SATURNINO DAVID, IN HIS CAPACITY AS COLLECTOR OF INTERNAL REVENUE,PETITIONER VS. THE HONORABLE SIMEON RAMOS, IN HIS CAPACITY AS JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA AN…

The facts of this case may be briefly stated as follows:

The respondent Maria B, Castro filed in the Court of First Instance
of Manila, a complaint dated October 18, 1950, against Saturnine David,
petitioner herein, in his capacity as Collector of Internal Revenue,
alleging among things, that she had been acquitted in a criminal case
for non-payment of the war profits tax for insufficiency of evidence;
that notwithstanding said acquittal, the Collector of Internal Revenue
announced on October 18, 1950, that the properties of Maria B. Castro
would be sold at public auction on November 22 and 27, 1950, to satisfy
the war profits tax assessed against her; that this sale is an abuse of
authority on the part of the Collector and would cause irreparable
injury to her; that Republic Act No. 55, known as the War Profits Tax
Law is unconstitutional. She prayed that a preliminary injunction be
issued enjoining the Collector of Internal Revenue from proceeding with
the sale and that afterward the injunction be made permanent.

The Collector of Internal Revenue filed his answer in the Court of
First Instance of Manila specifically admitting some of the allegations
in the complaint and denying others, and alleged as special defenses
that the Court of First Instance had no jurisdiction to entertain the
complaint nor to issue a temporary or permanent writ of injunction to
restrain the collection of the war profits tax; that the plaintiff
Maria B. Castro had an adequate remedy by first paying the tax and
suing for its recovery; that the criminal case, No. 4976, was dismissed
with the consent of the defendant; that the witness Felipe Aquino
testified that a larger amount than that stated in the information in
the criminal case was due from Maria B. Castro; and that there had been
no res judicata.

When the trial began, the Collector of Internal Revenue through his
counsel, objected to the reception of the evidence on the ground that
the court had no jurisdiction to try the case.

The lower court entered an order dated November 8, 1950, declaring
that the court had authority to proceed with the case, but denied the
petition of Maria B. Castro for a preliminary injunction.

Inasmuch as no preliminary injunction was issued by the respondent
court, the Collector of Internal Revenue, through his agents, proceeded
with the distraint and levy and sale at public auction of the
properties of Maria . B. Castro, which has not been stopped up to the
present.

Saturnino David, the Collector of Internal Revenue, now comes to
this Court with the petition for certiorari, prohibition, and
injunction, alleging substantially the above facts, maintaining that
the Court of First Instance has no jurisdiction to restrain the
collection of taxes, the remedy being to pay and sue for recovery. The
Collector prays for a preliminary injunction, pending the decision of
this case, to restrain the respondent Judge from proceeding with the
hearing of Civil Case No. 12356 of the Court of First Instance of
Manila, above mentioned.

This Court issued the writ of preliminary injunction prayed for by the petitioner, and ordered the respondents to answer.

The respondents filed their answer specifically denying some
allegations of the petition and admitting others, and maintaining in
effect that the court below had jurisdiction to entertain the case. In
a separate pleading, the respondent Maria B. Castro prayed that a
preliminary injunction be issued against the Collector of Internal
Revenue and his agents restraining them from proceeding with the
distraint and levy and sale of her properties. This petition was denied
by this Court.

The question to be determined in this case is whether the courts
can restrain the collection of taxes on the ground that their validity
is disputed by the taxpayer.

Section 9 of Republic Act No. 55, known as the War Profits Tax Law, reads as follows:

“SEC. 9. Administrative remedies.—All
Administrative, special and general provisions of law including the
laws in relation to the assessment, remission, collection and refund of
national internal revenue taxes, not inconsistent with the provisions
of this Act, are hereby extended and made applicable to all the
provisions of this law, and to the tax herein imposed.”

Section 305 of the National Internal Revenue Code, is as follows:

“SEC. 305. Inijunction not available to restrain collection of tax.—No
court shall have authority to grant an injunction to restrain the
collection of any national internal-revenue tax, fee, or charge imposed
by this Code.”

