TAX REVIEW CASES

General Principles of Taxation

1)Manila Memorial Park vs Secretary of DSWD

2)Gomez vs Palomar
GOMEZ V. PALOMAR
Doctrine: Taxation must be for public purpose.
FACTS:
Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando, Pampanga. It
did not bear the special anti-TB stamp required by the RA 1635. It was returned to the petitioner.
Petitioner questions the constitutionality of the statute, claiming that R.A. No. 1635, otherwise
known as the Anti-TB Stamp Law, is violative of the equal protection clause of the Constitution
because it constitutes mail users into a class for the purpose of the tax while leaving untaxed the
rest of the population and that even among postal patrons the statute discriminatorily grants
exemptions.
First Class mail
Second class mail
Third class mail
Metered mail
Business reply cards and envelopes
Mail entitled to franking privilege

HELD:
1. It is settled that the legislature has the inherent power to select the subject of taxation and
to grant exemptions. The classification of mail users is based on the ability to pay, the
enjoyment of a privilege and on administrative convenience. Tax exemptions have never
been thought of as raising issues under the equal protection clause.
2. WON it is levied for public purpose.
a. Yes, it is passed for public purpose. The eradication of a dreaded disease is a
public purpose, but if by public purpose the petitioner means benefit to a taxpayer
as a return for what he pays, then it is sufficient answer to say that the only benefit
to which the taxpayer is constitutionally entitled is that derived from his enjoyment
of the privileges of living in an organized society, established and safeguarded by the
devotion of taxes to public purposes. Any other view would preclude the levying of
taxes except as they are used to compensate for the burden on those who pay them
and would involve the abandonment of the most fundamental principle of
government that it exists primarily to provide for the common good.
b.
3. WON the imposition of flat rate violate the rule of uniformity and equality of taxation.

a. The imposition of flat rate rather than a graduated tax does not infringed the rule of
uniformity and equality of taxation. A tax need not be measured by the weight of the
mail or the extent of the service rendered. We have said that considerations of
administrative convenience and cost afford an adequate ground for classification.
The same considerations may induce the legislature to impose a flat tax which in
 effect is a charge for the transaction, operating equally on all persons within the
class regardless of the amount involved.
4. The Society is not really the beneficiary but only the agency through which the State acts in
carrying out what is essentially a public function. The money is treated as a special fund and
as such need not be appropriated by law.
5. The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails.

3)Pascual vs Secretary of Public Works

PASCUAL V. SEC. OF PUBLIC WORKS
Principle: A law appropriating the public revenue is invalid if the public advantage or benefit, derived
from such expenditure, is merely incidental in the promotion of a particular enterprise.

FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with
injunction, upon the ground that RA No. 920, which appropriates funds for public works
particularly for the construction and improvement of Pasig feeder road terminals. Some of the
feeder roads, however, as alleged and as contained in the tracings attached to the petition, were
nothing but projected and planned subdivision roads, not yet constructed within the Antonio
Subdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal; and which projected
feeder roads do not connect any government property or any important premises to the main
highway. The respondents' contention is that there is public purpose because people living in
the subdivision will directly be benefitted from the construction of the roads, and the
government also gains from the donation of the land supposed to be occupied by the streets, made
by its owner to the government.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of
justifying an expenditure of the government?

HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interest to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the
public or to the state, which results from the promotion of private interest and the prosperity of
private enterprises or business, does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interest, as opposed to the furtherance of the advantage of
individuals, although each advantage to individuals might incidentally serve the public.

4)Planters Products vs Fertiphil Corpo

Planters Products Inc vs Fertiphil Corp G.R. No. 166006 March 14, 2008
FACTS: Petitioner PPI and respondent Fertiphil are private corporations incorporated under Philippine
laws, both engaged in the importation and distribution of fertilizers, pesticides and agricultural
chemicals.
Marcos issued Letter of Instruction (LOI) 1465, imposing a capital recovery component of Php10.00 per
bag of fertilizer. The levy was to continue until adequate capital was raised to make PPI financially
viable.

Fertiphil remitted to the Fertilizer and Pesticide Authority (FPA), which was then remitted the
depository bank of PPI. Fertiphil paid P6,689,144 to FPA from 1985 to 1986.After the 1986 Edsa
Revolution, FPA voluntarily stopped the imposition of the P10 levy.

Fertiphil demanded from PPI a refund of the amount it remitted, however PPI refused.

