Pepsi-Cola Bottling Co. vs.

City of Butuan GR L-22814, 28 August 1968

Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per
case of 24 bottles of softdrinks or carbonated drinks. The tax was imposed upon dealers
engaged in selling soft drinks or carbonated drinks. When Ordinance 110, the tax was
imposed upon an agent or consignee of any person, association, partnership, company
or corporation engaged in selling soft drinks or carbonated drinks, with agent or
consignee being particularly defined on the inserted provision Section 3-A. In effect,
merchants engaged in the sale of soft drinks, etc. are not subject to the tax unless they
are agents or consignees of another dealer who must be one engaged in business
outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the city
pursuant to the Ordinance, which it claims to be null and void.
Issue: Whether the Ordinance is discriminatory.
Held: The Ordinance, as amended, is discriminatory since only sales by agents or
consignees of outside dealers would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of producers or
merchants established outside the city, would be exempt from the tax. The classification
made in the exercise of the authority to tax, to be valid must be reasonable, which
would be satisfied if the classification is based upon substantial distinctions which
makes real differences; these are germane to the purpose of legislation or ordinance;
the classification applies not only to present conditions but also to future conditions
substantially identical to those of the present; and the classification applies equally to
all those who belong to the same class. These conditions are not fully met by the
ordinance in question.
FULL TEXT: Direct appeal to this Court, from a decision of the Court of First Instance of
Agusan, dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation with
offices and principal place of business in Quezon City. The defendants are the City of
Butuan, its City Mayor, the members of its municipal board and its City Treasurer.
Plaintiff seeks to recover the sums paid by it to the City of Butuan hereinafter
referred to as the City and collected by the latter, pursuant to its Municipal Ordinance
No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which
plaintiff assails as null and void, and to prevent the enforcement thereof. Both parties
submitted the case for decision in the lower court upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks for sale to customers in the City of Butuan
and all the municipalities in the Province of Agusan. These "Pepsi-Cola Cola" soft
drinks are bottled in Cebu City and shipped to the Butuan City warehouse of
plaintiff for distribution and sale in the City of Butuan and all municipalities of
Agusan. .

2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110 which
was subsequently amended by Ordinance No. 122 and effective November 28,
1960. A copy of Ordinance No. 110, Series of 1960 and Ordinance No. 122 are
incorporated herein as Exhibits "A" and "B", respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the plaintiff
paid under protest the amount of P4,926.63 from August 16 to December 31,
1960 and the amount of P9,250.40 from January 1 to July 30, 1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the total
amount of P14,177.03 paid under protest and those that if may later on pay until
the termination of this case on the ground that Ordinance No. 110 as amended of
the City of Butuan is illegal, that the tax imposed is excessive and that it is
unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of Butuan
City, has prepared a form to be accomplished by the plaintiff for the computation
of the tax. A copy of the form is enclosed herewith as Exhibit "C".
6. That the Profit and Loss Statement of the plaintiff for the period from January
1, 1961 to July 30, 1961 of its warehouse in Butuan City is incorporated herein as
Exhibits "D" to "D-1" to "D-5". In this Profit and Loss Statement, the defendants
claim that the plaintiff is not entitled to a depreciation of P3,052.63 but only
P1,202.55 in which case the profit of plaintiff will be increased from P1,254.44 to
P3,104.52. The plaintiff differs only on the claim of depreciation which the
company claims to be P3,052.62. This is in accordance with the findings of the
representative of the undersigned City Attorney who verified the records of the
plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of 24
bottles was increased to P1.92 which price is uniform throughout the Philippines.
Said increase was made due to the increase in the production cost of its
manufacture.
8. That the parties reserve the right to submit arguments on the constitutionality
and illegality of Ordinance No. 110, as amended of the City of Butuan in their
respective memoranda.
xxx

xxx

x x x1wph1.t

Section 1 of said Ordinance No. 110, as amended, states what products are "liquors",
within the purview thereof. Section 2 provides for the payment by "any agent and/or
consignee" of any dealer "engaged in selling liquors, imported or local, in the City," of
taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles of the
soft drinks and carbonated beverages therein named, and "all other soft drinks or

carbonated drinks." Section 3-A, defines the meaning of the term "consignee or agent"
for purposes of the ordinance. Section 4 provides that said taxes "shall be paid at the
end of every calendar month." Pursuant to Section 5, the taxes "shall be based and
computed from the cargo manifest or bill of lading or any other record showing the
number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks
received within the month." Sections 6, 7 and 8 specify the surcharge to be added for
failure to pay the taxes within the period prescribed and the penalties imposable for
"deliberate and willful refusal to pay the tax mentioned in Sections 2 and 3" or for
failure "to furnish the office of the City Treasurer a copy of the bill of lading or cargo
manifest or record of soft drinks, liquors or carbonated drinks for sale in the City."
Section 9 makes the ordinance applicable to soft drinks, liquors or carbonated drinks
"received outside" but "sold within" the City. Section 10 of the ordinance provides that
the revenue derived therefrom "shall be alloted as follows: 40% for Roads and Bridges
Fund; 40% for the General Fund and 20% for the School Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it partakes
of the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive,
oppressive and confiscatory; (4) it is highly unjust and discriminatory; and (5) section 2
of Republic Act No. 2264, upon the authority of which it was enacted, is an
unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed independently
of whether or not the tax in question, when considered in relation to the sales tax
prescribed by Acts of Congress, amounts to double taxation, on which we need not and
do not express any opinion - double taxation, in general, is not forbidden by our
fundamental law. We have not adopted, as part thereof, the injunction against double
taxation found in the Constitution of the United States and of some States of the
Union.1 Then, again, the general principle against delegation of legislative powers, in
consequence of the theory of separation of powers2 is subject to one well-established
exception, namely: legislative powers may be delegated to local governments to
which said theory does not apply3 in respect of matters of local concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24 bottles," of
soft drinks or carbonated drinks in the production and sale of which plaintiff is
engaged or less than P0.0042 per bottle, is manifestly too small to be excessive,
oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this
connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No. 110,
as originally approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a tax upon the
sale of said merchandise. As amended by Ordinance No. 122, the tax is, however,
imposed only upon "any agent and/or consignee of any person, association, partnership,
company or corporation engaged in selling ... soft drinks or carbonated drinks." And,
pursuant to section 3-A, which was inserted by said Ordinance No. 122:

... Definition of the Term Consignee or Agent. For purposes of this

Ordinance, a consignee of agent shall mean any person, association, partnership,
company or corporation who acts in the place of another by authority from him or
one entrusted with the business of another or to whom is consigned or shipped
no less than 1,000 cases of hard liquors or soft drinks every month for resale,
either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks,
are not subject to the tax,unless they are agents and/or consignees of another
dealer, who, in the very nature of things, must be one engaged in business outside the
City. Besides, the tax would not be applicable to such agent and/or consignee, if less
than 1,000 cases of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but "received"
by the taxpayer, the intention to limit the application of the ordinance to soft drinks and
carbonated drinks brought into the City from outside thereof becomes apparent. Viewed
from this angle, the tax partakes of the nature of an import duty, which is beyond
defendant's authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by "agents
or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not
acting for or on behalf of other merchants, regardless of the volume of their sales, and
even if the same exceeded those made by said agents or consignees of producers or
merchants established outside the City of Butuan, would be exempt from the disputed
tax.
It is true that the uniformity essential to the valid exercise of the power of taxation does
not require identity or equality under all circumstances, or negate the authority to
classify the objects of taxation.5 The classification made in the exercise of this authority,
to be valid, must, however, be reasonable6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real differences; (2)
these are germane to the purpose of the legislation or ordinance; (3) the classification
applies, not only to present conditions, but, also, to future conditions substantially
identical to those of the present; and (4) the classification applies equally all those who
belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its purpose
were merely to levy a burden upon the sale of soft drinks or carbonated beverages,
there is no reason why sales thereof by sealers other than agents or consignees of
producers or merchants established outside the City of Butuan should be exempt from
the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall be
entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and

sentencing the City of Butuan to refund to plaintiff herein the amounts collected from
and paid under protest by the latter, with interest thereon at the legal rate from the
date of the promulgation of this decision, in addition to the costs, and defendants herein
are, accordingly, restrained and prohibited permanently from enforcing said Ordinance,
as amended. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ.,
concur. 1wph1.t
G.R. No. L-16315

May 30, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
HAWAIIAN-PHILIPPINE COMPANY, respondent.
Office of the Solicitor General for petitioner.
Hilado and Hilado for respondent.
DIZON, J.:
This is a petition filed by the Commissioner of Internal Revenue for the review of the
decision of the Court of Tax Appeals in C.T.A. Case No. 598 ordering him to refund to
respondent Hawaiian-Philippine Company the amount of P8,411.99 representing fixed
and percentage taxes assessed against it and which the latter had deposited with the
City Treasurer of Silay, Occidental Negros.
The undisputed facts of this ease, as found by the Court of Tax Appeals, are as follows:
The petitioner, a corporation duly organized in accordance with law, is operating
a sugar central in the City of Silay, Occidental Negros. It produces centrifugal
sugar from sugarcane supplied by planters. The processed sugar is divided
between the planters and the petitioner in the proportion stipulated in the milling
contracts, and thereafter is deposited in the warehouses of the latter. (Pp. 4-5,
t.s.n.) For the sugar deposited by the planters, the petitioner issues the
corresponding warehouse receipts of "quedans". It does not collect storage
charges on the sugar deposited in its warehouse during the first 90 days period
counted from the time it is extracted from the sugarcane. Upon the lapse of the
first ninety days and up to the beginning of the next milling season, it collects a
fee of P0.30 per picul a month. Henceforth, if the sugar is not yet withdrawn, a
penalty of P0.25 per picul or fraction thereof a month is imposed. (Exhibits "B-1",
"C-1", "D-1", "B-2", "C-2", p. 10, t.s.n.)
The storage of sugar is carried in the books of the company under Account No.
5000, denominated "Manufacturing Cost Ledger Control"; the storage fees under
Account No. 521620; the expense accounts of the factory under Account No.
5200; and the so-called "Sugar Bodega Operations" under Account No. 5216,

under which is a Sub-Account No. 20, captioned, "Credits". (Pp. 16-17, t.s.n.,
Exhibit "F".) The collections from storage after the lapse of the first 90 days
period are entered in the company's books as debit to CASH, and credit to
Expense Account No. 2516-20 (p. 18, t.s.n.).
The credit for storage charges decreased the deductible expense resulting in the
corresponding increase of the taxable income of the petitioner. This is reflected
by the entries enclosed in parenthesis in Exhibit "G", under the heading "Storage
Charges". (P. 18, t.s.n.) The alleged reason for this accounting operation is that,
inasmuch as the "Sugar Bodega Operations" is considered as an expense
account, entries under it are "debits". Similarly, since "Storage Charges"
constitute "credit", the corresponding figures (see Exhibit "C") are enclosed in
parenthesis as they decrease the expenses of maintaining the sugar warehouses.
Upon investigation conducted by the Bureau, it was found that during the years
1949 to 1957, the petitioner realized from collected storage fees a total gross
receipts of P212,853.00, on the basis of which the respondent determined the
petitioner's liability for fixed and percentage taxes, 25% surcharge, and
administrative penalty in the aggregate amount of P8,411.99 (Exhibit "5", p. 11,
BIR rec.)
On October 20, 1958, the petitioner deposited the amount of P8,411.99 with the
Office of the City Treasurer of Silay. (Exhibits "I" and "I-1", pp. 59-60, CTA rec.)
Later, it filed its petition for review before this Court (Exhibit "K", p. 25, CTA rec.)
After due hearing the Court of Tax Appeals rendered the appealed decision.
The only issue to be resolved in the case at bar is whether or not, upon the facts stated
above, petitioner is a warehouseman liable for the payment of the fixed and percentage
taxes prescribed in Sections 182 and 191 of the National Internal Revenue Code which
read as follows:
SEC. 182. FIXED TAXES (a) ON BUSINESS (1) PERSONS SUBJECT TO
PERCENTAGE TAX. Unless otherwise provided every person engaging in a
business on which the percentage tax is imposed shall pay a fixed annual tax of
twenty pesos. ... .
SEC. 191. PERCENTAGE TAX ON ROAD, BUILDING, IRRIGATION, ARTESIAN WELL,
WATERWORKS, AND OTHER CONSTRUCTION WORK CONTRACTORS,
PROPRIETORS OR OPERATORS OF DOCKYARD, AND OTHERS. ... warehousemen;
plumbers, smiths; house or sign painters; lithographers, publishers, except those
engaged in the publication or printing and publication of any newspaper,
magazine, review or bulletin which appear at regular intervals with fixed prices
for subscription and sale, and which is not devoted principally to the publication
of advertisements; printers and bookbinders, business agents and other

