haveannounced the doctrine that the grant of the power to tax to chartered cities under section 2of the Local Autonomy Act is sufficiently plenary to cover "everything, excepting those whichare mention" therein, subject only to the limitation that the tax so levied is for "publicpurposes, just and uniform" (Nin Bay Mining Company vs. Municipality of Roxas, Province of



Palawan G.R. L-20125, July 20, 1965). There is no showing, and We do not believe it ispossible to show, that the tax levied, called by any name - percentage tax or sales tax -comes under any of the specific exceptions listed in section 2 of the Local Autonomy Act. Notbeing excepted, it must be regarded as coming within the purview of the general rule. As themaxim goes, Exceptio firmat regulam in casibus non exceptis". Since its public purpose, justness and uniformity of application are not disputed, the tax so levied must be sustained asvalid.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Nor is this without precedent. On all fours to the case at bar is C.N. Hodges vs. The MunicipalBoard of the City of Iloilo, et al., G.R. L- 18129, January 31, 1963, which, significantlyenough, not only involved the same parties but as well concerned another ordinance of the

appellant City, ordinance 33, series of 1960, enacted barely six days after the enactment of the ordinance now under scrutiny, that is, on June 13, 1960. Ordinance 33, similar to the onenow in controversy, levied as sales tax of one-half (�) of one percent (1%) of the selling price

of any motor vehicle sold in the City of Iloilo, imposing the payment of the said tax as acondition to the registration of the sale in the Motor Vehicles Office as well as the transfer of ownership of the vehicle sold. In an action similar to the case at bar, the appellee herein,invoking grounds and advancing arguments similar to those herein relied upon, alsochallenged the validity of the ordinance. Upholding the validity thereof and affirming thecorporate power of the appellant City to enact the same, this Court made the followingpronouncement:1

It would appear that the City of Iloilo, thru its municipal board, is empowered (a) to imposemunicipal licenses, taxes or fees upon any person engaged in any occupation or business, orexercising any privilege, in the city; (b) to regulate and impose reasonable fees for servicesrendered in connection with any business, profession or occupation conducted within the city;and (c) to levy for public purposes just and uniform taxes, licenses and fees. It would alsoappear that municipalities and municipal districts are prohibited from imposing any percentagetax on sales, or other taxes in any form on articles subject to specific tax, except gasoline,under the provisions of the National Internal Revenue Code.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

From a cursory analysis of the provisions above-stated We can readily draw the conclusionthat the City of Iloilo has the authority and power to approve the ordinance in question for itmerely imposes a percentage tax on the sale of a second-hand motor vehicle that may be

carried out within the city by any person, firm, association or corporation owning or dealingwith it who may come within its jurisdiction. Indeed, it cannot be disputed that a sales tax of � of 1% of the selling price of a second-hand motor vehicle comes within the purview of the

provisions of Section 2 of Republic Act 2264. It is true that the tax in question is in the form of a percentage tax on the proceeds of the sale of a second-hand motor vehicle which comeswithin the prohibition of the section above adverted to; but the prohibition only refers tomunicipalities and municipal districts and does not comprehend chartered cities as the City of Iloilo.

We perceive no overriding reason to depart from the doctrine thus laid down.chanroblesvirtualawlibrarychanrobles virtual law library

3. The questioned ordinance, however, does more than merely levy a tax. It commands that"The payment of this municipal tax shall be a requirement for the registration ... of said sale in

the Office of the Register of Deeds or the Office of the City Treasurer of the City of Iloilo" and,for purposes of which, demands that "the tax receipt shall be made a part of the documents tobe presented for registration" (section 3). Challenging this requirement, the appelleecontended and the trial court agreed that, in effect, it imposes a condition to the registrationof the deed of conveyance not otherwise called for by the general statutory law on the matterand, to that extent, amounts to amending or modifying the applicable statute, which, it isargued, is not within the competence of the appellant municipal board of Iloilo City to do. chanroblesvirtualawlibrary chanrobles virtual law

library

In the C.N. Hodges vs. The Municipal Board of the City of Iloilo case hereinbefore cited, thisCourt confronted with a similar question in so far as the registration of vehicles under the



ordinance there involved was concerned, took the view that the imposition of the payment of the tax levied as a prerequisite to the registration of the sale in the Motor Vehicles Office was"merely a coercive measure to make the enforcement of the contemplated sales tax moreeffective" and, accordingly, sustained the same under the principle of implication, that is, thatbeing a measure reasonably necessary to carry out the power expressly granted, it wasconsidered impliedly included in the grant of the express power.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

