WEE POCO & CO., INC., PLAINTIFF AND APPELLANT, VS. JUAN POSADAS, JR., COLLECTOR OF INTERNAL REVENUE, DEFENDANT AND APPELLEE.

This is an appeal taken from the judgment
rendered by the Court of First Instance of Zamboanga, dismissing the
complaint filed therein by the herein appellant Wee Poco & Co.,
Inc., otherwise known in said locality by the name of Chin Tay &
Company.

The complaint contained three causes of action. Under the first
cause of action, the plaintiff sought of the defendant-appellee
Collector of Internal Revenue the refund of the sum of P705 collected
by way of execution, which represented the proceeds of the sale of
certain properties belonging to the plaintiff to enforce payment of the
sum of P2,155.14 demanded of it as merchant’s tax on alleged shipments
of goods made from Zamboanga to Hoc Chuan Tay in Cotabato, from
January, 1925, to August, 1926. In said first cause of action, the
plaintiff likewise demanded payment of the sum of P1,295 as damages
from the sale of its distrained properties for P705 which properties,
it is alleged, were worth not less than P2,000. In the second cause of
action, said plaintiff demanded the refund of the sum of P1,450.14 paid
by it under protest, which represented the balance of said tax of
P2,156.14, after the distrained properties of the plaintiff had been
sold for P705. In the third cause of action, the plaintiff demanded the
refund of the sums of P1,996.97 and P485.20 paid by it under protest as
merchant’s tax and additional tax, respectively, asking later for the
return of both sums amounting to P2,482.17. Said taxes had been
demanded of the plaintiff for alleged sales of merchandise worth
P59,169.35 which, according to the defendant, had been sent by the
former from Zamboanga to Hoc Chuan Tay in Cotabato in the year 1924.

The appellant assigns in its brief seven alleged errors claimed by it to have been committed by the court a quo,
and the defendant-appellee, in refuting them, first raises the question
that the appellant is not entitled to demand the refund of the sum of
P705 (1st cause of action), nor that of P1,450.14 (2d cause of action),
for the reason that the former sum was not paid under protest and the
refund of both sums was not requested of the defendant before the
filing of the complaint.

Section 1579 of the Administrative Code, as amended by Act No. 3685, provides as follows:

“When the validity of any tax is questioned, or its
amount disputed, or other question raised as to liability therefor, the
person against whom or against whose property the same is sought to be
enforced shall pay the tax under instant protest, or upon protest
within thirty days, and shall thereupon request the decision of the
Collector of Internal Revenue. If the decision of the Collector of
Internal Revenue is adverse, or if no decision is made by him within
six months from the date when his decision was requested, the taxpayer
may proceed, at any time within two years after the payment of the tax
to bring an action against the Collector of Internal Revenue for the
recovery without interest of the sum alleged to have been illegally
collected, the process to be served upon him, upon the provincial
treasurer, or upon the officer collecting the tax.”

From the foregoing quotation it is inferred that the fulfillment of
two conditions is required before a complaint may be filed for the
recovery of the amount paid for the tax in question, to wit: (1) that
the protest be made at the time the tax is paid, or within thirty days
subsequent thereto, and (2) that the taxpayer request the decision of
the Collector of Internal Revenue.

“PROTEST.—The spontaneous declaration made to acquire or keep some right or to prevent an impending damage.” (9 Alcubilla, Diccionario de la Adntinistracion Espanola, page 95.)

“PAYMENT UNDER PROTEST.—One who is called upon to pay an import duty, a
tax, subscription, or the like, which he thinks he ought not to be
required to pay, but is unwilling to encounter the delay and expense of
a lawsuit at that time, pays the sum demanded under protest; * * * (6
Words & Phrases Judicially Defined, page 5745.)

Well then: as to the first cause of action, this court is of the
opinion that the requisite of protest can not be demanded with respect
to the payment of the sum of P705 on the ground that said sum was not
paid directly by the plaintiff corporation, but the collection thereof
was effected by the attachment and sale at public auction of some
properties belonging to the corporation. It should be noted, however,
that the attachment was protested by the plaintiff. Furthermore,
inasmuch as the sum of P1,450.14 referred to in the second cause of
action, which, together with the sum of P705, completes that of
P2.155.14, the total amount of the tax charged and levied on the value
of the merchandise allegedly shipped by the plaintiff to Hoc Chuan Tay
in Cotabato from January, 1925, to August, 1926, was paid under
protest, the protest under these circumstances should be considered to
have been made against the payment of the total amount of P2,155.14.

However, the Collector of Internal Revenue contends that the
plaintiff not only should have made the payment under protest but
should have also demanded of him the refund of the sums referred to in
the first and second causes of action, concluding that as it had failed
to do so, the present action does not lie.

