tax 1 cases - exemption from taxation

8/12/2019 Tax 1 cases - Exemption from Taxation

1/49

G.R. No. 156 September 27, 1946

MILTON GREENFIELD,plaintiff-appellant, vs. BIBIANO L.

MEER,defendant-appellee.

FERIA, J.:

This is an appeal from the decision of the Court of First

Instance of Manila which dismisses the complaint of the

plaintiff and appellant containing two causes of action; one

to recover the sum of P9,!."# paid as income ta$ for the

%ear "9&9 '% plaintiff to defendant under protest, '% reasonof defendant having disallowed a deduction of P(),&).!

alleged '% plaintiff to 'e losses in his trade or 'usiness; and

the other to reclaim, in the event the first cause of action is

dismissed, the sum of P#)* collected '% defendant from

plaintiff illegall% according to the latter, 'ecause the former

has erroneousl% computed the ta$ on personal and

additional e$emptions.

The following are the pertinent facts stipulated and

su'mitted '% the parties to the lower court+

. That since the %ear "9&& up to the present time,

the plaintiff has 'een continuousl% engaged in the

em'roider% 'usiness located at &!* Cristo'al, Cit%of Manila and carried on under his name;

&. That in "9&* the plaintiff 'egan engaging in

'u%ing and selling mining stocs and securities for

his own e$clusive account and not for the account

of others . . .;

#. That $hi'it / attached to the complaint and

made a part hereof represents plaintiff0s purchases

and sales of each class of stoc and securit% as

well as the profits and losses resulting on each

class during the %ear "9&9;

*. That the plaintiff has not 'een a dealer in

securities as defined in section !# 1t2 ofCommonwealth /ct 3o. #((; that he has no

esta'lished place of 'usiness for the purchase and

sale of mining stocs and securities; and that he

was never a mem'er of an% stoc e$change;

(. That the plaintiff filed an income ta$ return for

the calendar %ear "9&9 showing that he made a

net profit amounting to P*,##9.9 on em'roider%

'usiness and P"),!* on dividends from various

corporations; and that from the purchase and sales

of mining stocs and securities he made a profit of

P",)#".& and incurred losses in the amount of

P)!,#9.", there'% sustaining a net loss ofP(),&).!, which income ta$ return is hereto

attached and mared $hi'it 4;

). That in said income ta$ return for "9&9, the

plaintiff declared the results of his stoc

transactions under 5chedule 4 1Income from

4usiness2;'ut the defendant ruled that the% should

'e declared in the income ta$ return, $hi'it 4,

under 5chedule 6 17ains and 8osses from 5ales

or $changes of Capital /ssets, real or personal2;

!. That in said income ta$ return, said plaintiff

claims his deduction of P(),&).! representing

the net loss sustained '% him in mining stocssecurities during the %ear "9&9; and that the

defendant disallowed said item of deduction on the

ground that said losses were sustained '% the

plaintiff from the sale of mining stocs and

securities which are capital assets, and that the

loss arising from the sale of the same should 'e

allowed onl% to the e$tent of the gains from such

sales, which gains were alread% taen into

consideration in the computation of the alleged net

loss of P(),&).!;

9. That the defendant assessed plaintiff0s income

ta$ return for the %ear "9&9 at P"&,))".( asshown in the following computation appearing in

the audit sheet of the defendant hereto attached

and mared $hi'it C;

3et income as per return of plaintiff for "9&9 P),99.9

/dd+ 3et 8oss on sale of mining stocs and securities

disallowed in audit (),&).!

Total net income as per office audit

P"&),().9

/mount of ta$ on net income as per office audit P"&,!".(

8ess+ Ta$ on e$emptions+

Personal e$emption P,*.

/dditional e$emption ",.

Total P&,*.

Ta$ on e$emption *.

3et amount of ta$ due

P"&,))".(

1


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". That the defendant computed the graduated

rate of income ta$ due on the entire net income as

per office audit, without first deducting therefrom

the amount of personal and additional e$emptions

to which the plaintiff is entitled, allowing said

plaintiff a deduction from the assessed ta$ the

amount of P* corresponding to the e$emption of

P&,*;

"". That the plaintiff, o':ecting and e$cepting to all

the ruling of the defendant a'ove mentioned and inassessing plaintiff with P"&,))".(, claimed from

the defendant the refund of P9,!."# or in the

alternative case P#)*, which claim of plaintiff was

overruled '% the defendant;

The uestions raised '% appellant in his four 1#2

assignments of error ma% 'e reduced into the following+ 1"2

nit of the >nited 5tates 4ureau of Internal

?evenue1I.T. 3o. "!"!, C.4. II, pp. &9-#"2, in which opinion

the following was said+

The ta$pa%er is not a mem'er of an% stoc

e$change, has no place of 'usiness, and does not

mae purchase and sales of securities for

customers. Much of his trading is done on margin.

@e devotes the greater part of the time in his'roer0s office eeping in touch with the maret. @e

has no other trade or 'usiness, his income

consisting entirel% of interest 'onds, dividends on

stocs, and profits from the sale or disposition of

securities.

/dvice is reuested 1"2 whether this ta$pa%er is

entitled to the 'enefit of section # of the

?evenue /ct of "9", with reference to a net loss

incurred in "9", from the sale of stocs; 12

whether he is entitled to the 'enefit of section (

of the ?evenue /ct of "9", with regard to gains

derived in "9 from the sale of two 'locs of stoc

held more than two %ears.

". 5ection # 1a2 provides in part+

That as used in this section the term =net loss=

means onl% net losses resulting from the operation

of an% trade or 'usiness regularl% carried on '% the

ta$pa%er . . .

The uestion is, than, whether the ta$pa%er was

regularl% engaged in the trade or 'usiness of

'u%ing and selling securities.

The interpretation placed upon the term ='usiness

or trade= '% the courts and the department ma% 'e

2


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indicated '% a few illustrative decisions. In two

earl% cases 1In re Marson B"!)", Fed. Cas. 3o.

9"#, and In re .5., (&*2, these rulings were upheld

in a case in which a manufacturer of 'agging wasdenied deductions for losses in 'u%ing and selling

cotton on the cotton e$change for his individual

account, not connected with his manufacturing

'usiness. 1Cf. 4lac vs. 4olen B"9, (! Fed.,

#).2 8iewise, in 8.A. (" 1not pu'lished in

4ulletin service2, it was held that =losses sustained

'% a person in 'u%ing and selling securities in his

own account, he not 'eing a licensed stoc and

'ond 'roer 'u%ing and selling for others as well

as for himself, are not deducti'le as losses in trade

within the meaning of paragraph 4 of the /ct of

Acto'er &, "9"&.= The 'asis of these opinions is

thus seen to 'e 1"2 that dealing in securities on

one0s own account is not technicall% a =trade=; 12

that isolated transactions in securities, not

connected with the ta$ pa%er0s regular 'usiness do

not constitute a =trade.=

In the /ct of 5eptem'er !, "9"(, the wording of the

"9"& /ct was slightl% changed 1section * Ba,

fourth2 to permit a deduction of =losses actuall%

sustained during the %ear, incurred in his 'usiness

or trade . . .= >nder this more li'eral provision, it

has 'een uniforml% held that where a ta$pa%er

devoted all his time, or the ma:or portion of it, to

'u%ing and selling securities on his own account,

this occupation was his ='usiness=; and therefore

he was permitted to deduct losses sustained in

such dealings as 'eing =incurred in his 'usiness.=

/. ?. ?. ## 1C.4. #, p. "*)2; sem'le 8. A.(".

These rulings are inferentiall% supported '% the

definitions of trade or 'usiness to comprehend =all

his activities for gain, profit, or livelihood, entered

into with sufficient freuenc%, or occup%ing suchportion of his time or attention as to constitute a

vocation,= contained in article ! of ?egulations #",

relative to the war e$cess-profits ta$ 1approved in


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portion thereof to the 'u%ing and selling of mining

securities.

Furthermore, from $hi'it / attached to the complaint and

made a part of said stipulation of facts, which represents

plaintiff0s purchases and sales of each class of stocs and

securities as well as the profits and losses resulting

therefrom during the %ear "9&9, it appears that he made

purchases and sales of securities onl% on several da%s of

some months and nothing on others. /s shown in said

e$hi'it, during the month of Ganuar%, "9&9, appellantpurchased shares of stoc of different mining corporations

on Ganuar% , &, #, (, "&, "9, , *, &, and sold some of

them on Ganuar% #, ", "& and &". 6uring Fe'ruar% he

made purchases on the dates ", !, "&, "#, *, and ); and

sales on (, 9, ", "(, , and &, and sold some on March

9 onl%. 6uring /pril he made two purchases on /pril & and

*, and one sale on /pril #. 6uring Ma% he purchased

mining shares of stoc on Ma% 9, ", "&, "9, #, and *;

and sold some of them on Ma% 9, ", ", "&, and &".

6uring Gune appellant made purchases on ", &, *, !, "&,

"*, and "), and sales on , &, #, and !. 6uring Gul%,

purchases on ", &, (, "9; and sales on Gul% #, *, (, and). 6uring /ugust he purchased shares of stoc on some

mining corporations on *,), "(, and "! and sold shares of

one mining corporation on /ugust " onl%. 6uring

5eptem'er appellant did not purchase or sell an% securities.

6uring Acto'er he sold securities onl% on the "th of said

month, and he made no purchase at all. /nd during

3ovem'er and 6ecem'er he did not purchase or sell an%.

