Cases for Class

8/13/2019 Cases for Class

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Republic of the Philippines

SUPREME COURTManila

FIRST DIVISION

G.R. No. L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.

ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ,J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance On the other

hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for

government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and

the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00

deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. The

corollary issue is whether or not the appeal of the private respondent from the decision of the Collector of Internal

Revenue was made on time and in accordance with law.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in

engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total

amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959.1

On January 18, 1965, Algue flied

a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of

the petitioner.2

On March 12, 1965, a warrant of distraint and levy was presented to the private respondent,through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest.

3A

search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a

photostat to BIR agent Ramon Reyes, who deferred service of the warrant.4On April 7, 1965, Atty. Guevara was

finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the

warrant of distraint and levy earlier sought to be served.5

Sixteen days later, on April 23, 1965, Algue filed apetition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax Appeals.

6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal

may be made within thirty days after receipt of the decision or ruling challenged.7

It is true that as a rule the

warrant of distraint and levy is "proof of the finality of the assessment"8and renders hopeless a request for

reconsideration,"9being "tantamount to an outright denial thereof and makes the said request deemed

rejected."

10

But there is a special circumstance in the case at bar that prevents application of this accepteddoctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it

filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was

issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara

gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening

period, the warrant was premature and could therefore not be served.


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As the Court of Tax Appeals correctly noted,"11

the protest filed by private respondent was notpro formaand was

based on strong legal considerations. It thus had the effect of suspending on January 18, 1965, when it was filed,

the reglementary period which started on the date the assessment was received, viz., January 14, 1965. The period

started running again only on April 7, 1965, when the private respondent was definitely informed of the implied

rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23,

1965, only 20 days of the reglementary period had been consumed.

Now for the substantive question.

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an

ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with

Algue, it held that the said amount had been legitimately paid by the private respondent for actual services

rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in

the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the

properties of the Philippine Sugar Estate Development Company.

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees to be

personal holding company income12

but later conformed to the decision of the respondent court rejecting this

assertion.

13

In fact, as the said court found, the amount was earned through the joint efforts of the persons amongwhom it was distributed It has been established that the Philippine Sugar Estate Development Company had

earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant

to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,

worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in

it.14

Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation

purchased the PSEDC properties.15

For this sale, Algue received as agent a commission of P126,000.00, and it was

from this commission that the P75,000.00 promotional fees were paid to the aforenamed individuals.16

There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns

and paid the corresponding taxes thereon.17

The Court of Tax Appeals also found, after examining the evidence,that no distribution of dividends was involved.

18

The petitioner claims that these payments are fictitious because most of the payees are members of the same

family in control of Algue. It is argued that no indication was made as to how such payments were made, whether

by check or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a

tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction.

We find that these suspicions were adequately met by the private respondent when its President, Alberto

Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but

periodically and in different amounts as each payee's need arose.19

It should be remembered that this was a

family corporation where strict business procedures were not applied and immediate issuance of receipts was not

required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all

of the fees received by him or her, to make up the total of P75,000.00.20

Admittedly, everything seemed to be

informal. This arrangement was understandable, however, in view of the close relationship among the persons in

the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The total

commission paid by the Philippine Sugar Estate Development Co. to the private respondent was

P125,000.00.21

After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the

transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion,

considering that it was the payees who did practically everything, from the formation of the Vegetable Oil

Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent

court is in accord with the following provision of the Tax Code:


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SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as

deductions

(a) Expenses:

(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business, including a reasonable allowance for salaries or othercompensation for personal services actually rendered; ...

22

and Revenue Regulations No. 2, Section 70 (1), reading as follows:

SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid

or incurred in carrying on any trade or business may be included a reasonable allowance for

salaries or other compensation for personal services actually rendered. The test of deductibility

in the case of compensation payments is whether they are reasonable and are, in fact, payments

purely for service. This test and deductibility in the case of compensation payments is whether

they are reasonable and are, in fact, payments purely for service. This test and its practical

application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is

not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend

on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all

of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for

similar services, and the excessive payment correspond or bear a close relationship to the

stockholdings of the officers of employees, it would seem likely that the salaries are not paid

wholly for services rendered, but the excessive payments are a distribution of earnings upon the

stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its

controlling stockholders.23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed

deduction. In the present case, however, we find that the onus has been discharged satisfactorily. The private

respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts

exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise

and involve themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it

was, sufficiently recompensed.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for

lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of

one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the

running of the government. The government for its part, is expected to respond in the form of tangible and

intangible benefits intended to improve the lives of the people and enhance their moral and material values. This

symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary

method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic

regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the

taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax

collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not

been observed.


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We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the

respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the

private respondent was permitted under the Internal Revenue Code and should therefore not have been

disallowed by the petitioner.

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMEDin toto,without costs.

SO ORDERED.


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SUPREME COURTManila

EN BANC

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,vs.

OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary of Finance;WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy Affairs; REX V. TANTIONGCO, and theENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,1

prohibitive and coercive remedies provided by Rule 65 of the Rules ofCourt,

2upon the following posited grounds, viz.:

3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now, the Office of

Energy Affairs), created pursuant to 8, paragraph 1, of P.D. No. 1956, as amended, "said creation of a trust fund

being contrary to Section 29 (3), Article VI of the . . Constitution;4

2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order No. 137, for

"being an undue and invalid delegation of legislative power . .to the Energy Regulatory Board;"5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund,6

because itcontravenes 8, paragraph 2 (2) of

P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of the pump prices

and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special

Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to

reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange

rate adjustments and from increases in the world market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,7

and orderedreleased from the National Treasury to the Ministry of Energy. The same Executive Order also authorized the

investment of the fund in government securities, with the earnings from such placements accruing to the fund.


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President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on February 27, 1987,

expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of

the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for

determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund Balance

deficit" of some P12.877 billion;8

that to abate the worsening deficit, "the Energy Regulatory Board . . issued anOrder on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of

recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding,

the respondents Oscar Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary

of Finance; Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco

and the Energy Regulatory Board "are poised to accept, process and pay claims not authorized under P.D.

1956."9

The petition further avers that the creation of the trust fund violates

29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a special fund

and paid out for such purposes only. If the purpose for which a special fund was created hasbeen fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the

Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a

'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose,

the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and

not channeled to another government objective."10

Petitioner further points out that since "a 'special fund'consists of monies collected through the taxing power of a State, such amounts belong to the State , although the

use thereof is limited to the special purpose/objective for which it was created."11

He also contends that the "delegation of legislative authority" to the ERB violates 28 (2). Article VI of the

Constitution, viz.:

(2) The Congress may, by law, authorize the President to fix, within specified limits, and subject

to such limitations and restrictions as it may impose, tariff rates, import and export quotas,

tonnage and wharfage dues, and other duties or imposts within the framework of the national

development program of the Government;

and, inasmuch as the delegation relates to the exercise of the power of taxation, " the limits, limitations

and restrictions must be quantitative, that is, the law must not only specify how to tax, who (shall) be

taxed (and) what the tax is for, but also impose a specific limit on how much to tax."12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected,

which form part of the OPSF, should be maintained in a special account of the general fund for the reason that the

Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes that the

Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes and

the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers

granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. The

Solicitor General observes that the "argument rests on the assumption that the OPSF is a form of revenue measure


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drawing from a special tax to be expended for a special purpose."13

The petitioner's perceptions are, in the Court'sview, not quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its holding

inValmonte v. Energy Regulatory Board, et al.14

The foregoing arguments suggest the presence of misconceptions about the nature andfunctions of the OPSF. The OPSF is a "Trust Account" which was established "for the purpose of

minimizing the frequent price changes brought about by exchange rate adjustment and/or

changes in world market prices of crude oil and imported petroleum products."15

Under P.D. No.1956, as amended by Executive Order No. 137 dated 27 February 1987, this Trust Account may

be funded from any of the following sources:

a)Any increase in the tax collection from ad valorem tax or customs duty

imposed on petroleum productssubject to tax under this Decree arising from

exchange rate adjustment, as may be determined by the Minister of Finance in

consultation with the Board of Energy;

b)Any increase in the tax collection as a result of the lifting of tax exemptions ofgovernment corporations, as may be determined by the Minister of Finance in

consultation with the Board of Energy:

c)Any additional amount to be imposed on petroleum productsto augment the

resources of the Fund through an appropriate Order that may be issued by the

Board of Energy requiring payment of persons or companies engaged in the

business of importing, manufacturing and/or marketing petroleum products;

d)Any resulting peso cost differentialsin case the actual peso costs paid by oil

companies in the importation of crude oil and petroleum products is less than

the peso costs computed using the reference foreign exchange rate as fixed by

the Board of Energy.

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in Rotterdam, vary

from day to day is of judicial notice. Freight rates for hauling crude oil and petroleum products

from sources of supply to the Philippines may also vary from time to time. The exchange rate of

the peso vis-a-visthe U.S. dollar and other convertible foreign currencies also changes from day

to day. These fluctuations in world market prices and in tanker rates and foreign exchange rates

would in a completely free market translate into corresponding adjustments in domestic prices

of oil and petroleum products with sympathetic frequency. But domestic prices which vary from

day to day or even only from week to week would result in a chaotic market with unpredictable

effects upon the country's economy in general. The OPSF was established precisely to protect

local consumers from the adverse consequences that such frequent oil price adjustments may

have upon the economy. Thus, the OPSF serves as a pocket, as it were, into which a portion of the

purchase price of oil and petroleum products paid by consumers as well as some tax revenues are

inputted and from which amounts are drawn from time to time to reimburse oil companies, when

appropriate situations arise, for increases in, as well as underrecovery of, costs of crude

importation. The OPSF is thus a buffer mechanism through which the domestic consumer prices of

oil and petroleum products are stabilized, instead of fluctuating every so often, and oil companies

are allowed to recover those portions of their costs which they would not otherwise recover given