This court is of the opinion that the contention of the Collector
of Internal Revenue is fundamentally supported by law. It has already
been seen above that according to section 1579 of the Administrative
Code, the law requires two conditions precedent to the filing of an
action for the recovery of a tax paid, to wit: the protest and the
request to the Collector of Internal Revenue to render his decision.
The law has not prescribed these requisites giving the taxpayer the
right to choose one or any of the two for compliance therewith, it
being presumed that the legislator in requiring them had some purpose
in mind, and in fact each of said requisites serves a purpose. The
protest is to notify the collector of the taxpayer’s nonconformity to
the payment of the tax demanded of him. Without the protest, the
taxpayer would have no right to demand the refund of the tax paid, as
he would be understood to have paid it voluntarily (Fernandez vs.
Shearer, 19 Phil., 75). However, the protest is not sufficient. The law
requires the taxpayer to request the decision of the collector, and
such requirement is not merely directory but clearly mandatory, as may
be inferred from the words: “and shall thereupon request the decision
of the Collector of Internal Revenue.” One objection might be
interposed herein if we take into consideration what this court stated
in the case of onso (46 Phil., 159, 161), to wit:

“Inasmuch as a rule has been established for years
in this jurisdiction that a mere protest of record against the payment
of an illegal demand, is sufficient to constitute an involuntary
payment, and justifies an action for its recovery, we find no reason
for invoking the doctrine announced in other jurisdictions.”

However, it is not inferred from the above-quoted doctrine that the
protest is the only requisite to be complied with in order to place the
taxpayer in a position to bring an action against the government. The
question whether or not the taxpayer, before filing his complaint,
should request the decision of the Collector of Internal Revenue, has
neither been raised nor expressly discussed in said case. Neither is it
inferable therefrom that said second requisite is unnecessary because
it has been held therein that a mere protest is sufficient, for we
should not lose sight of the fact that the above-quoted ruling of this
court is the conclusion arrived at by it after passing upon the
question raised by the appellant, to wit: “whether or not the payment
of same license fees under a mere protest of record is equivalent to an
involuntary payment in this jurisdiction, and justifies the bringing of
an action for the recovery thereof.” That was the only question decided
by this court, that is, whether or not a mere protest of record is
sufficient to constitute an involuntary payment.

Taking now into consideration that the protest is entered for the
sole purpose of preserving the taxpayer’s right to question the
legality of the tax, hence the necessity of later requesting the
decision of the Collector of Internal Revenue, and in order that said
official may have an opportunity to render a decision with knowledge of
the facts of the case, the taxpayer must state in his petition his
reasons for questioning the legality of the tax and for demanding the
refund of the amount paid by him. Otherwise, if the protest were the
only legal condition required by the law, or were sufficient to require
the Collector of Internal Revenue to decide the question, we would be
imposing upon him a duty impossible to comply with, inasmuch as, with
the mere protest which does not specify the grounds thereof, the
collector would not know what the taxpayer had in mind when he
formulated the same.

The Collector of Internal Revenue, however, does not claim that the
appellant should have requested his decision but, according to him, he
should have asked for the refund of the sums paid by him under protest.
In the last analysis and by their purpose, both requisites are one and
the same thing. Section 1579 of the Administrative Code does not
require the taxpayer to request the refund of the amount paid as tax
but the decision of the collector. The petition for refund is a
necessary prerequisite in the United States. There, before the taxpayer
can institute a suit for the recovery of a tax, he must appeal to the
Commissioner of Internal Revenue so that the latter may decide the
question of refund (Rev. Stats., sec. 3226; New York Mail &
Newspaper Transp. Co. vs. Anderson [1916], 234 Fed., 590; State Line & S. R. Co. vs. Davis [1915], 228 Fed., 246; Merck vs.
Treat [1909], 174 Fed., 388 and others). The requirement of the
decision of the Collector of Internal Revenue, demanded in the
Philippines, is patterned after the requisite demanded in section 3226
of the Revised Statutes of the United States relative to the appeal or
claim for refund addressed to the Commissioner of Internal Revenue, as
the decision of the Collector of Internal Revenue required herein in
the end has to refer necessarily to the refund of the amount paid by
the taxpayer under protest.

In the present case, there is no evidence of record to the effect
that before the filing of the complaint, the appellant had requested of
the defendant the refund of the sums stated in the first and second
causes of action, or the defendant’s decision, after it had made its
protest. Failure to comply with this requisite is fatal because it has
been repeatedly held that no action for the recovery of a tax paid can
be maintained without strictly complying with each and every one of the
conditions required by the law to that effect.

“It is settled beyond controversy that the State,
which in the eye of the law is recognized as a sovereign, cannot
without its consent be sued by a citizen. In case the State, through
its legislative department, has granted the right or privilege to
claimants to institute actions against it upon certain terms and
conditions, all persons seeking to avail themselves of the privilege so
granted must accept it subject to the terms and conditions attached thereto or forming part of the right as granted by the State.” (Underscoring ours.) (State vs. Mutual Life Ins. Co., 175 Ind., 59, 71.)

