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Facts:
On May 23, 1945, Anastasio Pineda died, survived by his wife and 15 children, the
eldest of whom is Atty. Manuel Pineda. Estate proceedings were had in the CFI of Manila
resulting to the estate being divided among and awarded to the heirs. Manuels share
amounted to about P 2,500.00.
After the estate proceedings were closed, the Bureau of Internal Revenue (BIR)
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and 1948
and it found that the corresponding income tax returns were not filed. Thereupon, the
representative of the CIR issued the following assessments:
I. Deficiency Income Tax (1945, 1946, 1947) P 2,707.44
II. Additional Residence Tax for 1945 P 14.50
III. Real estate dealers tax for 4th qtr of 1946 and whole year 1947 P207.50
The assessment was contested by Manuel Pineda. Thereafter, he appealed to the
CTA alleging that he was appealing only that proportionate part or portion pertaining to
him as one of the heirs. Subsequently, the CTA rendered judgment reversing the decision
of the CIR on the ground of prescription of his right to assess and collect the
aforementioned tax. On appeal to the SC, the SC affirmed the ruling of the CTA with
respect to the assessment for the year 1947 (income tax) but held that for the years 1945
and 1946, the action for assessment and collection has not yet prescribed. Accordingly,
the SC remanded the case to the CTA for further appropriate proceedings.
The CTA rendered judgment holding Manuel Pineda liable for his share in the
deficiency income tax for 1945 and 1946 and the real estate dealers tax all amounting to
P760.28. The decision was then appealed by the CIR to the SC.
Issue:
WON Manuel Pineda can be held liable for the payment of all the taxes found by the
CTA instead of only for his corresponding share in the same
Held:
YES. The government can require Manuel Pineda to pay the full amount of the taxes
assessed. The reason is that the government has a lien on the P2, 500.00 received by him
from the estate as his share in the inheritance, for unpaid income taxes for which said
estate is liable, pursuant to Section 315 of the Tax Code.
By virtue of such lien, the government has the right to subject the property in
Pinedas possession (the money amounting to P2, 500.00) to satisfy the income tax
assessment. After such payment, Manuel Pineda will have a right of contribution from his
co-heirs.
The government can collect the tax in question in two ways. First, by going after all
the heirs and collecting from each one of them the amount of the tax proportionate to the
inheritance received. The second remedy, pursuant to the lien created by Section 315 of
the Tax Code upon all property and property rights belonging to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the hands of the heir or
transferee to the payment of the tax due, the estate. This second remedy is the option the
government took in this case to collect the tax. The BIR should be given the necessary
discretion to avail itself of the most expeditious way to collect the tax, because taxes are
the lifeblood of the government and their prompt and certain availability is an imperious
need.
The SC discussed the LIFEBLOOD Theory, the rationale for taxation, to wit:
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.
On the substantive main issue:
Contrary to the allegations of the CIR, that the payments were fictitious and suggest
a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary
deduction; that the claimed deduction of P75, 000 was properly disallowed because it was
not an ordinary, reasonable or necessary business expense, the Court viewed it differently.
Agreeing with Algue and the Court of Tax Appeals, it held that the said amount had been
legitimately paid by Algue for actual services rendered, in the form of promotional fees.
Nota Bene:
Tax assessment by tax examiners are presumed correct and made in good faith.
Taxpayer has the duty to prove otherwise.
Yes.
YMCA as an educational department is not denied. It is undisputed that the aim of this
department is to furnish, at much less than cost, instruction in subjects that will greatly
increase the mental efficiency and wage-earning capacity of young men, prepare them in
special lines of business and offer them special lines of study. It offers various courses to
its students.
YMCA is preeminently religious; and the fundamental basis and groundwork is the
Christian religion. All of the officials of the association are devoted Christians, members of
a church, and have dedicated their lives to the spread of the Christian principles and
building of Christian character.
The institution also has charitable features. It makes no profit on any of its activities. The
professors and instructors in all departments serve without pay and freely give of their
time and ability to further the purposes of the institution. The chief secretary and his
assistant receive no salary from the institution. Whatever they are paid comes from the
United States.
The contention that the institution is run as a business in that it keeps a lodging and
boarding house is without merit. It may be admitted that there are 64 persons occupying
rooms in the main building as lodgers or roomers and that they take their meals at the
restaurant below. But the purpose is not for profit but instead to keep the membership
continually within the sphere of influence of the institution.
The Young Men's Christian Association of Manila cannot be said to be an institution used
exclusively for religious purposes, or an institution used exclusively for charitable
purposes, or an institution devoted exclusively to educational purposes; but the Court
believes that it is an institution used exclusively for all three purposes, and that, as such, it
is entitled to be exempted from taxation.