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the level of domestic prices existing at any given time.To the extent that some tax revenues are

also put into it, the OPSF is in effect a device through which the domestic prices of petroleum

products are subsidized in part. It appears to the Court that the establishment and maintenance

of the OPSF is well within that pervasive and non-waivable power and responsibility of the

government to secure the physical and economic survival and well-being of the community, that

comprehensive sovereign authority we designate as the police power of the State. The

stabilization, and subsidy of domestic prices of petroleum products and fuel oil clearly criticalin importance considering, among other things, the continuing high level of dependence of the

country on imported crude oil are appropriately regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is not far

different from the OPSF. In Gaston v. Republic Planters Bank,16

this Court upheld the legality of the sugarstabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of the State

to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . . The tax

collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to

provide a means for the stabilization of the sugar industry. The levy is primarily in the exercise of

the police power of the State (Lutz v. Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters and

producers for a special purpose that of "financing the growth and development of the sugar

industry and all its components, stabilization of the domestic market including the foreign

market." The fact that the State has taken possession of moneys pursuant to law is sufficient to

constitute them state funds, even though they are held for a special purpose (Lawrence v.

American Surety Co. 263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been

levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in

the language of the statute, "administered in trust" for the purpose intended. Once the purpose

has been fulfilled or abandoned, the balance if any, is to be transferred to the general funds of

the Government. That is the essence of the trust intended (SEE 1987 Constitution, Article VI, Sec.

29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).17

The character of the Stabilization Fund as a special kind of fund is emphasized by the fact that the

funds are deposited in the Philippine National Bank and not in the Philippine Treasury, moneys

from which may be paid out only in pursuance of an appropriation made by law (1987)

Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution, Article VI, Sec. 23(1).

(Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of

the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it

by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust

liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court issatisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is

not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the

authority upon the ERB to impose additional amounts on petroleum products provides a sufficient standard by

which the authority must be exercised. In addition to the general policy of the law to protect the local consumer by

stabilizing and subsidizing domestic pump rates, 8(c) of P.D. 195618

expressly authorizes the ERB to impose

additional amounts to augment the resources of the Fund.


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What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific l imit on how much

to tax."19

The Court is cited to this requirement by the petitioner on the premise that what is involved here is thepower of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of

taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be

construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable

the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police

power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price of oil and

petroleum products, and the frequently shifting need to either augment or exhaust the Fund, do not conveniently

permit the setting of fixed or rigid parameters in the law as proposed by the petitioner. To do so would render the

ERB unable to respond effectively so as to mitigate or avoid the undesirable consequences of such fluidity. As such,

the standard as it is expressed, suffices to guide the delegate in the exercise of the delegated power, taking

account of the circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that

is it must set forth the policy to be executed by the delegate and (2) it must fix a standard limits of which

are sufficiently determinate or determinable to which the delegate must conform.20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must be a

standard, which implies at the very least that the legislature itself determines matters of

principle and lays down fundamental policy. Otherwise, the charge of complete abdication may

be hard to repel. A standard thus defines legislative policy, marks its limits, maps out its

boundaries and specifies the public agency to apply it. It indicates the circumstances under which

the legislative command is to be effected. It is the criterion by which the legislative purpose may

be carried out. Thereafter, the executive or administrative office designated may in pursuance of

the above guidelines promulgate supplemental rules and regulations. The standard may either

be express or implied. If the former, the non-delegation objection is easily met. The standard

though does not have to be spelled out specifically. It could be implied from the policy and

purpose of the act considered as a whole.21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon

which to sustain the petition, inasmuch as the challenged law sets forth a determinable standard which guides the

exercise of the power granted to the ERB. By the same token, the proper exercise of the delegated power may be

tested with ease. It seems obvious that what the law intended was to permit the additional imposts for as long as

there exists a need to protect the general public and the petroleum industry from the adverse consequences of

pump rate fluctuations. "Where the standards set up for the guidance of an administrative officer and the action

taken are in fact recorded in the orders of such officer, so that Congress, the courts and the public are assured that

the orders in the judgment of such officer conform to the legislative standard, there is no failure in the

performance of the legislative functions."22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express purpose forwhich the imposts are permitted and the general objectives and purposes of the fund are readily discernible, and

they constitute a sufficient standard upon which the delegation of power may be justified.

In relation to the third question respecting the illegality of the reimbursements to oil companies, paid out of the

Oil Price Stabilization Fund, because allegedly in contravention of 8, paragraph 2 (2) of P.D. 1956, amended23

the Court finds for the petitioner.


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The petition assails the payment of certain items or accounts in favor of the petroleum companies (i.e., inventory

losses, financing charges, fuel oil sales to the National Power Corporation, etc.) because not authorized by law.

Petitioner contends that "these claims are not embraced in the enumeration in 8 of P.D. 1956 . . since none of

them was incurred 'as a result of the reduction of domestic prices of petroleum products ,'"24

and since these itemsare reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion deficit

"should be reduced by P5,277.2 million."25

It is argued "that under the principle of ejusdem generis. . . the term

'other factors' (as used in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in thereduction of domestic prices of petroleum products."

26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines of the rule

ofejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al.,27

passed upon the applicationof ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generisstates that "[w]here words follow an enumeration of persons or

things, by words of a particular and specific meaning, such general words are not to be construed

in their widest extent, but are held to be as applying only to persons or things of the same kind or

class as those specifically mentioned."

