COMMISIONER OF INTERNAL REVENUE, PETITIONER, VS. A. D. GUERRERO, SPECIAL ADMINISTRATOR, IN SUBSTITUTION OF NATHANIEL I. GUNN, AS ADMINISTRATOR OF THE ESTATE OF THE LATE PAUL I. …

A novel question, one of importance and significance, is before
this court in this petition for the review of decision of the court of Tax
appeals.  For the first time, the
Ordinance appended to the Constitution calls for interpretation, having been
invoked to justify a claim for refund of taxes by the estate of an American
national, who in his life-time was engaged in the air transportation
business.  More specifically, the issue
is whether or not Section 142 of the National Internal Revenue Code allowing
Filipinos a refund of 50 percentum of the specific
tax paid on aviation oil, could be availed of by citizens of the United States
and all forms of business enterprises owned or controlled directly or
indirectly by them in view of their privilege under the Ordinance to operate
public utilities “in the same manner as to, and under the same conditions imposed upon, citizens of
the Philippines or corporations or associations owned or controlled by citizens
of the Philippines”^[1]

The Commissioner of Internal Revenue, now petitioner before this
court, denied the claim for refund in the sum of P2,441.93 filed by the
administrator of the estate of Paul I. Gunn, thereafter substituted by the
present respond­ent A. D. Guerrero as special administrator under the above section of the National Internal Revenue Code.^[2] The deceased operated an air transportation business under the business
name and style of Philippine Aviation Development; his estate, it was claimed,
“was entitled to the same rights and privileges as Filipino citizens operating
public utilities including privileges in the matter of taxation.” The Com­missioner
of Internal Revenue disagreed, ruling that such partial exemption from the
gasoline tax was not included under the terms of the Ordinance and that in
accordance with the statute, to be entitled to its benefits, there muse be a
showing that the United States of which the deceased was a citizen granted
a similar exemption to Filipinos.  The
refund as already noted was denied.  The matter was brought to the court of tax
appeals to a stipulation of acts, no additional evidence being introduced.  Viewing them Ordinance differently, it
“ordered them petitioner to refund to the respondent the sum of P2,441.93
representing 50% of the specific taxes paid on 61,043.19 liters of gasoline
actually used in aviation during the period from October 3, 1956 up to May 31,
1957.” Not satisfied with the above decision, petitioner appealed.

We sustain the
Commissioner of Internal Revenue; accordingly, the court of Tax Appeals is
reverse.  To the extent that a refund is allowable, there is in reality a
tax exemption.  The rule applied with
undeviating rigidity in the Philippines is that
for a tax exemption to exist, it must be so categorically declared in
words that admit of doubt.  No such
language may
be found in the Ordinance.  It
furnishes no support, whether express or implied, to the claim of respondent administrator for,
a refund.

From 1906, in Catholic Church v. Hastings^[3] to 1966, in Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs,^[4] it has been the constant and uniform
holding that exemption from taxation is not
favored and is never presumed, so that
if granted it must be strictly construed against the taxpayer.  Affirmatively put, the law frowns on exemption from taxation, hence, an
exempting provision should be construed
strictissimi juris.^[5] The state of the law on the subject
was aptly summarized in the Esso Standard Eastern,
Inc. by Justice Sanchez thus: “The drive of peti­tioner’s argument is that
marketing of its gasoline product” is corollary to or incidental to its
industrial operations.  But this
contention runs smack against the familiar rules that exemption from taxation
is not favored, and that exemptions in tax statutes are never presumed.  Which are but statements in adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris
against the taxpayer and liberally in favor of, the taxing
authority.  Tested by this precept, we cannot
indulge in expansive construction and write into the law an exemption not
therein set forth.  Rather, we go by the reasonable assumption
that where the state has granted in express terms certain exemptions, those are
the exemptions to be considered, and no more.  * * *.”

