COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law.
We deal first with the procedural question.
The record shows that on January 14, 1965, 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. 1 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.2 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. 3 A search of the protest in the dockets of the
case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon
Reyes, who deferred service of the warrant. 4 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. 5 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. 6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true
that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders
hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the
said request deemed rejected." 10 But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine.

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus had the effect of suspending on January 18,
1965, when it was filed, the reglementary period which started on the date the assessment was received,
viz., January 14, 1965. The period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the said protest and the warrant was finally

served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period
had been consumed.

Now for the substantive question.

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 12 but later conformed to the decision of the respondent court
rejecting this assertion. 13 In fact, as the said court found, the amount was earned through the joint efforts
of the persons among whom it was distributed 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. 14 Ultimately, after its incorporation largely through the
promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale,
Algue received as agent a commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals. 16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon. 17 The Court of Tax Appeals also found, after
examining the evidence, that no distribution of dividends was involved. 18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be
remembered that this was a family corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to
be closed, each payee made an accounting of all of the fees received by him or her, to make up the total
of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable,
however, in view of the close relationship among the persons in the family corporation.

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit
from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation of the
Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This
finding of the respondent court is in accord with the following provision of the Tax Code:

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary
expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the stock. .
. . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed

procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs.
SO ORDERED.
Teehankee, C.J., Na

G.R. No. 79307 August 29, 1989

COMMISSIONER OF CUSTOMS, petitioner,
vs.
THE HON. RAMON P. MAKASIAR, RTC Judge, Branch 35, Manila and THE DISTILLERS CO.
LTD. OF ENGLAND, respondents.
Quasha, Asperilla, Ancheta, Pena & Nolasco for private respondent.

CORTES, J.:
Petitioner Commissioner of Customs seeks the reversal of respondent judge's decision dated 20
July 1987 in Civil Case No. 82-12821 entitled "The Distillers Co. Ltd., of England v. Victorio
Francisco, et al.," the dispositive portion of which reads as follows:
WHEREFORE, having been issued by the Collector of Customs in excess of his
jurisdiction the disputed Warrant of Seizure and Detention dated January 2, 1979, in
Seizure Identification No. 2-79 of the Bureau of Customs, as well as all the
proceedings taken thereon are declared NULL and VOID, and the writ of prohibition
prayed for is GRANTED. The public respondent is ordered to REFRAIN and DESIST
from conducting any proceedings for the seizure and forfeiture of the articles in
question until after the Court having taken cognizance and legal custody thereof has
rendered its final judgment in the criminal cases which involve the same articles.
Without costs.
SO ORDERED. [RTC Decision, p. 7; Rollo, p. 26].
The undisputed acts are as follows:
On 7 December 1978, the then Court of First Instance of Manila (herein referred to as CFI-MANILA)
issued Search and Seizure Warrants in Criminal Case Nos. 8602 and 8603 entitled "People of the
Philippines vs. Howard J. Sosis,, et al.," for violation of Section 11 (a) and/or 11(e) of Republic Act
No. 3720, * and violation of Article 188 of the Revised Penal Code (captioned as "Substituting and altering trademarks, tradenames, or
service marks"), respectively, and ordering the seizure of the following:

a) Materials:
All whisky, bottles, labels, caps, cartons, boxes, machinery equipment or other
materials used or intended to be used, or suitable for use, in connection with counterfeiting or imitation of Johnnie Walker Scotch Whisky (Emphasis supplied)
b) Documents:
xxx
under the control and possession of:
1. Howard J. Sosis

2. George Morrison Lonie

3. Hercules Bottling Co.
4. Lauro Villanueva
5. Vicente Velasco
6. Manuel Esteban
7. Eugenio Mauricio
[Rollo, pp. 106-107].
On 8 December 1978, a composite team from the Ministry of Finance Bureau of Investigation and
Intelligence (herein referred to as BII), the Bureau of Customs and the Integrated National Police
enforced the search and seizure warrants, and seized and confiscated the following articles, among
others, found in the premises of the Hercules Bottling Co., Inc. (herein referred to as HERCULES) at
Isla de Provisor, Paco, Manila:
Six (6) Tanks of Scotch Whisky; 417 cartons each containing I doz. bottles of
"Johnnie Walker Black Label Whisky"; 109 empty bottles; Empty Cartons of "Johnnie
Walker Black Label Scotch Whisky" number 900-2044 empty cartons. [Rollo, p. 21].
The articles seized remained in the premises of HERCULES guarded and secured by BII personnel.
On 2 January 1979, the Collector of Customs for the Port of Manila, after being informed of the
seizure of the subject goods and upon verification that the same were imported contrary to law,
issued a warrant of seizure and detention, in Seizure Identification No. 2-79, and ordered the
immediate seizure and turnover of the seized items to its Auction and Cargo Disposal Division at the
Port of Manila. Seizure and forfeiture proceedings were then initiated against the above-enumerated
articles for alleged violation of Section 2530 (f) of the Tariff and Customs Code, in relation to
Republic Act 3720, to wit:
Sec. 2530. Property subject to forfeiture under Tariff and Customs law:
xxx
(f) Any article the importation or exportation of which is effected or attempted
contrary to law, or any article of prohibited importation or exportation, and all other
articles which, in the opinion of the collector have been used, are or were entered to
be used as instruments in the importation or exportation of the former.
xxx
On 29 January 1979, the CFI-MANILA issued an order authorizing the transfer and delivery of the
seized articles to the customs warehouse located at South Harbor, Port of Manila, subject to the
following conditions:
1. The Commissioner of Customs is willing to have custody of the same and
guarantees their safekeeping at all times in the same quantity, quality, manner and