However, after carefully re-examining the ruling thus enunciated, We are persuaded to saythat, while We find no cause to doubt the validity there of as a general principle, the samecannot by any means be regarded as a hard-and-fast rule. Applied to specific cases, the broadsweep thereof must be limited or qualified depending upon the particular attendant

circumstances. And We declare that the generality of the rule may not prevail when, in itsapplication, it runs counter to or tends to impair a specific legal mandate of a superiorauthority. Put another way, the rule should be that the appellant municipal board may resortto all means reasonably necessary and proper to give effect to the powers expressly conferredupon it, provided, however, that said means are not otherwise contrary to any statutory orother more authoritative provision on the subject.chanroblesvirtualawlibrarychanrobles virtual law library

The registration with the registry of deeds of voluntary conveyances of real property under theTorrens system is, in this jurisdiction, mainly controlled by the Land Registration Act, Act 496,

as amended. Amongst others, this statute provides that "... The act of registration shall be theoperative act to convey and affect the land, and in all cases under this Act the registrationshall be made in the office of the register of deeds for the province or provinces or city wherethe land lies" (section 50). The requirements for deeds or other voluntary instruments of conveyance to be registrable thereunder are specified in the law (section 54) and, forpurposes of registration, "The production of the owner's duplicate certificate whenever anyvoluntary instrument is presented for registration shall be conclusive authority from theregistered owner to the register of deeds to enter a new certificate or to make a memorandumof registration in accordance with such instrument, and the new certificate or memorandum"shall be binding upon the registered owner and upon all persons claiming under him, in favorof every purchaser for value and in good faith ..." (section 55, par. 2). The schedule of fees tobe paid upon such registration is likewise therein set forth (section 114, sub-section C, asamended by Republic Act 928). In addition, Republic Act 456 also requires that "No voluntarydocument by which real property or an interest therein is sold, transferred, assigned,

mortgaged or leased shall be registered in the registry of property, unless the real estatetaxes levied and actually due thereon shall have been fully paid" (section 1); and, that "Everydocument of transfer or alienation of real property filed with the Register of Deeds shall beaccompanied with an extra copy of the same which copy shall be transmitted by said officer tothe city or provincial assessor ... (section 2). As it thus results, the Legislature appears tohave specified the minimum requirements for the registration of conveyances of real property.Upon satisfaction of the said requirements, it becomes the legal duty of the registrar to makethe registration requested. No entity, it seems clear enough, except the Legislature itself, may

add to or detract from or otherwise alter or amend the requirements it has so enumerated -and then only by the corresponding amendment of the existing statutes or the enactment of new ones.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

In this posture, to sanction the condition to registration imposed by the ordinance underexamination would virtually allow the appellant municipal board to add new requirements for

registration not otherwise provided by applicable statutory law on the matter. In effect, itgives power to the said appellant to amend or modify the law - a power which, definitely, isnot vested in it. We therefore conclude that the condition thus imposed by the ordinance inquestion is ultra vires. Considering that this portion is severable from the rest of the provisionsthereof without affecting the integrity of the remaining portions as a complete set of provisions on the matter standing by themselves, the same may properly be nullified while therest of the ordinance not otherwise infirm may be sustained. In passing, it should beunderstood that to the extent that this rule conflicts with that laid down in C. N. Hodges vs.The Municipal Board of the City of Iloilo, G.R. No. L-18129, January 31, 1963, the latter mustbe taken to be pro tanto so qualified.chanroblesvirtualawlibrarychanrobles virtual law library



Accordingly, the judgment a quo is hereby modified in the sense that Ordinance 31, series of 1960, of the City of Iloilo, is declared valid as being within the corporate powers of the saidCity to adopt, with the exception of the portion thereof which prescribes payment of the taxtherein levied as a requirement for the transfer of ownership and the registration of the sale inthe office of the Register of Deeds, in reference to which the judgment appealed from ishereby affirmed. No costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., Plaintiff-Appellee, vs. CITY OF ILOILO, Defendants- Appellants.