/ppellant contends that as from $hi'it / it appears that

the mining securities were inventoried in order to arrive at

his profits and losses, the% cannot 'e considered as capital

assets, 'ecause, according to section , the term capital

assets does not include propert% which would properl% 'eincluded in the inventor%. 4ut it is to 'e o'served that the

law refers not to propert% merel% included, 'ut to that which

would 'e properl% included in the inventor%. 5ection "#! of

the Income Ta$ ?egulations 3o. of Fe'ruar% ", "9# 1&9

Aff. 7aH., &*2, provides that =the securities 1to 'e2

inventoried as here provided ma% include onl% those held

for purposes of resale and not for investment,= and that =the

ta$pa%ers who 'u% and sell or hold securities for investment

or speculation, . . . are not dealers insecurities within the

meaning of this rule.= /nd the 7eneral Counsel of the

Federal 4ureau of Internal ?evenue, after uoting /rticle

"* of >nited 5tates ?egulations )# from which said

section "#! of our Income Ta$ ?egulations was taen, said

that a person not a dealer in securities is precluded from

the use of inventories in computing his net income.=1C. 4.

-, p. "!, 7. C. M., 9(*(.2

The lower court has not therefore erred in dismissing

appellant0s first cause of action, on the ground that the

losses sustained '% appellant from the 'u%ing and selling of

mining securities are not losses incurred in 'usiness or

trade 'ut are capital losses from sales of capital assets, as

contended '% appellee.

.


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1a2 Tax credit of single individuals.KThe sum of

P10 if the person maing the return is a single

person or a married person legall% separated from

his or her spouse.

1'2 Tax credit of a married person or head of

family.KThe sum of P& if the person maing the

return is a married man with a wife not legall%

separated from him, or a married woman with a

hus'and not legall% separated from her, or the

head of the famil%; Provided, That from the ta$ dueon the aggregate income of 'oth hus'and and wife

when not legall% separated only one tax credit of

P30 shall be deducted. For the purpose of this

section, the term =head of a famil%= includes an

unmarried man or a woman with one or 'oth

parents, or one or more 'rothers or sisters, or one

or more legitimate, recogniHed natural or adopted

children dependent upon him or her for their

chief support where such 'rothers, sisters, or

children are less than twent%-one %ears of age.

1c2Additional tax credit for dependents.KThe sum

of P10 for each legitimate, recogniHed natural, oradopted child wholl% dependent upon the ta$pa%er,

if such dependents are under twent%-one %ears of

age, or incapa'le of self-support 'ecause mentall%

or ph%sicall% defective. The additional ta$ credit

under this paragraph shall 'e allowed onl% if the

person maing the return is the head of the famil%.

4ut the 3ational /ssem'l%, instead of adopting or

incorporating said proposed section in the 3ational

Internal ?evenue Code, C. /. 3o. #((, copied su'stantiall%

in section & of the latter provision of section ) of the old

law relating to personal and additional e$emptions, with the

onl% modification that the amount of personal e$emption ofsingle individuals has 'een reduced from two thousand to

one thousand pesos, and that of married persons or heads

of famil% from four thousand to two thousand five hundred

pesos.

If it were the intention of the 3ational /ssem'l% to adopt the

=nited 5tates

?evenue or Income Ta$ 8aws. the >nited 5tates ?evenue

8aws of "9"(, "9"!, "9", "9#, "9(, "9! and "9&

considered the personal and additional e$emptions as

credits against the net income for the purpose of the normal

ta$; and su'seuentl%, the >nited 5tates ?evenue /cts of

"9, "9&( and "9&! amended the former acts '% maing

said e$emptions as credits against the net income for the

purpose of 'oth the normal ta$ and surta$. 5ection ) of our

old Income Ta$ 8aw, instead of providing that the personal

and additional e$emptions shall 'e allowed as a credit

against the net income, as in the >nited 5tates ?evenue

5


6/49

/cts, prescri'ed that the amounts specified therein shall 'e

allowed as an e$emption in a nature of deduction from the

amount of the net income. nited 5tates ?evenue /cts. For, as

it was e$plained in the


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recreation including games of chance, which ma%

'e allowed '% law within the territorial :urisdiction of

the Philippines and which will+ 1"2 generate sources

of additional revenue to fund infrastructure and

socio-civic pro:ects, such as flood control

programs, 'eautification, sewerage and sewage

pro:ects, Tulungan ng 4a%an Centers, 3utritional

Programs, Population Control and such other

essential pu'lic services; 12 create recreation and

integrated facilities which will e$pand and improvethe countr%0s e$isting tourist attractions; and 1&2

minimiHe, if not totall% eradicate, all the evils,

malpractices and corruptions that are normall%

prevalent on the conduct and operation of

gam'ling clu's and casinos without direct

government involvement. 15ection ", P.6. "!(92

To attain these o':ectives P/7CA? is given territorial

:urisdiction all over the Philippines. >nder its Charter0s

repealing clause, all laws, decrees, e$ecutive orders, rules

and regulations, inconsistent therewith, are accordingl%

repealed, amended or modified.

It is reported that P/7CA? is the third largest source ofgovernment revenue, ne$t to the 4ureau of Internal

?evenue and the 4ureau of Customs. In "9!9 alone,

P/7CA? earned P&.#& 4illion, and directl% remitted to the

3ational 7overnment a total of P.* 4illion in form of

franchise ta$, government0s income share, the President0s

5ocial Fund and @ost Cities0 share. In addition, P/7CA?

sponsored other socio-cultural and charita'le pro:ects on its

own or in cooperation with various governmental agencies,

and other private associations and organiHations. In its &

"L %ears of operation under the present administration,

P/7CA? remitted to the government a total of P(. 4illion.

/s of 6ecem'er &", "9!9, P/7CA? was emplo%ing #,#9#emplo%ees in its nine 192 casinos nationwide, directl%

supporting the livelihood of Four Thousand Four @undred

3inet%-Four 1#,#9#2 families.

4ut the petitioners, are uestioning the validit% of P.6. 3o.

"!(9. The% allege that the same is =null and void= for 'eing

=contrar% to morals, pu'lic polic% and pu'lic order,=

monopolistic and tends toward =cron% econom%=, and is

violative of the eual protection clause and local autonom%

as well as for running counter to the state policies

enunciated in 5ections "" 1Personal 6ignit% and @uman

?ights2, " 1Famil%2 and "& 1?ole of Eouth2 of /rticle II,

5ection " 15ocial Gustice2 of /rticle III and 5ection

1ducational alues2 of /rticle I of the "9!) Constitution.

This challenge to P.6. 3o. "!(9 deserves a searching and

thorough scrutin% and the most deli'erate consideration '%

the Court, involving as it does the e$ercise of what has

'een descri'ed as =the highest and most delicate function

which 'elongs to the :udicial department of the

government.= 15tate v. Manuel, 3.C. "##; 8oHano v.

MartineH, "#( 5C?/ &&2.

/s


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impediment to its addressing and resolving the

serious constitutional uestions raised.

In the first mergenc% Powers Cases,

ordinar% citiHens and ta$pa%ers were allowed to

uestion the constitutionalit% of several e$ecutive

orders issued '% President Ouirino although the%

were involving onl% an indirect and general interest

shared in common with the pu'lic. The Court

dismissed the o':ection that the% were not proper

parties and ruled that =the transcendentalimportance to the pu'lic of these cases demands

that the% 'e settled promptl% and definitel%,

'rushing aside, if we must technicalities of

procedure.=


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corporations are mere creatures of Congress= 1>nson v.

8acson, 7.?. 3o. )99, Ganuar% "!, "9*)2 which has the

power to =create and a'olish municipal corporations= due to

its =general legislative powers= 1/suncion v. Eriantes, !

Phil. (); Merdanillo v. Arandia, * 5C?/ *#"2. Congress,

therefore, has the power of control over 8ocal governments

1@e'ron v. ?e%es, 7.?. 3o. 9"#, Gul% , "9*2. /nd if

Congress can grant the Cit% of Manila the power to ta$

certain matters, it can also provide for e$emptions or even

tae 'ac the power.1c2 The Cit% of Manila0s power to impose license fees on

gam'ling, has long 'een revoed. /s earl% as "9)*, the

power of local governments to regulate gam'ling thru the

grant of =franchise, licenses or permits= was withdrawn '%

P.6. 3o. ))" and was vested e$clusivel% on the 3ational

7overnment, thus+

5ec. ". /n% provision of law to the

contrar% notwithstanding, the authorit% of chartered

cities and other local governments to issue license,

permit or other form of franchise to operate,

maintain and esta'lish horse and dog race tracs,

:ai-alai and other forms of gam'ling is here'%revoed.

5ec. . @ereafter, all permits or franchises

to operate, maintain and esta'lish, horse and dog

race tracs, :ai-alai and other forms of gam'ling

shall 'e issued '% the national government upon

proper application and verification of the

ualification of the applicant . . .

Therefore, onl% the 3ational 7overnment has the power to

issue =licenses or permits= for the operation of gam'ling.

3ecessaril%, the power to demand or collect license fees

which is a conseuence of the issuance of =licenses or

permits= is no longer vested in the Cit% of Manila.1d2 8ocal governments have no power to ta$

instrumentalities of the 3ational 7overnment. P/7CA? is a

government owned or controlled corporation with an original

charter, P6 "!(9. /ll of its shares of stocs are owned '%

the 3ational 7overnment. In addition to its corporate

powers 15ec. &, Title II, P6 "!(92 it also e$ercises

regulator% powers thus+

5ec. 9. "egulatory Power. K The

Corporation shall maintain a ?egistr% of the

affiliated entities, and shall e$ercise all the powers,

authorit% and the responsi'ilities vested in the

5ecurities and $change Commission over such

affiliating entities mentioned under the preceding

section, including, 'ut not limited to amendments

of /rticles of Incorporation and 4%-8aws, changes

in corporate term, structure, capitaliHation and

other matters concerning the operation of the

affiliated entities, the provisions of the Corporation

Code of the Philippines to the contrar%

notwithstanding, e$cept onl% with respect to

original incorporation.

P/7CA? has a dual role, to operate and to regulate

gam'ling casinos. The latter role is governmental, which

places it in the categor% of an agenc% or instrumentalit% of

the 7overnment. 4eing an instrumentalit% of the

7overnment, P/7CA? should 'e and actuall% is e$empt

from local ta$es. Atherwise, its operation might 'e

'urdened, impeded or su':ected to control '% a mere 8ocal

government.