28

A reading of subparagraphs (i) and (ii) easily disclosesthat they do not have a common characteristic. The first relates to price reduction as directed by

the Board of Energy while the second refers to reduction in internal ad valoremtaxes. Therefore,

subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What should be

considered for purposes of determining the "other factors" in subparagraph (iii) is the first

sentence of paragraph (2) of the Section which explicitly allows the cost underrecovery only if

such were incurred as a result of the reduction of domestic prices of petroleum products .

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2 of 8 of P.D.

1956, for the reason that they were not incurred as a result of the reduction of domestic prices of petroleum

products. Under the same provision, however, the payment of inventory losses is upheld as valid, being clearly a

result of domestic price reduction, when oil companies incur a cost underrecovery for yet unsold stocks of oil in

inventory acquired at a higher price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is equally

permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations as held

inCaltex29

and which have been pointed to by the Solicitor General. At any rate, doubts about the propriety ofsuch reimbursements have been dispelled by the enactment of R.A. 6952, establishing the Petroleum Price

Standby Fund, 2 of which specifically authorizes the reimbursement of "cost underrecovery incurred as a result

of fuel oil sales to the National Power Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been presented to

show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort to defend the propriety of

this refund. In fine, neither of the parties, beyond the mere mention of overpayment refunds, has at all bothered

to discuss the arguments for or against the legality of the so-called overpayment refunds. To be sure, the absence

of any argument for or against the validity of the refund cannot result in its disallowance by the Court. Unless theimpropriety or illegality of the overpayment refund has been clearly and specifically shown, there can be no basis

upon which to nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered moot and

academic. As of date hereof, the pump rates of gasoline have been reduced to levels below even those prayed for

in the petition.


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WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing

charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.


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SUPREME COURTManila

EN BANC

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,vs.

ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his capacity asNational Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR.,J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a re-examination

of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where the

then Court of First Instance of Rizal dismissed the portion-about complaint for refund of registration fees paid

under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to Section

8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged

in the air transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos.

25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The pertinent provision of the

franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to

the National Government during the life of this franchise a tax of two per cent of the gross

revenue or gross earning derived by the grantee from its operations under this franchise. Such

tax shall be due and payable quarterly and shall be in lieu of all taxes of any kind, nature or

description, levied, established or collected by any municipal, provincial or national automobiles,

Provided, that if, after the audit of the accounts of the grantee by the Commissioner of Internal

Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable within the tendays from the receipt of the assessment. The grantee shall pay the tax on its real property in

conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not

been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt

entities, among them PAL to pay motor vehicle registration fees.


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Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts

imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75 as

registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu

demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo(97 Phil. 212 [1951]) where it

was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt byvirtue of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus

Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory

exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL? under

its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and National

Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case

No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National

Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In support of the motion

to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra)thatregistration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the

police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except

two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such as

motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial

on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later

ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From

this judgment, PAL appealed to the Court of Appeals which certified the case to us.

Calalang v. Lorenzo (supra)and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and Commissioner

Romeo F. Edu respectively, discuss the main points of contention in the case at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the

Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of "registration

fees." The term is repeated four times in the body thereof. Equally so, mention is made of the

"fee for registration." (Ibid., Subsection G) A subsection starts with a categorical statement "No

fees shall be charged." (lbid.,Subsection H) The conclusion is difficult to resist therefore that the

Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police

power. Hence the incipient, of the section relied upon by defendant-appellee under the Back Pay

Law, It is not held liable for a tax but for a registration fee. It therefore cannot make use of a

backpay certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be dissipated by

Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of additional tax on

privately-owned passenger automobiles, motorcycles and scooters was amended by Republic Act

No. 5470 which is (sic) approved on May 30, 1969.) A special science fund was thereby created

and its title expressly sets forth that a tax on privately-owned passenger automobiles,

motorcycles and scooters was imposed. The rates thereof were provided for in its Section 3

which clearly specifies the" Philippine tax."(Cooley to be paid as distinguished from the


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registration fee under the Motor Vehicle Act. There cannot be any clearer expression therefore

of the legislative will, even on the assumption that the earlier legislation could by subdivision the

point be susceptible of the interpretation that a tax rather than a fee was levied. What is thus

most apparent is that where the legislative body relies on its authority to tax it expressly so

states, and where it is enacting a regulatory measure, it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles

are in section 8 of that law called "fees". But the appellation is no impediment to their being

considered taxes if taxes they really are. For not the name but the object of the charge

determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue, whereas fees are

exceptional. for purposes of regulation and inspection and are for that reason limited in amount

to what is necessary to cover the cost of the services rendered in that connection. Hence, a

charge fixed by statute for the service to be person,-When by an officer, where the charge has no

relation to the value of the services performed and where the amount collected eventually finds

its way into the treasury of the branch of the government whose officer or officers collected the

chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the Motor

Vehicle Office are but a small portionabout 5 per centumof the total collections from motor

vehicle registration fees. And as proof that the money collected is not intended for the

expenditures of that office, the law itself provides that all such money shall accrue to the funds

for the construction and maintenance of public roads, streets and bridges. It is thus obvious that

the fees are not collected for regulatory purposes, that is to say, as an incident to the

enforcement of regulations governing the operation of motor vehicles on public highways, for

their express object is to provide revenue with which the Government is to discharge one of its

principal functionsthe construction and maintenance of public highways for everybody's use.