“Statutes permitting the state to be sued are in derogation of its
sovereignty and will be strictly construed.” (Underscoring ours.)
(Miller vs. Pillsbury, 128 Pac., 327; and Western & Atlantic R. Co. vs. State of Georgia, 14 L. R. A., 438.)

“Before a suit can be commenced to recover taxes erroneously or illegally assessed or collected, * * * an appeal must be made to and a decision rendered by the Commissioner of Internal Revenue.” (Underscoring ours.) (Holmes, Federal Taxes, p. 615; Id., 6th ed., p. 1531.)

“In a recent case the Supreme Court has decided that a claim for refund
is necessary as a prerequisite to recovery in the courts, * * *.”
(Underscoring ours.) (Holmes, Fed. Taxes, 1921 Supplement, p. 333.)

In this jurisdiction, this court has declared:

“It appears from the record that the plaintiffs not
only neglected and failed to take the proceedings required by law for
the protection of their interests but also without protest or objection
of any kind paid the taxes which they now seek to recover. * * * Not having taken the steps required by law for the protection of their interests, the action can not be maintained.” (Underscoring ours.) (Fernandez vs. Shearer, 19 Phil., 75, 78.)

“The power to tax necessarily carries with it the power to collect the
taxes. This being true, the weight of authority supports the
proposition that the government may fix the conditions upon which it will consent to litigate the validity of its original taxes.” (Underscoring ours.) (Churchill and Tait vs. Rafferty, 32 Phil., 580, 592.)

“In its final analysis, the letter of April first should be construed as a polite and courteous demand and request for the refund of the tax in
question, to be paid at such time as the correct amount was ascertained
and determined.” (Underscoring ours.) (Asiatic Petroleum Co. vs. Posadas, 52 Phil., 728, 743.)

Inasmuch as the plaintiff has not strictly complied with the
provisions of section 1579 of the Administrative Code, as amended, it
is not entitled to recover the sums paid as merchant’s tax referred to
in the first and second causes of action of its amended complaint.

With respect to the sum of P1,295, claimed as damages in the first
cause of action, no evidence has been adduced by the plaintiff in
support of said claim. The court, in its judgment, has made no
reference thereto and the plaintiff itself has made no assignment of
error on this point.

With respect to the third cause of action, it has been established
and the appellee admits that the plaintiff paid under protest the sum
of P2,482.17, and asked of the defendant-appellee for the refund
thereof.

The defendant demanded payment and collected the sum of P1,996.97,
together with P485.20, or a total amount of P2,482.17, as merchant’s
tax on merchandise claimed by him to have been sold and shipped by the
plaintiff to Hoc Chuan Tay in Cotabato in the year 1924. It is admitted
by the defendant in his brief that of the sum of P2,482.17 in question,
he should and is willing to refund f=246.59.

The evidence shows that Hoc Tay Chan was a branch of the plaintiff
in Cotabato. The license for said branch was obtained and paid for on
April 19, 1924, in the name of the plaintiff because the latter was the
owner of the merchandise sold in the store named Hoc Tay Chan. The
license was renewed in 1925 and the business was continued until July
31, 1925, when the plaintiff closed said store, keeping the merchandise
left therein in the upper floor of the building occupied by it in
Cotabato up to the time said merchandise was combined with that of Hoc
Chuan Tay, another branch of said plaintiff. For the sales made by the
plaintiff in said branch named Hoc Tay Chan, it paid the taxes
corresponding to the second, third and fourth quarters of 1924 and to
the first and second quarters of 1925.

The defendant, in demanding of the plaintiff the payment of the sum
the refund of which is sought in the third cause of action, mistook the
plaintiff’s branch Hoc Tay Chan for the firm Hoc Chuan Tay. The
evidence, however, affords no room for doubt that Hoc Tay Chan is a
branch different from Hoc Chuan Tay. Included in the evidence presented
by the plaintiff are Exhibit BBB, page 281, and Exhibit BBB, page 282;
of the bundle of exhibits. Exhibit BBB (page 281) is an information
dated October 23, 1931, for estafa through falsification of
mercantile documents, filed in the Court of First Instance of Zamboanga
against Dalmacio Wee Guevara, manager of the plaintiff corporation,
alleging that said Guevara had falsified a book of account by inserting
therein the words “Wee Poco & Co., Branch” with a view to
defrauding the government in the payment of the tax of P2,155.14 (1st
cause of action). Exhibit BBB (page 282) is the judgment rendered on
April 19, 1932, that is, after the complaint in this case had already
been filed, acquitting the accused and making a statement of facts as
follows:

“That Wee Poco & Co., Inc. (the herein
plaintiff and appellant) began to operate in Zamboanga prior to July
11, 1924, and in the course of its business, it established a
branch in the municipality of Cotabato of the Province of the same
name, which branch was known by the name of Hoc Tay Chan; that about said date, July 11, 1924, another firm Hoc Chuan Tay was likewise established in Cotabato, said firm Hoc Chuan Tay having been constituted by the majority of the partners or capitalists of Wee Poco & Co., Inc. * * *.” (Underscoring ours.)