condition when the articles shall be turned over to and received by the Bureau of
Customs in custodia legis, subject to the further orders from the Court;
2. No article shall be transferred without the presence of a representative of the
applicant, the defendants, the Commissioner of Customs and the Court; these
representatives to secure the necessary escort as guarantee that nothing will happen
during the transfer of the articles.
3. The Commissioner of Customs to issue the proper and necessary receipt for each
and every article transferred to and received by the Bureau of Customs pursuant to
this order [Rollo, p. 22].
Meanwhile, the validity and constitutionality of the issuance and service of the search and seizure
warrants issued by the CFI- MANILA were contested in and upheld by the Court of Appeals in CAG.R. No. SP-09153-R entitled "Hercules Bottling Co. Inc., et al., v. Victoriano Savellano, et al."
HERCULES filed a petition for certiorari in the Supreme Court but in a resolution dated 26 November
1986 in G.R. No. 55061 captioned as Hercules Bottling Co., Inc. v. The Court of Appeals, the Court
dismissed the petition.
Consequently, the City Fiscal of Manila proceeded with the preliminary investigation of the criminal
cases, where private respondent, The Distillers Co. Ltd. of England, claiming to be the owner and
exclusive manufacturer of Johnnie Walker Scotch Whiskey was the private complainant [Rollo, p.
61], With the dismissal of HERCULES' petition, the Bureau of Customs also resumed hearing the
seizure and forfeiture proceedings over the said articles.
The present controversy arose when private respondent, on 11 June 1982, objected to the
continuation by the Collector of Customs of the seizure proceedings claiming, among others, that
these proceedings would hamper or even jeopardize the preliminary investigation being conducted
by the fiscal. The Collector of Customs ignored the objections.
In order to stop and enjoin the Hearing Officer of the Bureau of Customs from taking further action in
the seizure proceedings of the subject goods, private respondent on 24 September 1982 filed a
petition for prohibition with preliminary injunction and/or temporary restraining order, docketed as
Civil Case No. 82-12721. It must be noted at this juncture that the petition was heard not before the
CFI-MANILA which originally issued the search warrants, but before another sala, that of respondent
judge of the Regional Trial Court, Branch 35, Manila.
Respondent judge issued a temporary restraining order on 29 September 1982. Subsequently, a writ
for preliminary injunction was issued as well. Petitioner filed an answer on 12 November 1982. On
20 July 1987, respondent judge rendered a decision holding that the Collector of Customs acted in
excess of its jurisdiction in issuing the warrant of seizure and detention considering that the subject
goods had already come under the legal custody of the CFI-MANILA. Hence, petitioner represented
by the Solicitor General, filed the instant petition on 11 August 1987.
In the meantime, Howard Sosis and company were charged for violation of Chapter VI, Sec. 11(a) &
(e) of Republic Act 3720 in Criminal Case No. 88-63157 and for violation of Article 188 of the
Revised Penal Code in Criminal Case No. 88-63156 before the Regional Trial Court and the
Metropolitan Trial Court of Manila, respectively [Rollo, p. 83].
In his petition, the Commissioner of Customs assigns as errors the following:

I. RESPONDENT JUDGE ERRED IN ISSUING A TEMPORARY RESTRAINING

ORDER AND SUBSEQUENTLY A WRIT OF INJUNCTION IN CIVIL CASE NO. 8212721 NOTWITHSTANDING THE FACT THAT PRIVATE RESPONDENT, THE
DISTILLERS CO., LTD., OF ENGLAND HAS NO VALID CAUSE OF ACTION
AGAINST HEREIN PETITIONER;
II. RESPONDENT RTC JUDGE GRAVELY ERRED IN TAKING COGNIZANCE OF
THE PETITION AND IN PROCEEDING TO HEAR AND RENDER A DECISION IN
CIVIL CASE NO. 82-12721 NOTWITHSTANDING THE FACT THAT THE TRIAL
COURT HAS NO JURISDICTION OVER THE CASE [Rollo, pp. 10-11].
Petitioner contends that the authority of the Bureau of Customs over seizure and forfeiture cases is
beyond the judicial interference of the Regional Trial Court, even in the form of certiorari, prohibition
or mandamus which are really attempts to review the Commissioner's actions [Rollo, p. 98].
Petitioner argues that judicial recourse from the decision of the Bureau of Customs on seizure and
forfeiture cases can only be sought in the Court of Tax Appeals and eventually in this Court.
Private respondent however contends that while the law may have vested exclusive jurisdiction in
the Bureau of Customs over forfeiture and seizure cases, in this case respondent judge had
jurisdiction to enjoin the Bureau of Customs from continuing with its seizure and forfeiture
proceedings since the articles here were already in custodia legis, by virtue of the search warrants
issued by the CFI-MANILA. Private respondent contends that respondent judge may properly take
cognizance of the instant case since unlike the cases cited by petitioner, the action for prohibition
was brought not to claim ownership or possession over the goods but only to preserve the same and
to prevent the Bureau of Customs from doing anything prejudicial to the successful prosecution of
the criminal cases [Rollo, p. 123].
The issue thus presented is whether or not respondent judge may enjoin the Collector of Customs
from continuing with its seizure and forfeiture proceedings over goods earlier seized by virtue of
search warrants issued by the CFI-MANILA.
The instant petition is impressed with merit.
This Court finds that respondent-judge has failed to adhere to the prevailing rule which denies him
jurisdiction to enjoin the Bureau of Customs from taking further action in the seizure and forfeiture
proceedings over the subject goods.
Jurisprudence is replete with cases which have held that regional trial courts are devoid of any
competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted in
the Bureau of Customs, and to enjoin, or otherwise interfere with, these proceedings. The Collector
of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and
determine all questions touching on the seizure and forfeiture of dutiable goods. The regional trial
courts are precluded from assuming cognizance over such matters even through petitions of
certiorari, prohibition or mandamus [See General Travel Service v. David, G.R. No. L-19259,
September 23, 1966, 18 SCRA 59; Pacis v. Averia, G.R. No. L-22526, November 29, 1966, 18
SCRA 907; De Joya v. Lantin, G.R. No. L-24037, April 27, 1967, 19 SCRA 893; Ponce Enrile v.
Vinuya G.R. No. L-29043, January 30, 1971, 37 SCRA 381; Collector of Customs v. Torres, G.R.
No. L-22977, May 31, 1972, 45 SCRA 272; Pacis v. Geronimo, G.R. No. L-24068, April 23, 1974,56
SCRA 583; Commissioner of Customs v. Navarro, G.R. No. L-33146, May 31, 1977, 77 SCRA 264;
Republic v. Bocar, G.R. No. L-35260, September 4, 1979,93 SCRA 78; De la Fuente v. De Veyra,
G.R. No. L-35385, January 31, 1983, 120 SCRA 451].