In addition to Justice Tracey, who first spoke for this court in
the Hastings case in announcing “the cardinal rule of American
jurisprudence that exemption from taxation not being favored,” and
therefore “must be strictly construed’ against the taxpayer, two other
noted American jurists, Moreland and Street, who likewise served this court
with distinction, reiterated the doctrine in terms even more emphatic.  According to justice Moreland: “Even
though the complaint in this regard were well founded, it would have little
being on the result of the litigation when we take into consideration the
universal rule that he who claims an exemption from his share of the common
burden of taxation must justify his claim by showing that the legislature
intended to exempt him by words too plain to be mistaken”^[6]
from Justice Street: “Exemptions from taxation are highly disfavored, so
much so that they may almost be sale to be odious to the law.  He who claims an exemption must be able to
point to some positive provision of law creating the right.  It cannot be allowed to exist upon a vague
implication such as is supposed to arise in this case from the omission from
act no. 1654
of any reference to liability for tax. The books are full of very strong expressions
on this point.”^[7]

At the time then when the ordinance took effect in April, 1947,
the strict rule against tax exemption was undisputed and undisputable.  Such being the case, it would be a main departure from the terms of
the Ordinance to predicate a tax exemption where none was intended.  Well-settled is the prin­ciple * * * * that a
constitutional provision must be pre­sumed to have been framed and adopted in
the light and understanding of prior and existing
laws end with reference
to them.  Counts are bound to presume
that the people adopting a constitution are familiar with the previous and
existing laws upon the subjects to which its provisions relate, and upon which they express their judgment
and opinion in its adoption.’”^[8]

Respect for and deference to doctrines of such undeniable force and cogency preclude an affirmance of the decision of the courts of Tax Appeals.  This is not to say that the scope of the ordinance is to be restricted or
confined.  What it promises must be fulfilled. 
There must be recognition of the right t of the “citizens of the United States and to all forms of business
enterprise owned or controlled, directly or indirectly by citizens of the
United States” to operate public utilities “in the same manner as to,
and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the
Philippines.”

If the language of the
ordinance applies to tax refund or exemption, then the court of Tax
Appeals should be sustained it does not however.  Its terms are clear.  Standing alone, without any franchise to
supply that omission, it affords no warrant for the claim here made.  While good faith, no less than adherence to the categorical wording of the ordinance,
requires that all the rights and privileges thus granted to Americans and
business enterprises owned and controlled by them be respected, anything
further would not be warranted.  Nothing
less will suffice, but anything more is not justified.

This conclusion has
reinforcement that comes to it from another avenue of approach, the historical
background of the Ordinance.  In public law questions, history many a time holds the key that unlocks the door to understanding.  Justice Tuason
would thus have courts “look to the history of the times, examine the state of things existing when the
constitution was framed and adopted, * * * and interpret it in the light of the law then in
operation,”^[9]
Justice Laurel earlier noted that while historical discussion is not decisive,
it is valuable.^[10]
A brief resume then of the events that led to its being appended to the
constitution will not be inappropriate.

Early in 1945, liberation primarily through the efforts of the
American forces under general McArthur, assisted by Filipino guerrillas,
heralded the dawn, awaited so long and so anxiously, ending the dark night of
the Japanese occupation, which was only partly mitigated by a show of
cooperation on the part of some
Filipino leaders of stature and eminence. 
All throughout those years, the Japanese army in the Philippines enforced repressive measures, severe in
character.  What was even more
regrettable, in the last few weeks, the few remaining Japanese troops in manila
and suburbs made a suicidal stand.  The
scorched earth policy was followed. 
Guerrilla suspects paid dearly for theirs imaginary sins.  There were recorded cases, not few in number,
of the old and infirm, even those of tender years, not being spared.  The Americans shelled Japanese positions
unfortunately not always with precision, as would have been unavoidable perhaps
in any
case.  The lot of the helpless civil­ians,
already suffering from acts born out of desperation of a cornered prey, became
even more unenviable.  They were caught
in the cross-fire.