CASTRO, J.:chanrobles virtual law library

Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilodeclaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal

License Tax On Persons Engaged In The Business Of Operating Tenement Houses," andordering the City to refund to the plaintiffs-appellees the sums of collected from them underthe said ordinance.chanroblesvirtualawlibrarychanrobles virtual law library

On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposinglicense tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2)tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M.Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or whollyengaged in business in any other streets, P12.00 per apartment. The validity and

constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva andRemedies Sian Villanueva, owners of four tenement houses containing 34 apartments. ThisCourt, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its

Charter." chanrobles virtual lawlibrary

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with thepassage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquiredthe authority or power to enact an ordinance similar to that previously declared by this Courtas ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THEBUSINESS OF OPERATING TENEMENT HOUSESchanrobles virtual law library

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that: chanrobles virtual law library

Section 1. - A municipal license tax is hereby imposed on tenement houses in accordance withthe schedule of payment herein provided.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

Section 2. - Tenement house as contemplated in this ordinance shall mean any building ordwelling for renting space divided into separate apartments or accessorias.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Section 3. - The municipal license tax provided in Section 1 hereof shall be as follows:



I. Tenement houses:

(a) Apartment house made of strong materials P20.00 per door p.a.

(b) Apartment house made of mixed materialsP10.00 per door

p.a.

II Rooming house of strong materials P10.00 per door p.a.

Rooming house of mixed materials P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or dedicated to

business in the following streets: J.M. Basa, Iznart, Aldeguer,Guanco and Ledesma from Plazoleto Gay to Valeria. St. P30.00 per door p.a.

IV. Tenement house partly or wholly engaged in or dedicated to

business in any other street P12.00 per door p.a.

V. Tenement houses at the streets surrounding the super marketas soon as said place is declared commercial P24.00 per door p.a.

Section 4. - All ordinances or parts thereof inconsistent herewith are hereby amended.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Section 5. - Any person found violating this ordinance shall be punished with a fine noteexceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) monthsor both at the discretion of the Court.chanroblesvirtualawlibrarychanrobles virtual law library

Section 6 - This ordinance shall take effect upon approval.ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of fivetenement houses, aggregately containing 43 apartments, while the other appellees and thesame Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartmentshas a door leading to a street and is rented by either a Filipino or Chinese merchant. The firstfloor is utilized as a store, while the second floor is used as a dwelling of the owner of thestore. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, DumagueteCity, Baguio City and Quezon City, which cities, according to him, do not impose tenement orapartment taxes.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

By virtue of the ordinance in question, the appellant City collected from spouses EusebioVillanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, andfrom the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for theyears 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real

estate taxes on his property.chanroblesvirtualawlibrarychanrobles virtual law library

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and anamended complaint, respectively, against the City of Iloilo, in the aforementioned court,praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protectionclause of the Constitution," and that the City be ordered to refund the amounts collected fromthem under the said ordinance.chanroblesvirtualawlibrary chanrobles virtual law library



On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on thegrounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b)the same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but trebleat that and (d) it violates the rule of uniformity of taxation.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes doubletaxation? chanrobles virtual law library

2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? chanrobles virtual lawlibrary

3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penalclause? chanrobles virtual lawlibrary

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation? chanrobles virtual lawlibrary

1. The pertinent provisions of the Local Autonomy Act are hereunder quoted: chanrobles virtual lawlibrary

SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,municipalities and municipal districts shall have authority to impose municipal license taxes orfees upon persons engaged in any occupation or business, or exercising privileges in charteredcities, municipalities or municipal districts by requiring them to secure licences at rates fixedby the municipal board or city council of the city, the municipal council of the municipality, orthe municipal district council of the municipal district; to collect fees and charges for servicesrendered by the city, municipality or municipal district; to regulate and impose reasonable feesfor services rendered in connection with any business, profession or occupation beingconducted within the city, municipality or municipal district and otherwise to levy for publicpurposes, just and uniform taxes, licenses or fees; Provided , That municipalities and municipaldistricts shall, in no case, impose any percentage tax on sales or other taxes in any formbased thereon nor impose taxes on articles subject to specific tax, except gasoline, under theprovisions of the National Internal Revenue Code; Provided, however , That no city,

municipality or municipal district may levy or impose any of the following: chanrobles virtual lawlibrary

(a) Residence tax; chanrobles virtual law library

(b) Documentary stamp tax; chanrobles virtual law library

(c) Taxes on the business of persons engaged in the printing and publication of anynewspaper, magazine, review or bulletin appearing at regular intervals and having fixed pricesfor for subscription and sale, and which is not published primarily for the purpose of publishingadvertisements;chanrobles virtual law library

(d) Taxes on persons operating waterworks, irrigation and other public utilities except electriclight, heat and power; chanrobles virtual lawlibrary

(e) Taxes on forest products and forest concessions;chanrobles virtual law library

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa; chanrobles virtual law library

(g) Taxes on income of any kind whatsoever;chanrobles virtual lawlibrary

(h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; chanrobles virtual law library