It is likewise well-settled that the provisions of the Tariff and Customs Code and that of Republic Act
No. 1125, as amended ** specify the proper fora for the ventilation of any legal objections or issues raised concerning these
proceedings. Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decisions, in turn, are subject to
the exclusive appellate jurisdiction of the Court of Tax Appeals. Thereafter, an appeal lies to this Court through the appropriate petition for
review by writ of certiorari. Undeniably, regional trial courts do not share these review powers.

The above rule is anchored upon the policy of placing no unnecessary hindrance on the
government's drive not only to prevent smuggling and other frauds upon customs, but also, and
more importantly, to render effective and efficient the collection of import and export duties due the
state. For tariff and customs duties are taxes constituting a significant portion of the public revenue
which are the lifeblood that enables the government to carry out functions it has been instituted to
perform.
Notwithstanding these considerations, respondent judge entertained private respondent's petition for
prohibition holding that the seizure and forfeiture proceedings instituted in the Bureau of Customs
was null and void because the subject goods were earlier seized by virtue of the warrants issued by
the CFI-MANILA in Criminal Cases Nos. 8602 and 8603.
This holding is erroneous.
Even if it be assumed that a taint of irregularity may be imputed to the exercise by the Collector of
Customs of his jurisdiction to institute seizure and forfeiture proceedings over the subject goods
because he had accepted custody of the same under conditions specified in the CFI-Manila order
dated January 29, 1979, it would not mean that respondent judge was correspondingly vested with
the jurisdiction to interfere with such proceedings (See Ponce Enrile v. Vinuya supra]. It bears
repeating that law and settled jurisprudence clearly deprive the regional trial courts of jurisdiction to
enjoin the Collector of Customs from exercising his exclusive authority to order seizure and forfeiture
proceedings over imported goods.
Moreover, there is no legal basis for respondent judge's conclusion that the Collector of Customs is
deprived of his jurisdiction to issue the assailed warrant of seizure and detention, and to institute
seizure and forfeiture proceedings for the subject goods simply because the same were first taken
in custodia legis.
Undeniably, the subject goods have been brought under the legal control of the CFI-MANILA by
virtue of its search and seizure warrants and are, therefore, in custodia legis. But this fact merely
serves to deprive any other court or tribunal, except one having supervisory control or superior
jurisdiction in the premises, of the right to divest the CFI-MANILA of its custody and control of the
said property [Collector of Internal Revenue v. Flores Vda. de Codinera G.R. No. L-9675, September
28, 1957], or to interfere with and change its possession without its consent [National Power
Corporation v. De Veyra, G.R. No. L-15763, December 22, 1961, 3 SCRA 646; De Leon v. Salvador,
G.R. Nos. L-30871 & L-31603, December 28, 1970, 36 SCRA 567; Vlasons Enterprises Corporation
v. Court of Appeals, G.R. No. 61688, October 28, 1987, 155 SCRA 186].
In the instant case, the CFI-Manila was not divested of its jurisdiction over the subject goods, nor
were its processes interfered with by the Collector of Customs. It, in fact, authorized the transfer and
delivery of the subject goods from the premises of HERCULES to the Bureau of Customs
warehouse/bodega at the South Harbor, Port of Manila thereby entrusting the Bureau of Customs
with the actual possession and control of the same.
On the other hand, since the Collector of Customs herein had actual possession and control over the
subject goods, his jurisdiction over the goods was secured for the purpose of instituting seizure and
forfeiture proceedings to determine whether or not the same were imported into the country contrary

to law [See Papa v. Mago, G.R. No. L-27360, February 28, 1968, 22 SCRA 857]. This is consistent
with the principle that the basic operative fact for the institution and perfection of proceedings in
rem like the seizure and forfeiture proceedings pursuant to the Tariff and Customs Code, is the
actual or constructive possession of the res by the tribunal empowered by law to conduct the
proceedings [See Dodge v. US, 71 L. ed. 392 (1926); US v. Mack, 79 L. ed. 1559 (1935) citing The
Ann, 3 L. ed. 734 (1815); Fettig Canning Co. v. Steckler, 188 F. 2d 715 (1951) citing Strong v. US,
46 F. 2d 257, 79 ALR 150 (1931)].
Therefore, contrary to the import of respondent judge's decision, the Collector of Customs was not
precluded by law or legal principle from assuming jurisdiction over the subject goods. No legal
infirmity attended the seizure and forfeiture proceedings over the subject goods.
The Court must emphasize at this point that the instant case does not involve a conflict of
jurisdictions. Proceedings before the regular courts for criminal prosecutions against Howard Sosis,
et al., and seizure and forfeiture proceedings for the subject goods conducted by the Bureau of
Customs may be maintained simultaneously and independently of each other. For the nature of the
two proceedings are entirely different such that a resolution in one is not decisive of the issue in the
other. The latter, which is administrative and civil in nature, is directed against theres or articles
imported and entails a determination of the legality of its importation. The former is directed against
those persons who may be held liable for violating the penal laws in connection with the importation
[See Diosamito v. Balanque, G.R. No. L-30734, July 28,1969,28 SCRA 836; People v. CFI, G.R. No.
L-41686, November 17, 1980, 101 SCRA 86].
Private respondent, however, argues that conflict may arise regarding the disposition of the subject
goods if the proceedings before the Collector of Customs and the regular courts were allowed to
proceed simultaneously. Private respondent contends that in view of the nature of the seizure and
forfeiture proceedings, a judgment in favor of HERCULES will result in the release of the subject
goods to the claimants thereof, while an unfavorable decision will entail their destruction or sale. It is
asserted that either of the two outcomes will hamper or even jeopardize the ongoing criminal
prosecutions, said goods comprising the substantial part of the evidence for the People of the
Philippines.
Proper adherence by both tribunals to the rules of comity as defined in the leading case of The
Government of the Philippines v. Gale [24 Phil. 95 (1931)] will forestall the conflict feared. In that
case the Court had established the rule that where the preservation and safekeeping of the subject
matter of an action is demanded, as it is made to appear that these articles may prove to be of vital
importance as exhibits in the prosecution of other charges in another proceeding, the rules for the
orderly course of proceedings in courts and tribunals forbid the disposition or destruction thereof in
one action which would prejudice the other, and vice versa [Id. at pp. 98-99].
The State in the instant case must be given reasonable opportunity to present its cases for the
proper enforcement of the applicable provisions of the Revised Penal Code, Republic Act No. 3720,
and the Tariff and Customs Code, and the prosecution of the violators thereof. It follows then that the
execution of any final decision in the seizure and forfeiture case before the Bureau of Customs,
whether it requires the destruction, sale or the release of the subject goods, should not frustrate the
prosecution's task of duly presenting and offering its evidence in Criminal Cases Nos. 88-63156 and
88-63157.
It is apropos to note that for evidentiary purposes, it would not be necessary to present each and
every item of the goods in question before the courts trying the criminal cases. Thus, a
representative quantity of the goods, as may be agreed upon by the authorized customs officials and
fiscals prosecuting the criminal cases, shall be set aside as evidence to be presented in the above

