WALTER LUTZ, AS JUDICIAL ADMINISTRATOR OF THE INTESTATE ESTATE OF THE DECEASED ANTONIO JAYME LEDESMA, PLAINTIFF AND APPELLANT, VS. J. ANTONIO ARANETA, AS THE COLLECTOR OF INTERN…

This case was initiated in the Court of First Instance of Negros Occidental
to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise
known as the Sugar Adjustment Act.

Promulgated in 1940, the law in question opens (section 1) with a declaration
of emergency, due to the threat to our industry by the imminent imposition of
export taxes upon sugar as provided in the Tydings-MeDuffie Act, and the
“eventual loss of its preferential position in the United States market”;
wherefore, the national policy was expressed “to obtain a readjustment of the
benefits derived from the sugar industry by the component elements thereof” and
“to stabilize the sugar industry so as to prepare it for the eventuality of the
loss of its preferential position in the United States market and the imposition
of the export taxes.”

In section 2, Commonwealth Act 567 provides for an increase of the existing
tax on the manufacture of sugar, on a graduated basis, on each picul of sugar
manufactured; while section 3, levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for a
consideration, oh lease or otherwise—

“a tax equivalent to the difference between the money value 6f the rental or
consideration collected and the amount representing ‘l2 per centum of the
assessed value of such land.”

According to section 6 of the law—

“Sec. 6. All collections made under this Act shall accrue to a special fund
in the Philippine Treasury, to be known as the ‘Sugar Adjustment and
Stabilization Fund,’ and shall be paid out only for any or all of the following
purposes or to attain any or all of the following objectives, as may be provided
by law.

First, to place the sugar industry in a position to maintain itself, ,
despite the gradual loss of the preferntial position of the Philippine sugar in
the United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of meeting
competition in the free markets of the world;

Second, to readjust the benefits derived from the sugar industry by all of
the component elements thereof—the mill, the landowner, the planter of the sugar
cane, and the laborers in the factory, and in the field—so that all might
continue profitably to engage therein;”

Third, to limit the production of sugar to areas more economically suited to
the production thereof; and

Fourth, to afford labor employed in the industry a living wage and to improve
their living and working conditions: Provided, That the President of
the Philippines may, until the adjournment of the next regular session of the
National Assembly, make the necessary disbursements from the fund herein created
(1) for the establishment and operation of sugar experiment station, or stations
and the undertaking of researchers (a) to increase the recoveries of
the centrifugal sugar factories with the view of reducing manufacturing costs,
(b) to produce and propagate higher yielding varieties of sugar cane
moire adaptable to different district conditions in the Philippines,
(c) to lower the costs of raising sugar Cane, (d) to improve
the buying quality of denatured alcohol from molasses for motor fuel, (e) to
.determine the possibility of utilising the other by-products of the industry,
(f) to determine what crop or crops are suitable for rotation and for
the utilization of excess cane lands, and (g) on other problems the
solution of which would help rehabilitate and stabilize the industry, and (2)
for the improvement of living and working conditions in sugar mills and sugar
plantations, authorizing him to organize the necessary agency or agencies to
take charge of the expenditure and allocation of said funds to carry out the
purpose hereinbefore enumerated, and, likewise, authorizing the disbursement
from the fund herein created of the necessary amount; or amounts needed for
salaries, wages, travelling expenses, equipment, and other sundry expenses of
said agency or agencies.”

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the
Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector
of Internal Revenue the sum of P14,666.40 paid by the estate as taxes, under
section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid and support of
the sugar industry exclusively, which in plaintiff’s opinion is not a public
purpose for which a tax may be constitutionally levied. The action having been
dismissed by the Court of First Instance, the plaintiffs appealed the ease
directly to this Court (Judiciary Act, section 17),

The basic defect in the plaintiff’s position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing power.
Analysis of the Act; and particularly of section 6 (heretofore quoted in full),
will show that the tax is levied with a regulatory purpose, to provide means for
the rehabilitation aiid stabilization of the threatened sugar industry. In other
words, the act is primarily an exercise of the police power.

This Court can take judicial notice of the fact that sugar production is one
of the great industries of our nation, Sugar occupying a leading position among
its export products ; that it gives employment to thousands of laborers in
fields and factories; that it is a great source of the state’s wealth, is one of
the important sources of foreign exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a policy of currency stability.
Its promotion, protection and advancement, therefore redounds greatly to the
general welfare. Hence it was competent for the legislature to find that the
general welfare demanded that the.sugar industry should be stabilized in turn;
and in the wide field of its police power, the law-making body could provide
that the distribution of benefits therefrom be readjusted among its components
to enable it to resist the added strain of the increase in taxes that it had to
sustain (Sligh vs. Kirkwood, 237 U. S. 52, 59 L. Ed. 835; Johnson
vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853.; Maxcy Inc.
vs. Mayo, 103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey, with reference to the
citrus industry in Florida—

“The protection of a large industry constituting one of the great sources of
the state’s wealth and therefore directly or indirectly affecting the welfare of
so great a portion of the population of the State is affected to such an extent
by public interests as to be within the police power of the sovereign.” (128 So.
857).

Once it is conceded, as it must, that the protection and promotion of the
sugar industry is a matter of public concern, it follows that the Legislature
may determine within reasonable bounds what is necessary for its protection and
expedient for its promotion’. Here, the legislative discretion must be allowed
full play, subject only to the test of reasonableness; and it is not contended
that the means provided in section 6 of the law (above quoted) bear no relation
to the objective pursued or are oppressive in character. If objective and
methods are alike constitutionally valid, no reason is seen why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may
be made the implement of the state’s police power (Great Atl. & Pac. Tea Co.
vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler,
297 U. S. 1, 80 L. Ed. 477; M’Culloch vs. Maryland, 4 Wheat. 316, 4 L.
Ed. 579).

That the tax to be levied should burden the sugar producers themselves can
hardly be a ground of complaint; indeed, it appears rational that the tax be
obtained precisely from those who are to be benefited from the expenditure of
the funds derived from it. At any rate, it is inherent in the power to tax that
a state be free to select the subjects of taxation, and it has been repeatedly
held that “inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation” (Carmichael
vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing
numerous authorities, at p. 1251).

From the point of view we have taken it appears of no moment that the funds
raised under the Sugar Stabilization Act, now in question, .should be
exclusively spent in aid of the sugar industry, since it is that very enterprise
that is being protected. It may be that other industries are also in need of
similar protection; but the legislature is not required by the Constitution to
adhere to a policy of “all or none.” Aa ruled in Minnesota ex rel. Pearson vs.
Probate Court, 309 U. S. 270, 84 L. Ed. 744, “if the law presumably hits the
evil where it is most felt, it is not to be overthrown because there are other
instances to which it might have been applied;” and that “the legislative
authority, exerted within its proper field, need not embrace all the evils
within its reach” (N. L. R. B. vs. Jones & Laughlin Steel Corp. 301
U. S. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is a pure tax measure, it cannot be
said that the devotion of tax money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products and solution of
allied problems, as well as to the improvement of living and working conditions
in sugar mills or plantations, without any part of such money being channeled
directly to private persons, constitutes expenditure of tax money for private
purposes, (compare Everson vs. Board of Education, 91 L. Ed. 472, 168
ALR 1392, 1400).

The decision appealed from is affirmed, with coats against appellant. So
ordered.

Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo,
Labrador, and Concepcion, JJ., concur.