The states have no power '% ta$ation or

otherwise, to retard, impede, 'urden or in an%

manner control the operation of constitutional laws

enacted '% Congress to carr% into e$ecution thepowers vested in the federal government. 1MC

Culloch v. Marland, #


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the "9!) Constitutional Commission, pp. #&*-#&(, as cited

in 4ernas, The Constitution of the ?epu'lic of the

Philippines, ol. II, First d., "9!!, p. &)#2. It does not

mae local governments sovereign within the state or an

=imperium in imperio.=

8ocal 7overnment has 'een descri'ed as

a political su'division of a nation or state which is

constituted '% law and has su'stantial control of

local affairs. In a unitar% s%stem of government,

such as the government under the PhilippineConstitution, local governments can onl% 'e

an intra sovereign subdivision of one sovereign

nation, it cannot 'e an imperium in imperio. 8ocal

government in such a s%stem can onl% mean a

measure of decentraliHation of the function of

government. 1emphasis supplied2

/s to what state powers should 'e =decentraliHed= and what

ma% 'e delegated to local government units remains a

matter of polic%, which concerns wisdom. It is therefore a

political uestion. 1CitiHens /lliance for Consumer

Protection v. nerg% ?egulator% 4oard, "( 5C?/ *&92.

5 (*"2.

/nent petitioners0 claim that P6 "!(9 is contrar% to the

=avowed trend of the Cor% 7overnment awa% from

monopolies and cron% econom% and toward free enterprise

and privatiHation= suffice it to state that this is not a ground

for this Court to nullif% P.6. "!(9. If, indeed, P6 "!(9 runs

counter to the government0s policies then it is for the

$ecutive 6epartment to recommend to Congress its repea

or amendment.The :udiciar% does not settle polic% issues.

The Court can onl% declare what the law is and not

what the law should 'e. >nder our s%stem of

government, polic% issues are within the domain of

the political 'ranches of government and of the

people themselves as the repositor% of all state

power. 1almonte v. 4elmonte, Gr., ") 5C?/

*(2.

An the issue of =monopol%,= however, the Constitution

provides that+

5ec. "9. The 5tate shall regulate or

prohi'it monopolies when pu'lic interest so

reuires. 3o com'inations in restraint of trade or

unfair competition shall 'e allowed. 1/rt. II,

3ational conom% and Patrimon%2

It should 'e noted that, as the provision is worded,

monopolies are not necessaril% prohi'ited '% the

Constitution. The state must still decide whether pu'lic

interest demands that monopolies 'e regulated or

prohi'ited. /gain, this is a matter of polic% for the

8egislature to decide.

An petitioners0 allegation that P.6. "!(9 violates 5ections

"" 1Personalit% 6ignit%2 " 1Famil%2 and "& 1?ole of Eouth2

10


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of /rticle II; 5ection "& 15ocial Gustice2 of /rticle III and

5ection 1ducational alues2 of /rticle I of the "9!)

Constitution, suffice it to state also that these are merel%

statements of principles and, policies. /s such, the% are

'asicall% not self-e$ecuting, meaning a law should 'e

passed '% Congress to clearl% define and effectuate such

principles.

In general, therefore, the "9&* provisions

were not intended to 'e self-e$ecuting principles

read% for enforcement through the courts. The%were rather directives addressed to the e$ecutive

and the legislature. If the e$ecutive and the

legislature failed to heed the directives of the

articles the availa'le remed% was not :udicial or

political. The electorate could e$press their

displeasure with the failure of the e$ecutive and the

legislature through the language of the 'allot.

14ernas, ol. II, p. 2

ver% law has in its favor the presumption of

constitutionalit% 1Eu Cong ng v. Trinidad, #) Phil. &!);

5alas v. Garencio, #! 5C?/ ) Peralta v. Comelec, !

5C?/ &; /''as v. Comelec, ")9 5C?/ !)2. Therefore,for P6 "!(9 to 'e nullified, it must 'e shown that there is a

clear and uneuivocal 'reach of the Constitution, not

merel% a dou'tful and euivocal one. In other words, the

grounds for nullit% must 'e clear and 'e%ond reasona'le

dou't. 1Peralta v. Comelec, supra2 Those who petition this

Court to declare a law, or parts thereof, unconstitutional

must clearl% esta'lish the 'asis for such a declaration.

Atherwise, their petition must fail. 4ased on the grounds

raised '% petitioners to challenge the constitutionalit% of

P.6. "!(9, the Court finds that petitioners have failed to

overcome the presumption. The dismissal of this petition is

therefore, inevita'le. 4ut as to whether P.6. "!(9 remains awise legislation considering the issues of =moralit%,

monopol%, trend to free enterprise, privatiHation as well as

the state principles on social :ustice, role of %outh and

educational values= 'eing raised, is up for Congress to

determine.

/s this Court held in -iti%ens( Alliance for -onsumer

Protection v.$nergy "egulatory .oard, "( 5C?/ *" K

Presidential 6ecree 3o. "9*(, as

amended '% $ecutive Arder 3o. "&) has, in an%

case, in its favor the presumption of validit% and

constitutionalit% which petitioners almonte and the

NM> have not overturned. Petitioners have not

undertaen to identif% the provisions in the

Constitution which the% claim to have 'een violated

'% that statute. This Court, however, is not

compelled to speculate and to imagine how the

assailed legislation ma% possi'l% offend some

provision of the Constitution. The Court notes,

further, in this respect that petitioners have in the

main put in uestion the wisdom, :ustice and

e$pedienc% of the esta'lishment of the AP5F,

issues which are not properl% addressed to this

Court and which this Court ma% not constitutionall%

pass upon. Those issues should 'e addressed

rather to the political departments of government+

the President and the Congress.

Parentheticall%,


12/49

in " eual %earl% installments of P)"),&&&.#9,

'earing & interest per annum, 'eginning /ugust

&", "9( and /ugust &" of ever% %ear thereafter

until the %ear "9), while the purchase price of the

ML5 73?/8 8IM was to 'e paid '% 7eneral

5hipping to the Commission under a deferred

pa%ment plan in " eual %earl% installments of

P)&,"&.(!, 'earing & interest per annum

'eginning 5eptem'er & of ever% %ear until the

%ear "9). 1$hs. 9, p. # and /-, 'oth cases215ee ?espondents0 'rief, p. #.2

6elivered in Gapan to its respective 'u%ers, acting on 'ehalf

of the Commission, the vessels, upon their departure from

To%o, on the maiden trip thereof to the Philippines, were

issued, '% the Philippine ice-Consul in said cit%,

provisional certificates of Philippine registr% in the name of

the Commission, so that the vessels could proceed to the

Philippines and secure therein the respective final

registration document.

>pon arrival at the port of Manila, the 4u%er filed the

corresponding applications for registration of the vessels,

'ut, the 4ureau of Customs placed the same under custod%and refused to give due course to said applications, unless

the aforementioned sums of P#!&,#&& and P#9#,!# 'e

paid as compensating ta$. /s the Commissioner of

Customs refused to reconsider the stand taen '% his

office, the 4u%ers simultaneousl% filed with the Court of Ta$

/ppeals their respective petitions for review, against the

Commissioner of Customs and the Commissioner of

Internal ?evenue K hereinafter referred to collectivel% as

/ppellants K with urgent motion for suspension of the

collection of said ta$. /fter a :oint hearing on this motion,

the same was, on Acto'er &", "9(, granted '% the Ta$

Court, upon the sum of a P*,. 'ond '% each one ofthe 4u%ers.

An Gune "), "9(", while these cases were pending trial in

said Court, ?epu'lic /ct 3o. &)9 amended ?epu'lic /ct

3o. ")!9 K the Ariginal ?eparations /ct, under which the

aforementioned contracts with the 4u%ers had 'een

e$ecuted K '% e$empting 'u%ers of reparations goods

acuired from the Commission, from lia'ilit% for the

compensating ta$. Moreover, section of ?epu'lic /ct

3o. &)9, provides+

$ $ $ This /ct shall tae effect upon its

approval, e$cept that the amendment contained in

5ection seven hereof relating to the reuirements

of procurement orders including the reuirement of

down pa%ment '% private applicant end-users shall

not appl% to procurement orders alread% dut%

issued and verified at the time of the passage of

this amendator% /ct, and e$cept further that the

amendment contained in 5ection ten relating to the

insurance of the reparations goods '% the end-

users upon deliver% shall appl% also to goods

covered '% contracts alread% entered into '% the

Commission and end-user prior to the approval of

this amendator% /ct as well as goods alread%

delivered to the end-user, and e$cept further that

the amendments contained in 5ections eleven and

twelve hereof relating to the terms of installment

pa%ments on capital goods disposed of to private

parties, and the e$ecution of a performance 'ond

'efore deliver% of reparations goods, shall not

appl% to contracts for the utiliHation of reparations

goods alread% entered into '% the Commission and

the end-users prior to the approval of this

amendator% /ct+ Provided, That an% end-user ma%appl% for the renovation of his utiliHation contract

with the Commission in order to avail of an%

provision of this amendator% /ct which is more

favora'le to an applicant end-user than has

heretofore 'een granted in lie manner and to the

same e$tent as an end-user filing his application

after the approval of this amendator% /ct, and the

Commission ma% agree to such renovation on

condition that the end-user shall voluntaril% assume

all the new o'ligations provided for in this

amendator% /ct.

Invoing the provisions of this section , the 4u%ersapplied, therefore, for the renovation of their utiliHations

contracts with the Commission, which granted the

application, and, then, filed with the Ta$ Court, their

supplemental petitions for review. 5u'seuentl%, the parties

su'mitted 5tipulations of Fact and, after a :oint trial, at

which the% introduced additional evidence, said Court

rendered the appealed decision, reversing the decisions

herein /ppellants, and declared said 4u%ers e$empt from

the compensating ta$ sought to 'e assessed against the

vessels aforementioned. @ence, these appeals '% the

7overnment 7.?. 3o. 8-"(&& refers to the case as

regards =ML5 Maria ?osello,= whereas =ML5 7eneral 8im= isthe su':ect-matter of 7.?. 3o. 8-"(.