It is clear that the word “tax,” as used in said section 305) means
a tax even if it is disputed by the taxpayer, for otherwise it would be
sufficient to dispute a tax in order to take it out from the provisions
of said section, rendering them practically nugatory.

Section 306 of the National Internal Revenue Code provides as follows:

“SEC. 306. Recovery of tax erroneously or illegally
collected.—No suit or proceeding shall be maintained in any court for
the recovery of any national internal-revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected or of any
penalty claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected,
until a claim for. refund or credit has been

It has been the uniform holding of this Court that no suit for
enjoining the collection of a tax, disputed or undisputed, can be
brought, the remedy being to pay the tax first, formerly under protest
and now without need of protest, file the claim with the Collector, and
if he denies it, bring an action for recovery against him.

In the case of Churchill vs. Rafferty (32 Phil., 580, 583-584) it was held:

“In the first place, it has been suggested that
section 139 does not apply to the tax in question because the section,
in speaking of a “tax,” means only legal taxes; and that an illegal tax
(the one complained of) is not a tax. and, therefore, does
not fall within the inhibition of the section, and may be restrained by
injunction. There is no force in this suggestion. The inhibition
applies to all internal revenue taxes imposed, or authorized to be
imposed, by Act No. 2339. (Snyder vs. Marks, 109 U.S. I89.)
And, furthermore, the mere fact that a tax is illegal, or that the law,
by virtue of which it is imposed, is unconstitutional, does not
authorize a court of equity to restrain its collection by injunction.
There must be a further showing that there are special circumstances
which bring the case under some well recognized head of equity
jurisprudence, such as that irreparable injury, multiplicity of suits,
or a cloud upon title to real estate will result, and also that there
is, as we have indicated, no adequate remedy at law. This is the
settled law in the United States, even in the absence of statutory
enactments such as sections 139 and 140. (Nannewinkle vs. Mayor, etc., of Georgetown, 82 U. S. W; Indiana Mfg. Co. vs. Koehne. 188 U. S. 681; Ohio Tax Cases, 232 U. S. 576, 587; Pittsburgh C. C. & St. L. R. Co. vs. Board of Public Works, 172 TJ. S. 32; Shelton vs.
Platt, 139 U. S., 591; State Railroad Tax Cases, 92 U. S. 575.)
Therefore, this branch of the case must be controlled by sections 139
and 1MO, unless the same be held unconstitutional, and consequently,
null and void.

In the case of Sarasola vs. Trinidad W Phil., 252, 256-257) this Court said:

“* * * Thus, the Legislature of the State of
Tennessee enacted a statute not greatly different from the Philippine
statute, with the exception that the words, ‘without interest,1 were
not included, and the United States Supreme Court in discussing the law
said: ‘This remedy is simple and effective, * * * It is a wise and
reasonable precaution for the security of the government. No government
could exist that permitted its collection to be delayed by every
litigious man or every litigious man or every embarrassed man, to whom
delay was more important than the payment of costs.’ (State of Tenessee
vs. Sneed [1877], 6 Otto, 69. See also 37 Cyc., 1267, 1268.) Again in
the case of Snyder vs. Marks [1883], 109 U. S., 185) the sole object of
the suit was to restrain the collection of a tax which was assessed
under the United States Internal Revenue Laws. The court said: ‘The
remedy of a suit to recover back the tax after it is paid, is provided
by statue, and a suit to recover back the tax after it is paid, is provided by statue, and a suit to restrain it collection is forbidden. The remedy so given is exclusive, and no other remedy can be substituted for it.”