independent contractors, shall pay a tax equivalent to THREE PERCENTUM of

their gross receipts. ... .
Respondent disclaims liability under the provisions quoted above, alleging that it is not
engaged the business of storing its planters' sugar for profit; that the maintenance of its
warehouses is merely incidental to its business of manufacturing sugar and in
compliance with its obligation to its planters. We find this to be without merit.
It is clear from the facts of the case that, after manufacturing the sugar of its planters,
respondent stores it in its warehouses and issues the corresponding "quedans" to the
planters who own the sugar; that while the sugar is stored free during the first ninety
days from the date the it "quedans" are issued, the undisputed fact is that, upon the
expiration of said period, respondent charger, and collects storage fees; that for the
period beginning 1949 to 1957, respondent's total gross receipts from this particular
enterprise amounted to P212,853.00.
A warehouseman has been defined as one who receives and stores goods of another for
compensation (44 Words and Phrases, p. 635). For one to be considered engaged in the
warehousing business, therefore, it is sufficient that he receives goods owned by
another for storage, and collects fees in connection with the same. In fact, Section 2 of
the General Bonded Warehouse Act, as amended, defines a warehouseman as "a person
engaged in the business of receiving commodity for storage."
That respondent stores its planters' sugar free of charge for the first ninety days does
not exempt it from liability under the legal provisions under consideration. Were such
fact sufficient for that purpose, the law imposing the tax would be rendered
ineffectual. 1wph1.t
Neither is the fact that respondent's warehousing business is carried in addition to, or in
relation with, the operation of its sugar central sufficient to exempt it from payment of
the tax prescribed in the legal provisions quoted heretofore Under Section 178 of the
National Internal Revenue Code, the tax on business is payable for every separate or
distinct establishment or place where business subject to the tax is conducted, and one
line of business or occupation does not become exempt by being conducted with some
other business or occupation for which such tax has been paid.
Lastly, respondent's contention that the imposition of the tax under consideration would
amount to double taxation is likewise without merit. As is clear from the facts,
respondent's warehousing business, although carried on in relation to the operation of
its sugar central, is a distinct and separate business taxable under a different provision
of the Tax Code. There can be no double taxation where the State merely imposes a tax
on every separate and distinct business in which a party is engaged. Moreover,
in Manufacturers Life insurance Co. vs. Meer, G.R. No. L-2910, June 29, 1951; City of
Manila vs. Inter-Island Gas service, G.R. L-8799, August 31, 1956, We have ruled that
there is no prohibition against double or multiple taxation in this jurisdiction.

WHEREFORE, the decision appealed from is reversed and set aside, with costs.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,,
Paredes and Makalintal, JJ., concur.
Regala, J., took no part.
Villanueva vs. Iloilo City GR L-26521, 28 December 1968 En Banc, Castro (J): 8
concur
Facts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86
imposing license tax fees upon tenement house (P25); tenement house partly engaged
or wholly engaged in and dedicated to business in Baza, Iznart, and Aldeguer Streets
(P24 per apartment); and tenement house, partly or wholly engaged in business in other
streets (P12 per apartment). The validity of such ordinance was challenged by Eusebio
and Remedios Villanueva, owners of four tenement houses containing 34 apartments.
The Supreme Court held the ordinance to be ultra vires. On 15 January 1960, however,
the municipal board, believing that it acquired authority to enact an ordinance of the
same nature pursuant to the Local Autonomy Act, enacted Ordinance 11 (series of
1960), Eusebio and Remedios Villaniueva assailed the ordinance anew.
Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.
Held: The Court has ruled that tenement houses constitute a distinct class of property;
and that taxes are uniform and equal when imposed upon all property of the same class
or character within the taxing authority. The fact that the owners of the other classes of
buildings in Iloilo are not imposed upon by the ordinance, or that tenement taxes are
imposed in other cities do not violate the rule of equality and uniformity. The rule does
not require that taxes for the same purpose should be imposed in different territorial
subdivisions at the same time. So long as the burden of tax falls equally and impartially
on all owners or operators of tenement houses similarly classified or situated, equality
and uniformity is accomplished. The presumption that tax statutes are intended to
operate uniformly and equally was not overthrown herein.
FULL TEXT: Appeal by the defendant City of Iloilo from the decision of the Court of First
Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance
Imposing Municipal License Tax On Persons Engaged In The Business Of Operating
Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums
of collected from them under the said ordinance.
On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86,
imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00
annually; (2) tenement house, partly or wholly engaged in or dedicated to business in
the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement
house, partly or wholly engaged in business in any other streets, P12.00 per apartment.
The validity and constitutionality of this ordinance were challenged by the spouses
Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses
containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and
Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not

appearing that the power to tax owners of tenement houses is one among those clearly
and expressly granted to the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the
passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had
acquired the authority or power to enact an ordinance similar to that previously
declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder
quoted in full:
AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN
THE BUSINESS OF OPERATING TENEMENT HOUSES
Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the
provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of
Local Government, that:
Section 1. A municipal license tax is hereby imposed on tenement houses in
accordance with the schedule of payment herein provided.
Section 2. Tenement house as contemplated in this ordinance shall mean any
building or dwelling for renting space divided into separate apartments or
accessorias.
Section 3. The municipal license tax provided in Section 1 hereof shall be as
follows:

I. Tenement houses:

(a) Apartment house made of strong materials

P20.00 per door

p.a.

(b) Apartment house made of mixed materials

P10.00 per door

p.a.

II Rooming house of strong materials

P10.00 per door

p.a.

Rooming house of mixed materials

P5.00 per door p.a.

III. Tenement house partly or wholly engaged in or

dedicated to business in the following streets: J.M. Basa,
Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay
to Valeria. St.

P30.00 per door

p.a.

IV. Tenement house partly or wholly engaged in or

dedicated to business in any other street

P12.00 per door

p.a.

V. Tenement houses at the streets surrounding the super

market as soon as said place is declared commercial

P24.00 per door

p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby

amended.
Section 5. Any person found violating this ordinance shall be punished with a
fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not
more than six (6) months or both at the discretion of the Court.
Section 6 This ordinance shall take effect upon approval.
ENACTED, January 15, 1960.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of
five tenement houses, aggregately containing 43 apartments, while the other appellees
and the same Remedios S. Villanueva are owners of ten apartments. Each of the
appellees' apartments has a door leading to a street and is rented by either a Filipino or
Chinese merchant. The first floor is utilized as a store, while the second floor is used as
a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment
buildings for rent in Bacolod, Dumaguete City, Baguio City and Quezon City, which
cities, according to him, do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses
Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of
P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S.
Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has
likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an
amended complaint, respectively, against the City of Iloilo, in the aforementioned court,
praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the
powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for
being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of
the equal protection clause of the Constitution," and that the City be ordered to refund
the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal
on the grounds that (a) "Republic Act 2264 does not empower cities to impose
apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it
penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only
double taxation, but treble at that and (d) it violates the rule of uniformity of taxation.
The issues posed in this appeal are:
1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes
double taxation?
2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement
taxes?
3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it
carries a penal clause?
4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation?
1. The pertinent provisions of the Local Autonomy Act are hereunder quoted:
SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities,
municipalities and municipal districts shall have authority to impose municipal
license taxes 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 licences 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 services
rendered by the city, municipality or municipal district; to regulate and impose
reasonable fees for services rendered 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; Provided, That municipalities and municipal districts shall, in no case,
impose any percentage tax on sales or other taxes in any form based thereon nor
impose taxes on articles subject to specific tax, except gasoline, under the
provisions of the National Internal Revenue Code;Provided, however, That no city,
municipality or municipal district may levy or impose any of the following:
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and publication of
any newspaper, magazine, review or bulletin appearing at regular intervals and
having fixed prices for for subscription and sale, and which is not published
primarily for the purpose of publishing advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public utilities
except electric light, heat and power;
(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis
causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage dues on wharves owned by the national
government, tonnage, and all other kinds of customs fees, charges and duties;
(j) Taxes of any kind on banks, insurance companies, and persons paying
franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance directly
with foreign insurance companies.
A tax ordinance shall go into effect on the fifteenth day after its passage, unless
the ordinance shall provide otherwise: Provided, however, That the Secretary of
Finance shall have authority to suspend the effectivity of any ordinance within
one hundred and twenty days after its passage, if, in his opinion, the tax or fee
therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and
when the said Secretary exercises this authority the effectivity of such ordinance
shall be suspended.
In such event, the municipal board or city council in the case of cities and the
municipal council or municipal district council in the case of municipalities or
municipal districts may appeal the decision of the Secretary of Finance to the
court during the pendency of which case the tax levied shall be considered as
paid under protest.
It is now settled that the aforequoted provisions of Republic Act 2264 confer on local
governments broad taxing authority which extends to almost "everything, excepting
those which are mentioned therein," provided that the tax so levied is "for public
purposes, just and uniform," and does not transgress any constitutional provision or is
not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a
city or municipal ordinance, is not within the exceptions and limitations aforementioned,
the same comes within the ambit of the general rule, pursuant to the rules of expressio
unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti.
Does the tax imposed by the ordinance in question fall within any of the exceptions
provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to
determine the true nature of the tax. The appellees strongly maintain that it is a
"property tax" or "real estate tax,"3 and not a "tax on persons engaged in any
occupation or business or exercising privileges," or a license tax, or a privilege tax, or
an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses," while section 1
thereof states that a "municipal license tax is hereby imposed on tenement houses." It
is the phraseology of section 1 on which the appellees base their contention that the tax
involved is a real estate tax which, according to them, makes the ordinance ultra

vires as it imposes a levy "in excess of the one per centum real estate tax allowable
under Sec. 38 of the Iloilo City Charter, Com. Act 158." 5.
It is our view, contrary to the appellees' contention, that the tax in question is not a real
estate tax. Obviously, the appellees confuse the tax with the real estate tax within the
meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has
counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the
ownership of lands and buildings or other improvements thereon, not specially
exempted,8 and is payable regardless of whether the property is used or not, although
the value may vary in accordance with such factor.9 The tax is usually single or
indivisible, although the land and building or improvements erected thereon are
assessed separately, except when the land and building or improvements belong to
separate owners.10 It is a fixed proportion11 of the assessed value of the property taxed,
and requires, therefore, the intervention of assessors.12 It is collected or payable at
appointed times,13 and it constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of the owner.
The tax imposed by the ordinance in question does not possess the aforestated
attributes. It is not a tax on the land on which the tenement houses are erected,
although both land and tenement houses may belong to the same owner. The tax is not
a fixed proportion of the assessed value of the tenement houses, and does not require
the intervention of assessors or appraisers. It is not payable at a designated time or
date, and is not enforceable against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.
"The spirit, rather than the letter, or an ordinance determines the construction thereof,
and the court looks less to its words and more to the context, subject-matter,
consequence and effect. Accordingly, what is within the spirit is within the ordinance
although it is not within the letter thereof, while that which is in the letter, although not
within the spirit, is not within the ordinance."15 It is within neither the letter nor the spirit
of the ordinance that an additional real estate tax is being imposed, otherwise the
subject-matter would have been not merely tenement houses. On the contrary, it is
plain from the context of the ordinance that the intention is to impose a license tax on
the operation of tenement houses, which is a form of business or calling. The ordinance,
in both its title and body, particularly sections 1 and 3 thereof, designates the tax
imposed as a "municipal license tax" which, by itself, means an "imposition or exaction
on the right to use or dispose of property, to pursue a business, occupation, or calling,
or to exercise a privilege."16.
"The character of a tax is not to be fixed by any isolated words that may
beemployed in the statute creating it, but such words must be taken in the
connection in which they are used and the true character is to be deduced from
the nature and essence of the subject."17 The subject-matter of the ordinance is
tenement houses whose nature and essence are expressly set forth in section 2
which defines a tenement house as "any building or dwelling for renting
space divided into separate apartments or accessorias." The Supreme Court,
in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959,
adopted the definition of a tenement house18 as "any house or building, or
portion thereof, which is rented, leased, or hired out to be occupied, or is
occupied, as the home or residence of three families or more living
independently of each other and doing their cooking in the premises or by more
than two families upon any floor, so living and cooking, but having a common

right in the halls, stairways, yards, water-closets, or privies, or some of them."