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COMMISSIONER OF INTERNAL REVENUE vs CA, CTA, YMCA
Facts:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.
Private respondent earned, among others, an income from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators, and from parking
fees collected from non-members. The commissioner of internal revenue (CIR) issued an
assessment to private respondent, including surcharge and interest, for deficiency income
tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally protested the assessment and, as
a supplement to its basic protest.
The CTA issued this ruling in favor of the YMCA. CA initially ruled in favor of CIR but
affirmed CTAs decision on reconsideration.
Issue:
W/N YMCA is exempt from the payment of taxes
Held:
No. Section 27 (now Section 26) of the NIRC states that:
SEC. 27.Exemptions from tax on corporations. -- The following organizations shall
not be taxed under this Title in respect to income received by them as such -(g) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and
other non-profitable purposes, no part of the net income of which inures to
the benefit of any private stockholder or member;
Notwithstanding the provision in the preceding paragraphs, the income of whatever kind
and character of the foregoing organization from any of their properties, real or personal,
or from any of their activities conducted for profit, regardless of the disposition made of
such income, shall be subject to the tax imposed under this Code. (as amended by Pres.
Decree No. 1457)
Respondent Court of Appeals committed reversible error when it allowed, on
reconsideration, the tax exemption claimed by YMCA on income it derived from renting out
its real property, on the solitary but unconvincing ground that the said income is not
collected for profit but is merely incidental to its operation. The law does not make a
distinction. The rental income is taxable regardless of whence such income is derived and
how it used or disposed of.
Private respondent submits that Article VI, Section 28 of par. 3 of the 1987 Constitution,
exempts charitable institutions from the payment not only of property taxes but also of
income tax from any source. However, what is exempted is not the institution itself; the
exemption pertains only to property taxes.Thus, YMCA is exempt from the paymentof
property tax, but not income tax on the rentals from its property.
Private respondent also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that
the YMCA is a non-stock, non-profit educational institution whose revenues and assets are
used actually, directly and exclusively for educational purposes so it is exempt from taxes
on its properties and income. However, the Court founds nothing in them that even hints
that it is a school or an educational institution
Petition is GRANTED.
5. MCCULLOCH vs MARYLAND
U.S 4 Wheat, 316
Facts:
Maryland (P) enacted a statute imposing a tax on all banks operating in Maryland not
chartered by the state. The statute provided that all such banks were prohibited from
issuing bank notes except upon stamped paper issued by the state. The statute set forth
the fees to be paid for the paper and established penalties for violations. The Second Bank
of the United States was established pursuant to an 1816 act of Congress. McCulloch (D),
the cashier of the Baltimore branch of the Bank of the United States, issued bank notes
without complying with the Maryland law. Maryland sued McCulloch for failing to pay the
taxes due under the Maryland statute and McCulloch contested the constitutionality of
that act. The state court found for Maryland and McCulloch appealed.
Issues :
(1)Does Congress have the power under the Constitution to incorporate a bank, even
though that power is not specifically enumerated within the Constitution?
(2)Does the State of Maryland have the power to tax an institution created by
Congress pursuant to its powers under the Constitution?
Holding and Rule (Marshall):
(1) Yes. Congress has power under the Constitution to incorporate a bank pursuant to
the Necessary and Proper clause (Article I, section 8).
(2)No. The State of Maryland does not have the power to tax an institution created by
Congress pursuant to its powers under the Constitution. The Government of the
Union, though limited in its powers, is supreme within its sphere of action, and its
laws, when made in pursuance of the Constitution, form the supreme law of the
land. There is nothing in the Constitution which excludes incidental or implied
powers. If the end be legitimate, and within the scope of the Constitution, all the
means which are appropriate and plainly adapted to that end, and which are not
prohibited, may be employed to carry it into effect pursuant to the Necessary and
Proper clause.
The power of establishing a corporation is not
Government, but only the means of carrying
sovereign. It may be exercised whenever it
exercising any of the powers granted to the
Constitution. If a certain means to carry into effect of any of the powers expressly given
by the Constitution to the Government of the Union be an appropriate measure, not
prohibited by the Constitution, the degree of its necessity is a question of legislative
discretion, not of judicial cognizance.
The Bank of the United States has a right to establish its branches within any state. The
States have no power, by taxation or otherwise, to impede or in any manner control
any of the constitutional means employed by the U.S. government to execute its
powers under the Constitution. This principle does not extend to property taxes on the
property of the Bank of the United States, nor to taxes on the proprietary interest which
the citizens of that State may hold in this institution, in common with other property of
the same description throughout the State.
