LUTZ v. ARANETA 98 PHIL.

145 December 22, 1955 (CASE DIGEST)

CONSTITUTIONAL LAW II

FUNDAMENTAL POWERS OF THE STATE

POLICE POWER

WALTER LUTZ, as Judicial Administrator of the Intestate of the deceased Antonio

Jayme Ledesma, plaintiff-appellant v. J. ANTONIO ARANETA, as collector of
Internal Revenue, defendant-apppelle

G.R No. L-7856. December 22, 1955

REYES, J.B L., J.:

FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the
intestate of the deceased Antonio Jayme Ledesma, seeks to recover from the Collector
of the Internal Revenue the total sum of fourteen thousand six hundred sixty six and
forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of
Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop
years 1948-1949 and 1949-1950. Commonwealth Act. 567 Section 2 provides for an
increase of the existing tax on the manufacture of sugar on a graduated basis, on each
picul of sugar manufacturer; while section 3 levies on the owners or persons in control
of the land devoted to the cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the difference between the
money value of the rental or consideration collected and the amount representing 12
per centum of the assessed value of such land. It was alleged that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be
constitutionally levied. The action was dismissed by the CFI thus the plaintiff appealed
directly to the Supreme Court.

ISSUE:

Whether or not the tax imposition in the Commonwealth Act No. 567 are
unconstitutional.

RULING:

Yes, the Supreme Court held that the fact that sugar production is one of the greatest
industry of our nation, sugar occupying a leading position among its export products;
that it gives employment to thousands of laborers in the fields and factories; that it is a
great source of the state's wealth, is one of the important source of foreign exchange
needed by our government and is thus pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion, protection and advancement, therefore
redounds greatly to the general welfare. Hence it was competent for the legislature to
find that the general welfare demanded that the sugar industry be stabilized in turn; and
in the wide field of its police power, the law-making body could provide that the
distribution of benefits therefrom be readjusted among its components to enable it to
resist the added strain of the increase in taxes that it had to sustain.

The subject tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry. In other words, the act is
primarily a valid exercise of police power.

Gomez vs. Palomar

GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827

FACTS: Petitioner Benjamin Gomez mailed a letter at the post office in San Fernando,
Pampanga. It did not bear
the special anti-TB stamp required by the RA 1635. It was returned to the petitioner.
Petitioner now assails the
constitutionality of the statute claiming that RA 1635 otherwise known as the Anti-TB
Stamp law is violative of
the equal protection clause because it constitutes mail users into a class for the purpose
of the tax while leaving
untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants
exemptions. The law in question requires an additional 5 centavo stamp for every mail
being posted, and no mail
shall be delivered unless bearing the said stamp.

ISSUE: Is the Anti-TB Stamp Law unconstitutional, for being allegedly violative of the
equal protection clause?

HELD: No. It is settled that the legislature has the inherent power to select the subjects
of taxation and to grant
exemptions. This power has aptly been described as "of wide range and flexibility."
Indeed, it is said that in the
field of taxation, more than in other areas, the legislature possesses the greatest
freedom in classification. The
reason for this is that traditionally, classification has been a device for fitting tax
programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay, the enjoyment of a
privilege and on administrative
convenience. Tax exemptions have never been thought of as raising revenues under
the equal protection clause.

PUNSALAN VS. MUNICIPAL BOARD OF MANILA [95 PHIL 46; NO.L-4817; 26 MAY
1954]
Saturday, January 31, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law

Facts: Petitioners, who are professionals in the city, assail Ordinance No. 3398
together with the law authorizing it (Section 18 of the Revised Charter of the City of
Manila). The ordinance imposes a municipal occupation tax on persons exercising
various professions in the city and penalizes non-payment of the same. The law
authorizing said ordinance empowers the Municipal Board of the city to impose a
municipal occupation tax on persons engaged in various professions. Petitioners,
having already paid their occupation tax under section 201 of the National Internal
Revenue Code, paid the tax under protest as imposed by Ordinance No. 3398. The
lower court declared the ordinance invalid and affirmed the validity of the law
authorizing it.

Issue: Whether or Not the ordinance and law authorizing it constitute class legislation,
and authorize what amounts to double taxation.

Held: The Legislature may, in its discretion, select what occupations shall be taxed, and
in its discretion may tax all, or select classes of occupation for taxation, and leave
others untaxed. It is not for the courts to judge which cities or municipalities should be
empowered to impose occupation taxes aside from that imposed by the National
Government. That matter is within the domain of political departments. The argument
against double taxation may not be invoked if one tax is imposed by the state and the
other is imposed by the city. It is widely recognized that there is nothing inherently
terrible in the requirement that taxes be exacted with respect to the same occupation by
both the state and the political subdivisions thereof. Judgment of the lower court is
reversed with regards to the ordinance and affirmed as to the law authorizing it.
Punsalan vs. Mun. Board of City of Manila
PUNSALAN v. MUN. BOARD OF CITY OF MANILA
GR No. L-23645, October 29, 1968
95 PHIL 46

FACTS: The plaintiffs--two lawyers, medical practitioner, a dental surgeon, a CPA, and
a pharmacist--sought the
annulment of Ordinance No.3398 of the City of Manila which imposes a municipal
occupation tax on persons
exercising various professions in the city and penalizes non-payment of the tax,
contending in substance that this
ordinance and the law authorizing it constitute class legislation, are unjust and
oppressive, and authorize what
amounts to double taxation. The burden of plaintiffs' complaint is not that the
professions to which they
respectively belong have been singled out for the imposition of this municipal
occupation tax, but that while the
law has authorized the City of Manila to impose the said tax, it has withheld that
authority from other chartered
cities, not to mention municipalities.