There is no room for doubt that Hoc Tay Chan was a branch of the
plaintiff-appellant for the transactions of which the latter paid not
only the license but also the merchant’s tax.

The appellee contends that the judgment rendered in the case
against Guevara is inadmissible as evidence in the present case. But if
it is taken into consideration that Guevara was charged in said case as
manager, and for being manager of the herein plaintiff-appellant Wee
Poco & Co., Inc., precisely in connection with a book of account in
which the falsification is alleged to have been committed for the
purpose of defrauding the government in the payment of the tax the
refund of which is the subject matter of the first cause of action; if
it is taken into consideration that the prosecution was conducted by
the government with the continuous collaboration and help of the agents
of the herein defendant, Collector of Internal Revenue, so that in fact
and in truth the real parties in said criminal case are the same as in
this case, the facts involved in both cases being, on the other hand,
identical, this court is of the opinion that the judgment rendered in
said other case is perfectly admissible in this case.

“A record in a criminal action cannot be admitted in a civil action except by way of inducement or to show a collateral fact. The rule might be different if the party in the civil action had control over the proceedings in the criminal action as
by showing that the party in the civil action supplied the lawyer for
the accused in the criminal action.” (Underscoring ours.) (City of
Manila vs. Manila Electric Co., 52 Phil., 586.)

“It is also a most obvious principle of justice, that no man ought to
be bound by proceedings to which he was a stranger; but the converse of
this rule is equally true, that by proceedings to which he was not a stranger he may well be held bound. Under
the term parties, in this connection, the law includes all who are
directly interested in the subject matter, and had a right to make
defense, or to control the proceedings, and to appeal from the
judgment.” (Underscoring ours.) (1 Greenleaf, 7th ed., p. 656.)

“Judgments, whatever, are conclusive proof, as against all persons, of
the existence of that state of things which they actually effect, when
the existence of the state of things so effected is a fact in issue, or
is, or is deemed to be, relevant to the issue.” (Steph. Ev., art. 40;
Dorrell vs. State, 85 Ind., 357.)

For all the foregoing, the judgment is affirmed as to the first and
second causes of action, and reversed as to the third, and by virtue
thereof, the appellee is ordered to refund to the appellant, without
interest, the sum of P2,235.58. The appealed judgment is likewise
affirmed in so far as it orders the defendant to return to the
plaintiff the sum of P246.59, without special pronouncement as to the
costs. So ordered.

Avancena, C. J., and Abad Santos, J., concur.

---

LAUREL, J.,

In view of the sharp conflict of opinions of the members of this
court on the important question presented in this case, I wish to state
my reasons for concurring in the result arrived at by my three
assenting brethren.

The facts are related in the preceding opinion and need not be
repeated for the purpose of this concurrence. In the first two causes
of action mentioned, it is admitted that no ruling of the Collector of
Internal Revenue was requested or had on the protest against the
payment of the taxes alleged to have been illegally or improperly
collected. The question, in my opinion, is whether this requirement of
the law is mandatory. Probably the auxiliary verb “shall” is an
indication of the mandatory character of the law, hut as this is not
decisive, further inquiry is advisable. Section 1579 of the Revised
Administrative Code provides as follows:

“SEC. 1579. Recovery of the tax paid under protest.—
When the validity of any tax is questioned, or its amount disputed or
other question raised as to liability therefor, the person against whom
or against whose property the same is sought to be enforced shall
pay the tax under instant protest, or upon protest within thirty days,
and shall thereupon request the decision of the Collector of Internal
Revenue. If the decision of the Collector of Internal Revenue is
adverse, or if no decision is made by him within six months from the
date when his decision was requested, the taxpayer may proceed, at any
time within two years after the payment of the tax to bring an action
against the Collector of Internal Revenue for the recovery without
interest of the sum alleged to have been illegally collected, the
process to be served upon him, upon the provincial treasurer, or upon
the officer collecting the tax.” (Underlining is mine.)