They are veritable taxes, not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it

provides that "no other taxes or fees than those prescribed in this Act shall be imposed," thus

implying that the charges therein imposedthough called feesare of the category of taxes. The

provision is contained in section 70, of subsection (b), of the law, as amended by section 17 of

Republic Act 587, which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be

imposed for the registration or operation or on the ownership of any motor

vehicle, or for the exercise of the profession of chauffeur, by any municipal

corporation, the provisions of any city charter to the contrary

notwithstanding: Provided, however, That any provincial board, city or

municipal council or board, or other competent authority may exact and collect

such reasonable and equitable toll fees for the use of such bridges and ferries,

within their respective jurisdiction, as may be authorized and approved by theSecretary of Public Works and Communications, and also for the use of such

public roads, as may be authorized by the President of the Philippines upon the

recommendation of the Secretary of Public Works and Communications, but in

none of these cases, shall any toll fee." be charged or collected until and unless

the approved schedule of tolls shall have been posted levied, in a conspicuous

place at such toll station. (at pp. 213-214)


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Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992

[19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code, (as

amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by Rep.Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.Twenty per centum of the money collected under the

provisions of this Act shall accrue to the road and bridge funds of the different provinces and

chartered cities in proportion to the centum shall during the next previous year and the

remaining eighty per centum shall be deposited in the Philippine Treasury to create a special

fund for the construction and maintenance of national and provincial roads and bridges. as well

as the streets and bridges in the chartered cities to be alloted by the Secretary of Public Works

and Communications for projects recommended by the Director of Public Works in the different

provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions of this Act shall

be deposited in a special trust account in the National Treasury to constitute the Highway Special

Fund, which shall be apportioned and expended in accordance with the provisions of the"

Philippine Highway Act of 1935. "Provided, however, That the amount necessary to maintain and

equip the Land Transportation Commission but not to exceed twenty per cent of the total

collection during one year, shall be set aside for the purpose. (As amended by RA 64-67,

approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law requiring owners

of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways

and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand,thePhilippine Rabbit case mentions a presumption arising from the use of the term "fees," which appears to have

been favored by the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep.

Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.No original registration of motor vehicles subject

to payment of taxes, customs s duties or other charges shall be accepted unless proof of

payment of the taxes due thereon has been presented to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec.

59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated by aformer presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked to

as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is

true, for example, of automobile license fees. Isabela such case, the fees may properly be

regarded as taxes even though they also serve as an instrument of regulation. 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. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation


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(2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.) These

exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801, 4811, 4851,

and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on tobacco and alcohol as

regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on Taxation, 2nd

Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).

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 (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions

become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalangcase. The same provision

appears as Section 591-593). in the Land Transportation code. It is patent therefrom that the legislators had in

mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor

vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a

tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any

motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more

apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could

have referred to an original tax and not one in additionto the tax already imposed on the registration, operation,

or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 weremerely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks

of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for

change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be

revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle

registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation

Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly

purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in

number and motor vehicles became absolute necessities without which modem life as we know it would stand

still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without

changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land

Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one

fifth or less of the amount collected is set aside for the operating expenses of the agency administering the

program.

May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments were

made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968, repealed all

earlier tax exemptions Of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this

case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al.(G.R. No. 615)." July 11, 1985), this

Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio

Communications of the Philippines, Inc., was subject to both the franchise tax and income tax. In


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1964, however, petitioner's franchise was amended by Republic Act No. 41-42). to the effect that

its franchise tax of one and one-half percentum (1-1/2%) of all gross receipts was provided as "in

lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any

authority whatsoever, municipal, provincial, or national from which taxes the grantee is hereby

expressly exempted." The issue raised to this Court now is the validity of the respondent court's

decision which ruled that the exemption under Republic Act No. 41-42). was repealed by Section

24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under Sections

24 (c) (1) of this Code shall pay the rates provided in this section. All

corporations, agencies, or instrumentalities owned or controlled by the

government, including the Government Service Insurance System and the

Social Security System but excluding educational institutions, shall pay such

rate of tax upon their taxable net income as are imposed by this section upon

associations or corporations engaged in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all

corporate taxpayers to pay income taxas provided by the statute. There can be no doubt as tothe power of Congress to repeal the earlier exemption it granted. Article XIV, Section 8 of the

1935 Constitution and Article XIV, Section 5 of the Constitution as amended in 1973 expressly

provide that no franchise shall be granted to any individual, firm, or corporation except under

the condition that it shall be subject to amendment, alteration, or repeal by the legislature when

the public interest so requires. There is no question as to the public interest involved. The

country needs increased revenues. The repealing clause is clear and unambiguous. There is a

listing of entities entitled to tax exemption. The petitioner is not covered by the provision.