Tenement houses, being necessarily offered for rent or lease by their very nature
and essence, therefore constitute a distinct form of business or calling, similar to
the hotel or motel business, or the operation of lodging houses or boarding
houses. This is precisely one of the reasons why this Court, in the said case of
City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance
86 ultra vires, because, although the municipal board of Iloilo City is empowered,
under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and
regulate hotels, restaurants, refreshment parlors, cafes, lodging houses,
boarding houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different business
enterprise,19 are not mentioned in the aforestated section of the City Charter of
Iloilo. Thus, in the aforesaid case, this Court explicitly said:.
"And it not appearing that the power to tax owners of tenement houses is one
among those clearly and expressly granted to the City of Iloilo by its Charter, the
exercise of such power cannot be assumed and hence the ordinance in question
is ultra vires insofar as it taxes a tenement house such as those belonging to
defendants." .
The lower court has interchangeably denominated the tax in question as a tenement tax
or an apartment tax. Called by either name, it is not among the exceptions listed in
section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance
of a license tax on persons engaged in the business of operating tenement houses finds
authority in section 2 of the Local Autonomy Act which provides that chartered cities
have the authority to impose municipal license taxes or fees upon persons engaged in
any occupation or business, or exercising privileges within their respective territories,
and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double taxation but
treble at that," because "buildings pay real estate taxes and also income taxes as
provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the
tenement tax under the said ordinance." Obviously, what the trial court refers to as
"income taxes" are the fixed taxes on business and occupation provided for in section
182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged
in "leasing or renting property, whether on their account as principals or as owners of
rental property or properties," are considered "real estate dealers" and are taxed
according to the amount of their annual income.20.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of
the National Internal Revenue Code as real estate dealers, and still taxable under the
ordinance in question, the argument against double taxation may not be invoked. The
same tax may be imposed by the national government as well as by the local
government. There is nothing inherently obnoxious in the exaction of license fees or
taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.21.
The contention that the plaintiffs-appellees are doubly taxed because they are paying
the real estate taxes and the tenement tax imposed by the ordinance in question, is
also devoid of merit. It is a well-settled rule that a license tax may be levied upon a
business or occupation although the land or property used in connection therewith is
subject to property tax. The State may collect an ad valorem tax on property used in a

calling, and at the same time impose a license tax on that calling, the imposition of the
latter kind of tax being in no sensea double tax.22.
"In order to constitute double taxation in the objectionable or prohibited sense
the same property must be taxed twice when it should be taxed but once; both
taxes must be imposed on the same property or subject-matter, for the same
purpose, by the same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must be
the same kind or character of tax."23 It has been shown that a real estate tax and
the tenement tax imposed by the ordinance, although imposed by the
sametaxing authority, are not of the same kind or character.
At all events, there is no constitutional prohibition against double taxation in the
Philippines.24 It is something not favored, but is permissible, provided some other
constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform."25.
3. The appellant City takes exception to the conclusion of the lower court that the
ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00
or imprisonment of 6 months or both, if the owner or owners of the tenement buildings
divided into apartments do not pay the tenement or apartment tax fixed in said
ordinance," but also unconstitutional as it subjects the owners of tenement houses to
criminal prosecution for non-payment of an obligation which is purely sum of money."
The lower court apparently had in mind, when it made the above ruling, the provision of
the Constitution that "no person shall be imprisoned for a debt or non-payment of a poll
tax."26 It is elementary, however, that "a tax is not a debt in the sense of an obligation
incurred by contract, express or implied, and therefore is not within the meaning of
constitutional or statutory provisions abolishing or prohibiting imprisonment for debt,
and a statute or ordinance which punishes the non-payment thereof by fine or
imprisonment is not, in conflict with that prohibition." 27 Nor is the tax in question a poll
tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a
certain class, resident within a specified territory, without regard to their property or the
occupations in which they may be engaged.28 Therefore, the tax in question is not
oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for violations of ordinances, which
shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such
fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila,
supra, this Court overruled the pronouncement of the lower court declaring illegal and
void an ordinance imposing an occupation tax on persons exercising various professions
in the City of Manilabecause it imposed a penalty of fine and imprisonment for its
violation.30.
4. The trial court brands the ordinance as violative of the rule of uniformity of taxation.
"... because while the owners of the other buildings only pay real estate tax and
income taxes the ordinance imposes aside from these two taxes an apartment or
tenement tax. It should be noted that in the assessment of real estate tax all
parts of the building or buildings are included so that the corresponding real
estate tax could be properly imposed. If aside from the real estate tax the owner
or owners of the tenement buildings should pay apartment taxes as required in
the ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue that there is
"lack of uniformity" and "relative inequality," because "only the taxpayers of the City of
Iloilo are singled out to pay taxes on their tenement houses, while citizens of other
cities, where their councils do not enact a similar tax ordinance, are permitted to escape
such imposition." .
It is our view that both assertions are undeserving of extended attention. This Court has
already ruled that tenement houses constitute a distinct class of property. It has likewise
ruled that "taxes are uniform and equal when imposed upon all property of the same
class or character within the taxing authority."31 The fact, therefore, that the owners of
other classes of buildings in the City of Iloilo do not pay the taxes imposed by the
ordinance in question is no argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity violated by the fact that
tenement taxesare not imposed in other cities, for the same rule does not require that
taxes for the same purpose should be imposed in different territorial subdivisions at the
same time.32So long as the burden of the tax falls equally and impartially on all owners
or operators of tenement houses similarly classified or situated, equality and uniformity
of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in
the City of Iloilo, have not shown that the tax burden is not equally or uniformly
distributed among them, to overthrow the presumption that tax statutes are intended to
operate uniformly and equally.34.
5. The last important issue posed by the appellees is that since the ordinance in the
case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was
declared by this Court in L-12695, supra, as ultra vires, the decision in that case should
be accorded the effect of res judicata in the present case or should constitute estoppel
by judgment. To dispose of this contention, it suffices to say that there is no identity of
subject-matter in that case andthis case because the subject-matter in L-12695 was an
ordinance which dealt not only with tenement houses but also warehouses, and the said
ordinance was enacted pursuant to the provisions of the City charter, while the
ordinance in the case at bar was enacted pursuant to the provisions of the Local
Autonomy Act. There is likewise no identity of cause of action in the two cases because
the main issue in L-12695 was whether the City of Iloilo had the power under its charter
to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act
which took effect on June 19, 1959, and therefore was not available for consideration in
the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the
provisions of section 2 of the Local Autonomy Act, local governments may now tax any
taxable subject-matter or object not included in the enumeration of matters removed
from the taxing power of local governments.Prior to the enactment of the Local
Autonomy Act the taxes that could be legally levied by local governments were only
those specifically authorized by law, and their power to tax was construed in strictissimi
juris. 35.
ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing
valid, the complaint is hereby dismissed. No pronouncement as to costs..
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez,Fernando and
Capistrano, JJ., concur..

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16619

June 29, 1963

COMPAIA GENERAL DE TABACOS DE FILIPINAS, plaintiff-appellee,

vs.
CITY OF MANILA, ET AL., defendants-appellants.
Facts: Compania General de Tabacos de Filipinas (Tabacalera) paid the City of Manila
the fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957. In
1954, City Ordinance 3634 and 3816 were passed; where the term general
merchandise found therein included all articles in Sections 123 to 148 of the Tax Code
(thus, also liquor under Sedctions 133 to 135). The Tabacalera paid its wholesalers and
retailers taxes. In 1954, the City Treasurer addressed a letter to an accounting firm,
expressing the view that liquor dealers paying the annual wholesale and retail fixed tax
under Ordinance 3358 are not subject to the wholesale aand retail deaklers taxes
prescribed by City Ordinances 3634, 3301, and 3816. The Tabacalera, upon learning of
said stopped including quarterly sworn declaratons required by the latter ordinances,
and in 1957, demanded refunde of the alleged overpayment. The claim was disallowed.
Issue: Whether there is a distinction between Ordinance 3358 and Ordinances 3634,
3301 and 3816, to prevent refund to the company.
Held: Generally, the term tax applies to all kinds of exactions which become public
funds. Legally, however, a 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. Ordinance
3358 prescribes municipal license fees for the privilege to engage in the business of
selling liquor or alcohol beverages; considering that the sale of intoxicating liquor is
(potentially) harmful to public health and morals, and must be subject to supervision or
regulation by the State and by cities and municipalities authorized to act in the
premises. On the other hand, Ordinances 3634 , 3301 and 3816 imposed taxes on the
sales of general merchandise, wholesale or retail, and are revenue measures enacted by
the Municipal Board of Manila. Both a license fee and a tax may be imposed on the
same business or occupation, or for selling the same article, without it being in violation
of the rule against double taxation. The contrary view of the Treasurer in its letter is of
no consequence as the government is not bound by the errors or mistakes committed
by its officers, specially on matters of law. The company, thus, is not entitled to refund.
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.

FULL TEXT: 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
the sales taxes required 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 sales of 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 the liquor sales 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 fees prescribed by Ordinance No. 3358, aside
from the sales taxes imposed 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 its liquor sales, 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
(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
regulations marked 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
included liquor among the taxable articles. Pursuant to said regulations, Tabacalera
included its sales of liquor in 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 liquor in 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 and 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 or market; 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 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 fee under 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.
Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Barrera, Paredes, Regala and
Makalintal, JJ., concur.
Bengzon, C.J. and Concepcion, J., took no part.
G.R. No. L-20312 February 26, 1972
SAN MIGUEL BREWERY, INC., plaintiff-appellant,
vs.
THE CITY OF CEBU, defendant-appellee.
G.R. No. L-20496 February 26, 1972

CEBU PORTLAND CEMENT COMPANY, plaintiff-appellant,

vs.
MUNICIPALITY OF NAGA, CEBU and THE MUNICIPAL TREASURER, NAGA,
CEBU, defendants-appellees.

