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CIR vs.

GR No. L-28896 February 17, 1988
Definition and Concept of Taxation
The private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner
assessing it in the total amount of P83, 183.85 as delinquency income taxes for the
years 1958 and 1959.
On January 18, 1965, Algue flied a letter of protest or request for reconsideration,
which letter was stamp received on the same day in the office of the petitioner.
On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive
it on the ground of the pending protest.
A search of the protest in the dockets of the case proved fruitless. Atty. Guevara
produced his file copy and gave a photo stat to BIR agent Ramon Reyes, who
deferred service of the warrant.
On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking
any action on the protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served.
Sixteen days later, on April 23, 1965, Algue filed a petition for review of the
decision of the Commissioner of
Internal Revenue with the Court of Tax Appeals.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business
expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it
held that the said amount had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees. These
were collected by the Payees for their work in the creation of the Vegetable Oil
Investment Corporation of the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development Company. Parenthetically, it
may be observed that the petitioner had. Originally claimed these promotional
fees to be personal holding company income but later conformed to the decision of
the respondent court rejecting this assertion.
It has been established that the Philippine Sugar Estate Development Company
had earlier appointed Algue as its agent, authorizing it to sell its land, factories
and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for
the formation of the Vegetable Oil Investment Corporation, inducing other persons
to invest in it. Ultimately, after its incorporation largely through the promotion of
the said persons, this new corporation purchased the PSEDC properties. For this

the government would be paralyzed for lack of the motive power to activate and operate it. as it has here. Hence. But even as we concede the inevitability and indispensability of taxation. may be achieved. and it was from this commission that the P75.00. it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.000. Without taxes.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns? RULING: NO Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.000. which is the promotion of the common good. The government for its part. It is said that taxes are what we pay for civilization society. despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. On the other hand. every person who is able to must contribute his share in the running of the government.000. For all the awesome power of the tax promotional fees were paid to the afore-named individuals. then the taxpayer has a right to complain and the courts will then come to his succor. . It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation. Algue received as agent a commission of P126. ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75. that the law has not been observed. If it is not. he may still be stopped in his tracks if the taxpayer can demonstrate.

1024.' not as a 'trust account' or a 'trust fund. The same Executive Order also authorized the investment of the fund in government securities. the balance. Tantiongco and the Energy Regulatory Board — "are poised to accept. process and pay claims not authorized under P.D. in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. reading as follows: (3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. ORBOS GR No. in his capacity as Executive Secretary; Jesus Estanislao. but this notwithstanding. shall be transferred to the general funds of the Government. Article VI of the Constitution. Subsequently. . President Corazon C. issued an Order on December 10. 1993 Purpose of Taxation: Revenue Raising FACTS: On October 10. with the earnings from such placements accruing to the fund. 1956. 1956.OSMENA vs. expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products." and at the rate of recoupment." in virtue of E. 1984. If the purpose for which a special fund was created has been fulfilled or abandoned. the amount of the under recovery being left for determination by the Ministry of Finance.D. 1987. 137 on February 27. the OPSF deficit should have been fully covered in a span of six (6) months. as amended.D. and ordered released from the National Treasury to the Ministry of Energy. 1956. 1990. the respondents — Oscar Orbos.D.877 billion;that to abate the worsening deficit. 1991 showed a "Terminal Fund Balance deficit" of some P12. designated as the Oil Price Stabilization Fund (OPSF). the OPSF was reclassified into a "trust liability account. approving the increase in pump prices of petroleum products. . must be treated as a 'SPECIAL FUND. if any. She promulgated Executive Order No.' and that "if a special tax is collected for a specific . 1956 creating a Special Account in the General Fund. The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. in his capacity as Secretary of Finance; Wenceslao de la Paz. The petition alleges that the status of the OPSF as of March 31. P. amended P. "the Energy Regulatory Board ." The petition further avers that the creation of the trust fund violates Section 29(3).O. 99886 March 31. President Ferdinand Marcos issued P. The petitioner argues that "the monies collected pursuant to . Aquino.

tariff rates.purpose. who (shall) be taxed (and) what the tax is for. such amounts belong to the State. No. that is. this Trust Account may be funded from any of the following sources: a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment. limitations and restrictions must be quantitative. the law must not only specify how to tax." He also contends that the "delegation of legislative authority" to the ERB violates Section 28 (2).: (2) The Congress may. although the use thereof is limited to the special purpose/objective for which it was created. the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated. as amended by Executive Order No." Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State. import and export quotas. and other duties or imposts within the framework of the national development program of the Government; and. manufacturing and/or marketing petroleum products; . "the limits. Article VI of the Constitution. authorize the President to fix. viz. inasmuch as the delegation relates to the exercise of the power of taxation. and not channelled to another government objective." ISSUE: Whether or not the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose? RULING: NO The OPSF is a "Trust Account" which was established "for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum products." Under P. and subject to such limitations and restrictions as it may impose. but also impose a specific limit on how much to tax. tonnage and wharfage dues.D. by law. as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations. within specified limits. 137 dated 27 February 1987. as may be determined by the Minister of Finance in consultation with the Board of Energy: c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment of persons or companies engaged in the business of importing. 1956.

. The Court is satisfied that these measures comply with the constitutional description of a "special fund. 137. the practice is not without precedent. that comprehensive sovereign authority we designate as the police power of the State. among other things. The OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and petroleum products are stabilized. the continuing high level of dependence of the country on imported crude oil — are appropriately regarded as public purposes. It appears to the Court that the establishment and maintenance of the OPSF is well within that pervasive and non-waivable power and responsibility of the government to secure the physical and economic survival and wellbeing of the community. To the extent that some tax revenues are also put into it. it seems clear that while the funds collected may be referred to as taxes.O.d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy." the fund nonetheless remains subject to the scrutiny and review of the COA. the OPSF is in effect a device through which the domestic prices of petroleum products are subsidized in part. instead of fluctuating every so often. they are exacted in the exercise of the police power of the State. Moreover. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account. Hence. and oil companies are allowed to recover those portions of their costs which they would not otherwise recover given the level of domestic prices existing at any given time. that the OPSF is a special fund is plain from the special treatment given it by E." Indeed. and subsidy of domestic prices of petroleum products and fuel oil — clearly critical in importance considering. The stabilization.

Lorenzo (97 Phil. the amount of P19. as amended by Republic Act Nos. since 1956. wrote a letter dated May 19. Act No. 212 [1951]) where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. not been paying motor vehicle registration fees. therefore. appellee Commissioner Romeo F. Under its franchise. PAL has. Sometime in 1971. L-41383 August 15.PAL vs EDU GR No. however. 1970) to the effect that motor vehicle registration fees are regulatory exceptional and not revenue measures and. under protest. The appellant thus paid. . invoking the ruling in Calalang v.1971. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal. to Commissioner Edu demanding a refund of the amounts paid. Q15862. Despite PAL's protestations. Appellee Edu denied the request for refund basing his action on the decision in Republic v. do not come within the exemption granted to PAL under its franchise. Branch 18 where it was docketed as Civil Case No. After paying under protest. Philippine Rabbit Bus Lines. Hence. 25).75 as registration fees of its motor vehicles. among them PAL to pay motor vehicle registration fees. PAL is exempt from the payment of taxes. PAL through counsel. March 30. 42739. the appellee refused to register the appellant's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. 529. 1988 Purpose of Taxation: Revenue Raising FACTS: The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and engaged in the air transportation business under a legislative franchise. Inc. PAL filed the complaint against Land Transportation Commissioner Romeo F. Elevate issued a regulation requiring all tax exempt entities. (32 SCRA 211..