Notes: Taxation Laws and Customs Code

Note:  Document/contents are being updated every now and then.

Contents:

  • NIRC Powers
  • Bar Questions under Title 1
  • TaxPayers:  General Classifications
  • Tax List
  • Final Withholding Tax vs. Creditable Withholding Tax
  • Indirect Tax and VAT vs Direct Tax
  • Expanded Withholding Tax
  • Top 20000 Taxpayers
  • Sec 23. General Principle of Income Taxation: Territoriality
  • Tax Credit vs Tax Refund vs Carryover (Sec 29, 204C, 229)
  • De Minimis Benefits vs 13th Month Pay and Other Benefits vs Fringe Benefits
  • Passive Income

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Case Brief: Associated Insurance and Surety Company v Iya

G.R. Nos. L-10837-38 May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,
vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.

Facts:
Valino & Valino were the owners and possessors of a house of strong materials in Rizal, which they purchased on installment basis. To enable her to purchase on credit rice from NARIC, Valino filed a bond (P11,000) subscribed by Associated Insurance and Surety Co Inc, and as a counter-guaranty, Valino executed an alleged chattel mortgage on the aforementioned house in favour of the surety company. At the same time, the parcel of land which the house was erected was registered in the name of Philippine Realty Corporation.

Valino, to secure payment of an indebtedness (P12,000) executed a real estate mortgage over the lot and the house in favour of Iya.

Valino failed to satisfy her obligation to NARIC, so the surety company was compelled to pay the same pursuant to the undertaking of the bond. In turn, surety company demanded reimbursement from Valino, and as they failed to do so, the company foreclosed the chattel mortgage over the house. As a result, public sale was conducted and the property was awarded to the surety company.

The surety company then learned of the existence of the real estate mortgage over the lot and the improvements thereon; thus, they prayed for the exclusion of the residential house from the real estate mortgage and the declaration of its ownership in virtue of the award given during bidding.

Iya alleged that she acquired a real right over the lot and the house constructed thereon, and that the auction sale resulting from the foreclosure of chattel mortgage was null and void.

Surety company argued that as the lot on which the house was constructed did not belong to the spouses at the time the chattel mortgage was executed, the house might be considered as personal property, and they prayed that the said building be excluded from the real estate mortgage.

Issue:
There is no question over Iya’s right over the land by real estate mortgage; however, as the building instructed thereon has been the subject of two mortgages, controversy arise as to which of these encumbrances should receive preference over the other.

Held:
The building is subject to the real estate mortgage, in favour of Iya. Iya’s right to foreclose not only the land but also the building erected thereon is recognised.

While it is true that real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties (Article 415), could only mean that a building is by itself an immovable property. Moreover, in view of the absence of any specific provision to the contrary, a building is an immovable property irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner.

A building certainly cannot be divested of its character of a realty by the fact that the land on which it is constructed belongs to another.

In the case at bar, as personal properties could only be the subject of a chattel mortgage and as obviously the structure in question is not one, the execution of the chattel mortgage covering said building is clearly invalid and a nullity. While it is true that said document was correspondingly registered in Chattel Mortgage Registry of Rizal, this act produced no effect whatsoever, for where the interest conveyed is in the nature of real property, the registration of the document in the registry of chattels is merely a futile act. Thus, the registration of the chattel mortgage of a building of strong materials produced no effect as far as the building is concerned.

Case Brief: Meralco Securities v Central Board of Assessment Appeals, et al

G.R. No. L-46245    May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,

vs.

CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.

Facts:

Pursuant to a pipeline concession issued under the Petroleum Act of 1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila a pipeline system consisting of cylindrical steel pipes joined together and buried not less than one meter below the surface along the shoulder of the public highway. The pipes are embedded in the soil and are firmly and solidly welded together so as to preclude breakage or damage thereto and prevent leakage or seepage of the oil. The valves are welded to the pipes so as to make the pipeline system one single piece of property from end to end.

In order to repair, replace, remove or transfer segments of the pipeline, the pipes have to be cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating them out of the ground where they are buried. In points where the pipeline traversed rivers or creeks, the pipes were laid beneath the bed thereof. Hence, the pipes are permanently attached to the land.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of Laguna treated the pipeline as real property and issued tax declarations, containing the assessed values of portions of the pipeline.