It seems clear that, under ?epu'lic /ct 3o. ")!9 K

pursuant to which the contracts of Conditional Purchase

and 5ale in uestion had 'een e$ecuted K the vessels

=ML5 Maria ?osello= and =ML5 7eneral 8im= were su':ect to

compensating ta$. Indeed, 5ection "# of said /ct provides

that =reparations goods o'tained '% private parties shall 'e

e$empt only from the pa%ment of customs duties, consular

fees and the special import ta$.= /lthough this 5ection was

amended '% ?./. 3o. &)9, to include the compensating

ta$= among the e$emptions enumerated therein, such

amendment too place, not onl% after the contracts involved

in these appeals had 'een perfected and partl%

consummated, 'ut, also, after the corresponding

compensating ta$ had 'ecome due and pa%ment thereof

demanded '% /ppellants herein. It is, moreover, o'vious

that said additional e$emption should not and cannot 'e

given retroactive operation, in the a'sence of a manifest

intent of Congress to do this effect. The issue in the cases

at 'ar hinges on whether or not such intent is clear.

/ppellants maintain the negative, upon the ground that a

ta$ e$emption must 'e clear and e$plicit; that there is no

e$press provision for the retroactivit% of the e$emption,

12


13/49

esta'lished '% ?epu'lic /ct 3o. &)9, from the

compensating ta$; that the favora'le provisions, which are

referred to in section thereof, cannot include the

e$emption from compensating ta$; and, that Congress

could not have intended an% retroactive e$emption,

considering that the result thereof would 'e pre:udicial to

the 7overnment.

The inherent weaness of the last ground 'ecomes

manifest when we consider that, if true, there could 'e no

ta$ e$emption of an% ind whatsoever, even if Congressshould wish to create one, 'ecause ever% such e$emption

implies a waiver of the right to collect what otherwise would

'e due to the 7overnment, and, in this sense, is pre:udicial

thereto. In fact, however, ta$ e$emptions ma% and do e$ist,

such as the one prescri'ed in section "# of ?epu'lic /ct

3o. ")!9, as amended '% ?epu'lic /ct 3o. &)9, which, '%

the wa%, is =clear and e$plicit,= thus, meeting the first

ground of appellant0s contention. It ma% not 'e amiss to add

that no ta$ e$emption K lie an% other legal e$emption or

e$ception K is given without an% reason therefor. In much

the same wa% as other statutor% commands, its avowed

purpose is some pu'lic 'enefit or interest, which the law-maing 'od% considers sufficient to offset the monetar% loss

entitled in the grant of the e$emption. Indeed, section of

?epu'lic /ct 3o. &)9 e$acts a valua'le consideration for

the retroactivit% of its favora'le provisions, namel%, the

voluntar% assumption, '% the end-user who 'ought

reparations goods prior to Gune "), "9(" of =all

the newo'ligations provided for in= said /ct.

The argument adduced in support of the third ground is that

the view adopted '% the Ta$ Court would operate to grant

e$emption to particular persons, the 4u%ers herein. It

should 'e noted, however, that there is no constitutional

in:unction against granting ta$ e$emptions to particularpersons. In fact, it is not unusual to grant legislative

franchises to specific individuals or entities, conferring ta$

e$emptions thereto.


14/49

This case is said to 'e precedent setting.


15/49

case ma% 'e upon su'mission to the

Commissioner of Internal ?evenue of proof that the

said depositor is a ta$-e$empt entit% or en:o%s a

preferential income ta$ treatment.

$$$ $$$ $$$

This e$emption and preferential ta$ treatment were carried

over in Pres. 6ecree 3o. ")&9, effective on ") 5eptem'er

"9!, which law also su':ected interest from 'an deposits

and %ield from deposit su'stitutes to a final ta$ of twent% per

cent 12. The pertinent provisions read+5ec. . 5ection " of the same Code is

here'% amended '% adding a new

paragraph to read as follows+

5ec. ". ?ates of ta$ on citiHens or

residents. K

$$$ $$$ $$$

Interest from Philippine Currenc% 'an

deposits and %ield from deposit su'stitutes whether

received '% citiHens of the Philippines or '%

resident alien individuals, shall 'e su':ect to the

final ta$ as follows+ 1a2 "* of the interest on

savings deposits, and 1'2 of the interest ontime deposits and %ield from deposit su'stitutes,

which shall 'e collected and paid as provided in

5ections *& and *# of this Code.Provided, That no

ta$ shall 'e imposed if the aggregate amount of

the interest on all Philippine Currenc% deposit

accounts maintained '% a depositor alone or

together with another in an% one 'an at an% time

during the ta$a'le period does not e$ceed ight

@undred Pesos 1P!.2 a %ear or Two @undred

Pesos 1P.2 per uarter. Provided! further!

That if the recipient of such interest is exempt from

income taxation! no tax shall be imposed and that!if the recipient is en+oying preferential income tax

treatment! then the preferential tax rates so

provided shall be imposed 1mphasis supplied2.

5ec. &. 5ection # of the same Code is

here'% amended '% adding a new

su'section 1cc2 'etween su'sections 1c2

and 1d2 to read as follows+

1cc2 ?ates of ta$ on interest from

deposits and %ield from deposit

su'stitutes. K Interest on Philippine

Currenc% 'an deposits and %ield from

deposit su'stitutes received '% domestic

or resident foreign corporations shall 'e

su':ect to a final ta$ on the total amount

thereof as follows+ 1a2 "* of the interest

on savings deposits; and 1'2 of the

interest on time deposits and %ield from

deposit su'stitutes which shall 'e

collected and paid asprovided in 5ections

*& and *# of this Code. Provided! That if

the recipient of such interest is exempt

from income taxation! no tax shall be

imposed and that! if the recipient is

en+oying preferential income tax

treatment! then the preferential tax rates

so provided shall be imposed1mphasis

supplied2.

5ec. 9. 5ection *&1e2 of the same Code is

here'% amended to read as follows+

5e. *&1e2


16/49

1cc2 "ates of tax on interest from deposits

and yield or any other monetary benefit from

deposit substitutes and from trust fund and similar

arrangements2 K Interest on Philippine Currenc%

4an deposits and %ield or an% other monetar%

'enefit from deposit su'stitutes and from trust fund

and similar arrangements received '% domestic or

resident foreign corporations shall 'e su':ect to a

"* final ta$ to 'e collected and paid

asprovided in 5ection *& and *# of this Code.5ec. #. 5ection *& 1d2 1"2 of this code is

here'% amended to read as follows+

5ec. *& 1d2 1"2. &ithholding of


17/49

emplo%ees outside the 5ocial 5ecurit% /ct 'e

e$empted from income ta$es. 1Congressional

?ecord, @ouse of ?epresentatives, ol. I, Part. ,

3o. *), p. "!*9, Ma% &, "9*); cited in

Commissioner of Internal ?evenue v. isa%an

lectric Co., et al., 7.?. 3o. 8-("", ) Ma%

"9(!, & 5C?/ )"*2; emphasis supplied.

It is evident that ta$-e$emption is liewise to 'e en:o%ed '%

the income of the pension trust. Atherwise, ta$ation of

those earnings would result in a diminution accumulatedincome and reduce whatever the trust 'eneficiaries would

receive out of the trust fund. This would run afoul of the

ver% intendment of the law.

The deletion in Pres. 6ecree 3o. "9*9 of the provisos

regarding ta$ e$emption and preferential ta$ rates under

the old law, therefore, can not 'e deemed to e$tent to

emplo%ees0 trusts. 5aid 6ecree, 'eing a general law, can

not repeal '% implication a specific provision, 5ection *(1'2

now *& B'2 in relation to ?ep. /ct 3o. #9") granting

e$emption from income ta$ to emplo%ees0 trusts. ?ep. /ct

"9!&, which e$cepted emplo%ees0 trusts in its 5ection *(

1'2 was effective on Gune "9*) while ?ep. /ct 3o. #9")was enacted on ") Gune "9(), long 'efore the issuance of

Pres. 6ecree 3o. "9*9 on "* Acto'er "9!#. / su'seuent

statute, general in character as to its terms and application,

is not to 'e construed as repealing a special or specific

enactment, unless the legislative purpose to do so is

manifested. This is so even if the provisions of the latter are

sufficientl% comprehensive to include what was set forth in

the special act 1illegas v. 5u'ido, 7.?. 3o. 8-&")"", &

5eptem'er "9)", #" 5C?/ "92.

3ota'l%, too, all the ta$ provisions herein treated of come

under Title II of the Ta$ Code on =Income Ta$.= 5ection "

1d2, as amended '% ?ep. /ct 3o. "9*9, refers to the finalta$ on individuals and falls under Chapter II; 5ection # 1cc2

to the final ta$ on corporations under Chapter III; 5ection *&

on withholding of final ta$ to ?eturns and Pa%ment of Ta$

under Chapter I; and 5ection *( 1'2 to ta$ on states and

Trusts covered '% Chapter II, 5ection *( 1'2, taen in

con:unction with 5ection *( 1a2, supra!e$plicitl% e$cepts

emplo%ees0 trusts from =the ta$es imposed '% this Title.=

5ince the final ta$ and the withholding thereof are

em'raced within the title on =Income Ta$,= it follows that

said trust must 'e deemed e$empt therefrom. Atherwise,

the e$ception 'ecomes meaningless.

There can 'e no den%ing either that the final withholding ta$

is collected from incomein respect of which emplo%ees0

trusts are declared e$empt 15ec. *( B', now *& B', Ta$

Code2. The application of the withholdings s%stem to

interest on 'an deposits or %ield from deposit su'stitutes is

essentiall% to ma$imiHe and e$pedite the collection

of incometa$es '% reuiring its pa%ment at the source. If an

emplo%ees0 trust lie the 7C8 en:o%s a ta$-e$empt status

from income, we see no logic in withholding a certain

percentage of that income which it is not supposed to pa% in

the first place.