(i) Customs duties registration, wharfage dues on wharves owned by the national government,tonnage, and all other kinds of customs fees, charges and duties; chanrobles virtual lawlibrary

(j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and chanrobles virtual law

library

(k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign

insurance companies.chanroblesvirtualawlibrarychanrobles virtual law library

A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinanceshall provide otherwise: Provided, however , That the Secretary of Finance shall have authorityto suspend the effectivity of any ordinance within one hundred and twenty days after itspassage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive,oppressive, or confiscatory, and when the said Secretary exercises this authority theeffectivity of such ordinance shall be suspended.chanroblesvirtualawlibrarychanrobles virtual law library

In such event, the municipal board or city council in the case of cities and the municipalcouncil or municipal district council in the case of municipalities or municipal districts mayappeal the decision of the Secretary of Finance to the court during the pendency of which casethe tax levied shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264 confer on localgovernments broad taxing authority which extends to almost "everything, excepting thosewhich are mentioned therein," provided that the tax so levied is "for public purposes, just anduniform," and does not transgress any constitutional provision or is not repugnant to acontrolling statute.2Thus, when a tax, levied under the authority of a city or municipalordinance, is not within the exceptions and limitations aforementioned, the same comes withinthe ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius,and exceptio firmat regulum in casibus non excepti .chanroblesvirtualawlibrarychanrobles virtual law library

Does the tax imposed by the ordinance in question fall within any of the exceptions providedfor in section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine thetrue nature of the tax. The appellees strongly maintain that it is a "property tax" or "realestate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising

privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of theordinance designates it as a "municipal l icense tax on persons engaged inthe business of operating tenement houses," while section 1 thereof states that a"municipal license tax is hereby imposed on tenement houses." It is the phraseology of section1 on which the appellees base their contention that the tax involved is a real estate tax which,according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the oneper centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act158."5.chanroblesvirtualawlibrarychanrobles virtual law library

It is our view, contrary to the appellees' contention, that the tax in question is not a realestate tax. Obviously, the appellees confuse the tax with the real estate tax within themeaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, hascounterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on theownership of lands and buildings or other improvements thereon, not specially exempted,8 andis payable regardless of whether the property is used or not, although the value may vary inaccordance with such factor.9 The tax is usually single or indivisible, although the land andbuilding or improvements erected thereon are assessed separately, except when the land andbuilding or improvements belong to separate owners.10 It is a fixed proportion11 of theassessed value of the property taxed, and requires, therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien onand is enforceable against the property14 subject to such taxation, and not by imprisonment of the owner.chanroblesvirtualawlibrarychanrobles virtual lawlibrary



The tax imposed by the ordinance in question does not possess the aforestated attributes. It isnot a tax on the land on which the tenement houses are erected, although both land andtenement houses may belong to the same owner. The tax is not a fixed proportion of theassessed value of the tenement houses, and does not require the intervention of assessors orappraisers. It is not payable at a designated time or date, and is not enforceable against thetenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a realestate tax.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

"The spirit, rather than the letter, or an ordinance determines the construction thereof, andthe court looks less to its words and more to the context, subject-matter, consequence andeffect. Accordingly, what is within the spirit is within the ordinance although it is not within the

letter thereof, while that which is in the letter, although not within the spirit, is not within theordinance."15 It is within neither the letter nor the spirit of the ordinance that an additionalreal estate tax is being imposed, otherwise the subject-matter would have been not merelytenement houses. On the contrary, it is plain from the context of the ordinance that theintention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an"imposition or exaction on the right to use or dispose of property, to pursue a business,occupation, or calling, or to exercise a privilege."16.

"The character of a tax is not to be fixed by any isolated words that may beemployed in thestatute creating it, but such words must be taken in the connection in which they are used andthe true character is to be deduced from the nature and essence of the subject."17 Thesubject-matter of the ordinance is tenement houses whose nature and essence are expresslyset forth in section 2 which defines a tenement house as "any building or dwelling for rentingspace divided into separate apartments or accessorias." The Supreme Court, in City of Iloilovs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of atenement house18 as "any house or building, or portion thereof, which is rented , leased ,or hired out to be occupied , or is occupied, as the home or residence of three families or moreliving independently of each other and doing their cooking in the premises or by more thantwo families upon any floor, so living and cooking, but having a common right in the halls,stairways, yards, water-closets, or privies, or some of them." Tenement houses, beingnecessarily offered for rent or lease by their very nature and essence, therefore constitute

a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses. This is precisely one of the reasons why this Court, in thesaid case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec.21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants,refreshment parlors, cafes, lodging houses, boarding houses, livery garages, publicwarehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute adifferent business enterprise,19 are not mentioned in the aforestated section of the City

Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:.chanroblesvirtualawlibrarychanrobles virtual law library

"And it not appearing that the power to tax owners of tenement houses is one among thoseclearly and expressly granted to the City of Iloilo by its Charter, the exercise of such powercannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes atenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a tenement tax or anapartment tax. Called by either name, it is not among the exceptions listed in section 2 of theLocal Autonomy Act. On the other hand, the imposition by the ordinance of a license tax onpersons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to imposemunicipal license taxes or fees upon persons engaged in any occupation or business, orexercising privileges within their respective territories, and "otherwise to levy for publicpurposes, just and uniform taxes, licenses, or fees." .chanroblesvirtualawlibrarychanrobles virtual lawlibrary



2. The trial court condemned the ordinance as constituting "not only double taxation but trebleat that," because "buildings pay real estate taxes and also income taxes as provided for inSec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax underthe said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixedtaxes on business and occupation provided for in section 182, Title V, of the National InternalRevenue Code, by virtue of which persons engaged in "leasing or renting property, whether ontheir account as principals or as owners of rental property or properties," are considered "real

estate dealers" and are taxed according to the amount of their annual income.20.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of theNational Internal Revenue Code as real estate dealers, and still taxable under the ordinance in

question, the argument against double taxation may not be invoked. The same tax may beimposed by the national government as well as by the local government. There is nothinginherently obnoxious in the exaction of license fees or taxes with respect to the sameoccupation, calling or activity by both the State and a political subdivision thereof.21.chanroblesvirtualawlibrarychanrobles virtual law library

The contention that the plaintiffs-appellees are doubly taxed because they are paying the realestate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a business or occupationalthough the land or property used in connection therewith is subject to property tax. The

State may collect an ad valorem tax on property used in a calling, and at the same timeimpose a license tax on that calling, the imposition of the latter kind of tax being in no senseadouble tax.22.

"In order to constitute double taxation in the objectionable or prohibited sense the sameproperty must be taxed twice when it should be taxed but once; both taxes must be imposedon the same property or subject-matter, for the same purpose, by the same State,Government, or taxing authority, within the same jurisdiction or taxing district, during thesame taxing period, and they must be the same kind or character of tax."23 It has been shownthat a real estate tax and the tenement tax imposed by the ordinance, although imposed bythe sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in thePhilippines.24 It is something not favored, but is permissible, provided some otherconstitutional requirement is not thereby violated, such as the requirement that taxes must beuniform."25.chanroblesvirtualawlibrarychanrobles virtual law library

3. The appellant City takes exception to the conclusion of the lower court that the ordinance isnot only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided into apartmentsdo not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutionalas it subjects the owners of tenement houses to criminal prosecution for non-payment of anobligation which is purely sum of money." The lower court apparently had in mind, when itmade the above ruling, the provision of the Constitution that "no person shall be imprisonedfor a debt or non-payment of a poll tax."26 It is elementary, however, that "a tax is not a debtin the sense of an obligation incurred by contract, express or implied, and therefore is notwithin the meaning of constitutional or statutory provisions abolishing or prohibiting

imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof byfine or imprisonment is not, in conflict with that prohibition." 27 Nor is the tax in question a polltax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certainclass, resident within a specified territory, without regard to their property or the occupationsin which they may be engaged.28 Therefore, the tax in question is not oppressive in themanner the lower court puts it. On the other hand, the charter of Iloilo City 29 empowers itsmunicipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for eachoffense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled thepronouncement of the lower court declaring illegal and void an ordinance imposing an



occupation tax on persons exercising various professions in the City of Manilabecause itimposed a penalty of fine and imprisonment for its violation.30.chanroblesvirtualawlibrarychanrobles virtual lawlibrary

4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.

