Case Digest: Manila Electric Company vs. Tabios

MANILA ELECTRIC COMPANY vs. BENJAMIN TABIOS

G.R. No. L-9987; L-23847 22 October 1975

FACTS:

In 1962, MERALCO imported and received from abroad copper wires, transformers, and insulators for use in the operation of its business, for which it paid the Collector of Customs, Php62,335.00 as compensating tax.  A claim for refund of said amount was presented by Meralco and was later appealed to the CTA by filing a petition for review.  The same situation happened in 1963 where it paid a compensating tax of Php6,587.00.  On both instances, the Court of Tax Appeals decided against Meralco.

The CIR relied upon Section 190 of the NIRC (CA No. 466 as amended) in deciding against the petitioner, and that just like Panay Electric Co., and Manila Gas Corp., it is not exempt from paying compensating tax under said law. CIR even pointed out that the purpose of the compensating tax is to “place casual importers, who are not merchants on equal footing with established merchants who pay sale tax on articles imported by them.”

On the other hand, Meralco bases its claim for exemption on paragraph 9 of its franchise, which states that although it is liable to pay taxes on its real estate, poles, wires, transformers and insulators are not part of said taxable property. Meralco further states that while paragraph 9 does not specifically mention the compensating tax, it is broad and sweeping enough to include compensating tax.

ISSUE: 

Is Meralco exempt from payment of a compensating tax on poles, wires, transformers, and insulators imported by it for use in the operation of its electric light, heat and power system?

RULING:

NO. Tax exemptions are strictly construed against the taxpayer, the same being highly disfavoured and may almost be said to be “odious to the law.” The right of taxation will not beheld to have been surrendered unless the intention to surrender is manifested by words too plain to be mistaken.

Moreover, the SC stated that it cannot overlook the finding of the tax court that Meralco’s franchise is a municipal one, not a legal franchise. Paragraph 9 of said franchise is also not “plain and unambiguous” as the petitioner claims it to be. What the provision exempts is the payment of property tax, which is reaffirmed on the last clause of the same.  A compensating tax is not a property tax but is an excise tax (one imposed on the performance of an act). In this case, it is not the act of importation that is taxed under Section 190 of NIRC, rather it is the use of imported goods not subjected to sales tax, because the compensating tax was expressly designed as a substitute to make up or compensate for the avenue lost to the government through the avoidance of sales taxes by means of direct purchases abroad.

Case Digest: Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation

COMMISSIONER OF INTERNAL REVENUE vs. MITSUBISHI METAL CORPORATION, et al.

G.R. NO. L-54908 22 January 1990

FACTS:

In 1970, Atlas Consolidated Mining and Development Corporation entered into a Loan and Sales Contract with Mitsubishi Metal Corporation, a Japanese company, for purposes of the projected expansion of the productive capacity of the former’s mines in Toledo, Cebu. Mitsubishi agreed to extend a loan of $20 million for the installation of a new concentrator for copper production. Atlas in turn undertook to sell to Mitsubishi all the copper concentrates produced from said machine for a period of 15 years. Mitsubishi later undertook a loan with Eximbank for the purposes of its obligation under said contract.

In lieu with the 15% tax on the interest payments paid from 1977-1978 by Atlas to Mitsubishi amounting to almost Php2 million, the latter filed a claim for tax credit requesting that said sum be applied against their existing and future tax liabilities. The CIR not having acted on the claim for tax credit, private respondents filed a petition for review with the CTA. The CTA rendered judgment ordering the petitioner to credit Atlas the aforesaid amount of tax paid.

ISSUE: Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 (b) (7) (A) of the tax code and, therefore, exempt from withholding tax. 

RULING:

It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus petitioners have failed to discharge. Significantly, private respondents are not even among the entities which, under Section 29 (b) (7) (A) of the tax code, are entitled to exemption and which should indispensably be the party in interest in this case.

Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed "broad, pragmatic analysis" alone without substantial supportive evidence, lest governmental operations suffer due to diminution of much needed funds. Nor can we close this discussion without taking cognizance of petitioner's warning, of pervasive relevance at this time, that while international comity is invoked in this case on the nebulous representation that the funds involved in the loans are those of a foreign government, scrupulous care must be taken to avoid opening the floodgates to the violation of our tax laws. Otherwise, the mere expedient of having a Philippine corporation enter into a contract for loans or other domestic securities with private foreign entities, which in turn will negotiate independently with their governments, could be availed of to take advantage of the tax exemption law under discussion.

Case Digest: Lung Center of the Philippines vs. Quezon City and Constantino Rosas

G.R. No. 144104             June 29, 2004

FACTS:

The Petitioner is a non-stock, non-profit entity which owns a parcel of land in Quezon City.  Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines.  The ground floor is being leased to a canteen, medical professionals whom use the same as their private clinics, as well as to other private parties.  The right portion of the lot is being leased for commercial purposes to the Elliptical Orchids and Garden Center.  The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

Petitioner filed a Claim for Exemption from realty taxes amounting to about Php4.5 million, predicating its claim as a charitable institution. The city assessor denied the Claim.  When appealed to the QC-Local Board of Assessment, the same was dismissed.  The decision of the QC-LBAA was affirmed by the Central Board of Assessment Appeals, despite the Petitioners claim that 60% of its hospital beds are used exclusively for charity.

ISSUE:

Whether or not the Petitioner is entitled to exemption from realty taxes notwithstanding the fact that it admits paying clients and leases out a portion of its property for commercial purposes.

HELD:

The Court held that the petitioner is indeed a charitable institution based on its charter and articles of incorporation.  As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient or confined in the hospital, or receives subsidies from the government, so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.

Despite this, the Court held that the portions of real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.  (strictissimi juris) Moreover, P.D. No. 1823 only speaks of tax exemptions as regards to:

•         income and gift taxes for all donations, contributions, endowments and equipment and supplies to be imported by authorized entities or persons and by the Board of Trustees of the Lung Center of the Philippines for the actual use and benefit of the Lung Center; and
•          taxes, charges and fees imposed by the Government or any political subdivision or instrumentality thereof with respect to equipment purchases (expression unius est exclusion alterius/expressium facit cessare tacitum).