Petitioner also relies on ?evenue Memorandum Circular

&"-!#, dated & Acto'er "9!#, and 4ureau of Internal

?evenue ?uling 3o. )-e---*-!*, dated "#

Ganuar% "9!*, as authorities for the argument that Pres.

6ecree 3o. "9*9 withdrew the e$emption of emplo%ees0

trusts from the withholding of the final ta$ on interest

income. 5aid Circular and ?uling pronounced that the

deletion of the e$empting and preferential ta$ treatment

provisions '% Pres. 6ecree 3o. "9*9 is a clear

manifestation that the single "* ta$ rate is imposa'le onall interest income regardless of the ta$ status or character

of the recipient thereof. 4ut since we herein rule that Pres.

6ecree 3o. "9*9 did not have the effect of revoing the ta$

e$emption en:o%ed '% emplo%ees0 trusts, reliance on those

authorities is now misplaced.


18/49

* sales ta$ on P"!,)(.

1P"#,&)).9 D P#,&!.!2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9&!."

* surcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*

Total for fi$ed and sales ta$es and surcharges . . . . . . . . P","9.*"

ol. of tim'er, Gul% #, "9#9 to Ma% ", "9* 1#",!! D "&,!92 . . . **,)) 4d. ft

/dd+ # for suaring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,&9 = =

Total volume to 'e assessed . . . . . . . . . . . . . . . . . . . . . . . )!,!" = =

or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "!#."* cu. m.

?egular forest charges on "!#."* cu. m. at P&.* . . . . . . . . . . . . . P (##.*&

& surcharge for cutting without license . . . . . . . . . . . . . . . . . . . ",9&&.*9

* 1$2 surcharge for transporting without invoice . . . . . . . . . . . . . &.(

* surcharge for discharging without permit . . . . . . . . . . . . . . . . . &.(

* surcharge for late pa%ment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . &.(

Forest charges D surcharges . . . . . . . . . . . . . . . . . . . . . . . P&,*##.9

?egular forest charges on "&.9# cu. m. at P&.* . . . . . . . . . . . . . . . #!.)9

& surcharge for cutting without license . . . . . . . . . . . . . . . . . . . . "#(.&)

* surcharge for transporting without invoice . . . . . . . . . . . . . . . . ".

* surcharge for discharging without permit . . . . . . . . . . . . . . . . . ".

* surcharge for late pa%ment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ".

Forest charges D surcharges . . . . . . . . . . . . . . . . . . . . . . . . P&".)(

TAT/8 /MA>3T 6> . . . . . . . . . . . . . . . . . . . . . . . . . . . . P#,9(9.")

In addition to the a'ove amount, the sums of P. and

P". as compromise penalties in e$tra:udicial

settlement of his penal lia'ilities under sections ! and

9 of the 3.I.?.C. should 'e reiterated. That another sum

of P*. as compromise penalt% for his violation of the

4ooeeping ?egulations should 'e imposed against the

ta$pa%er, he having admitted during the hearing of this case

that he did not eep 'oos of accounts for his tim'er

'usiness.

This recommendation was approved '% the Collector of

Internal ?evenue, who, accordingl%, made the

corresponding reassessment upon receipt of notice of

which 7uerrero reuested, on Fe'ruar% ", "9*(, a

rehearing 'efore the Conference 5taff. Instead of acting on

this reuest, on /pril , "9*(, the corresponding Internal

?evenue ?egional 6irector issued a warrant of distraint andlev% against the properties of 7uerrero, in order to effect the

collection of his ta$ lia'ilities under said reassessment.

@ence, on Gune !, "9*(, 7uerrero filed with the Court of

Ta$ /ppeals the corresponding petition for review.

5u'seuentl%, said court rendered the decision appealed

from. @ence, these appeals.

There is no dispute as to the volume of sales of logs made

'% 7uerrero during the %ears "9#9 and "9*, upon which

the disputed reassessment is 'ased. The onl% issues in

these appeals are whether or not he is lia'le for the

pa%ment of+ 1"2 P&,))*.((, '% wa% of forest charges and

surcharges on the logs sold to the compan%, which the

Court of Ta$ /ppeals answered in the affirmative; 12

P","9.*", '% wa% of fi$ed and percentage ta$es and

surcharges as producer of said logs, which said court

decided in the negative; 1&2 P((!.&(, as additional forest

charges and sales ta$es, as well as surcharges, which was

decided '% the trial court in favor of the ta$pa%er; and 1#2

P". and P*. as compromise penalties for violation

of 5ections ! and 9 of the ?evised Internal ?evenue

Code and of the 'ooeeping regulations, respectivel%,

liewise, decided '% the Court of Ta$ /ppeals against the

7overnment.

pon the other hand, the au$iliar% invoices presented

'efore the 4ureau of Internal ?evenue were either

spurious, or referred to logs other than those involved in the

disputed reassessment. Thus, for instance, in e$hi'it !-//

1A.?. 3o. (*)!#9, p. !, 4I? record2, the word =Gune= was

18


19/49

superimposed over the word =Ma%= and, at the 'ac of

$hi'it !-//-" 1p. !", 4I? record2, which is the

corresponding invoice, two similar alterations were made. In

the au$iliar% invoices $hi'its -& and -# 1PP. !-9,

4I? record2, su'mitted '% 7uerrero to the Conference 5taff,

as $hi'its C-& and C-#, his name is written 1script2, in in,

on the space opposite the word consignee=. @owever, in

the copies of said au$iliar% invoices 1$hi'its !-?- and !-5

pp. "") and ""9, 4I? record2, taen from the compan%, the

corresponding space is blan'. /gain, the ta$pa%er0s nameon said $hi'its -& and -# is handwritten with a

penmanship that is maredl% different from that of 5egundo

/gustin, the signator% of said invoices, who had supposedl%

accomplished the same, thus indicating that said name

could not have 'een written '% 5egundo /gustin, and

rendering the authenticit% of the documents highl% dou'tful.

Furthermore, said invoices, as well as the other invoices

su'mitted '% 7uerrero to the Conference 5taff 1$hi'its C-"

to C-"#, also, mared as $hi'its -" to -"#, pp. "!-&",

4I? record2, referred to logs otherthan those involved in

the uestioned reassessment.

The foregoing circumstances clearl% indicate that the logsinvolved in said reassessment were o'tained from illegal

sources, and that the forest charges due thereon had not

'een paid. 5ince these charges =are liens on the products

and collecti'le from whomsoever is in possession= thereof,

=unless he can show that he has the reuired au$iliar% and

official invoice and discharge permit= 1Collector of Internal

?evenue vs. Pio 4arretto and 5ons, 8-""!*, Ma% &",

"9(2 K which 7uerrero has not shown K it follows that he

is 'ound to pa% the aforementioned forest charges and

surcharges, in the sum of P&,))*.((.

/s regards the second item of P","9.*", representing

fi$ed and percentage ta$es and surcharges, as producer ofthe logs involved in the reassessment, the Court of Ta$

/ppeals held that 7uerrero is not lia'le therefor, upon the

theor% that said logs were sold by the /overnmentto the

one who had cut, and removed the products from the forest;

that the original sale of said logs was, therefore, made '%

the 7overnment, not '% the concessionaire or cutter of the

forest products; and that, accordingl%, 7uerrero is not lia'le

for the pa%ment of the corresponding fi$ed and percentage

ta$es thereon. This theor% is 'ased upon the premise that,

whereas in -ollector of Internal "evenue vs2 =2"2 5acson,

8-"9#* 1/pril 9, "9(2, we held that forest charges are

internal revenue ta$es, this ruling was reversed in -ollector

of Internal "evenue vs2 Pio .arretto ,ons, 8-""!* 1Ma%

&", "9(2.

It is true that the dispositive portion of our decision in the

first case e$pressl% sustained the concurring and dissenting

opinion of a mem'er of the Court of Ta$ /ppeals in the

appealed decision thereof and that the writer of the opinion

maintained that forest charges are internal revenue ta$es. /

careful perusal of the te$t of the decision of the 5upreme

Court therein shows, however, that said dissenting opinion

is not the ratio decidendi of the aforementioned decision. It

should 'e noted that the Collector of Internal ?evenue

contested the :urisdiction of the Court of Ta$ /ppeals to

entertain the appeal taen '% 8acson from the assessment

made '% said officer involving forest charges, and that the

5upreme Court upheld the authorit% of the ta$ court to hear

and decide said appeal, 'ecause the issue therein was

the validity of said assessment. From the viewpoint of the

5upreme Court, this issue was decisive on the uestion of

:urisdiction of the Court of Ta$ /ppeals, regardless of

whether forest charges were ta$es or not.

/t this :uncture, it ma% not 'e amiss to advert to a pro'lemof semantics arising from the operation of 5ection "*!! of

the ?evised /dministrative Code, the counterpart of which

is now 5ection &"* of the 3ational Internal ?evenue Code,

pursuant to which+

ver% internal revenue ta$ on propert% or

on an% 'usiness or occupation, and ever% ta$ on

resources and receipts, and an% increment to an%

of them incident to delinuenc%, shall constitute a

lien superior to all other charges or liens not onl%

on the propert% itself upon which such ta$ ma% 'e

imposed 'ut also upon the propert% used in an%

'usiness or occupation upon which the ta$ isimposed and upon all propert% rights therein.

$ $ $ $ $ $ $ $ $

The enforcement of this lien '% the Commissioner 1formerl%

Collector2 of Internal ?evenue, has often induced the

parties adversel% affected there'% to raise the uestion

whether a given charge is a ta$ or not, on the theor% that

there would 'e no lien if said uestion were decided in the

negative. In connection therewith, said parties had tended

to distinguish 'etween ta$es, on the one hand K as

'urdens imposed upon persons andLor properties, '% wa%

of contri'utions to the support of the 7overnment, in

consideration of general 'enefits derived from its operationK and license fees K charged in the e$ercise of

the regulatory authorit% of the state, under its police power

K and other charges K for specific things or special

orparticular 'enefits received from the 7overnment K on

the other hand.