"... because while the owners of the other buildings only pay real estate tax and income taxes

the ordinance imposes aside from these two taxes an apartment or tenement tax. It should benoted that in the assessment of real estate tax all parts of the building or buildings areincluded so that the corresponding real estate tax could be properly imposed. If aside from thereal estate tax the owner or owners of the tenement buildings should pay apartment taxes asrequired in the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo aresingled out to pay taxes on their tenement houses, while citizens of other cities, where theircouncils do not enact a similar tax ordinance, are permitted to escape such imposition." . chanroblesvirtualawlibrarychanrobles virtual law

library

It is our view that both assertions are undeserving of extended attention. This Court hasalready ruled that tenement houses constitute a distinct class of property. It has likewise ruledthat "taxes are uniform and equal when imposed upon all property of the same class orcharacter within the taxing authority."31 The fact, therefore, that the owners of other classesof buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question isno argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in othercities, for the same rule does not require that taxes for the same purpose should be imposedin different territorial subdivisions at the same time.32 So long as the burden of the tax fallsequally and impartially on all owners or operators of tenement houses similarly classified orsituated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, asowners of tenement houses in the City of Iloilo, have not shown that the tax burden is notequally or uniformly distributed among them, to overthrow the presumption that tax statutesare intended to operate uniformly and equally.34.chanroblesvirtualawlibrarychanrobles virtual law library

5. The last important issue posed by the appellees is that since the ordinance in the case at

bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by thisCourt in L-12695, supra, as ultra vires, the decision in that case should be accorded the effectof res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subject-matter in that caseandthis case because the subject-matter in L-12695 was an ordinance which dealt not onlywith tenement houses but also warehouses, and the said ordinance was enacted pursuant tothe provisions of the City charter, while the ordinance in the case at bar was enacted pursuantto the provisions of the Local Autonomy Act. There is likewise no identity of cause of action inthe two cases because the main issue in L-12695 was whether the City of Iloilo had the powerunder its charter to impose the tax levied by Ordinance 11, series of 1960, under the LocalAutonomy Act which took effect on June 19, 1959, and therefore was not available forconsideration in the decision in L-12695 which was promulgated on March 23, 1959.Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments maynow tax any taxable subject-matter or object not included in the enumeration of matters

removed from the taxing power of local governments.Prior to the enactment of the LocalAutonomy Act the taxes that could be legally levied by local governments were only thosespecifically authorized by law, and their power to tax was construed instrictissimi juris. 35.chanroblesvirtualawlibrary chanrobles

virtual law library

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, thecomplaint is hereby dismissed. No pronouncement as to costs.. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and Capistrano,

JJ., concur..



Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-15270 September 30, 1961

JOSE V. HERRERA and ESTER OCHANGCO HERRERA, petitioners,vs.THE QUEZON CITY BOARD OF ASSESSMENT APPEALS, respondent.

Angel A. Sison for petitioners.Jaime Agloro for respondent.

CONCEPCION, J.:

Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera, from a decisionof the Court of Tax Appeals affirming that of the Board of Assessment Appeals of QuezonCity, which held that certain properties of said petitioners are subject to assessment for purposes of real estate tax.

The facts and the issue are set forth in the aforementioned decision of the Court of Tax Appeals, from which we quote:

On July 24, 1952, the Director of the Bureau of Hospitals authorized thepetitioners to establish and operate the "St. Catherine's Hospital", located at 58 D.Tuazon, Sta. Mesa Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about

January 3, 1953, the petitioners sent a letter to the Quezon City Assessor requestingexemption from payment of real estate tax on the lot, building and other improvements comprising the hospital stating that the same was established for charitable and humanitarian purposes and not for commercial gain (Exhibit "F-2", pp.8-9, BIR rec.). After an inspection of the premises in question and after a carefulstudy of the case, the exemption from real property taxes was granted effective theyears 1953, 1954 and 1955.

Subsequently, however, in a letter dated August 10, 1955 (Exhibit "E", p. 65,CTA rec.) the Quezon City Assessor notified the petitioners that the aforesaidproperties were re-classified from exempt to "taxable" and thus assessed for realproperty taxes effective 1956, enclosing therewith copies of Tax Declarations Nos.

19321 to 19322 covering the said properties. The petitioners appealed theassessment to the Quezon City Board of Assessment Appeals, which, in a decisiondated March 31, 1956 and received by the former on May 17, 1956, affirmed thedecision of the City Assessor. A motion for reconsideration thereof was denied onMarch 8, 1957. From this decision, the petitioners instituted the instant appeal. 1awphîl.nèt

The building involved in this case is principally used as a hospital. It is mainly asurgical and orthopedic hospital with emphasis on obstetrical cases, the latter constituting 90% of the total number of cases registered therein. The hospital has



thirty-two (32) beds, of which twenty (20) are for charity-patients and twelve (12) for pay-patients. From the evidence presented by petitioners, it is made to appear thatthere are two kinds of charity patients — (a) those who come for consultation only("out-charity patients"); and (b) those who remain in the hospital for treatment ("lying-in-patients"). The out-charity patients are given free consultation and prescription,although sometimes they are furnished with free medicines which are not costly like

aspirin, sulfatiazole, etc. The charity lying-in-patients are given free medical serviceand medicine although the food served to the pay-patients is very much better thanthat given to the former. Although no condition is imposed by the hospital on theadmission of charity lying-in-patients, they however, usually give donations to thehospital. On the other hand, the pay-patients are required to pay for hospital servicesranging from the minimum charge of P5.00 to the maximum of P40.00 for each dayof stay in the hospital. The income realized from pay-patients is spent for theimprovement of the charity wards. The hospital personnel is composed of threenurses, two graduate midwives, a resident physician receiving a salary of P170.00 amonth and the petitioner, Dr. Ester Ochangco Herrera, as directress. As suchdirectress, the latter does not receive any salary.