criminal cases and retained in custodia legis until final judgment is secured in these cases. The rest
of the goods may be disposed of in accordance with the final decision rendered in the seizure and
forfeiture proceedings pursuant to the Tariff and Customs Code.
WHEREFORE, in view of the foregoing, the respondent judge's decision dated 20 July 1987 is
REVERSED. The seizure and forfeiture proceedings involving the goods in question before the
Bureau of Customs may proceed subject to the above pronouncements relative to the setting aside
of so much of the goods as may be required for evidentiary purposes.
SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S CHRISTIAN
ASSOCIATION OF THE PHILIPPINES, INC., respondents.

PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young Men's Christian Association
of the Philippines, Inc. (YMCA) established as "a welfare, educational and charitable non-profit
corporation" subject to income tax under the National Internal Revenue Code (NIRC) and the
Constitution?
The Case
This is the main question raised before us in this petition for review on certiorari challenging two
Resolutions issued by the Court of Appeals 1 on September 28, 1995 2 and February 29, 1996 3 in CAGR SP No. 32007. Both Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing the
YMCA to claim tax exemption on the latter's income from the lease of its real property.

The Facts
The facts are undisputed. 4 Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.

In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a
portion of its premises to small shop owners, like restaurants and canteen operators, and
P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of
internal revenue (CIR) issued an assessment to private respondent, in the total amount of
P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded
withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private
respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter
dated October 8, 1985. In reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals
(CTA) on March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop owners, to
restaurant and canteen operators and the operation of the parking lot are reasonably
incidental to and reasonably necessary for the accomplishment of the objectives of
the [private respondents]. It appears from the testimonies of the witnesses for the
[private respondent] particularly Mr. James C. Delote, former accountant of YMCA,
that these facilities were leased to members and that they have to service the needs
of its members and their guests. The rentals were minimal as for example, the
barbershop was only charged P300 per month. He also testified that there was
actually no lot devoted for parking space but the parking was done at the sides of the
building. The parking was primarily for members with stickers on the windshields of
their cars and they charged P.50 for non-members. The rentals and parking fees
were just enough to cover the costs of operation and maintenance only. The
earning[s] from these rentals and parking charges including those from lodging and

other charges for the use of the recreational facilities constitute [the] bulk of its
income which [is] channeled to support its many activities and attainment of its
objectives. As pointed out earlier, the membership dues are very insufficient to
support its program. We find it reasonably necessary therefore for [private
respondent] to make [the] most out [of] its existing facilities to earn some income. It
would have been different if under the circumstances, [private respondent] will
purchase a lot and convert it to a parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it out to the highest bidder or at the
market rate for commercial purposes, or should it invest its funds in the buy and sell
of properties, real or personal. Under these circumstances, we could conclude that
the activities are already profit oriented, not incidental and reasonably necessary to
the pursuit of the objectives of the association and therefore, will fall under the last
paragraph of Section 27 of the Tax Code and any income derived therefrom shall be
taxable.
Considering our findings that [private respondent] was not engaged in the business
of operating or contracting [a] parking lot, we find no legal basis also for the
imposition of [a] deficiency fixed tax and [a] contractor's tax in the amount[s] of
P353.15 and P3,129.73, respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following assessments are hereby
dismissed for lack of merit:
1980 Deficiency Fixed Tax P353,15;
1980 Deficiency Contractor's Tax P3,129.23;
1980 Deficiency Income Tax P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax P1,798.93;
1980 Deficiency Withholding Tax on Wages P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984 until fully paid but
not to exceed three (3) years pursuant to Section 51(e)(2) & (3) of the National
Internal Revenue Code effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals (CA). In its
Decision of February 16, 1994, the CA 6 initially decided in favor of the CIR and disposed of the appeal
in the following manner:

Following the ruling in the afore-cited cases of Province of Abra vs.

Hernando and Abra Valley College Inc. vs. Aquino, the ruling of the respondent Court
of Tax Appeals that "the leasing of petitioner's (herein respondent's) facilities to small
shop owners, to restaurant and canteen operators and the operation of the parking
lot are reasonably incidental to and reasonably necessary for the accomplishment of

the objectives of the petitioners, and the income derived therefrom are tax exempt,
must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so far as it dismissed
the assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration based on the following grounds:
I
The findings of facts of the Public Respondent Court of Tax Appeals being supported
by substantial evidence [are] final and conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting [p]rivate [r]espondent from
the income on rentals of small shops and parking fees [are] in accord with the
applicable law and jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA reversed itself and
promulgated on September 28, 1995 its first assailed Resolution which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they are supported by
evidence beyond what is considered as substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in saying that the
rental from small shops and parking fees do not result in the loss of the exemption.
Not even the petitioner would hazard the suggestion that YMCA is designed for
profit. Consequently, the little income from small shops and parking fees help[s] to
keep its head above the water, so to speak, and allow it to continue with its laudable
work.
The Court, therefore, finds the second ground of the motion to be meritorious and in
accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the respondent CTA's
decision is AFFIRMED in toto. 9

The internal revenue commissioner's own Motion for Reconsideration was denied by Respondent
Court in its second assailed Resolution of February 29, 1996. Hence, this petition for review under
Rule 45 of the Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I
In holding that it had departed from the findings of fact of Respondent Court of Tax
Appeals when it rendered its Decision dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals that the income of
private respondent from rentals of small shops and parking fees [is] exempt from
taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision reversed the factual findings of
the CTA. On the other hand, petitioner argues that the CA merely reversed the "ruling of the CTA
that the leasing of private respondent's facilities to small shop owners, to restaurant and canteen
operators and the operation of parking lots are reasonably incidental to and reasonably necessary
for the accomplishment of the objectives of the private respondent and that the income derived
therefrom are tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal
conclusion, not the factual finding, of the CTA. 13 The commissioner has a point.

Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by
substantial evidence, will be disturbed on appeal unless it is shown that the said court committed
gross error in the appreciation of facts. 14 In the present case, this Court finds that the February 16,
1994 Decision of the CA did not deviate from this rule. The latter merely applied the law to the facts as
found by the CTA and ruled on the issue raised by the CIR: "Whether or not the collection or earnings of
rental income from the lease of certain premises and income earned from parking fees shall fall under the
last paragraph of Section 27 of the National Internal Revenue Code of 1977, as amended." 15

Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as
indeed it was expected to. That it did so in a manner different from that of the CTA did not
necessarily imply a reversal of factual findings.
The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt or difference arises as to the
truth or falsehood of alleged facts." 16 In the present case, the CA did not doubt, much less change, the

facts narrated by the CTA. It merely applied the law to the facts. That its interpretation or conclusion is
different from that of the CTA is not irregular or abnormal.

Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real estate subject to
tax? At the outset, we set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. The following organizations shall
not be taxed under this Title in respect to income received by them as such
xxx xxx xxx
(g) Civic league or organization not organized for profit but operated exclusively for
the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any
private stockholder or member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax imposed under this
Code. (as amended by Pres. Decree No. 1457)
Petitioner argues that while the income received by the organizations enumerated in Section 27
(now Section 26) of the NIRC is, as a rule, exempted from the payment of tax "in respect to income
received by them as such," the exemption does not apply to income derived ". . . from any of their
properties, real or personal, or from any of their activities conducted for profit, regardless of the
disposition made of such income . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the lease of its
properties, real or personal, [is] not, therefore, exempt from income taxation, even if such income [is]
exclusively used for the accomplishment of its objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in
interpretation in construing tax exemptions. 18 Furthermore, a claim of statutory exemption from taxation
should be manifest. and unmistakable from the language of the law on which it is based. Thus, the
claimed exemption "must expressly be granted in a statute stated in a language too clear to be
mistaken." 19

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording
of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax
imposed by the same Code. Because the last paragraph of said section unequivocally subjects to
tax the rent income of the YMCA from its real property, 20the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted attempt at construction.

It is axiomatic that where the language of the law is clear and unambiguous, its express terms must
be applied. 21Parenthetically, a consideration of the question of construction must not even begin,
particularly when such question is on whether to apply a strict construction or a liberal one on statutes
that grant tax exemptions to "religious, charitable and educational propert[ies] or institutions." 22

The last paragraph of Section 27, the YMCA argues, should be "subject to the qualification that the
income from the properties must arise from activities 'conducted for profit' before it may be
considered taxable." 23 This argument is erroneous. As previously stated, a reading of said paragraph
ineludibly shows that the income from any property of exempt organizations, as well as that arising from
any activity it conducts for profit, is taxable. The phrase "any of their activities conducted for profit" does
not qualify the word "properties." This makes from the property of the organization taxable, regardless of
how that income is used whether for profit or for lofty non-profit purposes.

Verba legis non est recedendum. Hence, Respondent Court of Appeals committed reversible error
when it allowed, on reconsideration, the tax exemption claimed by YMCA on income it derived from
renting out its real property, on the solitary but unconvincing ground that the said income is not
collected for profit but is merely incidental to its operation. The law does not make a distinction. The
rental income is taxable regardless of whence such income is derived and how it is used or disposed
of. Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent submits that Article VI,
Section 28 of par. 3 of the 1987 Constitution, 24 exempts "charitable institutions" from the payment not
only of property taxes but also of income tax from any source. 25 In support of its novel theory, it
compares the use of the words "charitable institutions," "actually" and "directly" in the 1973 and the 1987
Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935 Constitution, on the other
hand. 26

Private respondent enunciates three points. First, the present provision is divisible into two
categories: (1) "[c]haritable institutions, churches and parsonages or convents appurtenant thereto,
mosques and non-profit cemeteries," the incomes of which are, from whatever source, all taxexempt; 27 and (2) "[a]ll lands, buildings and improvements actually and directly used for religious,
charitable or educational purposes," which are exempt only from property taxes. 28 Second, Lladoc v.
Commissioner of Internal Revenue, 29 which limited the exemption only to the payment of property taxes,
referred to the provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987
Constitutions. 30 Third, the phrase "actually, directly and exclusively used for religious, charitable or
educational purposes" refers not only to "all lands, buildings and improvements," but also to the abovequoted first category which includes charitable institutions like the private respondent. 31

The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers
of the Constitution reveal their intent which, in turn, may have guided the people in ratifying the
Charter. 32 Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a
member of this Court, stressed during the Concom debates that ". . . what is exempted is not the
institution itself . . .; those exempted from real estate taxes are lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of
the Concom, adhered to the same view that the exemption created by said provision pertained only to
property taxes. 34

In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax exemption
covers property taxes only." 35 Indeed, the income tax exemption claimed by private respondent finds no
basis in Article VI, Section 26, par. 3 of the Constitution.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Character, 36 claiming that the
YMCA "is a non-stock, non-profit educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from taxes on its properties and
income." 37 We reiterate that private respondent is exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit
educational institution is insufficient to justify its exemption from the payment of income tax.

As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the
YMCA to be granted the exemption it claims under the aforecited provision, it must prove with
substantial evidence that (1) it falls under the classification non-stock, non-profit educational
institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and
exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4, par. 3 of the
Constitution? We rule that it is not. The term "educational institution" or "institution of learning" has
acquired a well-known technical meaning, of which the members of the Constitutional Commission
are deemed cognizant. 38 Under the Education Act of 1982, such term refers to schools. 39 The school
system is synonymous with formal education, 40 which "refers to the hierarchically structured and
chronologically graded learnings organized and provided by the formal school system and for which
certification is required in order for the learner to progress through the grades or move to the higher
levels." 41 The Court has examined the "Amended Articles of Incorporation" and "By-Laws" 43 of the
YMCA, but found nothing in them that even hints that it is a school or an educational institution. 44

Furthermore, under the Education Act of 1982, even non-formal education is understood to be
school-based and "private auspices such as foundations and civic-spirited organizations" are ruled
out. 45 It is settled that the term "educational institution," when used in laws granting tax exemptions,
refers to a ". . . school seminary, college or educational establishment . . . ." 46 Therefore, the private
respondent cannot be deemed one of the educational institutions covered by the constitutional provision
under consideration.