January 1986. Reduced sales taxes were imposed not only on the second sale, but on
every subsequent sale, as well. EO 273 merely increased the VAT on every sale to 10%,
unless zero-rated or exempt.
Issue:
WON EO 273 is unconstitutional
Held:
No. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or
in an arbitrary or despotic manner by reason of passion or personal hostility. It appears
that a comprehensive study of the VAT had been extensively discussed by these framers
and other government agencies involved in its implementation, even under the past
administration. As the Solicitor General correctly stated: "The signing of E.O. 273 was
merely the last stage in the exercise of her legislative powers. The legislative process
started long before the signing when the data were gathered, proposals were weighed and
the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot
be said that the President made a jump, so to speak, on the Congress, two days before it
convened."
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and
regressive.
The petitioners" assertions in this regard are not supported by facts and circumstances to
warrant their conclusions. They have failed to adequately show that the VAT is oppressive,
discriminatory or unjust. Petitioners merely rely upon newspaper articles which are
actually hearsay and have evidentiary value. To justify the nullification of a law, there must
be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative
implication.
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. A tax
is considered uniform when it operates with the same force and effect in every place
where the subject may be found." The sales tax adopted in EO 273 is applied similarly on
all goods and services sold to the public, which are not exempt, at the constant rate of 0%
or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by
persons engage in business with an aggregate gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its application. Likewise
exempt from the tax are sales of farm and marine products, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
The Court likewise finds no merit in the contention of the petitioner Integrated Customs
Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103 (r)
of the National Internal Revenue Code, unduly discriminates against customs brokers.
At any rate, the distinction of the customs brokers from the other professionals who are
subject to occupation tax under the Local Tax Code is based upon material differences, in
that the activities of customs brokers (like those of stock, real estate and immigration
brokers) partake more of a business, rather than a profession and were thus subjected to
the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT.
7. CHAVEZ vs ONGPIN
Facts:
On August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities from
the 2nd quarter of 1991 to the 2nd quarter of 1992 in the total amount
of P123,821,982.52 plus 20% annual interest from August 6, 1994 until fully paid pursuant
to Sections 248 and 249 of the Tax Code of 1977.
Philex refused to pay alleging that it has pending claims from 1989 to 1991 for VAT input
credit/refund for the taxes it paid for the years 1989 to1991 in the amount of P119, 977,
037.02 plus interest. Therefore, these claims for tax credit/refund should be applied
against or used to offset the tax liabilities.
The BIR denied the offsetting of Philexs claim since said claims are still unliquidated and
since its amount is undetermined, it cannot be subject to legal compensation. Philex
raised the issue in the Court of Tax appeals but was denied for the same reason that for
legal compensation to take place, both obligations must be liquidated and demandable.
"Liquidated" debts are those where the exact amount has already been determined. The
claims of Philex for VAT refund are still pending litigation and still have to be determined.
Issue:
WON compensation or offsetting can be applied
Held:
No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected without unnecessary
hindrance. Evidently, to countenance Philex's whimsical reason would render ineffective
our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.
Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it
has a pending tax claim for refund or credit against the government which has not yet
been granted. Taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and debtors of each
other. There is a material distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are due to the Government in its
sovereign capacity. xxx There can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a lawsuit against the
government.
Petition is DISMISSED.
Petitioners allege that the grant of stand-by authority to the President to increase the VAT
rate is an abdication by Congress of its exclusive power to tax because such delegation is
not covered bySection 28 (2), Article VI Constitution. They argue that VAT is a tax levied on
the sale or exchange of goods and services which cant be included within the purview of
tariffs under the exemption delegation since this refers to customs duties, tolls or tribute
payable upon merchandise to the government and usually imposed on imported/exported
goods. They also said that the President has powers to cause, influence or create
the conditions provided by law to bring about the conditions precedent. Moreover, they
allege that no guiding standards are made by law as to how the Secretary of Finance will
make the recommendation.
Issue:
WON the RA 9337's stand-by authority to the Executive to increase the VAT rate, especially
on account of the recommendatory power granted to the Secretary of Finance, constitutes
undue delegation of legislative power
Held:
No. The powers which Congress is prohibited from delegating are those which are strictly,
or inherently and exclusively, legislative. Purely legislative power which can never be
delegated is the authority to make a complete law- complete as to the time when it shall
take effect and as to whom it shall be applicable, and to determine the expediency of its
enactment. It is the nature of the power and not the liability of its use or the manner of its
exercise which determines the validity of its delegation.
The EXCEPTIONS are:
(a) delegation of tariff powers to President under Constitution
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 did not delegate the
power to tax but the mere implementation of the law.