Fertiphil filed a complaint for collection and damages, questioning the constitutionality of LOI 1465,
claiming that it was unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted
to a denial of due process. PPI argues that Fertiphil has no locus standi to question the constitutionality
of LOI No. 1465 because it does not have a "personal and substantial interest in the case or will sustain
direct injury as a result of its enforcement." It asserts that Fertiphil did not suffer any damage from the
imposition because "incidence of the levy fell on the ultimate consumer or the farmers themselves, not
on the seller fertilizer company.

ISSUE: Whether or not Fertiphil has locus standi to question the constitutionality of LOI No. 1465.
What is the power of taxation?

RULING: Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere
procedural technicality which may be waived. The imposition of the levy was an exercise of the
taxation power of the state. While it is true that the power to tax can be used as an implement of
police power, the primary purpose of the levy was revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly
called a tax.

Police power and the power of taxation are inherent powers of the State. These powers are distinct and
have different tests for validity. Police power is the power of the State to enact legislation that may
interfere with personal liberty or property in order to promote the general welfare, while the power of
taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is
the regulation of a behavior or conduct, while taxation is revenue generation. The "lawful subjects" and
"lawful means" tests are used to determine the validity of a law enacted under the police power. The
power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations.

5)Abakada Guro Party vs Ermita

Topic: Constitutional Limitations: Equal Protection Clause
ABAKADA Guro Party List vs. Ermita G.R. No. 168056 September 1, 2005
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a
petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4,
5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the
National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods
and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6
imposes a 10% VAT on sale of services and use or lease of properties. These questioned
provisions contain a uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after specified conditions have been satisfied.
Petitioners argue that the law is unconstitutional.

ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article

VI Sec 28(2) of the Constitution.

3. Whether or not there is a violation of the due process and equal protection
under Article III Sec. 1 of the Constitution.

HELD:
1. Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise and franchise taxes.
2. There is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the scope
of his authority; in our complex economy that is frequently the only way in which the legislative
process can go forward

3. The power of the State to make reasonable and natural classifications for the purposes of
taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation
and collection, the States power is entitled to presumption of validity. As a rule, the judiciary will
not interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.

6)Mactan Cebu Intt Airport Authority vs City of Lapu-Lapu

7)Tolentino vs Sec. of Finance , 1994

Topic: Freedom of Religion: Free Exercise Clause
TOLENTINO vs. THE SECRETARY OF FINANCE
G.R. No. 115455 August 25, 1994
FACTS:
The valued-added tax is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of the
gross selling price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of services. Republic Act
No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code.

ISSUES:
a. Whether or not the law violates the provision of the constitution regarding the
freedom of religion and its exercise thereof?
b. Whether or not the law violates the provisions of the constitution regarding the
Uniformity, Equitability and Progressivity of Taxation?

RULING:
a. Claims of Freedom of Thought and Religious Freedom

The case of American Bible Society v. City of Manila is cited by both the PBS and the PPI in
support of their contention that the law imposes censorship. There, this Court held that an
ordinance of the City of Manila, which imposed a license fee on those engaged in the
business of general merchandise, could not be applied to the appellant's sale of bibles and
other religious literature. This Court relied on Murdock v. Pennsylvania in which it was held
that, as a license fee is fixed in amount and unrelated to the receipts of the taxpayer, the
license fee, when applied to a religious sect, was actually being imposed as a condition for
the exercise of the sect's right under the Constitution. For that reason, it was held, the
license fee "restrains in advance those constitutional liberties of press and religion and
inevitably tends to suppress their exercise."
But, in this case, the fee in although a fixed amount (P1,000), is not imposed for the exercise of a
privilege but only for the purpose of defraying part of the cost of registration. The registration
requirement is a central feature of the VAT system. It is designed to provide a record of tax credits
because any person who is subject to the payment of the VAT pays an input tax, even as he collects
an output tax on sales made or services rendered. The registration fee is thus a mere administrative
fee, one not imposed on the exercise of a privilege, much less a constitutional right.

For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground that
it offends the free speech, press and freedom of religion guarantees of the Constitution to
be without merit. For the same reasons, we find the claim of the Philippine Educational
Publishers Association (PEPA) in G.R. No. 115931 that the increase in the price of books
and other educational materials as a result of the VAT would violate the constitutional
mandate to the government to give priority to education, science and technology (Art. II,
sec. 17) to be untenable.
b. Claims of Progressivity, Denial of Due Process, Equal Protection, and Impairment of Contracts