That the intention of the legislature is what to me appears clearly
stated in section 1579 of the Revised Administrative Code is apparent
from an examination of the sources of this section. The original
Internal Revenue Law is Act No. 1189 of the Philippine Commission,
enacted on July 2, 1904, and which took effect on August first of that
same year. It was known as “The Internal Revenue Law of 1904.” It was
intended to supplant the old Spanish laws on the subject and, in the
language of the Philippine Commission, “it abolished the great majority
of the Spanish industrial taxes, which were so adjusted as to fall most
heavily upon the poorer classes and permitted the larger merchants,
manufacturers, and business men to escape with comparatively little
taxation” (Sixth Annual Report of the Philippine Commission [1905], p.
64). Act No. 1189 was patterned after the Internal Revenue Law then in
force in the United States and which at the time was the Act of
Congress of July 13, 1866 (14 Stat. at L., ch. 184, p. 152) as amended
by the Act of June 6, 1872 (17 Stat. at L., ch. 315, p. 257).

Section 19 of the first Act (July 13, 1866) is as follows:

“SEC. 19. And be it further enacted, That no suit
shall be maintained in any court for the recovery of any tax alleged to
have been erroneously or illegally assessed or collected, until appeal shall have been duly made to the commissioner of internal revenue according
to the provisions of law in that regard, and the regulations of the
Secretary of the Treasury established in pursuance thereof, and a decision of said commissioner shall be had thereon, unless
such suit shall be brought within six months from the time of said
decision, or within six months from the time this act takes effect: Provided,
That if said decision shall be delayed more than six months from the
date of such appeal, then said suit may be brought at any time within
twelve months from the date of such appeal.” (14 U. S. Stat. at L., ch.
184, p. 152.) (Underlining is mine.)

Section 44 of the Act of Congress of June 6, 1872, amendatory to
section 19 above-quoted of the Act of Congress of July 13, 1866, is as
follows:

“SEC. 44. That all suits and proceedings for the
recovery of any internal tax alleged to have been erroneously assessed
or collected, or any penalty claimed to have been collected without
authority, or for any sum which it is alleged was excessive, or in any
manner wrongfully collected, shall be brought within two years next
after the cause of action accrued and not after; and all claims for the refunding of any internal tax or penalty shall be presented to the commissioner of internal revenue within two years next after the cause of action accrued and not after: Provided,
That actions for claims, which have accrued prior to the passage of
this act, shall be commenced in the courts or presented to the
commissioner of internal revenue within one year from the date of said
passage: And provided further, That where a claim shall be
pending before said commissioner the claimant may bring his action
within one year after such decision and not after: And provided further, That
no right of action barred by any statute now in force shall be revived
by any thing herein contained.” (17 U. S. Stat. at L., ch. 315, pp.
257, 258.) (Underlining is mine.)

It should be observed that section 44 of the Act of Congress of
June 6, 1872 was finally amended by section 1103 of the Act of June 6,
1932, thus:

“SEC. 1103. Limitations on Suits by Taxpayers.

“(a) Section 3226 of the Revised Statutes, as amended, is amended to read as follows;

” ‘SEC. 3226. No suit or proceeding shall be maintained in any court
for the recovery of any internal-revenue tax 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 duly filed with the Commissioner of Internal Revenue, according
to the provisions of law in that regard, and the regulations of the
Secretary of the Treasury established in pursuance thereof; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. No
such suit or proceeding shall be begun before the expiration of six
months from the date of filing such claim unless the Commissioner
renders a decision thereon within that time, nor after the expiration
of two years from the date of mailing by registered mail by the
Commissioner to the taxpayer of a notice of the disallowance of the
part of the claim to which such suit or proceeding relates.

“(b)
Suits or proceedings instituted before the date of the enactment of
this Act shall not be affected by the amendment made by subsection (a)
of this section to section 3226 of the Revised Statutes. In the case of
suits or proceedings instituted on or after the date of the enactment
of this Act where the part of the claim to which such suit or
proceeding relates was disallowed before the date of the enactment of
this Act, the statute of limitations shall be the same as provided by
such section 3226 before its amendment by subsection (a) of this section.” (47 U. S. Stat. at L., ch. 209, p. 286.) (Underlining is mine.)

Section 52 of Act No. 1189 of the Philippine Commission, taken from
section 19 of the Act of Congress of July 13, 1866, as amended, reads:

“SEC. 52. No suit shall be maintained in any court
for the recovery of any internal revenue tax alleged to be excessive or
collected without authority or of any sum alleged to be excessive or in
any manner wrongfully collected, unless protest against such tax
was made at the time of the payment thereof or within ten days
thereafter nor until appeal shall have been duly made to the Collector
of Internal Revenue and his decision has been had thereon: Provided, That
if such decision is delayed six months from the date of appeal then the
suit may be brought without first having the decision of the Collector
of internal Revenue and provided further, That no suit shall be
maintained in any court for such recovery unless the same is brought
within two years next after the cause of action accrued: And provided further, That
no courts shall have authority to grant an injunction restraining the
collection of any taxes imposed by virtue of the provisions of this
Act, but the remedy of the taxpayer who claims that he is unjustly
assessed or taxed shall be by payment under protest of the sum claimed
from him by the Collector of Internal Revenue and by action to recover
back the sum claimed to have been illegally collected.” (Underlining is
mine.)