HELD: Double taxation is not prohibited by the Constitution and there is double taxation
when thesame person is taxed by the same jurisdiction for the same purpose. This is not
the case in the casea t b a r f o r t h e o r d i n a n c e i n q u e s t i o n i m p o s e s a t a x o n
t h e s a l e o r d i s p o s a l o f e v e r y b o t t l e o r container of liquor or intoxicating
beverages, and, as such, is a typical tax or revenue measure,whereas the fee it pays
annually is for a "second-class wholesale liquor license," which is a
licenset o e n g a g e i n t h e b u s i n e s s o f w h o l e s a l e l i q u o r i n C e b u
C i t y , a n d , a c c o r d i n g l y , c o n s t i t u t e s a regulatory measure, in the exercise
of the police power
The above-entitled cases are jointly disposed of in this decision owing to the common
issue therein namely, the extent of the taxing power of municipal corporations under
section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act.
In L-20312, plaintiff San Miguel Brewery, Inc. hereinafter referred to as SMB assails
the validity of Ordinance No. 298, as amended by Ordinance No. 300, both series of
1960, of the City of Cebu, providing that "(t)here shall be collected on any sale or
disposal of liquor or intoxicating beverages of any form in the City of Cebu by
manufacturers and wholesalers for purposes of a municipal tax the following rates: .
(a) On sales or disposal per bottle or container not exceeding P.50, a tax of
P.03;
(b) On sales or disposal per bottle or container over P.50, but not
exceeding P1, a tax of P.05;
(c) On sales or disposal per bottle or container over P1, but not exceeding
P2, a tax of P.15;
(d) On sales or disposal per bottle or container exceeding P2, the amount
of tax provided under schedule C, plus P.10 per P1, or a fraction thereof.
PROVIDED, however, that manufacturers, who are at the same time
wholesalers of their own product, shall pay only as manufacturers under
the rates specified hereinabove.
Pursuant to said ordinance, the SMB which is engaged in the manufacture, bottling,
distribution and sale of beer throughout the Philippines, including the defendant Cebu
City, paid thereto, under protest, on April 20, 1961, the sum of P29,874.69, the refund

of which is prayed for in the complaint herein, upon the ground that said ordinance
is ultra vires, for imposing a sales tax, which is allegedly beyond defendant's power to
levy, apart from resulting in illegal double taxation, since SMB already pays the
defendant a business license tax of P600 per annum. The Court of First Instance of
Manila having rendered judgment dismissing the complaint, with costs, plaintiff seeks a
review by record on appeal.
In L-20496, the Cebu Portland Cement Company Cebu Portland for short seeks to
annul Ordinance No. 22, series of 1959, of the Municipality of Naga, Cebu, imposing
upon "all cement factories, corporations, or enterprises operating within" said
municipality "an annual municipal license tax, payable quarterly, graduated" according
to the "maximum annual output capacity" of the factory, as follows: P150 if the capacity
is not more than 10,000 bags of cement; P300, if over 10,000 but not more than 20,000
bags; P450, if over 20,000 but not more than 30,000 bags; P600, if over 30,000 but not
more than 40,000 bags; P750, if over 40,000 but not more than 50,000 bags; P900, if
over 50,000 but not more than 60,000 bags; and P75 for every 5,000 bags or fraction
thereof in excess of 60,000 bags.
Having failed to pay said tax for the years 1960 and 1961, and the corresponding
penalties therefor, 100,000 bags of cement of Cebu Portland were placed under distraint
and levy by the municipal treasurer of Naga. This triggered the filing by Cebu Portland
of two (2) actions, namely: 1) one to impugn the validity of the distraint and then the
sale of said 100,000 bags of cement, both of which were, in due course, upheld by the
Court of First Instance of Manila, the decision of which was, on appeal, affirmed by Us 1;
and 2) the present case, to annul said ordinance and secure the refund of P44,000,
subsequently paid under protest by Cebu Portland, in partial satisfaction of its tax
liability, which said plaintiff contests as illegal upon the theory that it partakes of the
nature of a specific tax and that it is allegedly unjust, excessive, oppressive and
confiscatory. The defendants having obtained a favorable judgment in the Court of First
Instance of Manila, Cebu Portland appealed by record on appeal.
Said section 2 of Republic Act No. 2264 reads as follows: .
"SEC. 2. Taxation. -- Any provision of law to the contrary notwithstanding,
all chartered cities, municipalities and municipal districts shall 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 services rendered by the
city, municipality or municipal district; to regulate and impose reasonable
fees for services rendered 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: Provided, That municipalities and municipal districts shall,

in no case, impose any percentage tax on sales or other taxes in any form
based thereon nor impose taxes on articles subject to specific tax, except
gasoline, under the provisions of the national internal revenue
code: Provided, however,That no city, municipality or municipal district
may levy or impose any of the following: .
(a) Residence tax;
(b) Documentary stamp tax;
(c) Taxes on the business of persons engaged in the printing and
publication of any newspaper, magazine, review or bulletin appearing at
regular intervals and having fixed prices for subscription and sale, and
which is not published primarily for the purpose of publishing
advertisements;
(d) Taxes on persons operating waterworks, irrigation and other public
utilities except electric light, heat and power;
(e) Taxes on forest products and forest concessions;
(f) Taxes on estates, inheritances, gifts, legacies, and other
acquisitions mortis causa;
(g) Taxes on income of any kind whatsoever;
(h) Taxes or fees for the registration of motor vehicles and for the issuance
of all kinds of licenses or permits for the driving thereof;
(i) Customs duties registration, wharfage on wharves owned by the
national government, tonnage, and all other kinds of customs fees,
charges and dues;
(j) Taxes of any kind on banks, insurance companies, and persons paying
franchise tax; and
(k) Taxes on premiums paid by owners of property who obtain insurance
directly with foreign insurance companies." .
Referring to the above provision, this Court declared in Nin Bay Mining Co. vs.
Municipality of Roxas, Palawan, 2that "Republic Act No. 2264 confers upon all chartered
cities, municipalities and municipal districts the general power to levy, not only taxes,
but, also, municipal license taxes, subject to specified exceptions, as well as service
fees." Subsequently, Luzon Surety Co., Inc. vs. City of Bacolod 3 cited with approval the
fact that this Court had consistently upheld the "doctrine that the grant of the power to
tax to chartered cities under section 2 of the Local Autonomy Act issufficiently plenary

to cover everything excepting those which are mentioned therein, subject only to the
limitation that the tax so levied is for public purposes, just and uniform." 4
Appellant in L-20312 questions the conclusions reached in the decision appealed from,
to the effect that the first proviso in the above-quoted provision, prohibiting
"municipalities and municipal districts" from imposing "any percentage tax on sales or
other taxes in any form based thereon," implies that cities, like appellee therein, are not
subject to said restriction, and that the contested ordinance is not invalid upon the
ground of double taxation.
We find no merit in this pretense, for: (a) double taxation is not prohibited by the
Constitution 5; (b) there is double taxation when the same person is taxed by the same
jurisdiction for the same purpose, 6 which is not the case in L-20312, for the ordinance in
question imposes a tax on the sale or disposal of every "bottle or container" of "liquor
intoxicating beverages," and, as such, is a typical tax or revenue measure, whereas the
sum of P600 it pays annually is for a "second-class wholesale liquor license," which is a
license to engage in the business of wholesale liquor in Cebu City, and, accordingly,
constitutes a regulatory measure, in the exercise of the police power; 7 and (c) the
authority of cities under the above -- quoted section 2 of Rep. Act No. 2264, to impose a
sales tax has already been upheld in City of Bacolod vs. Gruet8 and Pepsi-Cola Bottling
Co. of the Philippines, Inc. vs. City of Butuan, 9 and We find no plausible reason to depart
from said view.
Neither is there any merit in the contention of Cebu Portland in L-20496, to the effect
that the tax involved therein partakes of the nature of a percentage or sales tax or a
specific tax, merely because the amount of the tax is dependent upon the maximum
annual capacity of the cement factory subject thereto. Settled is the rule that a
graduation of the tax based upon the taxpayer's volume of business, when the same is
considered solely for purposes of classification, and there is no set ratio between said
volume and the amount of the tax, does not render the latter invalid as a sales,
percentage or specific tax. Thus, in Northern Philippines Tobacco Corporation vs.
Municipality of Agoo, La Union, 10 We held: .
The circumstance that the rate of tax payable under the ordinance is
made to some extent dependent on the minimum and maximum quantity
of tobacco redried per quarter, does not transform said tax into a
percentage or sales or income tax and does not bring the case out of the
council's authorized sphere of action. It may be noted that, as framed in
the ordinance, the volume of business is merely taken into account in
classifying the taxpayer's business according to its size or extent of
operations, for the purpose of imposing the fixed graduated tax it has to
pay; and that there is no set ratio between the tax and the amount of
tobacco redried.
This criterion was, also, adhered to in Nin Bay Mining Co. vs. Municipality of Roxas, 11 Li
Seng Giap vs. Municipality of Daet, 12 Standard-Vacuum Oil Co. vs. Antigua, 13 Shell Co.

of P.I. vs. Vano, 14 Syjuco vs. Municipality of Paraaque,15 Marinduque Iron Mines Agents,
Inc. vs. Municipal Council of Hinabangan, 16 and Victorias Milling Co., Inc. vs.
Municipality of Victorias. 17
For the rest, Cebu Portland has not introduced any evidence in support of its claim that
the tax in question is excessive, oppressive, and confiscatory. Hence, this objection
cannot be sustained for: .
An 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
prohibitive. 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." 18
In Northern Philippines Tobacco Corporation vs. Municipality of Agoo,
was disposed of in the following language: .

19

a similar charge

We find nothing in the record, however, to supports such charge. Appellant

has failed to present proof of the existing municipal conditions and the
nature of its business, as well as other factors that would have been
relevant to the issue of the arbitrariness or unreasonableness of the
questioned rates. An increase in the rate of tax alone would not support
the claim that it is oppressive, unjust and confiscatory; municipal
corporations are allowed much discretion in determining the rates of
imposable license fees, even in cases of purely police power-measures.
WHEREFORE, the decisions appealed from should be and are hereby affirmed, with costs
against plaintiffs-appellants San Miguel Brewery, Inc. and Cebu Portland Cement
Company. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.
Procter and Gamble vs. Jagna GR L-24265, 28 December 1979 First Division, Melencio
Herrera (J): 8 concur
Facts: Procter and Gamble Philippines Manufacturing Corp. is a consolidated
corporation of Procter and Gamble Trading Company. It is engaged in the manufacture
of soap, edible oil, margarine and otehr similar products; and maintains a bodega in
the municipality of Jagna, where it stores copra purchased in the municipality and
therefrom ships the same for its manufacturing and other operations. In 1954, the
Municipal Council enacted Ordinance 4, imposing storage fees of all exportable copra
deposite in the bodega within the jurisdiction of the municipality of Jagna, Bohol. From
1958 to 1963, the company paid the municipality, allegedly under protest, storage fees.

In 1964, it filed suit, wherein it prayed that the Ordinance be declared inapplicable to it,
and if not, that it be declared ultra vires and void.
Issue: Whether the Ordinance i s void, as it amounts to double taxation.
Held: The validity of the Ordinance must be upheld pursuant to the broad authority
conferred upon municipalities by Commonwealth Act 472 (promulgated 1939), which
was the prevailing law when the Ordinance is actually a municipal license tax or fee on
persons, firms and corporations exercising the privilege of storing copra within the
municipalitys territorial jurisdiction. Such fees imposed do not amount to double
taxation. For double taxation to exist, the same property must be taxed twice, when it
should be taxed but once. A tax on the companys producs is different from the tax on
the privilege of storing copra in a bodega situated within the territorial boundary of the
municipality
FULL TEXT: A direct appeal by plaintiff company from the judgment of the Court of First
Instance of Manila, Branch VI, upholding the validity of Ordinance No. 4, Series of 1957,
enacted by defendant Municipality, which imposed "storage fees on all exportable copra
deposited in the bodega within the jurisdiction of the Municipality of Jagna Bohol.
Plaintiff-appellant is a domestic corporation with principal offices in Manila. lt is a
consolidated corporation of Procter & Gamble Trading Company and Philippine
Manufacturing Company, which later became Procter & Gamble Trading Company,
Philippines. It is engaged in the manufacture of soap, edible oil, margarine and other
similar products, and for this purpose maintains a "bodega" in defendant Municipality
where it stores copra purchased in the municipality and therefrom ships the same for its
manufacturing and other operations.
On December 13, 1957, the Municipal Council of Jagna enacted Municipal Ordinance No.
4, Series of 1957, quoted hereinbelow:
AN ORDINANCE IMPOSING STORAGE FEES OF ALL EXPORTABLE COPRA
DEPOSITED IN THE BODEGA WITHIN THE JURISDlCTI0N OF THE
MUNICIPALITY OF JAGNA BOHOL.
Be it ordained by the Municipal Council of Jagna Bohol, that:
SECTION 1. Any person, firm or corporation having a deposit of exportable
copra in the bodega, within the jurisdiction of the Municipality of Jagna
Bohol, shall pay to the Municipal Treasury a storage fee of TEN (P0.10)
CENTAVOS FOR EVERY HUNDRED (100) kilos;
SECTION 2. All exportable copra deposited in the bodega within the
Municipality of Jagna Bohol, is part of the surveillance and lookout of the
Municipal Authorities;
SECTION 3. Any person, firm or corporation found violating the provision of
the preceding section of this Ordinance shall be punished by a fine of not
less than TWO HUNDRED (P 200.00) PESOS, nor more than FOUR

HUNDRED (P400.00) PESOS, or an imprisonment of hot less than ONE

MONTH, nor more than THREE MONTHS, or both fines and imprisonment at
the discretion of the court.
SECTION 4. This Ordinance shall take effect on January 1, 1958.
APPROVED December 13,1957.
(Sgd.) TEODORO B. GALACAR Municipal Mayor

For a period of six years, from 1958 to 1963, plaintiff paid defendant Municipality,
allegedly under protest, storage fees in the total sum of 1142,265.13, broken down as
follows:
Procter & Gamble Trading Co. Procter & Gamble Philippine Manufacturing Corp.