Petitioners also operate within the premises of the hospital the "St. Catherine'sSchool of Midwifery" which was granted government recognition by the Secretary of Education on February 1, 1955 (Exhibit "F-3", p. 10, BIR rec.) This school has anenrollment of about two hundred students. The students are charged a matriculationfee of P300.00 for 1-½ years, plus P50.00 a month for board and lodging, whichincludes transportation to the St. Mary's Hospital. The students practice in the St.Catherine's Hospital, as well as in the St. Mary's Hospital, which is also owned by thepetitioners. A separate set of accounting books is maintained by the school for midwifery distinct from that kept by the hospital. The petitioners alleged that theaccounts of the school are not included in Exhibits "A", "A-1", "A-2", "B", "B-1", "B-2","C", "C-1" and "C-2" which relate to the hospital only. However, the petitioners haverefused to submit a separate statement of accounts of the school. A brief tabulationindicating the amount of income of the hospital for the years 1954, 1955 and 1956,

and its operational expenses, is as follows:

1 9 5 4

Income Expenses Deficit

Charity WardPay Ward

P14,779.50

P 5,280.04P10,803.26

P16,083.30

P1,303.80

(Exhibits "A", "A-1" and "A-2")

1 9 5 5


Charity WardPay Ward

P17,433.30

P 6,859.3214,038.92

P20,898.24

P3,464.94

(Exhibits "B", "B-1" and "B-2")



1 9 5 6


Charity Ward

Pay WardP21,467.40

P 5,559.8916,249.04

P21,809.93

P 341.53

(Exhibits "C", "C-1" and "C-2")

Aside from the St. Catherine and St. Mary hospitals, the petitioners declared that theyalso own lands and coconut plantations in Quezon Province, and other real estate in the Cityof Manila consisting of apartments for rent. The petitioner, Jose V. Herrera, is an architect,actively engaged in the practice of his profession, with office at Tuason Building, Escolta,Manila. He was formerly Chairman, Board of Examiners for Architects and Chairman, Boardof Architects connected with the United Nations. He was also connected with the AlliedTechnologists which constructed the Veterans Hospital in Quezon City.

The only issue raised, is whether or not the lot, building and other improvementsoccupied by the St. Catherine Hospital are exempt from the real property tax. The resolutionof this question boils down to the corollary issue as to whether or not the said properties areused exclusively for charitable or educational purposes. (Petitioners' brief, pp. 24-29).

The Court of Tax Appeals decided the issue in the negative, upon the ground that theSt. Catherine's Hospital "has a pay ward for ... pay-patients, who are charged for the use of the private rooms, operating room, laboratory room, delivery room, etc., like other hospitalsoperated for profit" and that "petitioners and their family occupy a portion of the building for their residence." With respect to petitioners' claim for exemption based upon the operation of the school of midwifery, the Court conceded that "the proposition might be proper if theproperty used for the school of midwifery were separate and distinct from the hospital." It

added, however, that, "in the instant case, the portions of the building used for classrooms of the school of midwifery have not been shown to be exclusively for school purposes"; thatsaid portions "rather ... have a dual use, i.e., for classroom and for hospital use, the latter notbeing a purpose that renders the property tax exempt;" that part of the building and lot inquestion "is used as a hospital, part as residence of the petitioners, part as garage, part asdormitory and part as school"; and that "the portion dedicated to educational and charitablepurposes can not be identified from those destined to other uses; and the building is itself anindivisible unit of property."