About ten years after the approval of Act No. 1189, said Act and
its amendments were revised and compiled and the result was the
enactment of Act No. 2339, otherwise known as “The Internal Revenue Act
of 1914.” Section 140 of this Act is as follows:

“SEC. 140. Recovery of tax paid under protest.—When
the validity of any tax is questioned, or its amount disputed, or other
question raised as to liability therefor, the person against whom or
against whose property the same is sought to be enforced shall pay
the tax under instant protest, or upon protest within ten days, and
shall thereupon request the decision of the Collector of Internal
Revenue. If the decision of the Collector of Internal Revenue is
adverse, or if no decision is made by him within six months from the
date when his decision was requested, the taxpayer may proceed, at any
time within two years after the payment of the tax, to bring an action
against the Collector of Internal Revenue for the recovery of the sum
alleged to have been illegally collected, the process to be served upon
him, upon the provincial treasurer, or upon the officer collecting the
tax.” (Underlining is mine.)

Upon the codification of the political laws of the Philippines,
section 140 quoted above was incorporated as section 1721 of the
Administrative Code of 1916 and finally as section 1579 of the
Administrative Code/of 1917 which section, as amended by Act No. 3685
(approved November 6, 1930), is inserted in the beginning of this
opinion.

It should be observed that under the provisions of section 52 of
the original Act No. 1189 of the Philippine Commission, no suit for the
recovery of any internal-revenue tax was permitted “unless protest
against such tax was made at the time of the payment thereof or within
ten days thereafter nor until appeal shall have been duly made to the
Collector of Internal Revenue and his decision has been had thereon.”
The requirement in the original section 52 of Act No. 1189 pertaining
to appeal and the decision thereon of the Collector of Internal Revenue
is the same requirement found in the original section of the Act of
Congress of July 13, 1866. As incorporated in section 140 of Act No.
2339, section 52 of Act No. 1189 has remained substantially the same,
except in so far as it refers to the appeal. The change was more in
phraseology than in substance, at least on the point that presently
concerns us. Whereas section 52 (Act No. 1189) requires “protest
against such tax * * * at the time of the payment thereof,” section 140
(Act No. 2339) requires payment “under instant protest”; and, whereas
the former section and law provide that no “suit shall be maintained *
* * until appeal shall have been duly made to the Collector of Internal
Revenue and his decision has been had thereon,” the latter
section and law provide that the taxpayer “shall thereupon request the
decision of the Collector of Internal Revenue.” As indicated, section
140 of Act No. 2339 was incorporated as section 1721 of the
Administrative Code of 1916 without any change; and section 1721 was
afterwards incorporated as section 1579 of the Revised Administrative
Code of 1917 without any change either.

From the history of section 1579 of the Revised Administrative Code
briefly outlined above, it seems clear that the unequivocal intention
of the legislature was to make the two conditions above-mentioned
conditions precedent to the bringing of a suit by a taxpayer for the
recovery of a tax alleged to have been illegally or improperly
collected. It is true that under section 3226 of the Revised Statutes
of the United States—as now worded—-no protest is required,, and to
permit the institution of an action thereunder for the recovery of a
tax it is sufficient that “a claim for refund or credit has been duly
filed with the Commissioner of Internal Revenue”—with or without
protest—but this fact is more an argument in support of the view taken
by the majority for it shows that, in the opinion of Congress, claim
for refund, if not equivalent to protest, is more important than
protest itself. As correctly observed in the preceding opinion of the
majority, request for decision on the protest could have no other
purpose than the refund of the tax. It is, indeed, inconceivable that
the taxpayer would ask the Collector of Internal Revenue to reject his
protest and confirm collection. In my opinion, also, when the
internal-revenue system was implanted here, it was thought advisable to
insert the generally accepted principle in the law of taxation that
taxes voluntarily paid cannot be recovered (26 R. C. L.; p. 459 and
authorities therein cited) and hence it was deemed expedient to
require—as it has been required since the approval of the original
Philippine Internal Revenue Law of 1904—payment under protest and, in
addition, the decision thereon by the Collector of Internal Revenue.

Several decisions heretofore rendered by this court might have
given the impression that to initiate a suit for the recovery of a tax
alleged to have been unduly or illegally collected payment under
protest was sufficient (See, for instance, Bank of the Philippine
Islands vs. Trinidad, 42 Phil., statement of facts on p. 220; Ayala de Roxas vs. City of Manila, 27 Phil., 336, 346 [involving real property tax]; and cases cited in Viuda e Hijos de Pedro P. Roxas vs.
Rafferty, 37 Phil., 957). An examination, however, of these cases will
show that the question presently under consideration has not been
directly presented, was not the lis mota there, and that the cases were therefore decided silenter on the question which is now submitted for the first time for determination by this court.