It is high time to stress that the term =ta$,= as it appears in

said 5ection "*!! of the ?evised /dministrative Code and

5ection &"* of the 3ational Internal ?evenue Code, is used

in these provisions, not in the limited sense adverted to

a'ove, 'ut, in a broad sense encompassing all /overnmen

revenues collectible by the -ommissioner of Internal

"evenue under said -ode, whether involving ta$es, in the

strict technical sense thereof, or not. Thus, under the

heading =in:unction not availa'le to restrain collection

of tax=, 5ection &* of said Code K which is the first

provision of Title I 1entitled =7eneral /dministrative

Provisions=2, Chapter I 1entitled ="emedies in 7eneral2

thereof K provides+

3o court shall have authorit% to grant an

in:unction to restrain the collection of an% national

internal-revenue ta$, fee, or charge imposed '%

this Code.

19


20/49

5imilarl%, under the heading =Civil remedies for the

collection of delinuent ta$es,= 5ection &"( of the same

Code ordains;

The civil remedies for the collection of

internal revenue ta$es, fees, or charges, and an%

increment thereto resulting from delinuenc% shall

'e 1a2 '% distraint of goods, chattels, or effects,

and other personal propert% of whatever character,

including stocs and other securities, de'ts,

credits, 'an accounts, and interest in and rights topersonal propert%, and '% lev% upon real propert%

and interest in or rights to real propert%; and 1'2 '%

:udicial action. ither of these remedies or 'oth

simultaneousl% ma% 'e pursued in the discretion of

the authorities charged with the collection of such

ta$es.

3o e$emption shall 'e allowed against the

internal revenue ta$es in an% case. 1mphasis

supplied.2

In other words, the 3ational Internal ?evenue Code ma'es

a distinction between taxes, on the one hand, andfees or

charges, on the other; 'ut as used in Title I> of said -ode,the term =ta$= includes =an% national internal revenue

ta$,fee or charge imposed '%= the Code. /nd it is in this

sense onl% that we sustained the view taen in the

aforementioned concurring dissenting opinion in Collector

of Internal "evenue vs2 5acson 1supra2. @ence, in

the .arretto case, it was held that the 7overnment does not

sell forest products, 'ut merel% collects charges on the

privilege granted '% it =for the exploitation of forest

concessions, i.e., chargesfor the right to exercise the

privilege granted '% the 7overnment to the licensee of

cutting tim'er from a pu'lic forest or forest reserve=. In line

with this view, we stressed in -ordero vs2 /onda!8-&(9

1Acto'er "*, "9((2, the declaration made in -ebu Portland

-ement -o2 vs2 -ommissioner of Internal "evenue,

8-"!(#9 1Fe'ruar% ), "9(*2, that a mining ad valorem ta$=is a ta$ not on the minerals, 'ut upon the privilege of

severing or e$tracting the same from the earth,= although

strictl% a fee for something received is not a ta$. /s a

conseuence, the original sale, as contemplated in 5ection

"!( of the Internal ?evenue Code, is made by the

concessionaire or whoever cuts or removes forest products

from pu'lic forests or forest reserves K in the case at 'ar,

7uerrero, who is accordingl%, 'ound to pa% said sum of

P","9.*".


21/49

/ntonio 7. 7uerrero, the decision appealed from is here'%

affirmed, therefore, in all other respect, with costs against

the latter. It is so ordered.

G.R. No. L+1977 A8*t 17, 1967

'#ILI''INE A%ET"LENE %O., IN%.,petitioner,

vs. %OMMISSIONER OF INTERNAL RE0EN$E /

%O$RT OF TA A''EALS,respondents.

%ASTRO, J.:The petitioner is a corporation engaged in the manufacture

and sale of o$%gen and acet%lene gases. 6uring the period

from Gune , "9*& to Gune &, "9*!, it made various sales

of its products to the 3ational Power Corporation, an

agenc% of the Philippine 7overnment, and to the oice of

/merica an agenc% of the >nited 5tates 7overnment. The

sales to the 3PC amounted to P"#*,!((.), while those to

the A/ amounted to P",(!&, on account of which the

respondent Commission of Internal ?evenue assessed

against, and demanded from, the petitioner the pa%ment of

P",9".( as deficienc% sales ta$ and surcharge, pursuant

to the following-provisions of the 3ational Internal ?evenueCode+

5ec. "!(. Percentage tax on sales of

other articles.KThere shall 'e levied, assessed

and collected once onl% on ever% original sale,

'arter, e$change, and similar transaction either for

nominal or valua'le considerations, intended to

transfer ownership of, or title to, the articles not

enumerated in sections one hundred and eight%-

four and one hundred and eight%-five a ta$

euivalent to sevenper centum of the gross selling

price or gross value in mone% of the articles so

sold, 'artered e$changed, or transferred, such ta$to 'e paid '% the manufacturer or producer+ . . . .

5ec. "!&. Payment of percentage taxes.K

1a2 In general.KIt shall 'e the dut% of ever% person

conducting 'usiness on which a percentage ta$ is

imposed under this Title, to mae a true and

complete return of the amount of his, her, or its

gross monthl% sales, receipts or earnings, or gross

value of output actuall% removed from the factor%

or mill warehouse and within twent% da%s after the

end of each month, pa% the ta$ due

thereon+Provided, That an% person retiring from a

'usiness su':ect to the percentage ta$ shall notif%

the nearest internal revenue officer thereof, file his

return or declaration and pa% the ta$ due thereon

within twent% da%s after closing his 'usiness.

If the percentage ta$ on an% 'usiness is not paid

within the time specified a'ove, the amount of the

ta$ shall 'e increased '% twent%-fiveper centum,

the increment to 'e a part of the ta$.

The petitioner denied lia'ilit% for the pa%ment of the ta$ on

the ground that 'oth the 3PC and the A/ are e$empt

from ta$ation. It ased for a reconsideration of the

assessment and, failing to secure one, appealed to the

Court of Ta$ /ppeals.

The court ruled that the ta$ on the sale of articles or goods

in section "!( of the Code is a ta$ on the manufacturer and

not on the 'u%er with the result that the =petitioner

Philippine /cet%lene Compan%, the manufacturer or

producer of o$%gen and acet%lene gases sold to the

3ational Power Corporation, cannot claim e$emption from

the pa%ment of sales ta$ simpl% 'ecause its 'u%er K the

3ational Power Corporation K is e$empt from the pa%mentof all ta$es.= nited 5tates, provided the

purchases are supported '% certificates of e$emption, and

since purchases amounting to onl% P**!, out of a total of

P",(!&, were not covered '% certificates of e$emption, onl%

the sales in the sum of P**! were su':ect to the pa%ment o

ta$. /ccordingl%, the assessment was revised and the

petitioner0s lia'ilit% was reduced from P",9".(, asassessed '% the respondent commission, to P",!"."(."

The petitioner appealed to this Court. Its position is that it is

not lia'le for the pa%ment of ta$ on the sales it made to the

3PC and the A/ 'ecause 'oth entities are e$empt from

ta$ation.

I

The 3PC en:o%s ta$ e$emption '% virtue of an actof

Congress which provides as follows+

5ec. . To facilitate the pa%ment of its

inde'tedness, the 3ational Power Corporation

shall 'e e$empt from all ta$es, e$cept real propert%

ta$, and from all duties, fees, imposts, charges,and restrictions of the ?epu'lic of the Philippines,

its provinces, cities and municipalities.

It is contended that the immunit% thus given to the 3PC

would 'e impaired '% the imposition of a ta$ on sales made

to it 'ecause while the ta$ is paid '% the manufacturer or

producer, the ta$ is ultimatel% shifted '% the latter to the

former. The petitioner invoes in support of its position a

"9*# opinion of the 5ecretar% of Gustice which ruled that the

3PC is e$empt from the pa%ment of all ta$es =whether

direct or indirect.=


22/49

within twent% da%s after the end of each month, pa% the ta$

due thereon.=*

4ut it is argued that a sales ta$ is ultimatel% passed on to

the purchaser, and that, so far as the purchaser is an entit%

lie the 3PC which is e$empt from the pa%ment of =all

ta$es, e$cept real propert% ta$,= the ta$ cannot 'e collected

from sales.

Man% %ears ago, Mr. Gustice Aliver nited 5tates. In the earl% case of Panhandle ;il -o2 v2

=ississippi)the doctrine of intergovernment mental ta$

immunit% was held as prohi'iting the imposition of a ta$ on

sales of gasoline made to the Federal 7overnment. 5aid

the 5upreme court of the >nited 5tates+

/ charge at the prescri'ed. rate is made

on account of ever% gallon acuired '% the >nited

5tates. It is immaterial that the seller and not the

purchaser is reuired to report and mae pa%mentto the state. 5ale and purchase constitute a

transaction '% which the ta$ is measured and on

which the 'urden rests. . . . The necessar%

operation of these enactments when so construed

is directl% to retard, impede and 'urden the

e$ertion '% the >nited 5tates, of its constitutional

powers to operate the fleet and hospital. . . . To

use the num'er of gallons sold the >nited 5tates

as a measure of the privilege ta$ is in su'stance

and legal effect to ta$ the sale. . . . /nd that is to

ta$ the >nited 5tates K to e$act tri'ute on its

transactions and appl% the same to the support of

the state.1wph124t

Gustice @olmes did not agree. In a powerful dissent :oined

'% Gustices 4randeis and 5tone, he said+

If the plaintiff in error had paid the ta$ and

added it to the price the government would have

nothing to sa%. It could tae the gasoline or leave it

'ut it could not reuire the seller to a'ate his

charge even if it had 'een ar'itraril% increased in

the hope of getting more from the government than

could 'e got from the pu'lic at large. . . . It does

not appear that the government would have

refused to pa% a price that included the ta$ if

demanded, 'ut if the government had refused it

would not have e$onerated the seller. . . .