ISSUE: Does the law constitute a class legislation? Is it for the Court to determine which
political unit should
impose taxes and which should not?

HELD: No. It is not for the courts to judge what particular cities or municipalities should
be empowered to impose
occupation taxes in addition to those imposed by the National Government. That matter
is peculiarly within the
domain of the political departments and the courts would do well not to encroach upon
it. Moreover, as the seat
of the National Government and with a population and volume of trade many times that
of any other Philippine
city or municipality, Manila, no doubt, offers a more lucrative field for the practice of the
professions, so that it is
but fair that the professionals in Manila be made to pay a higher occupation tax than
their brethren in the
provinces.
Engracio Francia vs. Intermediate Appellate Court - 162 SCRA
753 Case Digest
FACTS: Engracio Francia was the owner of a 328 square meter land in Pasay City. In
October 1977, a portion of his land (125 square meter) was expropriated by the
government for P4,116.00. The expropriation was made to give way to the expansion of
a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to
P2,400.00. So in December 1977, the remaining 203 square meters of his land was
sold at a public auction (after due notice was given him). The highest bidder was a
certain Ho Fernandez who paid the purchase price of P2,400.00 (which was lesser than
the price of the portion of his land that was expropriated).

Later, Francia filed a complaint to annul the auction sale on the ground that the selling
price was grossly inadequate. He further argued that his land should have never been
auctioned because the P2,400.00 he owed the government in taxes should have been
set-off by the debt the government owed him (legal compensation). He alleged that he
was not paid by the government for the expropriated portion of his land because though
he knew that the payment therefor was deposited in the Philippine National Bank, he
never withdrew it.

ISSUE: Whether or not the tax owed by Francia should be set-off by the “debt” owed
him by the government.

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the
contention. By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil
Code). This is not applicable in taxes. There can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.

The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract
or judgment as is allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the state or municipality
for taxes. Neither are they a proper subject of recoupment since they do not arise out of
the contract or transaction sued on.

Further, the government already Francia. All he has to do was to withdraw the money.
Had he done that, he could have paid his tax obligations even before the auction sale or
could have exercised his right to redeem – which he did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is
not tenable. The Supreme Court said: “alleged gross inadequacy of price is not material
when the law gives the owner the right to redeem as when a sale is made at public
auction, upon the theory that the lesser the price, the easier it is for the owner to effect
redemption.” If mere inadequacy of price is held to be a valid objection to a sale for
taxes, the collection of taxes in this manner would be greatly embarrassed, if not
rendered altogether impracticable. “Where land is sold for taxes, the inadequacy of the
price given is not a valid objection to the sale.” This rule arises from necessity, for, if a
fair price for the land were essential to the sale, it would be useless to offer the property.
Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are
grossly out of proportion to the value of the land.

DOMINGO VS GARLITOS
G.R. NO. 18993 June 29, 1963
Labrador, J.:
FACTS:
In Domingo vs. Moscoso, the Supreme Court declared as final and executor the order of
the lower court for the payment of estate and inheritance taxes, charges and penalties
amounting to Php 40,058.55 by the estate of the of the late Walter Price. The petitioner
for execution filed by the fiscal was denied by the lower court. The court held that the
execution is unjustified as the Government is indebted to the estate for Php262,200 and
ordered the amount of inheritance taxes can be deducted from the Government’s
indebtedness to the estate.
ISSUE:
Whether of not a tax and a debt may be compensated.
RULING:
The court having jurisdiction of the Estate had found that the claim of the Estate against
the government has been recognized and the amount has already been appropriated by
a corresponding law. Both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable is well as fully liquidated. Compensation takes place by operation of law
and both debts are extinguished to the concurrent amount. Therefore the petitioner has
no clear right to execute the judgment for taxes against the estate of the deceased
Walter Price.

LUTZ VS. ARANETA

GR L-7859 December 22, 1955

Reyes, J.:
FACTS:
Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought to recover
the sum of Php14, 666.40 paid by the estate as taxes, alleging that such tax is
unconstitutional as it levied for the aid and support of the sugar industry exclusively
which is in his opinion not a public purpose.
ISSUE:
Whether or not tax is valid in supporting the sugar industry?
RULING:
The court ruled that the tax is valid as it served public purpose. The tax provided for in
CA 567 is primarily an exercise of police power since sugar is a great source of income
for the country and employs thousands of laborers. Hence, it was competent for the
legislature to find that the general welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police power, the lawmaking body could
provide that the distribution of benefits therefrom be readjusted among its components
to enable it to resist the added strain of the increase in taxes that it had to sustain.

PHILEX MINING CORP. v. CIR

GR No. 125704, August 28, 1998
294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the
period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until fully
paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for
payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the
years 1989 to 1991 in
the amount of P120 M plus interest. Therefore these claims for tax credit/refund should
be applied against the
tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax
refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that
taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex's
whimsical reason would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in
jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the
ground that it has a
pending tax claim for refund or credit against the government which has not yet been
granted.Taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer
are not creditors and
debtors of each other. There is a material distinction between a tax and debt. Debts are
due to the Government
in its corporate capacity, while taxes are due to the Government in its sovereign
capacity. xxx There can be no
off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the
government.