There is basis for passing upon claims that on its face the statute violates the guarantees of
freedom of speech, press and religion. The possible "chilling effect" which it may have on
the essential freedom of the mind and conscience and the need to assure that the channels
of communication are open and operating importunately demand the exercise of this
Court's power of review.
There is, however, no justification for passing upon the claims that the law also violates the
rule that taxation must be progressive and that it denies petitioners' right to due process
and the equal protection of the laws. The reason for this different treatment has been
cogently stated by an eminent authority on constitutional law thus: "When freedom of the
mind is imperiled by law, it is freedom that commands a moments of respect; when
property is imperiled it is the lawmakers' judgment that commands respect. This dual
standard may not precisely reverse the presumption of constitutionality in civil liberties
cases, but obviously it does set up a hierarchy of values within the due process clause."
What Congress is required by the Constitution to do is to "evolve a progressive system of
taxation." This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of social,
economic and political inequalities or for the promotion of the right to "quality education".
These provisions are put in the Constitution as moral incentives to legislation, not as
judicially enforceable rights.
To sum it all up, we hold that the procedural requirements of the Constitution have been complied
with by Congress in the enactment of the statute; that judicial inquiry whether the formal
requirements for the enactment of statutes - beyond those prescribed by the Constitution - have
been observed is precluded by the principle of separation of powers; that the law does not abridge
freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor
deny to any of the parties the right to an education; and that, in view of the absence of a factual
foundation of record, claims that the law is regressive, oppressive and confiscatory and that it
violates vested rights protected under the Contract Clause are prematurely raised and do not justify
the grant of prospective relief by writ of prohibition.

8)Tolentino vs Sec. of Finance , 1995

9)British American Tobacco vs Camacho , 2008

10)British American Tobacco vs Camacho, 2009

11)Sison vs Ancheta
Topic: Power to destroy vis--vis Power to Build / Due Process Clause
SISON vs. ANCHETA
G.R. No. L-59431 July 25, 1984
FACTS:
The challenged posed is a suit for declaratory relief or prohibition on the validity of Section
1 of Batas Pambansa Blg. 135. The assailed provision further amends Sec. 21 of the NIRC
of 1977, which provides for the rate tax on residents or citizens on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d)
interests from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share from
individual partner in the net profits of taxable partnership, (f) adjusted gross income.
Sison, as taxpayer, alleged that its provision (Section 1) unduly discriminated against him
by the imposition of higher rates upon his income as a professional, that it amounts to class
legislation, and that it transgresses against the equal protection and due process clauses of
the Constitution as well as the rule requiring uniformity in taxation.
ISSUE:
Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation?
RULING:
There is a need for proof of such persuasive character as would lead to a conclusion that there was
a violation of the due process and equal protection clauses. Absent such showing, the presumption
of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation. Where the differentiation
conforms to the practical dictates of justice and equity, similar to the standards of equal protection,
it is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be
classified into different categories, such as recipients of compensation income as against
professionals. Recipients of compensation income are not entitled to make deductions for income
tax purposes as there is no practically no overhead expense, while professionals and businessmen
have no uniform costs or expenses necessary to produce their income. There is ample justification
to adopt the gross system of income taxation to compensation income, while continuing the system
of net income taxation as regards professional and business income.

12)Lung Center of the Phils vs Quezon City

Topic: Constitutional Limitations: Tax Exemption of traditional Exemptees
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY G.R. No. 144104 June 29,
2004
FACTS:
The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land
where erected in the middle of the aforesaid lot is a hospital known as the Lung Center of
the Philippines. A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional practitioners who use the
same as their private clinics for their patients whom they charge for their professional
services. Almost one-half of the entire area on the left side of the building along Quezon
Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for
real property taxes in the amount of P4, 554,860 by the City Assessor of Quezon City but
the former filed a Claim for Exemption from real property taxes with the City Assessor,
predicated on its claim that it is a charitable institution.
ISSUE:
Whether or not the petitioners real properties are exempted from realty tax exemptions.
HELD:
Even if the petitioner is a charitable institution, those portions of its real property that are
leased to private entities are not exempt from real property taxes as these are not actually,
directly and exclusively used for charitable purposes. What is meant by actual, direct and
exclusive use of the property for charitable purposes is the direct and immediate and actual
application of the property itself to the purposes for which the charitable institution is
organized.
Hence, a claim for exemption from tax payments must be clearly shown and based on language in
the law too plain to be mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner
does not enjoy any property tax exemption privileges for its real properties as well as the building
constructed thereon. If the intentions were otherwise, the same should have been among the
enumeration of tax exempt privileges under Section 2. Accordingly, the portions occupied by the
hospital used for its patients are exempt from real property taxes while those leased to private
entities are not exempt from such taxes.

13)CIR vs SC Johnson and Sons Inc.