Considering the foregoing, the Court Resolved to DENY the petition for lack of merit. The decision

of the respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax

exemption in the franchise of PAL was repealed during the period. However, an amended franchise was given to

PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to the

Philippine Government during the lifetime of this franchise whichever of subsections (a) and (b)

hereunder will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net taxable

income computed in accordance with the provisions of the Internal Revenue

Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues. derived by the

grantees from all specific. without distinction as to transport or nontransport

corporations; provided that with respect to international airtransport service,only the gross passengers, mail, and freight revenues. from its outgoing flights

shall be subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other

taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or

description imposed, levied, established, assessed, or collected by any municipal, city, provincial,

or national authority or government, agency, now or in the future, including but not limited to

the following:


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xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of

airtransport equipment, motor vehicles, and all other personal or real property of the gravitates

(Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is nowexempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such

payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of Section 13,

P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971 is

DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the collecting

any tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles from April 9, 1979

as provided in Presidential Decree No. 1590.

SO ORDERED.


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PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,vs.

QUEZON CITY,respondent.

Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO,J.:

On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No. 7997, Series of 1969,

otherwise known as the Market Code of Quezon City, Section 3 of which provided:

Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit monthly to

the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals

paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentalsto the

City, ... , as supervision fee. Failureto submit said list and to pay the corresponding amount

within the period herein prescribed shall subject the operator to the penalties provided in this

Code ... including revocation of permit to operate. ... .1

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March 1972, which reads:

SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on rentals or lease

of space in privately-owned public markets in Quezon City.

xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance, owners of privately owned public

markets shall submit ... a monthly certified list of stallholders of lessees of space in their markets

showing ... :

a. name of stallholder or lessee;

b. amount of rental;

c. period of lease, indicating therein whether the same is on a daily, monthly or yearly basis.

xxx xxx xxx

SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3) consecutive

months, the City shall revoke the permit of the privately-owned marketto operate and/or take

any other appropriate action or remedy allowed by law for the collection of the overdue

percentage tax and surcharge.

xxx xxx xxx 2

On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a public market known

as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against

respondent before the then Court of First Instance of Rizal on the ground that the supervision fee or license tax


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imposed by the above-mentioned ordinances is in reality a tax on income which respondent may not impose, the

same being expressly prohibited by Republic Act No. 2264, as amended.

In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the questioned

ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income. The Solicitor

General also filed an Answer arguing that petitioner, not having paid the ten percent (10%) supervision fee

prescribed by Ordinance No. 7997, had no personality to question, and was estopped from questioning, its validity;that the tax on gross receipts was not a tax on income but one imposed for the enjoyment of the privilege to

engage in a particular trade or business which was within the power of respondent to impose.

In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest the five percent

(5%) tax under Ordinance No. 9236 for the months of June to September 1972. Two (2) days later, on 25

September 1972, petitioner moved for judgment on the pleadings, alleging that the material facts had been

admitted by the parties.

On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned imposition is not a tax onincome, but rather a privilege tax or license fee which local governments, like respondent, are empowered to

impose and collect.

Having failed to obtain reconsideration of said decision, petitioner came to us on the present Petition for Review.

The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of stall rentals is

properly characterized as partaking of the nature of an income tax or, alternatively, of a license fee.

We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as the Revised Charter

of Quezon City, authorizes the City Council:

xxx xxx xxx

(b) To provide for the levy and collection of taxes and other city revenues and apply the same to

the payment of city expenses in accordance with appropriations.

(c) To tax, fix the license fee, and regulate the business ofthe following:

...preparation and sale of meat, poultry, fish, game, butter, cheese, lard vegetables, bread and

other provisions.4

The scope of legislative authority conferred upon the Quezon City Council in respect of businesses like that of the

petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but also " to

tax" 5

Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act, provides

that:

Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and

municipal districtsshall have authority to impose municipal license taxes or fees upon persons

engaged in any occupation or business, or exercising privileges in chartered cities, municipalities

or municipal districts by requiring them to secure licenses at rates fixed by the municipal board

or city council of the city, the municipal council of the municipality, or the municipal district

council of the municipal district; to collect fees and charges for service rendered by the city,

municipality or municipal district; to regulate and impose reasonable fees for services rendered


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in connection with any business, profession or occupation being conducted within the city,

municipality or municipal district and otherwise to levy for public purposes just and uniform

taxes licenses or fees: ... 6

It is now settled that Republic Act No. 2264 confers upon local governments broad taxing authority extending to

almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public

purposes, just and uniform," does not transgress any constitutional provision and is not repugnant to a controllingstatute. 7Both the Local Autonomy Act and the Charter of respondent clearly show that respondent is authorizedto fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned

public market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from capital invested in

the construction of the Farmers Market, practically operates as a tax on income, one of those expressly excepted

from respondent's taxing authority, and thus beyond the latter's competence. Petitioner cites the same Section 2

of the Local Autonomy Act which goes on to state: 8

... Provided, however, That no city,municipality or municipal districtmay levy or impose any of

the following:

xxx xxx xxx

(g) Taxes on income of any kind whatsoever;