. . . Words used in the Constitution are to be taken in their ordinary acceptation.

While in its broadest and best sense education embraces all forms and phases of
instruction, improvement and development of mind and body, and as well of religious
and moral sentiments, yet in the common understanding and application it means a
place where systematic instruction in any or all of the useful branches of learning is
given by methods common to schools and institutions of learning. That we conceive
to be the true intent and scope of the term [educational institutions,] as used in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an educational institution, the Court
also notes that the former did not submit proof of the proportionate amount of the subject income
that was actually, directly and exclusively used for educational purposes. Article XIII, Section 5 of the
YMCA by-laws, which formed part of the evidence submitted, is patently insufficient, since the same
merely signified that "[t]he net income derived from the rentals of the commercial buildings shall be
apportioned to the Federation and Member Associations as the National Board may decide." 48 In
sum, we find no basis for granting the YMCA exemption from income tax under the constitutional
provision invoked.

Cases Cited by Private

Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA of Manila v. Collector of
Internal Revenue 50and Abra Valley College, Inc. v. Aquino 51 are not applicable, because the controversy
in both cases involved exemption from the payment of property tax, not income tax. Hospital de San Juan
de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for exemption from the
payment of regulatory fees, specifically electrical inspection fees, imposed by an ordinance of Pasay City
an issue not at all related to that involved in a claimed exemption from the payment of income taxes
imposed on property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the party
therein, which claimed an exemption from the payment of income tax, was an educational institution
which submitted substantial evidence that the income subject of the controversy had been devoted or
used solely for educational purposes. On the other hand, the private respondent in the present case has
not given any proof that it is an educational institution, or that part of its rent income is actually, directly
and exclusively used for educational purposes.

Epilogue
In deliberating on this petition, the Court expresses its sympathy with private respondent. It
appreciates the nobility of its cause. However, the Court's power and function are limited merely to
applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and
appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the government. It
needs laws that can facilitate, and not frustrate, its humanitarian tasks. But the Court regrets that,
given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That
prerogative belongs to the political departments of government. Indeed, some of the members of the
Court may even believe in the wisdom and prudence of granting more tax exemptions to private
respondent. But such belief, however well-meaning and sincere, cannot bestow upon the Court the
power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September
28, 1995 and February 29, 1996 are hereby REVERSED and SET ASIDE. The Decision of the Court
of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the income derived by
petitioner from rentals of its real property is subject to income tax. No pronouncement as to costs.
SO ORDERED.

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendants-appellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a medical
practitioner, a public accountant, a dental surgeon and a pharmacist, purportedly "in their own behalf
and in behalf of other professionals practising in the City of Manila who may desire to join it." Object
of the suit is the annulment of Ordinance No. 3398 of the City of Manila together with the provision of
the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under
protest.
The ordinance in question, which was approved by the municipal board of the City of Manila on July
25, 1950, imposes a municipal occupation tax on persons exercising various professions in the city
and penalizes non-payment of the tax "by a fine of not more than two hundred pesos or by
imprisonment of not more than six months, or by both such fine and imprisonment in the discretion of
the court." Among the professions taxed were those to which plaintiffs belong. The ordinance was
enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the various
professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal Revenue Code,
plaintiffs, upon being required to pay the additional tax prescribed in the ordinance, paid the same
under protest and then brought the present suit for the purpose already stated. The lower court
upheld the validity of the provision of law authorizing the enactment of the ordinance but declared
the ordinance itself illegal and void on the ground that the penalty there in provided for non-payment
of the tax was not legally authorized. From this decision both parties appealed to this Court, and the
only question they have presented for our determination is whether this ruling is correct or not, for
though the decision is silent on the refund of taxes paid plaintiffs make no assignment of error on
this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that the
imposition of the penalty provided for in the ordinance was without the authority of law. The last
paragraph (kk) of the very section that authorizes the enactment of this tax ordinance (section 18 of
the Manila Charter) in express terms also empowers the Municipal Board "to fix penalties for the
violation of ordinances which shall not exceed to(sic) two hundred pesos fine or six months"
imprisonment, or both such fine and imprisonment, for a single offense." Hence, the pronouncement
below that the ordinance in question is illegal and void because it imposes a penalty not authorized
by law is clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law authorizing it
constitute class legislation, are unjust and oppressive, and authorize what amounts to double
taxation.
In raising the hue and cry of "class legislation", 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; and in any event, the Legislature may, in its discretion, select what

occupations shall be taxed, and in the exercise of that discretion it may tax all, or it may select for
taxation certain classes and leave the others untaxed. (Cooley on Taxation, Vol. 4, 4th ed., pp.
3393-3395.) Plaintiffs' complaint is 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. We
do not think it is 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.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates discrimination
within a class in that while professionals with offices in Manila have to pay the tax, outsiders who
have no offices in the city but practice their profession therein are not subject to the tax. Plaintiffs
make a distinction that is not found in the ordinance. The ordinance imposes the tax upon every
person "exercising" or "pursuing" in the City of Manila naturally any one of the occupations
named, but does not say that such person must have his office in Manila. What constitutes exercise
or pursuit of a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other is imposed
by the city (1 Cooley on Taxation, 4th ed., p. 492), it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof. (51 Am.
Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares Ordinance
No. 3398 of the City of Manila illegal and void and affirmed in so far as it holds the validity of the
provision of the Manila charter authorizing it. With costs against plaintiffs-appellants.
Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