. . . I am not aware that the President, the

Mem'ers of the Congress, the Gudiciar% or to come

nearer to the case at hand, the Coast 7uard or the

officials of the eterans0 @ospital Bto which the

sales were made, 'ecause the% are

instrumentalities of government and cannot

function naed and unfed, hitherto have 'een heldentitled to have their 'ills for food and clothing cut

down so far as their 'utchers and tailors have 'een

ta$ed on their sales; and I had not supposed that

the 'utchers and tailors could omit from their ta$

returns all receipts from the large class of

customers to which I have referred. The uestion

of interference with 7overnment, I repeat, is one of

reasona'leness and degree and it seems to me

that the interference in this case is too remote.

4ut time was not long in coming to confirm the soundness

of @olmes0 position. 5oon it 'ecame o'vious that to test the

constitutionalit% of a statute '% determining the part% onwhich the legal incidence of the ta$ fell was an

unsatisfactor% wa% of doing things. The fall of the 'astion

was signalled '% Chief Gustice @ughes0 statement in?ames

v2 #ravo -onstructing -o.!that =These cases Breferring to

Panhandle and Indian Motorc%cle Co. v. >nited 5tates, !&

>.5. *) 1"9&"2 have 'een distinguished and must 'e

deemed to 'e limited to their particular facts.=

In "9#",Alabama v2 6ing @ .oo%er9held that the

constitutional immunit% of the >nited 5tates from state

ta$ation was not infringed '% the imposition of a state sales

ta$ with which the seller was chargea'le 'ut which he was

reuired to collect from the 'u%er, in respect of materialspurchased '% a contractor with the >nited 5tates on a cost-

plus 'asis for use in carr%ing out its contract, despite the

fact that the economic 'urden of the ta$ was 'orne '% the

>nited 5tates.

The asserted right of the one to 'e free of

ta$ation '% the other does not spell immunit% from

pa%ing the added costs, attri'uta'le to the ta$ation

of those who furnish supplies to the 7overnment

and who have 'een granted no ta$ immunit%. 5o

far as a different view has prevailed, see

Panhandle Ail Co. v. Mississippi and 7raves v.

Te$as Co., supra, we thin it no longer tena'le.

Further inroads into the doctrine of Panhandle were made

in "9#& when the >.5. 5upreme Court held that immunit%

from state regulation in the performance of governmental

functions '% Federal officers and agencies did not e$tend to

those who merel% contracted to furnish supplies or render

services to the government even though as a result of an

increase in the price of such supplies or services

attri'uta'le to the state regulation, its ultimate effect ma% 'e

to impose an additional economic 'urden on the

7overnment."

22


23/49

4ut if a complete turna'out from the rule announced

in Panhandle was %et to 'e made, it was so made in "9*

in$sso ,tandard ;il v2 $vans"" which held that a

contractor is not e$empt from the pa%ment of a state

privilege ta$ on the 'usiness of storing gasoline simpl%

'ecause the Federal 7overnment with which it has a

contract for the storage of gasoline is immune from state

ta$ation.

This ta$ was imposed 'ecause sso

stored gasoline. It is not . . . 'ased on the worth ofthe government propert%. Instead, the amount

collected is graduated in accordance with the

e$ercise of sso0s privilege to engage in such

operations; so it is not =on= the federal propert%. . . .

Federal ownership of the fuel will not immuniHe

such a private contractor from the ta$ on storage. It

ma% generall%, as it did here, 'urden the >nited

5tates financiall%. 4ut since Games vs. 6ravo

Contracting Co., & >.5. ", "*", ! 8. ed. "**,

"(), *! 5. Ct. !, ""# /8? &"!, this has 'een no

fatal flaw. . . . "

nited 5tates, '%

showing the drift of the decisions following announcement

of the original rule, to point up the that fact that even in

those cases where e$emption from ta$ was sought on the

ground of state immunit%, the attempt has not met with

success.

/s Thomas ?eed Powell noted in "9#* in reviewing the

development of the doctrine+

5ince the #ravo case settled that it does

not matter that the economic 'urden of the gross

receipts ta$ ma% 'e shifted to the 7overnment, it

could hardl% matter that the shift comes a'out '%e$plicit agreement covering ta$es rather than '%

'eing a'sor'ed in a higher contract price '%

'idders for a contract. The situation differed from

that in the Panhandle and similar cases in that the%

involved 'ut two parties whereas here the

transaction was tripartite. These cases are

condemned in so far as the% rested on the

economic ground of the ultimate incidence of the

'urden 'eing on the 7overnment, 'ut this

condemnation still leaves open the uestion

whether either the state or the >nited 5tates when

acting in governmental matters ma% 'e made

legall% lia'le to the other for a ta$ imposed on it as

vendee.

The carefull% chosen language of the

Chief Gustice eeps these cases from foreclosing

the issue. . . . Eet at the time it would have 'een a

rash man who would find in this a dictum that a

sales ta$ clearl% on the 7overnment as purchaser

is invalid or a dictum that Congress ma% immuniHe

its contractors."&

If a claim of e$emption from sales ta$ 'ased on state

immunit% cannot command assent, much less can a claim

resting on statutor% grant.

It ma% indeed 'e that the economic 'urden of the ta$ finall%

falls on the purchaser; when it does the ta$ 'ecomes a part

of the price which the purchaser must pa%. It does not

matter that an additional amount is 'illed as ta$ to the

purchaser. The method of listing the price and the ta$

separatel% and defining ta$a'le gross receipts as the

amount received less the amount of the ta$ added, merel%avoids pa%ment '% the seller of a ta$ on the amount of the

ta$. The effect is still the same, namel%, that the purchaser

does not pa% the ta$. @e pa%s or ma% pa% the seller more

for the goods 'ecause of the seller0s o'ligation, 'ut that is

all and the amount added 'ecause of the ta$ is paid to get

the goods and for nothing else."#

4ut the ta$ 'urden ma% not even 'e shifted to the

purchaser at all. / decision to a'sor' the 'urden of the ta$

is largel% a matter of economics."*Then it can no longer 'e

contended that a sales ta$ is a ta$ on the purchaser.

nited 5tates, 15ee

Commonwealth /ct 3o. )&&2 provided such

purchases are supported '% seriall% num'ered

Certificates of Ta$ $emption issued '% the

vendee-agenc%, as reuired '% 7eneral Circular

3o. -#", dated Acto'er "(, "9#). . . .

The circular referred to reads+

7oods purchased locall% '% >.5. civilian

agencies directl% from manufacturers, producers or

importers shall 'e e$empt from the sales ta$.

It was issued purportedl% to implement the /greement

'etween the ?epu'lic of the Philippines and the >nited

5tates of /merica Concerning Militar% 4ases,"('ut we find

nothing in the language of the /greement to warrant the

general e$emption granted '% that circular.

23


24/49

The pertinent provisions of the /greement read+

/?TIC8 . K $xemption from -ustoms

and ;ther #uties

3o import, e$cise, consumption or other

ta$, dut% or impost shall 'e charged on material,

euipment, supplies or goods, including food

stores and clothing, for e$clusive use in the

construction, maintenance, operation or defense of

the 'ases, consigned to, or destined for, the >nited

5tates authorities and certified '% them to 'e forsuch purposes.

/?TIC8 III.K,ales and ,ervices

&ithin the .ases

". It is mutuall% agreed that the >nited

5tates 5hall have the right to esta'lish on 'ases,

free of all licenses; fees; sales, e$cise or other

ta$es, or imposts; 7overnment agencies, including

concessions, such as sales commissaries and post

e$changes, messes and social clu's, for the

e$clusive use of the >nited 5tates militar% forces

and authoriHed civilian personnel and their families.

The merchandise or services sold or dispensed '%such agencies shall 'e free of all ta$es, duties and

inspection '% the Philippine authorities. . . .

Thus onl% sales made =for e$clusive use in the construction

maintenance, operation or defense of the 'ases,= in a word,

onl% sales to the uartermaster, are e$empt under article

from ta$ation. 5ales of goods to an% other part% even if it 'e

an agenc% of the >nited 5tates, such as the A/, or even

to the uartermaster 'ut for a different purpose, are not free

from the pa%ment of the ta$.

An the other hand, article III e$empts from the pa%ment

of the ta$ sales made within the 'ase by 1not sales to2

commissaries and the lie in recognition of the principle thaa sales ta$ is a ta$ on the seller and not on the purchaser.

It is a familiar learning in the /merican law of ta$ation that

ta$ e$emption must 'e strictl% construed and that the

e$emption will not 'e held to 'e conferred unless the terms

under which it is granted clearl% and distinctl% show that

such was the intention of the parties.")@ence, in so far as

the circular of the 4ureau of Internal ?evenue would give

the ta$ e$emptions in the /greement an e$pansive

construction it is void.


25/49

undertae the development of h%dro electric generation of

power and the production of electricit% from nuclear,

geothermal and other sources, as well as the transmission

of electric power on a nationwide 'asis. 4eing a non-profit

corporation, 5ection "& of the law provided in detail the

e$emption of the 3PC from all ta$es, duties, fees, imposts

and other charges '% the government and its

instrumentalities.

An Ganuar% , "9)#, Presidential 6ecree 3o. &!

amended section "&, paragraphs 1a2 and 1d2 of ?epu'lic/ct 3o. (&9* '% specif%ing, among others, the e$emption of

3PC from such ta$es, duties, fees, imposts and other

charges imposed =directl% or indirectl%,= on all petroleum

products used '% 3PC in its operation. Presidential 6ecree

3o. 9&! dated Ma% ), "9)( further amended the aforesaid

provision '% integrating the ta$ e$emption in general terms

under one paragraph.