The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely

used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently

called taxes although license feeis a legal concept distinguishable from tax:the former is imposed in the exercise

of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily

for purposes of raising revenues. 9Thus, if the generating of revenue is the primary purpose and regulation ismerely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally

revenue is also obtained does not make the imposition a tax. 10

To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages

the public interest in health, morals, safety and development as to require regulation for the protection and

promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of

regulation, taking into account not only the costs of direct regulation but also its incidental consequences as

well.11When an activity, occupation or profession is of such a character that inspection or supervision by publicofficials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the

general welfare, the legislature may provide that such inspection or supervision or other form of regulation shall

be carried out at the expense of the persons engaged in such occupation or performing such activity, and that no

one shall engage in the occupation or carry out the activity until a fee or charge sufficient to cover the cost of the

inspection or supervision has been paid. 12Accordingly, a charge of a fixed sum which bears no relation at all tothe cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. 13

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution No. 7350 passed on

30 January 1967 by respondents's local legislative body authorizing petitioner to establish and operate a market

with a permit to sell fresh meat, fish, poultry and other foodstuffs. 14The same resolution imposed uponpetitioner, as a condition for continuous operation, the obligation to "abide by and comply with the ordinances,

rules and regulations prescribed for the establishment, operation and maintenance of markets in Quezon City." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to and inviting

the patronage of the general public, even though privately owned, petitioner's operation thereof required a


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license issued by the respondent City, the issuance of which, applying the standards set forth above, was done

principally in the exercise of the respondent's police power. 16 The operation of a privately owned market is, ascorrectly noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned

market; both are established for the rendition of service to the general public, which warrants close supervision

and control by the respondent City, 17for the protection of the health of the public by insuring, e.g., themaintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold therein with

applicable food and drug and related standards, for the prevention of fraud and imposition upon the buying public,and so forth.

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on

income,not a cityincome tax (as distinguished from the nationalincometax imposed by the National Internal

Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for

the regulation of the business in which the petitioner is engaged. While it is true that the amount imposed by the

questioned ordinances may be considered in determining whether the exaction is really one for revenue or

prohibition, instead of one of regulation under the police power, 18it nevertheless will be presumed to bereasonable. Local' governments are allowed wide discretion in determining the rates of imposable license fees

even in cases of purely police power measures, in the absence of proof as to particular municipal conditions and

the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or

unreasonableness of the questioned rates. 19Thus:

[A]n ordinance carries with it the presumption of validity. The question of reasonableness though

is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities.

Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive

as to be prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained

acceptance is that factors relevant to such an inquiry are the municipal conditions as a whole and

the nature of the business made subject to imposition.20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and excessive and so

grossly disproportionate to the costs of the regulatory service being performed by the respondent as to compel

the Court to characterize the imposition as a revenue measure exclusively. The lower court correctly held that the

gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due respondent to

cover the latter's administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to the

public. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax,

does not by itself, upon the one hand, convert or render the license tax into a prohibited city tax on income. Upon

the other hand, it has not been suggested that such basis has no reasonable relationship to the probable costs of

regulation and supervision of the petitioner's kind of business. For, ordinarily, the higher the amount of stall

rentals, the higher the aggregate volume of foodstuffs and related items sold in petitioner's privately owned

market; and the higher the volume of goods sold in such private market, the greater the extent and frequency of

inspection and supervision that may be reasonably required in the interest of the buying public. Moreover, what

we started with should be recalled here: the authority conferred upon the respondent's City Council is notmerely

"to regulate" but also embraces the power "to tax" the petitioner's business.

Finally, petitioner argues that respondent is without power to impose a gross receipts tax for revenue purposes

absent an express grant from the national government. As a general rule, there must be a statutory grant for alocal government unit to impose lawfully a gross receipts tax, that unit not having the inherent power of

taxation. 21The rule, however, finds no application in the instant case where what is involved is an exercise of,principally, the regulatory power of the respondent City and where that regulatory power is expressly

accompanied by the taxing power.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City, Branch 18, is hereby

AFFIRMED and the Court Resolved to DENY the Petition for lack of merit.


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SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.


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G.R. No. L-16619 June 29, 1963

COMPAIA GENERAL DE TABACOS DE FILIPINAS,plaintiff-appellee,vs.

CITY OF MANILA, ET AL.,defendants-appellants.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for plaintiff-appellee.City Fiscal Hermogenes Concepcion, Jr. and Assistant City Fiscal M. T. Reyes for defendants-appellants.

DIZON,J.:

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of Manila to refund

the sum of P15,280.00 to Compania General de Tabacos de Filipinas.

Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply as Tabacalera filed this

action in the Court of First Instance of Manila to recover from appellants, City of Manila and its Treasurer,

Marcelino Sarmiento also hereinafter referred to as the City the sum of P15,280.00 allegedly overpaid by it as

taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter

of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.

Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the fixed license

feesprescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as a wholesale and retail dealer

of general merchandise, it also paid thesales taxesrequired by Ordinances Nos. 3634, 3301, and 3816.1wph1.t

In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the third quarter of

1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor salesof the same period, and it is not

denied that of the taxes it paid on all its sales of general merchandise, the sum of P15,280.00 subject to the action

represents the tax corresponding to theliquorsales aforesaid.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the

license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes imposed by Ordinances Nos. 3634,3301, and 3816; and since it already paid the license fees aforesaid, the sales taxes paid by it amounting to the

sum of P15,208.00 under the three ordinances mentioned heretofore is an overpayment made by mistake, and

therefore refundable.