The toll in the
destruction of the property and the loss of lives was heavy; the price the
Filipinos paid was high.  The feeling
then, and even now for that matter, was that it was worth it.  For life during the period of the Japanese
occupation had become unbearable.  There
was an intolerable burden on the spirit and the mind of man with all civil
liberties wantonly disregarded.  There
was likewise a well-nigh insupport­able affliction on his health and physical well-being, with food, what there was of it,
difficult to locate and beyond the means of even the middle-income groups.  Medicine was equally
scarce, what was available commanding prices unusually high.  A considerable portion of the population were
dressed in rags and lived under the most pitiable conditions in houses that had seen much better days.  Moreover in a garrison state with the Japanese kempetai^[11] and
the contemptible spies and informers, there was ever present that fear of the
morrow, the sense of living at
the edge of an impending doom.

It was fortunate
that the Japanese Occupation ended when it did. 
Liberation was hailed by all, but the problems faced by the legitimate
government were awesome in their immensity. 
The Philippine treasury
was bankrupt and her economy prostrate. 
There were no dollar-earning export crops to speak of; commercial
operations were paralyzed; and her industries were unable to produce with
mills, factories and plants either destroyed or their machineries obsolete or
dismantled.  It was a desolate and tragic
sight that greeted the victorious American and Filipino troops.  Manila, particularly that portion south of the Pasig, lay in ruins, its public edifices and
business building lying in a heap of rubble and numberless houses razed to the
ground.  It was in fact, next to Warsaw,
the most devastated city in the
expert opinion of the then General Eisenhower. 
There was thus a clear need of help from the United
States. 
American aid was forthcoming but on terms proposed by her government and
later on accepted by the Philippines.

One such condition expressly set forth in the Philippine Trade
Act of 1946 passed by the Congress of the United States was that: “The
disposition, exploitation, development, and utilization of all agricultural,
timber, and mineral lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces and sources of potential energy,
and other natural resources of the Philippines, and the operation of public
utilities, shall, if open to any person, be open to citizens of the United
States and to all forms of business enterprise owned or controlled directly or
indirectly, by United States citizens.”^[12]

The above was embodied in an executive agreement concluded on July 4, 1946, the agreement being
signed by the president of the Republic of the Philippines
and the plenipotentiary of the President of the United
States. 
The constitution being in the way, both the exploitation of natural
resources and the operation of public utilities having been reserved for
Filipino there was a need for
an amendment.  Such an amendment was duly
forthcoming.  It took the form of the
Ordinance now under consi­deration, which took effect on April 9, 1947.

The Ordinance thus came into being at a time when the liberation
of the Philippines
had elicited a vast reservoir of goodwill for the United
States, one that has lasted to this day
notwithstanding irritants that man ever so often the relation­ship even among
the most friendly of nations.  Her
prestige was never so high.  The Philippines
after hearing opposing views on the matter canceled parity rights.  She adopted the Ordinance.  To that grant she is committed.  Its terms are to be respected.  In view of the equally fundamental postulate
that legal concepts imperatively calling for application cannot be ignored,
however, it follow that tax exemption to Americans or to business owned or
controlled directly or indirectly by American citizens, based solely on the
language of the Ordinance, cannot be allowed. 
There in nothing in its history that calls for a different view had the parties been of a different mind, they would have employed words indicative of
such intention.  What was not there
includes whether by purpose or inadvertence, cannot be judicially supplied.

One final consideration. 
The Ordinance is designed for a
limited period to allow what the constitution prohibits; Americans may
operate public utilities.  During its effectivity, there should be no thought of whittling down
the grant thus freely made.  Nonetheless,
being of a limited duration, it should
not be given an interpretation that would wrench further on the plain
constitutional mandate to limit the operation of public utilities to Filipino hands.  That is to show fealty to the fundamental law, which, in the language of Story
“was not intended to provide merely for the exigencies of a few years” unlike the Ordinance
“but was to endure through a long lapse of ages, the events of which were
locked up in the inscrutable purposes of Providence.”^[13]
This merely to emphasize that the constitution unlike n ordinance appended to
it, to borrow from Cardozo “states or ought to
state not rules for the passing hour, but principles for an expanding
future,”^[14]
what is tran­sitory in character then should not be given an interpretation at
war with the plain and explicit command of what is to continue far into the future,
unless there be some other principle of acknowledged primacy that compels them
contrary.^[15]