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On March 3, 1964, plaintiff filed this suit in the Court of First Instance of Manila, Branch
VI, wherein it prayed that 1) Ordinance No. 4 be declared inapplicable to it, or in the
alter. native, that it be pronounced ultra-vires and void for being beyond the power of
the Municipality to enact; and 2) that defendant Municipality be ordered to refund to it
the amount of P42,265.13 which it had paid under protest; and costs.
For its part, defendant Municipality upheld its power to enact the Ordinance in question;
questioned the jurisdiction of the trial Court to take cognizance of the action under
section 44(h) of the Judiciary Act in that it seeks to enjoin the enforcement of a
Municipal Ordinance; and pleaded prescription and laches for plaintiff's failure to timely
question the validity of the said Ordinance.
After the parties had agreed to submit the case for judgment on the pleadings, the trial
Court upheld its jurisdiction as well as defendant Municipality's power to enact the
Ordinance in question under section 2238 of the Revised Administrative Code, otherwise
known as the general welfare clause, and declared that plaintiff's right of action had
prescribed under the 5-year period provided for by Article 1149 of the Civil Code.
In this appeal, plaintiff interposes the following Assignments of Error:
I
THE TRIAL COURT ERRED IN HOLDING THAT ORDINANCE NO. 4, SERIES OF
1957, ENACTED BY THE DEFENDANT MUNICIPALITY OF JAGNA BOHOL, IS A
VALID, LEGAL AND ENFORCEABLE ORDINANCE AGAINST THE PLAINTIFF.
II

THE TRIAL COURT ERRED IN HOLDING THAT PAYMENT OF THE TAX UNDER
ORDINANCE NO. 4, SERIES OF 1957 WAS NOT DONE UNDER PROTEST.
III
THE TRIAL COURT ERRED IN HOLDING THAT THE ACTION OF THE PLAINTIFF
TO ANNUL AND TO DECLARE ORDINANCE NO. 4, SERIES OF 1957 OF THE
DEFENDANT HAS ALREADY PRESCRIBED.
IV
AND, FINALLY, THE TRIAL COURT ERRED IN NOT HOLDING ORDINANCE NO.
4. SERIES OF 1957 ULTRA-VIRES AND VOID AND IN NOT ORDERING THE
REFUND OF TAXES PAID THEREUNDER. 3
It is plaintiff's submission that the subject Ordinance is inapplicable to it as it is not
engaged in the business or trade of storing copra for others for compensation or profit
and that the only copra it stores is for its exclusive use in connection with its business
as manufacturer of soap, edible oil, margarine and other similar products; that the levy
is intended as an "export tax" as it is collected on "exportable copra' , and, therefore,
beyond the power of the Municipality to enact; and that the fee of P0.10 for every 100
kilos of copra stored in the bodega is excessive, unreasonable and oppressive and is
imposed more for revenue than as a regulatory fee.
The main question to determine is whether defendant Municipality was authorized to
impose and collect the storage fee provided for in the challenged Ordinance under the
laws then prevailing.
The validity of the Ordinance must be upheld pursuant to the broad authority conferred
upon municipalities by Commonwealth Act No. 472, approved on June 16, 1939, which
was the prevailing law when the Ordinance was enacted (Procter & Gamble Trading Co.
vs. Municipality of Medina, 43 SCRA 130 11972]). Section 1 thereof reads:
Section 1. A municipal council or municipal district council shall have the
authority to impose municipal license taxes upon persons engaged in any
occupation or business, or exercising privileges in the municipality or
municipal district, by requiring them to secure licenses at rates fixed by
the municipal council, or municipal district council, and to collect fees and
charges for services rendered by the municipality or municipal district and
shall otherwise have power to levy for public local purposes, and for
school purposes, including teachers' salaries, just and uniform taxes other
than percentage taxes and taxes on specified articles.
Under the foregoing provision, a municipality is authorized to impose three kinds of
licenses: (1) a license for regulation of useful occupation or enterprises; (2) license for
restriction or regulation of non-useful occupations or enterprises; and (3) license for
revenue. 4 It is thus unnecessary, as plaintiff would have us do, to determine whether
the subject storage fee is a tax for revenue purposes or a license fee to reimburse
defendant Municipality for service of supervision because defendant Municipality is
authorized not only to impose a license fee but also to tax for revenue purposes.

The storage fee imposed under the question Ordinance is actually a municipal license
tax or fee on persons, firms and corporations, like plaintiff, exercising the privilege of
storing copra in a bodega within the Municipality's territorial jurisdiction. For the term
"license tax" has not acquired a fixed meaning. It is often used indiseriminately to
designate impositions exacted for the exercise of various privileges. In many instances,
it refers to revenue-raising exactions on privileges or activities. 5
Not only is the imposition of the storage fee authorized by the general grant of authority
under section 1 of CA No. 472. Neither is the storage fee in question prohibited nor
beyond the power of the municipal councils and municipal district councils to impose, as
listed in section 3 of said CA No. 472. 6
Moreover, the business of buying and selling and storing copra is property the subject of
regulation within the police power granted to municipalities under section 2238 of the
Revised Administrative Code or the "general welfare clause", which we quote
hereunder:
Section 2238. General power of council to enact ordinances and make
regulations. The municipal council shall enact such ordinances and
make such regulations, not repugnant to law, as may be necessary to
carry into effect and discharge the powers and duties conferred upon it by
law and such as shall seem necessary and proper to provide for the health
and safety, promote the prosperity, improve the morals, peace, good
order, comfort, and convenience of the municipality and the inhabitants
thereof, and for the protection of property therein.
For it has been held that a warehouse used for keeping or storing copra is an
establishment likely to endanger the public safety or likely to give rise to conflagration
because the oil content of the copra when ignited is difficult to put under control by
water and the use of chemicals is necessary to put out the fire. 7 And as the Ordinance
itself states, all exportable copra deposited within the municipality is "part of the
surveillance and lookout of municipal authorities.
Plaintiff's argument that the imposition of P0.10 per 100 kilos of copra stored in a
bodega within defendant's territory is beyond the cost of regulation and surveillance is
not well taken. As enunciated in the case of Victorias Milling Co. vs. Municipality of
Victorias, supra.
The cost of regulation cannot be taken as a gauge, if the municipality
really intended to enact a revenue ordinance. For, 'if the charge exceeds
the expense of issuance of a license and costs of regulation, it is a tax'.
And if it is, and it is validly imposed, 'the rule that license fees for
regulation must bear a reasonable relation to the expense of the
regulation has no application'.
Municipal corporations 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 municipal conditions and the nature of the business being taxed as well as other
factors relevant to the issue of arbitrariness or unreasonableness of the questioned
rates, Courts will go slow in writing off an Ordinance. 8 In the case at bar, appellant has

not sufficiently shown that the rate imposed by the questioned Ordinance is oppressive,
excessive and prohibitive.
Plaintiff's averment that the Ordinance, even if presumed valid, is inapplicable to it
because it is not engaged in the business or occupation of buying or selling of copra but
is only storing copra in connection with its main business of manufacturing soap and
other similar products, and that to be compelled to pay the storage fees would amount
to double taxation, does not inspire assent. The question of whether appellant is
engaged in that business or not is irrelevant because the storage fee, as previously
mentioned, is an imposition on the privilege of storing copra in a bodega within
defendant municipality by persons, firms or corporations. Section 1 of the Ordinance in
question does not state that said persons, firms or corporations should be engaged in
the business or occupation of buying or selling copra. Moreover, by plaintiff's own
admission that it is a consolidated corporation with its trading company, it will be hard
to segregate the copra it uses for trading from that it utilizes for manufacturing.
Thus, it can be said that plaintiff's payment of storage fees imposed by the Ordinance in
question does not amount to double taxation. For double taxation to exist, the same
property must be taxed twice, when it should be taxed but once. Double taxation has
also been defined as taxing the same person twice by the same jurisdiction for the
same thing. 9 Surely, a tax on plaintiff's products is different from a tax on the privilege
of storing copra in a bodega situated within the territorial boundary of defendant
municipality.
Plaintiff's further contention that the storage fee imposed by the Ordinance is actually
intended to be an export tax, which is expressly prohibited by section 2287 of the
Revised Administrative Code, is without merit. Said provision reads as follows:
Section 2287 ...
It shall not be in the power of the municipal council to impose a tax in any
form whatever upon goods and merchandise carried into the municipality,
or out of the same, and any attempt to impose an import or export tax
upon such goods in the guise of an unreasonable charge for wharfage use
of bridges or otherwise, shall be void.
xxx xxx xxx
We have held that only where there is a clear showing that what is being taxed is an
export to any foreign country would the prohibition come into play. 10 When the
Ordinance itself speaks of "exportable" copra, the meaning conveyed is not exclusively
export to a foreign country but shipment out of the municipality. The storage fee
impugned is not a tax on export because it is imposed not only upon copra to be
exported but also upon copra sold and to be used for domestic purposes if stored in any
warehouse in the Municipality and the weight thereof is 100 kilos or more. 11
Thus finding the Ordinance in question to be valid, legal and enforceable, we find it
unnecessary to discuss the ascribed error that the Court a quo erred in declaring that
appellant had not paid the taxes under protest.

However, we find merit in plaintiff's contention that the lower Court erred in ruling that
its action has prescribed under Article 1149 of the Civil Code, which provides for a
period of five years for all actions whose periods are not fixed in that Code. The case
of Municipality of Opon vs. Caltex Phil., 12 is authority for the view that the period for
prescription of actions to recover municipal license taxes is six years under Article
1145(2) of the Civil Code. Thus, plaintiff's action brought within six years from the time
the right of action first accrued in 1958 has not yet prescribed.
WHEREFORE, affirming the judgment appealed, from, we sustain the validity of
Ordinance No. 4, Series of 1957, of defendant Municipality of Jagna Bohol, under the
laws then prevailing.
Costs against plaintiff-appellant.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
[G.R. Nos. 62554-55. September 2, 1992.]
REPUBLIC BANK, Petitioner, v. COURT OF TAX APPEALS AND THE
COMMISSIONER OF INTERNAL REVENUE, Respondents.
Asisteo S. San Agustin for Petitioner.