Separate Opinions
PARAS, C.J., dissenting:
I am constrained to dissent from the decision of the majority upon the ground that the Municipal
Board of Manila cannot outlaw what Congress of the Philippines has already authorized. The
plaintiffs-appellants two lawyers, a physician, an accountant, a dentist and a pharmacist had
already paid the occupation tax under section 201 of the National Internal Revenue Code and are
thereby duly licensed to practice their respective professions throughout the Philippines; and yet
they had been required to pay another occupation tax under Ordinance No. 3398 for practising in the
City of Manila. This is a glaring example of contradiction the license granted by the National
Government is in effect withdrawn by the City in case of non-payment of the tax under the
ordinance. I fit be argued that the national occupation tax is collected to allow the professional
residing in Manila to pursue his calling in other places in the Philippines, it should then be exacted
only from professionals practising simultaneously in and outside of Manila. At any rate, we are
confronted with the following situation: Whereas the professionals elsewhere pay only one
occupation tax, in the City of Manila they have to pay two, although all are on equal footing insofar
as opportunities for earning money out of their pursuits are concerned. The statement that practice

in Manila is more lucrative than in the provinces, may be true perhaps with reference only to a
limited few, but certainly not to the general mass of practitioners in any field. Again, provincial
residents who have occasional or isolated practice in Manila may have to pay the city tax. This
obvious discrimination or lack of uniformity cannot be brushed aside or justified by any trite
pronouncement that double taxation is legitimate or that legislation may validly affect certain classes.
My position is that a professional who has paid the occupation tax under the National Internal
Revenue Code should be allowed to practice in Manila even without paying the similar tax imposed
by Ordinance No. 3398. The City cannot give what said professional already has. I would not say
that this Ordinance, enacted by the Municipal Board pursuant to paragraph 1 of section 18 of the
Revised Charter of Manila, as amended by Republic Act No. 409, empowering the Board to impose
a municipal occupation tax not to exceed P50 per annum, is invalid; but that only one tax, either
under the Internal Revenue Code or under Ordinance No. 3398, should be imposed upon a
practitioner in Manila.

IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING THE

VALIDITY OF MUNICIPAL ORDINANCE NO. 3659 OF THE CITY OF MANILA. PHYSICAL
THERAPY ORGANIZATION OF THE PHILIPPINES, INC., petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H. LACSON, as Mayor of
the City of Manila, respondents-appellees.
Mariano M. de Joya for appellant.
City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Naawa for appellees.
MONTEMAYOR, J.:
The petitioner-appellant, an association of registered massagists and licensed operators of massage
clinics in the City of Manila and other parts of the country, filed an action in the Court of First
Instance of Manila for declaratory judgment regarding the validity of Municipal Ordinance No. 3659,
promulgated by the Municipal Board and approved by the City Mayor. To stop the City from
enforcing said ordinance, the petitioner secured an injunction upon filing of a bond in the sum of
P1,000.00. A hearing was held, but the parties without introducing any evidence submitted the case
for decision on the pleadings, although they submitted written memoranda. Thereafter, the trial court
dismissed the petition and later dissolved the writ of injunction previously issued.
The petitioner appealed said order of dismissal directly to this Court. In support of its appeal,
petitioner-appellant contends among other things that the trial court erred in holding that the
Ordinance in question has not restricted the practice of massotherapy in massage clinics to hygienic
and aesthetic massage, that the Ordinance is valid as it does not regulate the practice of massage,
that the Municipal Board of Manila has the power to enact the Ordinance in question by virtue of
Section 18, Subsection (kk), Republic Act 409, and that permit fee of P100.00 is moderate and not
unreasonable. Inasmuch as the appellant assails and discuss certain provisions regarding the
ordinance in question, and it is necessary to pass upon the same, for purposes of ready reference,
we are reproducing said ordinance in toto.
ORDINANCE No. 3659
AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS IN THE CITY
OF MANILA AND PROVIDING PENALTIES FOR VIOLATIONS THEREOF.
Be it ordained by the Municipal Board of the City of Manila, that:
Section 1. Definition. For the purpose of this Ordinance the following words and phrases
shall be taken in the sense hereinbelow indicated:
(a) Massage clinic shall include any place or establishment used in the practice of hygienic
and aesthetic massage;
(b) Hygienic and aesthetic massage shall include any system of manipulation of treatment of
the superficial parts of the human body of hygienic and aesthetic purposes by rubbing,
stroking, kneading, or tapping with the hand or an instrument;
(c) Massagist shall include any person who shall have passed the required examination and
shall have been issued a massagist certificate by the Committee of Examiners of Massagist,
or by the Director of Health or his authorized representative;

(d) Attendant or helper shall include any person employed by a duly qualified massagist in
any message clinic to assist the latter in the practice of hygienic and aesthethic massage;
(e) Operator shall include the owner, manager, administrator, or any person who operates or
is responsible for the operation of a message clinic.
SEC. 2. Permit Fees. No person shall engage in the operation of a massage clinic or in
the occupation of attendant or helper therein without first having obtained a permit therefor
from the Mayor. For every permit granted under the provisions of this Ordinance, there shall
be paid to the City Treasurer the following annual fees:
(a) Operator of a massage
(b) Attendant or helper

P100.00
5.00

Said permit, which shall be renewed every year, may be revoked by the Mayor at any time
for the violation of this Ordinance.
SEC. 3. Building requirement. (a) In each massage clinic, there shall be separate rooms
for the male and female customers. Rooms where massage operations are performed shall
be provided with sliding curtains only instead of swinging doors. The clinic shall be properly
ventilated, well lighted and maintained under sanitary conditions at all times while the
establishment is open for business and shall be provided with the necessary toilet and
washing facilities.
(b) In every clinic there shall be no private rooms or separated compartment except those
assigned for toilet, lavatories, dressing room, office or kitchen.
(c) Every massage clinic shall "provided with only one entrance and it shall have no direct or
indirect communication whatsoever with any dwelling place, house or building.
SEC. 4. Regulations for the operation of massage clinics. (a) It shall be unlawful for any
operator massagist, attendant or helper to use, or allow the use of, a massage clinic as a
place of assignation or permit the commission therein of any incident or immoral act.
Massage clinics shall be used only for hygienic and aesthetic massage.
(b) Massage clinics shall open at eight o'clock a.m. and shall close at eleven o'clock p.m.
(c) While engaged in the actual performance of their duties, massagists, attendants and
helpers in a massage clinic shall be as properly and sufficiently clad as to avoid suspicion of
intent to commit an indecent or immoral act;
(d) Attendants or helpers may render service to any individual customer only for hygienic and
aesthetic purposes under the order, direction, supervision, control and responsibility of a
qualified massagist.
SEC. 5. Qualifications No person who has previously been convicted by final judgment of
competent court of any violation of the provisions of paragraphs 3 and 5 of Art. 202 and Arts.
335, 336, 340 and 342 of the Revised Penal Code, or Secs. 819 of the City of Manila, or who
is suffering from any venereal or communicable disease shall engage in the occupation of
massagist, attendant or helper in any massage clinic. Applicants for Mayor's permit shall