An Gune "", "9!#, Presidential 6ecree 3o. "9&" withdrew

all ta$ e$emption privileges granted in favor of government-

owned or controlled corporations including their

su'sidiaries. 4@owever, said law empowered the President

andLor the then Minister of Finance, upon recommendationof the FI?4 to restore, partiall% or totall%, the e$emption

withdrawn, or otherwise revise the scope and coverage of

an% applica'le ta$ and dut%.

Pursuant to said law, on Fe'ruar% ), "9!*, the FI?4 issued

?esolution 3o. "-!* restoring the ta$ and dut% e$emption

privileges of 3PC from Gune "", "9!# to Gune &, "9!*. An

Ganuar% ), "9!(, the FI?4 issued resolution 3o. "-!(

indefinitel% restoring the 3PC ta$ and dut% e$emption

privileges effective Gul% ", "9!*.

@owever, effective March ", "9!), $ecutive Arder 3o. 9&

once again withdrew all ta$ and dut% incentives granted to

government and private entities which had 'een restoredunder Presidential 6ecree 3os. "9&" and "9** 'ut it gave

the authorit% to FI?4 to restore, revise the scope and

prescri'e the date of effectivit% of such ta$ andLor dut%

e$emptions.

An Gune #, "9!) the FI?4 issued ?esolution 3o. ")-!)

restoring 3PC0s ta$ and dut% e$emption privileges effective

March ", "9!). An Acto'er *, "9!), the President,

through respondent $ecutive 5ecretar% Macaraig, Gr.,

confirmed and approved FI?4 ?esolution 3o. ")-!).

/s alleged in the petition, the following are the 'acground

facts+

The following are the facts relevant to

3PC0s uestioned claim for refunds of ta$es and

duties originall% paid '% respondents Calte$,

Petrophil and 5hell for specific and ad

valoremta$es to the 4I?; and for Customs duties

and ad valorem ta$es paid '% P3AC, 5hell and

Calte$ to the 4ureau of Customs on its crude oil

importation.

Man% of the factual statements are

reproduced from the 5enate Committee on

/ccounta'ilit% of Pu'lic Afficers and Investigations

14lue ?i''on2 ?eport 3o. #)# dated Ganuar% ",

"9!9 and approved '% the 5enate on /pril ",

"9!9 1cop% attached hereto as /nne$ =/=2 and are

identified in uotation mars+

". 5ince Ma% ), "9)( when P.6. 3o. 9&!

was issued until Gune "", "9!# when P.6. 3o.

"9&" was promulgated a'olishing the ta$

e$emptions of all government-owned or-controlled

corporations, the oil firms neverpaid e$cise or

specific and ad valorem ta$es for petroleum

products sold and delivered to the 3PC. This non-pa%ment of ta$es therefore spanned a period of

eight 1!2 %ears. 1par. &, p. ), /nne$ =/=2

6uring this period, the 4ureau of Internal

?evenue was not collecting specific ta$es on the

purchases of 3PC of petroleum products from the

oil companies on the erroneous 'elief that the

3ational Power Corporation 13PC2 was e$empt

from indirect ta$es as reflected in the letter of

6eput% Commissioner of Internal ?evenue 16CI?2

?omulo illa to the 3PC dated Acto'er 9, "9!

granting 'lanet authorit% to the 3PC to purchase

petroleum products from the oil companies withoutpa%ment of specific ta$ 1cop% of this letter is

attached hereto as petitioner0s /nne$ =4=2.

. The oil companies started to pa%

specific and ad valoremta$es on their sales of oil

products to 3PC onl% after the promulgation of

P.6. 3o. "9&" on Gune "", "9!#, withdrawing all

e$emptions granted in favor of government-owned

or-controlled corporations and empowering the

FI?4 to recommend to the President or to the

Minister of Finance the restoration of the

e$emptions which were withdrawn. =5pecificall%,

Calte$ paid the total amount of P*!,,"".)9 inspecific and ad valoremta$es for deliveries of

petroleum products to 3PC covering the period

from Acto'er &", "9!# to /pril ), "9!*.= 1par. &,

p. ), /nne$ =/=2

&. Calte$ 'illings to 3PC until Gune ",

"9!# alwa%s included customs dut% without the ta$

portion. 4eginning Gune "", "9!#, when P.6. "9&"

was promulgated a'olishing 3PC0s ta$

e$emptions, Calte$0s 'illings to 3PC alwa%s

included 'oth duties and ta$es. 1Caturla, tsn, Act.

", "9!!, pp. "-*2 1par. #, p, ), /nne$ =/=2

#. For the sales of petroleum products

delivered to 3PC during the period from Acto'er,

"9!# to /pril, "9!*, 3PC was 'illed a total of

P*,"(,)). 1sic2 including 'oth duties and

ta$es, the specific ta$ component 'eing valued at

P*!,,"".)9. 1par. *, p. !, /nne$ =/=2.

*. Fiscal Incentives ?eview 4oard 1FI?42

?esolution "-!*, dated Fe'ruar% ), "9!*, certified

true cop% of which is hereto attached as /nne$ =C=

restored the ta$ e$emption privileges of 3PC

effective retroactivel% to Gune "", "9!# up to Gune

25


26/49

&, "9!*. The first paragraph of said resolution

reads as follows+

". ffective Gune "", "9!#, the ta$ and

dut% e$emption privileges en:o%ed '% the 3ational

Power Corporation under C./. 3o. ", as

amended, are restored up to Gune &, "9!*.

4ecause of this restoration 1/nne$ =7=2

the 3PC applied on 5eptem'er "", "9!* with the

4I? for a =refund of 5pecific Ta$es paid on

petroleum products . . . in the total amount ofP*!,,"".)9. 1par. (, pp. !-9, /nne$ =/=2

(. In a letter to the president of the 3PC

dated Ma% !, "9!* 1cop% attached as petitioner0s

/nne$ =6=2, /cting 4I? Commissioner ?u'en

/ncheta declared+

FI?4 ?esolution 3o. "-!* serves as

sufficient 'asis to allow 3PC to purchase

petroleum products from the oil companies free of

specific and ad valoremta$es, during the period in

uestion.

The =period in uestion= is Gune " ", " 9!#

to Gune &, " 9!*.). An Gune (, "9!*KThe president of the

3PC, Mr. 7a'riel Itchon, wrote Mr. Cesar irata,

Chairman of the FI?4 1/nne$ ==2, reuesting =the

FI?4 to resolve conflicting rulings on the ta$

e$emption privileges of the 3ational Power

Corporation 13PC2.= These rulings involve FI?4

?esolutions 3o. "-!# and "-!*. 1par. #, p. ",

/nne$ =/=2

!. In a letter to the President of 3PC

1/nne$ =F=2, dated Gune (, "9!*, Minister Cesar

irata confirmed the ruling of Ma% !, "9!* of

/cting 4I? Commissioner ?u'en /ncheta, 1par.#", p. ", /nne$ =/=2

9. An Acto'er , "9!*, however, under

4I? ?uling 3o. "!(-!*, addressed to @anil

6evelopment Co., 8td., a Norean contractor of

3PC for its infrastructure pro:ects, certified true

cop% of which is attached hereto as petitioner0s

/nne$ ==, 4I? /cting Commissioner ?u'en

/ncheta ruled+

In ?epl% please 'e informed that after a

re-stud% of 5ection "&, ?./. (&9*, as amended '%

P.6. 9&!, this Affice is of the opinion, and so holds,

that the scope of the tax exemption privilege

en+oyed by P- under said section covers only

taxes for which it is directly liable and not on taxes

which are only shifted to it. 1Phil. /cet%lene vs.

C.I.?. et al., 7.?. 8-"9)), /ug. "), "9()2 5ince

contractor0s ta$ is directl% pa%a'le '% the

contractor, not '% 3PC, %our reuest for

e$emption, 'ased on the stipulation in the

aforesaid contract that 3PC shall assume pa%ment

of %our contractor0s ta$ lia'ilit%, cannot 'e granted

for lac of legal 'asis.= 1/nne$ =@=2 1emphasis

added2

5aid 4I? ruling clearl% states that 3PC0s

e$emption privileges covers 1sic2 onl% ta$es for

which it is directl% lia'le and does not cover ta$es

which are onl% shifted to it or for indirect ta$es. The

4I?, through /ncheta, reversed its previous

position of Ma% !, "9!* adopted '% /ncheta

himself favoring 3PC0s indirect ta$ e$emption

privilege.

". Furthermore, =in a 4I? ?uling,

unnum'ered, =dated Gune &, "9!(, =addressed toCalte$ 1/nne$ =F=2, the 4I? Commissioner

declared that P/80s ta$ e$emption is limited to

ta$es for which P/8 is directl% lia'le, and that the

pa%ment of specific and ad valoremta$es on

petroleum products is a direct lia'ilit% of the

manufacturer or producer thereof=. 1par. *", p. "*,

/nne$ =/=2

"". An Ganuar% ), "9!(, FI?4 ?esolution

3o. "-!( was issued restoring 3PC0s ta$

e$emptions retroactivel% from Gul% ", "9!* to a

indefinite period, certified true cop% of which is

hereto attached as petitioner0s /nne$ =@=.". 3PC0s total refund claim was P#(!.*!

million 'ut onl% a portion thereof i.e. the

P*!,,"".)9 1corresponding to Calte$2 was

approved and released '% wa% of a Ta$ Credit

Memo 1/nne$ =O=2 dated Gul% ), "9!(, certified

true cop% of which Bis2 attached hereto as

petitioner0s /nne$ =F,= which was assigned '% 3PC

to Calte$. 4I? Commissioner Tan approved the

6eed of /ssignment on Gul% &, "9!), certified true

cop% of which is hereto attached as petitioner0s

/nne$ =7=2. 1pars. (, *, *&, pp. 9 and "*, /nne$

=/=2The 6eed of /ssignment stipulated among

others that 3PC is assigning the ta$ credit to

Calte$ in partial settlement of its outstanding

o'ligations to the latter while Calte$, in turn, would

appl% the assigned ta$ credit against its specific ta$

pa%ments for two 12 months. 1per memorandum

tax 1 cases - exemption from taxation

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