It should be noted, however, that, according to the very statement of facts made in thedecision appealed from, of the thirty-two (32) beds in the hospital, twenty (20) are for charity-patients; that "the income realized from pay-patients is spent for improvement of the charitywards;" and that "petitioners, Dr. Ester Ochangco Herrera, as directress" of said hospital,

"does not receive any salary," although its resident physician gets a monthly salary of P170.00. It is well settled, in this connection, that the admission of pay-patients does notdetract from the charitable character of a hospital, if all its funds are devoted "exclusively tothe maintenance of the institution" as a "public charity" (84 C.J.S., 617; see, also, 51 Am.Jur. 607; Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). "In other words,where rendering charity is its primary object, and the funds derived from payments made bypatients able to pay are devoted to the benevolent purposes of the institution, the mere factthat a profit has been made will not deprive the hospital of its benevolent character" (Prairie



Du Chien Sanitarium Co. vs. City of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832, 144A.L.R. 1480).

Thus, we have held that the U.S.T. Hospital was not established for profit-makingpurposes, although it had 140 paying beds maintained only to partly finance the expenses of the free wards, containing 203 beds for charity patients (U.S.T. Hospital Employees

Association vs. Sto. Tomas University Hospital, L-6988, May 24, 1954), that St. Paul'sHospital of Iloilo, a corporation organized for "charitable educational and religious purposes"can not be considered as engaged in business merely because its pharmacy departmentcharges paying patients the cost of their medicine, plus 10% thereof, to partly offset the costof medicines supplied free of charge to charity patients (Collector of Internal Revenue vs. St.Paul's Hospital of Iloilo, L-12127, May 25, 1959), and that the amendment of the originalarticles of incorporation of the University of Visayas to convert it from a non-stock to a stockcorporation and the increase of its assets from P9,000 to P50,000, distributed among themembers of the original non-stock corporation in terms of shares of stock, as well as thesubsequent move of its board of trustees to double the stock dividends of the corporation, inview of a gain of P200,000.00 in property, besides good-will, which was not carried out, doesnot justify the inference that the corporation has become one for business and profit, none of its profits having inured to the benefit of any stockholder or individual (Collector of InternalRevenue vs. University of Visayas, L-13554, February 28, 1961).

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is "not limited to property actually indispensable" therefor (Cooley onTaxation, Vol. 2, p. 1430), but extends to facilities which are "incidental to and reasonablynecessary for" the accomplishment of said purposes, such as, in the case of hospitals, "aschool for training nurses, a nurses' home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, andrecreational facilities for student nurses, interns and residents" (84 C.J.S., 621), such as"athletic fields," including "a farm used for the inmates of the institution" (Cooley on Taxation,Vol. 2, p. 1430).

Within the purview of the Constitutional exemption from taxation, the St. Catherine'sHospital is, therefore, a charitable institution, and the fact that it admits pay-patients does notbar it from claiming that it is devoted exclusively to benevolent purposes, it being admittedthat the income derived from pay-patients is devoted to the improvement of the charitywards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from"out-charity patients" who come only for consultation.

Again, the existence of "St. Catherine's School of Midwifery", with an enrollment of about 200 students, who practice partly in St. Catherine's Hospital and partly in St. Mary'sHospital, which, likewise, belongs to petitioners herein, does not, and cannot, affect theexemption to which St. Catherine's Hospital is entitled under our fundamental law. On thecontrary, it furnishes another ground for exemption. Seemingly, the Court of Tax Appeals

was impressed by the fact that the size of said enrollment and the matriculation fee chargedfrom the students of midwifery, aside from the amount they paid for board and lodging,including transportation to St. Mary's Hospital, warrants the belief that petitioners derive asubstantial profit from the operation of the school aforementioned. Such factor is, however,immaterial to the issue in the case at bar, for "all lands, building and improvements usedexclusively for religious, charitable or educational purposes shall be exempt from taxation,"pursuant to the Constitution, regardless of whether or not material profits are derived fromthe operation of the institutions in question. In other words, Congress may, if it deems fit to



do so, impose taxes upon such "profits", but said "lands, buildings and improvements"are beyond its taxing power.

Similarly, the garage in the building above referred to — which was obviously essentialto the operation of the school of midwifery, for the students therein enrolled practiced, notonly in St. Catherine's Hospital, but, also, in St. Mary's Hospital, and were entitled to

transportation thereto — for Mrs. Herrera received no compensation as directress of St.Catherine's Hospital — were incidental to the operation of the latter and of said school, and,accordingly, did not affect the charitable character of said hospital and the educationalnature of said school.

WHEREFORE, the decision of the Court of Tax Appeals, as well as that of theAssessment Board of Appeals of Quezon City, are hereby reversed and set aside, andanother one entered declaring that the lot, building and improvements constituting the St.Catherine's Hospital are exempt from taxation under the provisions of the Constitution,without special pronouncement as to costs. It is so ordered.

Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Paredes and De Leon, JJ., concur.

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