It would seem to follow from all the foregoing that the decision
of the court of Tax Appeals enlarged the scope and operation of the
Ordinance.  It failed unfortunately to
abide by what the controlling precedents require, namely, that tax exemption is
not to be presumed and that if granted, it is to be most strictly construed.  No such grant was apparent on the face of the
Ordinance.  No such grant could be
implied from its history, much less from its transitory character.  The Court of Tax Appeals went too far.  That cannot be done.

Wherefore, the decision of the court of Tax Appeals is
reversed and the case is remanded to it, to grant respondent Administrator the
opportunity of proving whether the estate could claim the benefits of section
142 of the National Internal Revenue Code, allowing refund to citizens of
foreign countries on a showing of reciprocity. 
With costs.

Concepcion, C.J., Reyes, Dizon, Makalintal, Bengzon, Zaldivar, Sanchez, Ruiz
Castro, and Angeles, JJ., concur.

^[1]
The ordinance appended to the constitution reads as follows: “Notwithstanding the
provisions of section one, Article Thirteen, and section eight, Article
Fourteen, of the foregoing constitution, during the effectivity
of the Executive Agreement entered into by the President of the Philippines
with the President of the United States on the fourth of July, nineteen hundred
and forty-six, pursuant to the pro­visions of Commonwealth Act Numbered Seven
hundred and thirty-three, but in no case to extend beyond the third of July,
nineteen hundred and seventy-four, the disposition, exploitation, development,
and utili­zation of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petro­leum, and other mineral oils, all forces
of potential energy, and other natural resources of the Philippines, and the
operation of public utilities, shall, if open to any person, be open to
citizens of the united states and to all forms of business enterprises owned or
controlled, directly or indirectly, by citizens of the united states in the
same manner as to, and under the same conditions imposed upon, citizens of the
Philippines or corporations or associations owned or controlled by citizens of
the Philippines.”

^[2]
Section 142 of the National Infernal Avenue Code as amended reads as follows:
“Section 142.- Specific tax on manufactured
oils and other fuels.- On refined and manufactured mineral
oils and motor fuels, there shall be collected the following’ taxes: (a) * * * ; (b) * * * ; (c) Naptha, gasoline, and
all other similar products of distillation, per liter of volume capacity, eight
centavos; and (d) * * *.  Whenever any of
the oils mentioned above are, during
the five years from June eighteen, nine­teen hundred and fifty-two, used in
agriculture and aviation, fifty-percentum of the
specific tax paid thereon shall be refunded by the Collector of Internal
Revenue upon them submission of the following; (1) * * *; (2) * * *; (3) In case of aviation oils, a sworn
certificate satis­factory to the Collector proving that the said oils were
actually used in aviation: Provided, That no such refunds shall be granted in
respect to the oils used in aviation by citizens and corporations of foreign
countries which do not grant equivalent refunds or exemptions in respect to
similar oils used in aviation by citizens and corporations of the
Philippines.”

^[3]
5 Phil. 701.

^[4]
G.R. No. L-21841, October 23, 1966.  Some of the other cases follow: Govt. of the
Phil. v. Monte de Piedad (1916) 35 Phil. 42;
Asiatic Petroleum v. Llanes (1926) 49 Phil.
466; House v. Posadas (1929) 53 Phil. 338;
Phil. Tel. & Tel. Co. v. Collector (1933) 58 Phil. 639; Greenfield v.
Meer (1946) 77 Phil. 394; Collector of Internal
Revenue v. Manila Jockey Club (1956) 98 Phil. 670; Phil. Guaranty Co. v.
Com­missioner, G.R. No. L-22074, Sept.
6, 1965; Abed v. Court of Tax Appeals, G.R. No. L-20834, October 19, 1966.