attach to their application a police clearance and health certificate duly issued by the City
Health Officers as well as a massagist certificate duly issued by the Committee or Examiners
for Massagists or by the Director of Health or his authorized representatives, in case of
massagists.
SEC. 6. Duty of operator of massage clinic. No operator of massage clinic shall allow
such clinic to operate without a duly qualified massagist nor allow, any man or woman to act
as massagist, attendant or helper therein without the Mayor's permit provided for in the
preceding sections. He shall submit whenever required by the Mayor or his authorized
representative the persons acting as massagists, attendants or helpers in his clinic. He shall
place the massage clinic open to inspection at all times by the police, health officers, and
other law enforcement agencies of the government, shall be held liable for anything which
may happen with the premises of the massage clinic.
SEC. 7. Penalty. Any person violating any of the provisions of this Ordinance shall upon
conviction, be punished by a fine of not less than fifty pesos nor more than two hundred
pesos or by imprisonment for not less than six days nor more than six months, or both such
fine and imprisonment, at the discretion of the court.
SEC. 8. Repealing Clause. All ordinances or parts of ordinances, which are inconsistent
herewith, are hereby repealed.
SEC. 9. Effectivity. This Ordinance shall take effect upon its approval.
Enacted, August 27, 1954.
Approved, September 7, 1954.
The main contention of the appellant in its appeal and the principal ground of its petition for
declaratory judgment is that the City of Manila is without authority to regulate the operation of
massagists and the operation of massage clinics within its jurisdiction; that whereas under the Old
City Charter, particularly, Section 2444 (e) of the Revised Administrative Code, the Municipal Board
was expressly granted the power to regulate and fix the license fee for the occupation of massagists,
under the New Charter of Manila, Republic Act 409, said power has been withdrawn or omitted and
that now the Director of Health, pursuant to authority conferred by Section 938 of the Revised
Administrative Code and Executive Order No. 317, series of 1941, as amended by Executive Order
No. 392, series, 1951, is the one who exercises supervision over the practice of massage and over
massage clinics in the Philippines; that the Director of Health has issued Administrative Order No.
10, dated May 5, 1953, prescribing "rules and regulations governing the examination for admission
to the practice of massage, and the operation of massage clinics, offices, or establishments in the
Philippines", which order was approved by the Secretary of Health and duly published in the Official
Gazette; that Section 1 (a) of Ordinance No. 3659 has restricted the practice of massage to only
hygienic and aesthetic massage prohibits or does not allow qualified massagists to practice
therapeutic massage in their massage clinics. Appellant also contends that the license fee of
P100.00 for operator in Section 2 of the Ordinance is unreasonable, nay, unconscionable.
If we can ascertain the intention of the Manila Municipal Board in promulgating the Ordinance in
question, much of the objection of appellant to its legality may be solved. It would appear to us that
the purpose of the Ordinance is not to regulate the practice of massage, much less to restrict the
practice of licensed and qualified massagists of therapeutic massage in the Philippines. The end
sought to be attained in the Ordinance is to prevent the commission of immorality and the practice of
prostitution in an establishment masquerading as a massage clinic where the operators thereof offer

to massage or manipulate superficial parts of the bodies of customers for hygienic and aesthetic
purposes. This intention can readily be understood by the building requirements in Section 3 of the
Ordinance, requiring that there be separate rooms for male and female customers; that instead of
said rooms being separated by permanent partitions and swinging doors, there should only be
sliding curtains between them; that there should be "no private rooms or separated compartments,
except those assigned for toilet, lavatories, dressing room, office or kitchen"; that every massage
clinic should be provided with only one entrance and shall have no direct or indirect communication
whatsoever with any dwelling place, house or building; and that no operator, massagists, attendant
or helper will be allowed "to use or allow the use of a massage clinic as a place of assignation or
permit the commission therein of any immoral or incident act", and in fixing the operating hours of
such clinic between 8:00 a.m. and 11:00 p.m. This intention of the Ordinance was correctly
ascertained by Judge Hermogenes Concepcion, presiding in the trial court, in his order of dismissal
where he said: "What the Ordinance tries to avoid is that the massage clinic run by an operator who
may not be a masseur or massagista may be used as cover for the running or maintaining a house
of prostitution."
Ordinance No. 3659, particularly, Sections 1 to 4, should be considered as limited to massage clinics
used in the practice of hygienic and aesthetic massage. We do not believe that Municipal Board of
the City of Manila and the Mayor wanted or intended to regulate the practice of massage in general
or restrict the same to hygienic and aesthetic only.
As to the authority of the City Board to enact the Ordinance in question, the City Fiscal, in
representation of the appellees, calls our attention to Section 18 of the New Charter of the City of
Manila, Act No. 409, which gives legislative powers to the Municipal Board to enact all ordinances it
may deem necessary and proper for the promotion of the morality, peace, good order, comfort,
convenience and general welfare of the City and its inhabitants. This is generally referred to as the
General Welfare Clause, a delegation in statutory form of the police power, under which municipal
corporations, are authorized to enact ordinances to provide for the health and safety, and promote
the morality, peace and general welfare of its inhabitants. We agree with the City Fiscal.
As regards the permit fee of P100.00, it will be seen that said fee is made payable not by the
masseur or massagist, but by the operator of a massage clinic who may not be a massagist himself.
Compared to permit fees required in other operations, P100.00 may appear to be too large and
rather unreasonable. However, much discretion is given to municipal corporations in determining the
amount of said fee without considering it as a tax for revenue purposes:
The amount of the fee or charge is properly considered in determining whether it is a tax or
an exercise of the police power. The amount may be so large as to itself show that the
purpose was to raise revenue and not to regulate, but in regard to this matter there is a
marked distinction between license fees imposed upon useful and beneficial occupations
which the sovereign wishes to regulate but not restrict, and those which areinimical and
dangerous to public health, morals or safety. In the latter case the fee may be very large
without necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17; underlining
supplied.)
Evidently, the Manila Municipal Board considered the practice of hygienic and aesthetic massage
not as a useful and beneficial occupation which will promote and is conducive to public morals, and
consequently, imposed the said permit fee for its regulation.
In conclusion, we find and hold that the Ordinance in question as we interpret it and as intended by
the appellees is valid. We deem it unnecessary to discuss and pass upon the other points raised in
the appeal. The order appealed from is hereby affirmed. No costs.

Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L.,
Endencia and Felix, JJ., concur.