The City, on the other hand, contends that, for the permit issued to it granting proper authority to "conduct or

engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay the license feesprescribed by

Ordinance No. 3358, aside from the sales taxesimposed by Ordinances Nos. 3634, 3301, and 3816; that, even

assuming that Tabacalera is not subject to the payment of the sales taxes prescribed by the said three ordinances

as regards itsliquorsales, it is not entitled to the refund demanded for the following reasons:.

(a) The said amount was paid by the plaintiff voluntarily and without protest;

(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose from

the plaintiff's neglect of duty; .

(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and passed

to the consumers; and


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(d) The said amount had been already expended by the defendant City for public improvements and

essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the

plaintiff.

It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license fees under

Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No. 3420, and City Ordinance No.

3816, amending City Ordinance No. 3301 were passed. By reason thereof, the City Treasurer issued the regulationsmarked Exhibit A, according to which, the term "general merchandise as used in said ordinances, includes all

articles referred to in Chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of these, Sections

133-135 includedliquoramong the taxable articles. Pursuant to said regulations, Tabacalera included its sales

of liquorin its sworn quarterly declaration submitted to the City Treasurer beginning from the third quarter of

1954 to the second quarter of 1957, with a total value of P722,501.09 and correspondingly paid a wholesaler's tax

amounting to P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of P15,208.00 the amount

sought to be recovered.

It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip, Gorres, Velayo

and Co., an accounting firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed

tax under City Ordinance No. 3358 are not subject to the wholesale and retail dealers' taxes prescribed by City

Ordinances Nos. 3634, 3301, and 3816. Upon learning of said opinion, appellee stopped including its sales of liquorin its quarterly sworn declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301,

and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding refund of the alleged

overpayment. As the claim was disallowed, the present action was instituted.

The term "tax" applies generally speaking to all kinds of exactions which become public funds. The term is

often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are

commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the former

is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the taxing

power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business

of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of Manila pursuant to its

charter power to fix license fees on, and regulate, the sale of intoxicating liquors, whether imported or locally

manufactured. (Section 18 [p], Republic Act 409, as amended). The license fees imposed by it are essentially for

purposes of regulation, and are justified, considering that the sale of intoxicating liquor is, potentially at least,

harmful to public health and morals, and must be subject to supervision or regulation by the state an d by cities

and municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general

merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of

its power to tax dealers for the sale of such merchandise. (Section 10 [o], Republic Act No. 409, as amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor. Aside from this,

we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-8799, August 31, 1956, that the word

"merchandise" refers to all subjects of commerce and traffic; whatever is usually bought and sold in trade ormarket; goods or wares bought and sold for gain; commodities or goods to trade; and commercial commodities in

general.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is

collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in

which it is obvious not anyone or anybody may freely engage, considering that the sale of liquor

indiscriminately may endanger public health and morals. On the other hand, what the three ordinances mentioned

heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is


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already settled in this connection that both a license fee and a tax may be imposed on the same business or

occupation, or for selling the same article, this not being in violation of the rule against double taxation (Bentley

Gray Dry Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So. 758; MacQuillin, Municipal Corporations, Vol. 9, 3rd

Edition, p. 83). This is precisely the case with the ordinances involved in the case at bar.

Appellee's contention that the City is repudiating its previous view expressed by its Treasurer in a letter

addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 that a liquor dealer who pays the annual license feeunder Ordinance No. 3358 is exempted from the wholesalers and retailers taxes under the other three ordinances

mentioned heretofore is of no consequence. The government is not bound by the errors or mistakes committed by

its officers, specially on matters of law.

Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points raised by the

City.

WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as it is hereby

dismissed, with costs.


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G.R. No. 189999 June 27, 2012

ANGELES UNIVERSITY FOUNDATION, Petitioner,vs.

CITY OF ANGELES, JULIET G. QUINSAAT, in her capacity as Treasurer of Angeles City and ENGR. DONATO N.DIZON, in his capacity as Acting Angeles City Building Official, Respondents.

D E C I S I O N

VILLARAMA, JR.,J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,

which seeks to reverse and set aside the Decision1dated July 28, 2009 and Resolution

2dated October 12, 2009 of

the Court of Appeals (CA) in CA-G.R. CV No. 90591. The CA reversed the Decision3dated September 21, 2007 of the

Regional Trial Court of Angeles City, Branch 57 in Civil Case No. 12995 declaring petitioner exempt from the

payment of building permit and other fees and ordering respondents to refund the same with interest at the legal

rate.

The factual antecedents:

Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25, 1962 and was

converted into a non-stock, non-profit education foundation under the provisions of Republic Act (R.A.) No.

60554on December 4, 1975.

Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for a building

permit for the construction of an 11-storey building of the Angeles University Foundation Medical Center in its

main campus located at MacArthur Highway, Angeles City, Pampanga. Said office issued a Building Permit Fee

Assessment in the amount of P126,839.20. An Order of Payment was also issued by the City Planning and

Development Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as Locational

Clearance Fee.5

In separate letters dated November 15, 2005 addressed to respondents City Treasurer Juliet G. Quinsaat and

Acting City Building Official Donato N. Dizon, petitioner claimed that it is ex

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