^[5]
Philippine Guaranty Co. v. Commissioner, G.R. No. L-22074, September 6,
1965, per Bengzon, J.

^[6]
Govt. of the Phil. v. Monte de Piedad (1916)
35 42, 48.

^[7]
Asiaric Petroleum Co. v. Llamas (1926) 49
Phil. 46 (47-472.  He added: “As was
said by the Supreme Court of Tennessee in Memphis v. U. & p. Bank
(91 Tenn., 646, 550), ‘The rights of taxation is inherent in the State.  It is
a prerogative essential to the perpetuity of the government; and he who
claims an exemption from the common burden, must justify his claim by the
clearest grant of organic or statute law.’ Other utterances equally or more
emphatic come readily to hand from the highest authority.  In Ohio Life Ins. and Trust Co. v. Debolt (16 Howard, 416), it was said by Chief Justice
Taney, that the right of taxation will not be held to have been surrendered,
‘unless the intention to surrender is manifested by words too plain to be
mistaken.’ In the case of the
Delaware Railroad Tax (18 Wallace, 206, 226), the Supreme Court of the United
States said that the surrender, when claimed, must be shown by clear,
unambiguous language, which will admit of no reasonable construction consistent
with the reservation of the power.  If a doubt arise as to the intent of the
legislature, that doubt must be solved in favor of the State.  In Erie Railway Company v. Commonwealth of
Pennsylvania (21 Wallace, 492, 499), Mr. Justice Hunt, speaking of exemptions,
observed that a state cannot
strip itself of the most essential power of taxation by doubtful word.  ‘It cannot, by ambiguous language, be
deprived of this highest attribute of sovereignty.” (at pp. ,472)

^[8]
Gold Creek Mining Corp. v. Rodriguez (1938) 66 Phil. 259, 265, per Abad Santos, J., citing: Barry v. Truax, 13 N. C., 131; 99 N.W., 769; 65 L.R.A., 762.

^[9]
De los Santos v. Mallare
(1950) 87 Phil. 289, 295.

^[10]
Schneckenburger v. Moran (1936) 36 Phil. 249,
266.

^[11]
Japanese Military Secret Police.

^[12]
Section 341, Philippine Trade Act of 1946.

^[13]
Martin v. Hunter’s Lessee (1816) 1 Wheat
304.

^[14]
Cardozo, The Nature of Judiciary Process (1921) 83.

^[15]
What is permanent and enduring,
as long as the Consti­tution remains what it is, is the stress, both
un­mistakable and pronounced, on nationalism. 
So it has been declared repeatedly by this Court.  We start with Justice Laurel, himself one of
the foremost architects of the Constitution, who authoritatively noted the
“nationalistic * * * traits” discoverable by “even a sudden dip
into a variety of the provisions” embodied in our charter framed under
“an intense spirit of nationalism.” (Gold Creek Mining Co. vs. Rodriguez [1938]
66 Phil. 259, 270.) Justice Perfecto, another delegate, who gained deservedly a
reputation as a civil libertarian, would have the guarantees of due process and
equal protection yield to its nationalistic provisions, one of which
“reserves to Filipino citizens the operation of public services or
utilities.” (Co Chiong v. Cuaderno [1949] 83 Phil. 242, 251.) From still another
former member of the constitutional con­vention, who likewise sat on this
court, Justice Labrador: “it would do well to refer to the nationalistic
tendency manifested in various provisions of the Constitution.  * * * The nationalization of the retail trade
is only a
continuance of the nationalistic
protective policy laid down as a primary objective of the constitution. Can it
be said
that a law imbued with the same
purpose and spirit underlying many of the provisions of the Constitution is
unreasonable, invalid and unconstitu­tional?” (Ichong
v. Hernandez [1957] 101. Phil. 1155, 1136.)