Coming to the fundamentals, it should be observed that taxation is
an essential attribute of sovereignty. It is said to be the greatest of
all governmental powers, so ever-pervading and insistent that,
according to Chief Justice Marshall of the Supreme Court of the United
States, the power to tax involves the power to destroy (M’Culloch vs.
State of Maryland, 4 Wheat., 316; 4 Law. ed., 579). So overwhelming is
this power that injunction is not available to restrain the collection
of a tax (sec. 1578, Adm. Code; Sarasola vs. Trinidad, 40
Phil., 252); the power to collect taxes is not barred by a general
statute of limitations (26 R. C. L., 388); the right to collect
delinquent taxes is not affected by the passage of an Act repealing the
statute under which said taxes were assessed and levied, in the absence
of legislative intent to the contrary (Cooley, Taxation, pp18, 19, 295)
; even in case of recovery, interest is not awarded against the
government; and, where the state permits suits to be brought against it
for the recovery of taxes, as in our case, the remedy provided is
exclusive and no other remedy can be substituted for it (Snyder vs. Marks, 109 U. S., 189. See also, Churchill and Tait vs. Rafferty, 32 Phil., 580, 587, and Sarasola vs.
Trinidad, 40 Phil., 252, 257). In the exercise of its power of
sovereignty, the State consents to be sued as an expression of public
policy. In such a case, the power of the State and the remedy of the
citizen are made reciprocal and the judiciary is made the arbitrator of
the controversy between State and citizen (Viuda e Hijos de Pedro P.
Roxas vs. Rafferty, 37 Phil., 957). But, in consenting to be
sued and waiving its time-honored immunity to be sued, it may impose
terms and conditions under which it will consent to be sued (Murray vs. Wilson Distilling Co., 213 U. S., 151; 35 Law. ed., 742; State vs. Mut. Life Ins., Co. 175 Ind., 59).

Much can be said against the idea of hedging about the freedom of
the citizen to go to the courts with a view to impugning the validity
of the tax sought to be collected. The modern tendency is—and should
perhaps be—towards liberality in permitting the citizens to appeal to
courts to halt what may, not infrequently, be the excesses of the
collecting officers of the government to the end that no person may be
deprived of his property without due process of law or denied the equal
protection of the laws. But it is political aphorism that courts cannot
legislate however much they have already judicially legislated. When, therefore, the legislative department imposed (a) payment under protest and (b)
decision of the Collector of Internal Revenue thereon as prerequisites
to the bringing or institution of a suit for the refund or recovery of
a tax alleged to have been illegally or improperly collected, it seems
to me clear that this court, if it were to hold its ground and keep
itself within the domain of its constitutional boundaries, cannot say
that payment under protest is sufficient and that the other requirement
is unnecessary,. If the law is clear it must be given effect. There is
no other alternative. Our inescapable obligation is to say what the law is and not what the law should be.

If, then, the Legislature, in the exercise of its legitimate
authority has required payment under protest and decision of the
Collector of Internal Revenue on that protest as conditions precedent
to the bringing of an action for the recovery of a tax the courts can
neither add to, nor eliminate any of, these conditions; and the least
that can be said is, that this Supreme Court owes it to the coordinate
branch of the government to abide by and respect .its wisdom and should
enforce the legislative will when called upon to do so in appropriate
cases, unless the measure is found to be repugnant to the fundamental
law. It is almost trite to say now that the propriety and expediency of
legislation is not a question for the courts to pass upon and
determine. The power of taxation being legislative, all its incidents
are within the control of the legislature. The remedies to be afforded
the taxpayer, the mode and method to be pursued, and the conditions to
be complied with, are matters within the discretion of the legislature,
arid in respect to which its determination should be and is final.
(Genet vs. City of Brooklyn [1885], 99 N. Y., 296, S06; 1 N. E., 777; People ex rel. Hatch vs. Reardon [1906], 184 N. Y., 431; 77 N. E., 970; 8 L. R. A. [N. S.], 314; 112 Am. St. Rep., 628; 6 Ann. Cas., 515; People ex rel. Detroit & H. R. Co. vs.
Salem [1870], 20 Mich., 452; 4 Am. Rep., 400.) Under our constitutional
system, the protection against unwise or oppressive legislation, within
constitutional bounds, is by an appeal to the justice and patriotism of
the representatives of the people (Cooley, Const. Lim., 7th ed., ch.
VII, 231). As vehemently expressed by Chief Justice Marshall, in
M’Culloch vs. State of Maryland, supra, the only security
against the abuse of the power of taxation is to be found in the
structure of the government itself. “In imposing a tax, the Legislature
acts upon its constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation. The people of a state,
therefore, give to their government a right of taxing themselves and
their property, and as the exigencies of government cannot be limited,
they prescribe no limits to the exercise of this right, resting
confidently on the interest of the legislator, and on the influence of
the constituents over their representative, to guard them against its
abuse.” (See also, Providence Bank vs. Billings and Pittman [1830], 4 Pet., 514, 561; 7 Lawr ed., 939, 950.)