1. TAXATION; DOUBLE TAXATION DEFINED; NOT PRESENT WHEN ONE IS A PENALTY AND
THE OTHER IS A TAX; CASE AT BAR. The wisdom of this is not the province of the
Court. It is clear from the statutes then in force that there was no double taxation
involved one was a penalty and the other was a tax. At any rate, We have upheld the
validity of double taxation. (Double taxation: when the same person is taxed by the
same jurisdiction for the same purpose. [San Miguel Brewery, Inc. v. City of Cebu 43
SCRA 275, 280]) The payment of 1/10 of 1% for incurring reserve deficiencies (Section
106, Central Bank Act) is a penalty as the primary purpose involved is regulation, while
the payment of 1% for the same violation (Second Paragraph, Section 249, NIRC) is a
tax for the generation of revenue which is the primary purpose in this instance.
Petitioner should not complain that it is being asked to pay twice for incurring reserve
deficiencies. It can always avoid this predicament by not having reserve deficiencies.
Petitioners case is covered by two special laws one a banking law and the other, a
tax law. These two laws should receive such construction as to make them harmonize
with each other and with the other body of pre-existing laws. (Commissioner of Customs
v. Esso Standard Eastern, Inc., 66 SCRA 113, 120)
2. ID.; RESERVE DEFICIENCY TAX; QUESTION ON THE COMPUTATION MUST BE RAISED AT
THE EARLIEST STAGE. Corollary issue raised by petitioner bank, is the question on
how the respondent Commissioner computed reserve deficiency taxes considering that
Sec. 249, NIRC, speaks of computation of what it calls penalty on a per month basis
while the Central Bank Act provides for the computation of the penalty on a per day
basis. It claims that respondent Commissioner never informed them of the details of
these assessments, considering the same involve complex and tedious computations. It
is too late in the day for petitioner to raise this matter for Us to resolve. The grounds

alleged by the petitioner in its motion for reconsideration of the Commissioners

assessments are the very same grounds raised in these petitions. Petitioner did not ask
the Commissioner to explain how it arrived in computing these reserve deficiency taxes.
Neither did petitioner raise this question before the Court of Tax Appeals.
3. ID.; ID.; LETTER OF INSTRUCTION NO. 1330; CONDONATION OF PENALTIES AND
OTHER SANCTIONS; COVERAGE; NOT APPLICABLE IN CASE AT BAR. petitioner bank in
its brief mentions that in Letter of Instruction No. 1330 issued by President Marcos on
June 6, 1983, the Central Bank was ordered to assist petitioner by way of full
condonation of all penalties and other sanctions of whatever kind, nature and
description, as of the date they become due, on its legal reserve deficiencies.
Consequently, petitioner insists that it is now exempted from what it claims are the
penalties imposed by the second paragraph of Section 249, NIRC. A careful study of said
LOI reveals that it was issued with respect to petitioner banks (thereafter renamed
Republic Planters Bank) role in the governments sugar production and procurement
program as the financial arm of the sugar industry when the Philippine Sugar
Commission (PHILSUCOM), created by virtue of P.D. 388 1974), bought the petitioner
bank from the Roman family. The petition at bar involves the assessments for the years
1969 and 1970. This LOI definitely does not cover the years 1969 and 1970 as it was
issued only on June 6, 1983 and covers the period when PHILSUCOM bought the then
ailing Republic Bank from the Roman family and renamed it the Philippine Planters Bank
to be used as its financial conduit for the sugar industry. Therefore, even on the thesis
that the payment made (Second paragraph, Section 249, NIRC) is a penalty, this
"penalty" for 1969 and 1970 can not be condoned as said LOI does not cover it.
________________
Petitioner Republic Bank appeals the decision of public respondent Court of Tax Appeals
dated September 30, 1982 dismissing its Petition for Review, thereby affirming public
respondent Commissioner of Internal Revenues assessment for petitioners reserve
deficiency taxes inclusive of 25% surcharge for the taxable years 1969 and 1970 in the
amounts of P1,325,768.82 and P1,953,132.67, respectively.
The antecedent facts as briefly summarized by the Solicitor General are as
follows:jgc:chanrobles.com.ph
"On 14 September 1971, respondent Commissioner assessed petitioner the amount of
P1,060,615.06, plus 25% surcharge in the amount of P265,153.76, or a total of
P1,325,768.82, as 1% monthly bank reserve deficiency tax for taxable year
1969.chanrobles lawlibrary : rednad
"In a letter dated 6 October 1971, petitioner requested reconsideration of the
assessment which respondent Commissioner denied in a letter dated 26 February 1973.
"On 5 April 1973, respondent Commissioner assessed petitioner the amount of
P1,562,506.14, plus 25% surcharge in the amount of P390,626.53, or a total of
P1,953,132.67, as 1% monthly bank reserve deficiency tax for taxable year 1970.
"In a letter dated 16 May 1973, petitioner requested reconsideration of the assessment
which respondent Commissioner denied in a letter dated 6 May 1974.
"Petitioner contends that Section 249 of the Tax Code is no longer enforceable, because
Section 126 of Act 1459, which was allegedly the basis for the imposition of the 1%

reserve deficiency tax, was repealed by Section 90 of Republic Act 337, the General
Banking Act, and by Sections 100 and 101 of Republic Act 265.
"On 28 March 1973, petitioner filed a petition for review with the Tax Court, docketed as
C.T.A. Case No. 2506, contesting the assessment for the taxable year 1969. On 3 July
1974, a similar petition, docketed as C.T.A. Case No. 2618. was filed contesting the
assessment for the taxable year 1970.
"The cases, involving similar issues, were consolidated. After hearing, the Tax Court
rendered a decision dated 30 September 1982 dismissing the petitions for review and
upholding the validity of the assessments.
"Still not satisfied, petitioner filed this petition for review." 1
Petitioner urges that the issue to be resolved in this petition is:jgc:chanrobles.com.ph
"WHETHER SECTION 249 OF THE TAX CODE WHICH PROVIDES THAT THERE SHALL BE
COLLECTED UPON THE AMOUNT OF RESERVE DEFICIENCIES INCURRED BY THE BANK . . .
AS PROVIDED IN SECTION ONE HUNDRED TWENTY-SIX OF ACT NUMBERED ONE
THOUSAND FOUR HUNDRED AND FIFTY-NINE (THE CORPORATION LAW) . . . ONE PER
CENTUM PER MONTH HAS BEEN RENDERED INOPERATIVE BY THE REPEAL OF THE
AFORESAID REFERRED PROVISION, I.E., SECTION ONE HUNDRED TWENTY-SIX OF THE
CORPORATION LAW." 2
The second paragraph of Section 249 of the Tax Code of 1970 (C.A. No. 466 as amended
by Rep. Act No. 6110) invoked by the respondent Commissioner in making the
assessments provides that:jgc:chanrobles.com.ph
"There shall be collected upon the amount of reserve deficiencies incurred by the bank,
and for the period of their duration, as provided in section one hundred twenty-six of Act
Numbered one thousand four hundred and fifty-nine, as amended by Act Numbered
three thousand six hundred and ten, one per centum per month." chanrobles virtual
lawlibrary
which paragraph was based on Sec. 26 of R.A. 337, the General Banking Act, and
Sections 100, 101, and 106 of R.A. 265, the Central Bank Act, all providing for the
reserve requirements on banking operations, while Section 126 of Act No. 1459 (The
Corporation Law), as amended by Art. 3610, reads:jgc:chanrobles.com.ph
"SEC. 126. Whenever the reserve as defined in the last preceding section of any
commercial banking corporation shall be below the amount required in that section such
commercial banking corporation shall not diminish the amount of such reserve by
making any new loans or discounts, or declare any dividend out of its profits until the
required proportion between the aggregate amount of its deposits and its reserve has
been restored. Reserve deficiencies shall be penalized at the rate of one per centum per
month upon the amount of the deficiencies and for the periods of their duration in
accordance with the regulation to be issued by the Bank Commissioner. The penalty
assessed shall be collected by the Collector of Internal Revenue in accordance with the
rules, regulations and procedure to be determined by him. In the case of any
commercial banking corporation whose reserve is continuously deficient for a period of
thirty days, the business of such corporation may be wound up by the Bank
Commissioner in accordance with section sixteen hundred and thirty-nine of Act

numbered twenty-seven hundred and eleven, as amended, known as the Administrative

Code" 3
According to petitioner, Section 126 has been expressly repealed by Section 90 of the
General Banking Act (R.A. No. 337), to wit:chanrobles law library : red
"Sec. 90. Sections one hundred seventy-five to one hundred eighty-three and one
hundred ninety-nine to two hundred seventeen of the Code of Commerce, as amended,
section one hundred three to one hundred forty-six and one hundred seventy-one to one
hundred ninety of Act Numbered fourteen hundred and fifty-nine, as amended; Acts
Numbered Thirty-one hundred and fifty-four and Thirty-five hundred and twenty, and all
laws or parts thereof, including those parts of special charters of the Philippine National
Bank and other banking institutions in the Philippines which are inconsistent herewith,
are hereby repealed.
Both petitioner and public respondent agree that:jgc:chanrobles.com.ph
". . . The requirement on the maintenance of bank reserves, previously found in Section
126 of Act 1459 (The Corporation Law), remained prescribed, after its repeal, in
a. Sec. 26, RA 337 4 subjecting the deposit liabilities of commercial banks including
the Philippine National Bank to the reserve requirements and other conditions
prescribed by the Monetary Board in accordance with the authority granted to 1t under
the Central Bank Act.
b. Sec. 100, RA 265 5 requiring banks to maintain reserves against their deposit
liabilities;
c. Sec. 101, RA 265 6 authorizing the Monetary Board to prescribe and to modify the
minimum reserved ratios applicable to each class of peso deposits;
d. Sec. 106, RA 265 7 imposing a penalty of 1/10 of 1% for violation of the Banking
Law." 8
As petitioner Republic sees it, Section 249 of the Tax Code (CA 466) can no longer be
enforced as the basis for which the tax is to be computed under Section 126, Act. 1459,
is no longer in force. The Central Bank Act (R.A. 265), specifically Sections 100, 101, 105
and 106, by providing for a whole new set of rules in regard to reserve requirements
and reserve deficiencies of banks clearly show that it was the legislative intent to
remove the regulation of the operations of banks under the ambit of the Corporation
Law (Art. 1459) and to place them under the purview of Central Bank Act (R.A. No. 265)
and the General Banking Act (R.A. 337).
Public respondents disagree and state that Section 249 of the then Tax Code (CA 466) is
deemed to have ipso facto incorporated by reference the new legislations on bank
reserves after the repeal of Section 126, Act. 1459.
Petitioner Republic argues then that in case of a reserve deficiency, the violating bank
would be liable at the same time for a tax of 1% a month (Second paragraph, Section
249, NIRC) payable to the Bureau of Internal Revenue as well as a penalty of 1/10 of 1%
a day (Section 106, Central Bank Act) payable to the Central Bank. They argue
that:jgc:chanrobles.com.ph

"As we examine the second paragraph of Section 249 of the Tax Code, we find nothing
therein which says that such imposition is a tax rather than a penalty. It merely states
that there shall be collected . . . as provided in Section one hundred twenty six of Act
Numbered one thousand four hundred and fifty-nine . . . one per centum per month. On
the contrary, the provision referred to (Section 126 of Act 1459) states that . . . reserve
deficiencies shall be penalized at the rate of one per centum per month . . . the penalty
assessed shall be collected by the Collector of Internal Revenue. It would be wrong,
therefore, to say that the imposition in Section 249 of the Tax Code is a tax, not a
penalty, because taken in the context of the referred statute, it is really a penalty. Such
imposition was provided in the Tax Code and payable to the Collector of Internal
Revenue simply because at that time there was yet no Central Bank Act and General
Banking Act nor a Monetary Board of Central Bank to regulate the operation of banks."
9
After a careful consideration of the facts of the case and the pertinent laws involved, We
vote to deny the petition.chanrobles.com:cralaw:red
Firstly, we would like to state that We find unfortunate petitioners act of quoting out
context the questioned provision in the Tax Code. Petitioner alleged that the second
paragraph of Section 249 of the Tax Code "merely states" that there "shall be collected .
. . as provided in Section one hundred twenty one of Act numbered one thousand four
hundred and fifty nine . . . one per centum per month."cralaw virtua1aw library
If petitioner had been candid and honest enough, it would have stated under what title
and chapter of the Tax Code the second paragraph of Section 249 falls. As it then stood,
the law stated:chanrob1es virtual 1aw library
x

TITLE VIII MISCELLANEOUS TAXES

"Sec. 249. Tax on Banks . . .
"There shall be collected upon the amount of reserve deficiencies incurred by the bank,
and for the period of their duration, as provided in section one hundred twenty-six of Act
numbered one thousand four hundred and fifty-nine, as amended by Act Numbered
Three thousand six hundred and ten, one per centum per month, . . . (As amended by
Rep. Act No. 6110)" 10
Clearly, the law states a tax is to be collected.
As the law stood during the years the petitioner was assessed for taxes on reserve
deficiencies (1969 & 1970), petitioner had to pay twice the first, a penalty, to the
Central Bank by virtue of Section 106 for violation of Secs. 100 and 101. all of the
Central Bank Act and the second, a tax, to the Bureau of Internal Revenue for incurring
a reserve deficiency.
As correctly analyzed by the petitioner and public respondents, the new legislations on
bank reserves merely provided the basis for computation of the reserve deficiency of
petitioner bank.