Topic: Sources of Tax Laws: Tax Treaties
COMMISSIONER OF IINTERNAL REVENUE vs. SC JOHNSON & SON INC.
G.R. No. 147188 June 25, 1999
FACTS:
Respondent is a domestic corporation organized and operating under the Philippine Laws,
entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident
foreign corporation based in the USA pursuant to which the respondent was granted the
right to use the trademark, patents and technology owned by the later including the right
to manufacture, package and distribute the products covered by the Agreement and secure
assistance in management, marketing and production from SC Johnson and Son USA. For
the use of trademark or technology, respondent was obliged to pay SC Johnson and Son,
USA royalties based on a percentage of net sales and subjected the same to 25%
withholding tax on royalty payments which respondent paid for the period covering July
1992 to May 1993 in the total amount of P1,603,443.00. On October 29, 1993, respondent
filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of
overpaid withholding tax on royalties arguing that, the antecedent facts attending
respondents case fall squarely within the same circumstances under which said MacGeorge
and Gillette rulings were issued. Since the agreement was approved by the Technology
Transfer Board, the preferential tax rate of 10% should apply to the respondent. So,
royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10%
withholding tax.
The Commissioner did not act on said claim for refund. Private respondent SC Johnson &
Son, Inc. then filed a petition for review before the CTA, to claim a refund of the overpaid
withholding tax on royalty payments from July 1992 to May 1993.
On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR
to issue a tax credit certificate in the amount of P163,266.00 representing overpaid
withholding tax on royalty payments beginning July 1992 to May 1993.
The CIR thus filed a petition for review with the CA which rendered the decision subject of
this appeal on November 7, 1996 finding no merit in the petition and affirming in toto the
CTA ruling.
ISSUE:
Whether or not tax refunds are considered as tax exemptions?

RULING:
It bears stress that tax refunds are in the nature of tax exemptions. As such they are registered as in
derogation of sovereign authority and to be construed strictissimijuris against the person or entity
claiming the exemption. The burden of proof is upon him who claims the exemption in his favor and
he must be able to justify his claim by the clearest grant of organic or statute law. Private
respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there is
nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under
similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.

14)Deutsche Bank of AG Manila Branch vs CIR

15)Nursery Care Corporation vs Anthony Acevedo

16)City of Manila vs Coca-Cola Bottlers

17)CIR vs Estate of Benigno Toda

Topic: Forms of Escape from Taxation
COMMISSIONER OF INTERNAL REVENUE vs. THE ESTATE OF BENIGNO P. TODA,
JR
G.R. No. 147188 September 14, 2004
FACTS:
CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and
outstanding capital stock, to sell the Cibeles Building and the two parcels of land on
which the building stands for an amount of not less than P90 million and subsequently
sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the
same property on the same day to Royal Match Inc. (RMI) for P200 million.

The BIR sent an assessment notice and demand letter to the CIC for deficiency
income tax for the year 1989 in the amount of P79,099,999.22.

The new CIC asked for a reconsideration, asserting that the assessment should
be directed against the old CIC, and not against the new CIC, which is owned by an
entirely different set of stockholders; moreover, Toda had undertaken to hold the
buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal
years 1987-1989.

The CTA held that the Commissioner failed to prove that CIC committed fraud to
deprive the government of the taxes due it. The Court of Appeals affirmed the
decision of the CTA, reasoning that the CTA, being more advantageously situated and
having the necessary expertise in matters of taxation, is "better situated to determine the
correctness, propriety, and legality of the income tax assessments assailed by the Toda
Estate."

ISSUE:
Whether or not respondent committed fraud with intent to evade the tax on the
sale of the properties of Cibeles Insurance Corporation.
HELD:
YES.
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the
payment of less than that known by the taxpayer to be legally due, or the non-payment
of tax when it is shown that a tax is due; (2) an accompanying state of mind which is
described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and
(3) a course of action or failure of action which is unlawful. All these factors are present in
the instant case. Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI would then
subject the income to only 5% individual capital gains tax, and not the 35% corporate
income tax. Altonagas sole purpose of acquiring and transferring title of the subject
properties on the same day was to create a tax shelter. Altonaga never controlled the
property and did not enjoy the normal benefits and burdens of ownership. The sale to him
was merely a tax ploy, a sham, and without business purpose and economic substance.
Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in
view of reducing the consequent income tax liability.
CIC is therefore liable to pay a 35% corporate tax for its taxable net income in 1989. The 5%
individual capital gains tax provided for in Section 34 (h) of the NIRC of 198635 (now 6% under
Section 24 (D) (1) of the Tax Reform Act of 1997) is inapplicable. Hence, the assessment for the
deficiency income tax issued by the BIR must be upheld.

18)Francia vs Intermediate Appellate Court

19)Diaz vs Secretary of Finance

20)Abaya vs Ebdane

21)Gonzales vs Marcos