It is said that the remedy by distraint and levy will cause
irreparable injury to respondent for it may paralyze her business. The
best answer to this contention is the remark of the Supreme Court in
the case of Sarasola vs. Trinidad, supra, quoting Judge Colley, a recognized authority on the law of taxation:

” ‘The force of the third contention must sent rest in
the fact that enforcing the tax may in some cases compel the suspension
of business, because it is more than the person taxed can affored to a
pay. But if this consideration is sufficient to justify the transfer of
a controversy where money is demanded may be made the subject of
equitable cognizance. To enforce against a dealer a promissory note may
in some cases as effectually break up his business as to collect from
his a tax of equal amount. This is not never recognized the consequencs
of the mere enforcement of a money demand as falling within the
category.’ Youngblood vs. Sexton [1875], 32 Mich., 406.” (p.258)

In this case of Lorenzo vs. Posadas (64 Phil., 353, 371) this Court said:

“That taxes must be collected promptly is a policy
deeply entrenched in our tax system. Thus, no court is allowed to
grant injunction to restrain the collection of any internal revenue tax
(sec. 1578, Revised Administrative Code: Sarasola vs.
Trinidad, 40 Phil., 461.), this court had occasion to demonstrate
trenchant adherence of this policy of the law. It held that ‘the fact
that on account of riots directed against the Chinese on October 18,
19, and 20, 1924, they were prevented from paying their internal
revenue taxes on time and by mutual agreement closed their homes and
stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment of the
taxes or to accept them without the additional penalty of twenty five
per cent.1 (Syllabus, No. 3.) * * * It is of the utmost importance,’
said the Supreme Court of the United States, 1 … that the modes
adopted to enforce the taxes levied should be Interfered with as little
as possible. Any delay in the proceedings of the officers, upon whom
the duty is devolved of collecting the taxes, may derange the
operations of government, and thereby cause serious detriment to the
public.’ (Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)”

It has been said that to prohibit the courts from issuing
injunctions against the collection of taxes deprives them of part of
their organic or constitutional jurisdiction. In the case of Churchill
vs. Rafferty, supra, it was heldt

“3. ID.; ID.; ID.; JURISDICTION OF COURTS.—Nor is
such a provision of law invalid as curtailing the jurisdiction of the
courts of the Philippine Islands as fixed by section 9 of the Organic
Act: (a) because jurisdiction was never conferred upon
Philippine courts to enjoin the collection of taxes imposed by the
Philippine Commission; and (b) because, in the present case, another adequate remedy has been provided by payment and protest.” (Syllabus, p. 580)

All the allegations of the respondents to the effect that the
dismissal of the criminal case is res judicata or a bar to the
collection by distraint and levy; and that Republic Act No. 55, known
as the War Profits Tax Law, is unconstitutional, should be set forth as
part of the cause of action in the complaint that may be filed against
the Collector of Internal Revenue for recovery of the tax after its
payment, but not in an action for prohibition or injunction.

The respondents cite some eases in the United States in which the
principle that the collection of taxes should not be restrained by
injunction has been found subject to certain exceptions. It would be
too long to analyze those cases, but as an example, we may take the
typical ease found on pages 10 and 11 of the memorandum of the
respondent. There it has been declared that:

“It has never held the rule to be absolute, but has
repeatedly indicated that extraordinary and exceptional circumstances
render its provisions inapplicable.”

It has not been shown in the present case that extraordinary and
exceptional circumstances exist so as to take this case out of the
rule. It should be borne in mind that under the New Deal established by
President Franklin D. Roosevelt in the United States, numerous cases
have arisen regarding the validity of taxes in which extraordinary and
exceptional circumstances have been found to exist. In the Philippines
no extraordinary and exceptional circumstances of the magnitude of
those occurring in the United States have existed. On the whole it is
believed that we should not disrupt the regular procedure prescribed by
our laws, as uniformly construed by our courts.

In view of the foregoing, the respondent Court of First Instance of
Manila is declared without jurisdiction to proceed with the trial of
Civil Case No. 12356 entitled “Maria B. Castro vs. Saturnino David,”
and its order dated November 8, 1950, in so far as it orders the
continuation of the proceedings, is set aside. With costs against the
respondents. It is so ordered.

Paras, C. J., Feria, Pablo, Bengzon, Padilla, Tuason Reyes and Bautista Angelo, JJ., concur.