Petitioner submits that it was not the legislative intention that banks with reserve
deficiencies would pay twice as the Tax Code (CA 466, as amended by P.D. 69) enacted
on January 1, 1973 did not contain said questioned provision.
While petitioner might have a point, the wisdom of this legislation is not the province of
the Court. 11 It is clear from the statutes then in force that there was no double taxation
involved one was a penalty and the other was a tax. At any rate, We have upheld the
validity of double taxation. 12 The payment of 1/10 of 1% for incurring reserve
deficiencies (Section 106, Central Bank Act) is a penalty as the primary purpose
involved is regulation, 13 while the payment of 1% for the same violation (Second
Paragraph, Section 249, NIRC) is a tax for the generation of revenue which is the
primary purpose in this instance. 14 Petitioner should not complain that it is being asked
to pay twice for incurring reserve deficiencies. It can always avoid this predicament by
not having reserve deficiencies. Petitioners case is covered by two special laws one a
banking law and the other, a tax law. These two laws should receive such construction
as to make them harmonize with each other and with the other body of pre-existing
laws. 15
Dura lex sed lex!
II
Corollary to this issue raised by petitioner bank, is the question on how the respondent
Commissioner computed reserve deficiency taxes considering that Sec. 249, NIRC,
speaks of computation of what it calls penalty on a per month basis while the Central
Bank Act provides for the computation of the penalty on a per day basis. It claims that
respondent Commissioner never informed them of the details of these assessments,
considering the same involve complex and tedious computations.
It is too late in the day for petitioner to raise this matter for Us to resolve.16 The
grounds alleged by the petitioner in its motion for reconsideration of the
Commissioners assessments are the very same grounds raised in these petitions.
Petitioner did not ask the Commissioner to explain how it arrived in computing these
reserve deficiency taxes. Neither did petitioner raise this question before the Court of
Tax Appeals.
Be that as it may, respondent Commissioner explained in compliance with Our
Resolution of December 17, 1984, that:chanrobles.com : virtual law library
"3. The reserve deficiency tax amounting to P1,325,768.82 and P1,953,132.67,
including surcharge, was computed on the basis of the monthly averages of reserve
deficiencies using figures on daily reserve deficiencies as appearing in DSE Form No. 1
duly accomplished by the bank, required to be filed regularly with the Department of
Supervision and Examination of the Central Bank . . ." 17
Thus, what the respondent commissioner did was just to add up all the daily reserve
deficiencies as stated by petitioner itself in DSE Form No. 1 which it submitted to the
Central Bank for one month, divide such total by the number of banking days in a
month to get the average monthly reserve deficiency. For example, for January, 1970,
the total daily average of reserve deficiencies being P175,228.031.73, the monthly
average was obtained by dividing said figure by 21 banking days to get P8,344,196.75.
The tax rate applied was 1% to get the reserve deficiency tax of P83,441.97. 18

Obviously, the respondent commissioner could not apply the tax rate of 1% on the daily
reserve deficiency as the law (Second paragraph, Sec. 249, NIRC) calls only for a
monthly computation. Mathematically, this is the right procedure in obtaining the
monthly average of the daily reserve deficiencies.
As can be, seen, even if petitioner had validly raised said issue, the respondent
Commissioner merely followed the law to the letter.
III
Lastly, petitioner bank in its brief mentions that in Letter of Instruction No. 1330 issued
by President Marcos on June 6, 1983, 19 the Central Bank was ordered to assist
petitioner by way of full condonation of all penalties and other sanctions of whatever
kind, nature and description, as of the date they become due, on its legal reserve
deficiencies. Consequently, petitioner insists that it is now exempted from what it claims
are the penalties imposed by the second paragraph of Section 249, NIRC.
A careful study of said LOI reveals that it was issued with respect to petitioner banks
(thereafter renamed Republic Planters Bank) role in the governments sugar production
and procurement program as the financial arm of the sugar industry when the Philippine
Sugar Commission (PHILSUCOM), created by virtue of P.D. 388 1974), bought the
petitioner bank from the Roman family.
The LOI itself states that:chanrob1es virtual 1aw library
x

"WHEREAS, IN PURSUIT OF THE GOVERNMENTS SUGAR PRODUCTION AND

PROCUREMENT PROGRAM, REPUBLIC PLANTERS BANK INCURRED OVERDRAFTS IN ITS
CLEARING ACCOUNT WITH THE CENTRAL BANK IN VIEW OF THE LATTERS INABILITY TO
EFFECT SUBSTANTIAL REGULAR LOAN RELEASES THRU ITS REDISCOUNTING WINDOW
DUE TO CERTAIN CONSTRAINTS ON DOMESTIC CEILINGS RESULTING IN THE DEPOSIT
RESERVE DEFICIENCIES AND CORRESPONDING IMPOSITION OF PENALTIES FOR RESERVE
DEFICIENCIES;
"WHEREAS, CONSIDERING THE MAGNITUDE OF THE AMOUNT OF THE RESERVE
PENALTIES WHICH MAY AFFECT ITS VIABILITY AND IN ORDER TO RATIONALIZE THE
SITUATION, IT IS IMPERATIVE THAT REPUBLIC PLANTERS BANK BE GIVEN APPROPRIATE
RELIEF FROM ITS PRESENT PREDICAMENT BROUGHT ABOUT PRIMARILY BY THE
IMPLEMENTATION OF THE GOVERNMENTS SUGAR PRODUCTION AND PROCUREMENT
PROGRAM AND NOT BY REASON OF ANY MISMANAGEMENT OR UNSOUND BANKING
PRACTICE ON THE OPERATION OF THE BANK." 20
The petition at bar involves the assessments for the years 1969 and 1970. This LOI
definitely does not cover the years 1969 and 1970 as it was issued only on June 6, 1983
and covers the period when PHILSUCOM bought the then ailing Republic Bank from the
Roman family and renamed it the Philippine Planters Bank to be used as its financial
conduit for the sugar industry. Therefore, even on the thesis that the payment made
(Second paragraph, Section 249, NIRC) is a penalty, this "penalty" for 1969 and 1970
can not be condoned as said LOI does not cover it.chanrobles law library : red

WHEREFORE, premises considered, the petition is denied with costs against petitioner.
SO ORDERED.
Commissioner vs. Procter & Gamble Philippines GR L-66838, 15 April 1988 Second
Division, Paras (J)
Facts: Procter and Gamble Philippines is a wholly owned subsidiary of Procter and
Gamble USA (PMCUSA), a non-resident foreign corporation in the Philippines, not
engaged in trade and business therein. PMCUSA is the sole shareholder of PMC
Philippines and is entitled to receive income from PMC Philippines in the form of
dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC
Philippines filed its income tax return and also declared dividends in favor of PMC-USA.
In 1977, PMC Philippines, invoking the tax-sparing provision of Section 24 (b) as the
withholding agent of the Philippine Government with respect to dividend taxes paid by
PMC-USA, filed a claim for the refund of 20 percentage point portion of the 35
percentage whole tax paid with the Commissioner of Internal Revenue.
Issue: Whether PMC Philippines is entitled to the 15% preferential tax rate on
dividends declared and remitted to its parent corporation.
Held: The issue raised is one made for the first time before the Supreme Court. Under
the same underlying principle of prior exhaustion of administrative remedies, on the
judicial level, issues not raised in the lower court cannot be generally raised for the first
time on appeal. Nonetheless, it is axiomatic that the state can Taxation Law I, 2004 (51 )
Digests (Berne Guerrero) never be allowed to jeopardize the governments financial
position. The submission of the Commissioner that PMC Philippines is but a withholding
agent of the government and therefore cannot claim reimbursement of alleged overpaid
taxes is completely meritorious. The real party in interest is PMC-USA, which should
prove that it is entitled under the US Tax Code to a US Foreign Tax Credit equivalent to
at least 20 percentage points spared or waived as otherwise considered or deemed paid
by the Government. Herein, the claimant failed to show or justify the tax return of the
disputed 15% as it failed to show the actual amount credited by the US Government
against the income tax due from PMC-USA on the dividends received from PMC
Philippines; to present the income tax return of PMC-USA for 1975 when the dividends
were received; and to submit duly authenticated document showing that the US
government credited the 20% tax deemed paid in the Philippines.
FULL TEXT: This is a petition for review on certiorari filed by the herein petitioner,
Commissioner of Internal Revenue, seeking the reversal of the decision of the Court of
Tax Appeals dated January 31, 1984 in CTA Case No. 2883 entitled "Procter and Gamble
Philippine Manufacturing Corporation vs. Bureau of Internal Revenue," which declared
petitioner therein, Procter and Gamble Philippine Manufacturing Corporation to be
entitled to the sought refund or tax credit in the amount of P4,832,989.00 representing
the alleged overpaid withholding tax at source and ordering payment thereof.
The antecedent facts that precipitated the instant petition are as follows:

Private respondent, Procter and Gamble Philippine Manufacturing Corporation

(hereinafter referred to as PMC-Phil.), a corporation duly organized and existing under
and by virtue of the Philippine laws, is engaged in business in the Philippines and is a
wholly owned subsidiary of Procter and Gamble, U.S.A. herein referred to as PMC-USA),
a non-resident foreign corporation in the Philippines, not engaged in trade and business
therein. As such PMC-U.S.A. is the sole shareholder or stockholder of PMC Phil., as PMCU.S.A. owns wholly or by 100% the voting stock of PMC Phil. and is entitled to receive
income from PMC-Phil. in the form of dividends, if not rents or royalties. In addition,
PMC-Phil has a legal personality separate and distinct from PMC-U.S.A. (Rollo, pp. 122123).
For the taxable year ending June 30, 1974 PMC-Phil. realized a taxable net income of
P56,500,332.00 and accordingly paid the corresponding income tax thereon equivalent
to P25%-35% or P19,765,116.00 as provided for under Section 24(a) of the Philippine
Tax Code, the pertinent portion of which reads:
SEC. 24. Rates of tax on corporation. a) Tax on domestic corporations.
A tax is hereby imposed upon the taxable net income received during
each taxable year from all sources by every corporation organized in, or
geting under the laws of the Philippines, and partnerships, no matter how
created or organized, but not including general professional partnerships,
in accordance with the following:
Twenty-five per cent upon the amount by which the taxable net income
does not exceed one hundred thousand pesos; and
Thirty-five per cent upon the amount by which the taxable net income
exceeds one hundred thousand pesos.
After taxation its net profit was P36,735,216.00. Out of said amount it declared a
dividend in favor of its sole corporate stockholder and parent corporation PMC-U.S.A. in
the total sum of P17,707,460.00 which latter amount was subjected to Philippine
taxation of 35% or P6,197,611.23 as provided for in Section 24(b) of the Philippine Tax
Code which reads in full:
SECTION 1. The first paragraph of subsection (b) of Section 24 of the
National Bureau Internal Revenue Code, as amended, is hereby further
amended to read as follows:
(b) Tax on foreign corporations. 41) Non-resident
corporation. A foreign corporation not engaged in trade or
business in the Philippines, including a foreign life insurance
company not engaged in the life insurance business in the
Philippines, shall pay a tax equal to 35% of the gross income
received during its taxable year from all sources within the
Philippines, as interest (except interest on foreign loans
which shall be subject to 15% tax), dividends, rents,
royalties, salaries, wages, premiums, annuities,
compensations, remunerations for technical services or
otherwise, emoluments or other fixed or determinable,
annual, periodical or casual gains, profits, and income, and