Meralco appealed the assessments to the defendants, but the latter ruled that pipeline is subject to realty tax. The defendants argued that the pipeline is subject to realty tax because they are contemplated in Assessment Law and Real Property Tax Code; that they do not fall within the category of property exempt from realty tax under those laws; that Articles 415 & 416 of the Civil Code, defining real and personal property have no applications to this case because these pipes are constructions adhered to soil and things attached to the land in a fixed manner, and that Meralco Securities is not exempt from realty tax under petroleum law.

Meralco insists that its pipeline is not subject to realty tax because it is not real property within the meaning of Art. 415.

Issue:
Whether the aforementioned pipelines are subject to realty tax.

Held:
Yes, the pipelines are subject to realty tax.

Section 2 of the Assessment Law provides that the realty tax is due “on real property, including land, buildings, machinery, and other improvements.” This provision is reproduced with some modification in Section 38, Real Property Tax Code, which provides that “there shall be levied, assessed, and collected xxx annual ad valorem tax on real property such as land, buildings, machinery, and other improvements affixed or attached to real property xxx.”

It is incontestable that the pipeline of Meralco Securities does not fall within any of the classes of exempt real property enumerated in section 3 of the Assessment Law and section 40 of the Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control devices for conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in the earth, carrying with it the right to the use of the soil in which it is placed.

Article 415[l] and [3] provides that real property may consist of constructions of all kinds adhered to the soil and everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object.

The pipeline system in question is indubitably a construction adhering to the soil. It is attached to the land in such a way that it cannot be separated therefrom without dismantling the steel pipes which were welded to form the pipeline.

WHEREFORE, the questioned decision and resolution are affirmed. The petition is dismissed. No costs.

Case Brief: The Roman Catholic Bishop of Nueva Segovia v The Provincial Board of Ilocos Norte

G.R. No. L-27588 December 31, 1927
THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as representative of the Roman Catholic Apostolic Church, plaintiff-appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-appellants.

Facts:
The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955 square meters.
On July 3, 1925, the defendants required the plaintiff to pay the land tax on the lot adjoining the convent and the lot which formerly was the cemetery and on the portion where the tower stood. The plaintiff filed an action to recover the sum of land tax that was paid to the defendants, alleging that it is illegal.
The lower court declared that defendants were correct in collecting land tax for the lot adjoining the convent, and that they erred in collecting land tax for the lot which was formerly the cemetery and on the portion were the tower stood.
Both parties appealed for this judgment.

Issues:
1. Whether the lot on the southern side adjoining the convent is subject to land tax exemption.
2. Whether the lot on the northern side which formerly was the cemetery and the portion where the tower stood is subject to land tax exemption.

Held:
The Supreme Court held that both the lots must be subject to land tax exemption.

1. Yes. The land adjoining the convent is subject to land tax exemption.
The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home of the parties who presides over the church and who has to take care of himself in order to discharge his duties. It therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man. Except in large cities where the density of the population and the development of commerce require the use of larger tracts of land for buildings, a vegetable garden belongs to a house and, in the case of a convent, it use is limited to the necessities of the priest, which comes under the exemption.

2. Yes. The lot on the northern side which formerly was the cemetery and the portion where the tower stood is subject to land tax exemption.
Even if it is no longer used as a cemetery, neither is it used for commercial purposes and, according to the evidence, is now being used as a lodging house by the people who participate in religious festivities, which constitutes an incidental use in religious functions, which also comes within the exemption.

The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to costs. 

Dissenting opinion of Justice Malcolm:
The Assessment Law exempts from taxation “Cemeteries or burial grounds . . . and all lands, buildings, and improvements use exclusively for religious . . . purposes, but this exemption shall not extend to property held for investment, or which produces income, even though the income be devoted to some one or more of the purposes above specified.” (Administrative Code, sec. 344; Act No. 2749, sec. 1.) That is the applicable law. The facts may be taken as found by the judge of First Instance, who made his findings more certain by an ocular inspection of the property under consideration. The testimony and the inspection disclosed that the lot Known as “huerta” was not devoted to religious purposes, and that the old cemetery had long since leased to be used as such and had been planted to corn. Those are the facts. The test to be applied to the combined law and facts must be the actual use of the property. The property legally exempt from the payment of taxes must be devoted to some purpose specified in the law. A “huerta” not needed or used exclusively for religious purposes is not thus exempt. A cemetery or burial ground no longer a cemetery or a burial ground is not thus exempt. Accordingly, I prefer to vote for the affirmance of Judge Mariano’s decision.