capital gains: Provided, however, That premiums shall not

include re-insurance premium Provided, further, That
cinematograpy film owners, lessors, or distributors, shall pay
a tax of 15% on their gross income from sources within the
Philippines: Provided, still further That on dividends received
from a domestic corporation hable to tax under this Chapter,
the tax shall be 15% of the dividends received, which shall
be collected and paid as provided in Section 53(d) of this
Code, subject to the condition that the country in which the
non-resident foreign corporation is domiciled shall allow a
credit against the tax due from the non-resident foreign
corporation, taxes deemed to have been paid in the
Philippines equivalent to 20% which represents the
difference between the regular tax (35%) on corporations
and the tax (15%) on dividends as provided in this section:
Provided, finally That regional or area headquarters
established in the Philippines by multinational corporations
and which headquarters do not earn or derive income from
the Philippines and which act as supervisory,
communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region shall not
be subject to tax.
For the taxable year ending June 30, 1975 PMC-Phil. realized a taxable net income of
P8,735,125.00 which was subjected to Philippine taxation at the rate of 25%-35% or
P2,952,159.00, thereafter leaving a net profit of P5,782,966.00. As in the 2nd quarter of
1975, PMC-Phil. again declared a dividend in favor of PMC-U.S.A. at the tax rate of 35%
or P6,457,485.00.
In July, 1977 PMC-Phil., invoking the tax-sparing credit provision in Section 24(b) as
aforequoted, as the withholding agent of the Philippine government, with respect to the
dividend taxes paid by PMC-U.S.A., filed a claim with the herein petitioner,
Commissioner of Internal Revenue, for the refund of the 20 percentage-point portion of
the 35 percentage-point whole tax paid, arising allegedly from the alleged "overpaid
withholding tax at source or overpaid withholding tax in the amount of P4,832,989.00,"
computed as follows:

Divi
den
d
Inc
om
e

Ta
x
wit
hh
eld

15
%
tax
un
de
r

All
eg
ed
of

PM
CU.S
.A.

at
so
urc
e

tax
sp
ari

ov
er

at

ng

35
%

pr
ovi
so

pa
ym
en
t

P17
,70
7,4
60

P6,
19
6,6
11

P2,
65
6,1
19

P3,
54
1,4
92

6,4
57,
485

2,2
60,
11
9

96
8,6
22

1,2
91,
49
7

P24
,16
4,9
46

P8,
45
7,7
31

P3,
62
4,9
41

P4,
83
2,9
89

There being no immediate action by the BIR on PMC-Phils' letter-claim the latter sought
the intervention of the CTA when on July 13, 1977 it filed with herein respondent court a
petition for review docketed as CTA No. 2883 entitled "Procter and Gamble Philippine
Manufacturing Corporation vs. The Commissioner of Internal Revenue," praying that it
be declared entitled to the refund or tax credit claimed and ordering respondent therein
to refund to it the amount of P4,832,989.00, or to issue tax credit in its favor in lieu of
tax refund. (Rollo, p. 41)
On the other hand therein respondent, Commissioner of qqqInterlaal Revenue, in his
answer, prayed for the dismissal of said Petition and for the denial of the claim for
refund. (Rollo, p. 48)
On January 31, 1974 the Court of Tax Appeals in its decision (Rollo, p. 63) ruled in favor
of the herein petitioner, the dispositive portion of the same reading as follows:
Accordingly, petitioner is entitled to the sought refund or tax credit of the
amount representing the overpaid withholding tax at source and the
payment therefor by the respondent hereby ordered. No costs.

SO ORDERED.
Hence this petition.
The Second Division of the Court without giving due course to said petition resolved to
require the respondents to comment (Rollo, p. 74). Said comment was filed on
November 8, 1984 (Rollo, pp. 83-90). Thereupon this Court by resolution dated
December 17, 1984 resolved to give due course to the petition and to consider
respondents' comulent on the petition as Answer. (Rollo, p. 93)
Petitioner was required to file brief on January 21, 1985 (Rollo, p. 96). Petitioner filed his
brief on May 13, 1985 (Rollo, p. 107), while private respondent PMC Phil filed its brief on
August 22, 1985.
Petitioner raised the following assignments of errors:
I
THE COURT OF TAX APPEALS ERRED IN HOLDING WITHOUT ANY BASIS IN FACT AND IN
LAW, THAT THE HEREIN RESPONDENT PROCTER & GAMBLE PHILIPPINE MANUFACTURING
CORPORATION (PMC-PHIL. FOR SHORT)IS ENTITLED TO THE SOUGHT REFUND OR TAX
CREDIT OF P4,832,989.00, REPRESENTING ALLEGEDLY THE DIVIDED TAX OVER
WITHHELD BY PMC-PHIL. UPON REMITTANCE OF DIVIDEND INCOME IN THE TOTAL SUM
OF P24,164,946.00 TO PROCTER & GAMBLE, USA (PMC-USA FOR SHORT).
II
THE COURT OF TAX APPEALS ERRED IN HOLDING, WITHOUT ANY BASIS IN FACT AND IN
LAW, THAT PMC-USA, A NON-RESIDENT FOREIGN CORPORATION UNDER SECTION 24(b)
(1) OF THE PHILIPPINE TAX CODE AND A DOMESTIC CORPORATION DOMICILED IN THE
UNITED STATES, IS ENTITLED UNDER THE U.S. TAX CODE AGAINST ITS U.S. FEDERAL
TAXES TO A UNITED STATES FOREIGN TAX CREDIT EQUIVALENT TO AT LEAST THE 20
PERCENTAGE-POINT PORTION (OF THE 35 PERCENT DIVIDEND TAX) SPARED OR WAIVED
OR OTHERWISE CONSIDERED OR DEEMED PAID BY THE PHILIPPINE GOVERNMENT.
The sole issue in this case is whether or not private respondent is entitled to the
preferential 15% tax rate on dividends declared and remitted to its parent corporation.
From this issue two questions are posed by the petitioner Commissioner of Internal
Revenue, and they are (1) Whether or not PMC-Phil. is the proper party to claim the
refund and (2) Whether or not the U. S. allows as tax credit the "deemed paid" 20%
Philippine Tax on such dividends?
The petitioner maintains that it is the PMC-U.S.A., the tax payer and not PMC-Phil. the
remitter or payor of the dividend income, and a mere withholding agent for and in
behalf of the Philippine Government, which should be legally entitled to receive the
refund if any. (Rollo, p. 129)
It will be observed at the outset that petitioner raised this issue for the first time in the
Supreme Court. He did not raise it at the administrative level, nor at the Court of Tax
Appeals. As clearly ruled by Us "To allow a litigant to assume a different posture when

he comes before the court and challenges the position he had accepted at the
administrative level," would be to sanction a procedure whereby the Court-which is
supposed to review administrative determinations would not review, but determine and
decide for the first time, a question not raised at the administrative forum." Thus it is
well settled that under the same underlying principle of prior exhaustion of
administrative remedies, on the judicial level, issues not raised in the lower court cannot
generally be raised for the first time on appeal. (Pampanga Sugar Dev. Co., Inc. v. CIR,
114 SCRA 725 [1982]; Garcia v. C.A., 102 SCRA 597 [1981]; Matialonzo v. Servidad, 107
SCRA 726 [1981]),
Nonetheless it is axiomatic that the State can never be in estoppel, and this is
particularly true in matters involving taxation. The errors of certain administrative
officers should never be allowed to jeopardize the government's financial position.
The submission of the Commissioner of Internal Revenue that PMC-Phil. is but a
withholding agent of the government and therefore cannot claim reimbursement of the
alleged over paid taxes, is completely meritorious. The real party in interest being the
mother corporation in the United States, it follows that American entity is the real party
in interest, and should have been the claimant in this case.
Closely intertwined with the first assignment of error is the issue of whether or not PMCU.S.A. a non-resident foreign corporation under Section 24(b)(1) of the Tax Code (the
subsidiary of an American) a domestic corporation domiciled in the United States, is
entitled under the U.S. Tax Code to a United States Foreign Tax Credit equivalent to at
least the 20 percentage paid portion (of the 35% dividend tax) spared or waived as
otherwise considered or deemed paid by the government. The law pertinent to the issue
is Section 902 of the U.S. Internal Revenue Code, as amended by Public Law 87-834, the
law governing tax credits granted to U.S. corporations on dividends received from
foreign corporations, which to the extent applicable reads:
SEC. 902 - CREDIT FOR CORPORATE STOCKHOLDERS IN FOREIGN
CORPORATION.
(a) Treatment of Taxes Paid by Foreign Corporation - For purposes of this
subject, a domestic corporation which owns at least 10 percent of the
voting stock of a foreign corporation from which it receives dividends in
any taxable year shall(1) to the extent such dividends are paid by such foreign
corporation out of accumulated profits [as defined in
subsection (c) (1) (a)] of a year for which such foreign
corporation is not a less developed country corporation, be
deemed to have paid the same proportion of any income,
war profits, or excess profits taxes paid or deemed to be paid
by such foreign corporation to any foreign country or to any
possession of the United States on or with respect to such
accumulated profits, which the amount of such dividends
(determined without regard to Section 78) bears to the
amount of such accumulated profits in excess of such
income, war profits, and excess profits taxes (other than
those deemed paid); and

(2) to the extent such dividends are paid by such foreign

corporation out of accumulated profits [as defined in
subsection (c) (1) (b)] of a year for which such foreign
corporation is a less-developed country corporation, be
deemed to have paid the same proportion of any income,
war profits, or excess profits taxes paid or deemed to be paid
by such foreign corporation to any foreign country or to any
possession of the United States on or with respect to such
accumulated profits, which the amount of such dividends
bears to the amount of such accumulated profits.
xxx xxx xxx
(c) Applicable Rules
(1) Accumulated profits defined - For purpose of this section, the term
'accumulated profits' means with respect to any foreign corporation.
(A) for purposes of subsections (a) (1) and (b) (1), the
amount of its gains, profits, or income computed without
reduction by the amount of the income, war profits, and
excess profits taxes imposed on or with respect to such
profits or income by any foreign country.... ; and
(B) for purposes of subsections (a) (2) and (b) (2), the
amount of its gains, profits, or income in excess of the
income, was profits, and excess profits taxes imposed on or
with respect to such profits or income.
The Secretary or his delegate shall have full power to determine from the
accumulated profits of what year or years such dividends were paid,
treating dividends paid in the first 20 days of any year as having been
paid from the accumulated profits of the preceding year or years (unless
to his satisfaction shows otherwise), and in other respects treating
dividends as having been paid from the most recently accumulated gains,
profits, or earnings. .. (Rollo, pp. 55-56)
To Our mind there is nothing in the aforecited provision that would justify tax return of
the disputed 15% to the private respondent. Furthermore, as ably argued by the
petitioner, the private respondent failed to meet certain conditions necessary in order
that the dividends received by the non-resident parent company in the United States
may be subject to the preferential 15% tax instead of 35%. Among other things, the
private respondent failed: (1) to show the actual amount credited by the U.S.
government against the income tax due from PMC-U.S.A. on the dividends received from
private respondent; (2) to present the income tax return of its mother company for 1975
when the dividends were received; and (3) to submit any duly authenticated document
showing that the U.S. government credited the 20% tax deemed paid in the Philippines.
PREMISES CONSIDERED, the petition is GRANTED and the decision appealed from, is
REVERSED and SET ASIDE.

SO ORDERED.