Viewed from the practical angle, it should be stated that the
decision of the Collector of Internal Revenue is not necessarily final.
Under our departmental organization (Vide Acts Nos. 2666,
2803, 4007 and 4121), continued in force by paragraph 1 of section 12,
Article VII, of the Constitution, the Secretary of Finance has “direct
control, direction, and supervision” over the Bureau of Internal
Revenue, and “may, any provision of existing law to the contrary
notwithstanding, repeal or modify the decisions” of the Collector of
Internal Revenue “when advisable in the public interest” (sec. 79 [c],
Revised Administrative Code). Administrative remedies should be
exhausted before resorting to the courts. This is not saying, however,
that in our case the taxpayer must first appeal to the Secretary of
Finance before going to court, because such action is not required by
section 1579, but this principle is here mentioned to indicate the
practical consideration which was probably present in the mind of the
legislator when he required the taxpayer’s protest and the decision of
the Collector of Internal Revenue on the protest as conditions
precedent to the valid exercise of the taxpayer’s right of action in a
court of justice. The Secretary of Finance might reverse the action of
the Collector of Internal Revenue, in which case, it would not be
necessary to go to the courts. And, obviously enough, if there is no
decision by the Collector of Internal Revenue no appeal could be taken
therefrom to the department head. The object of the statute evidently
is to give to the Collector of Internal Revenue an opportunity to
decide whether in its judgment the tax is legal or illegal, and to the
taxpayer a chance to recur to the Department of Finance in case of
adverse decision of the collector, and thus save the delay and expense
of litigation (Vide Loomis vs. Wattles [C. C. A. Neb., 1920], 266 Fed., 876).

With reference to the third cause of action, the evidence clearly
shows that Hoc Chuan Tay was a branch of the plaintiff Wee Poco &
Co., Inc. in Cotabato. My concurrence, however, is based furthermore on
the fact that the Collector of Internal Revenue in this particular case
was not certain of the tax he was collecting as indicated by his offer
to return to the taxpayer the sum of P246.59 out of the total tax
collected under the items comprised in the third cause of action.

---

CONCURRING ANG DISSENTING

IMPERIAL, J.,

I concur in the majority opinion in so far as it sustains the third
cause of action of the plaintiff and reverses the appealed judgment
with respect to the point in question; but I dissent from that part
thereof dismissing the first two causes of action of the plaintiff,
affirming, as a consequence, the judgment of the Court of First
Instance.

I. My dissent is based on the interpretation given to section 1579
of the Revised Administrative Code, as amended by Act No. 3685, which
reads as follows:

“When the validity of any tax is questioned, or its
amount disputed, or other question raised as to liability therefor, the
person against whom or against whose property the same is sought to he
enforced shall pay the tax under instant protest, or upon protest
within thirty days, and shall thereupon request the decision of the
Collector of Internal Revenue. If the decision of the Collector of
Internal Revenue is adverse, or if no decision is made by him within
six months from the date when his decision was requested, the taxpayer
may proceed, at any time within two years after the payment of the tax
to bring an action against the Collector of Internal Revenue for the
recovery without interest of the sum alleged to have been illegally
collected, the process to be served upon him, upon the provincial
treasurer, or upon the officer collecting the tax.”

The majority opinion holds that, in connection with the first two
causes of action, the plaintiff has made payment of the taxes demanded
of him under protest, but concludes that both causes of action can not
be maintained because the plaintiff did not request the refund or
reimbursement of the taxes paid under protest. To arrive at this
conclusion, it admits that section 1579 does not require such
condition, but explains that the provision requiring the taxpayer to
request the decision of the Collector of Internal Revenue is in effect
equivalent to a demand for reimbursement required in some statutes of
some States of the Union. I dissent from such interpretation. If the
intention of the law had been different, the phraseology used in said
provision would not have been couched as it appears in the text. On the
contrary, the law, in prescribing that the taxpayer should request the
decision of the Collector of Internal Revenue, evidently refers to the
protest which is the act preceding the request for a decision. If the
protest is of no value and need not be decided by said official, then
what is the thing to be decided by him according to the law? This
reasoning logically leads to the conclusion that it is the protest that
assumes the role of the demand for refund required by some statutes of
some States of the American Union as condition precedent to the filing
of an action for the return of an illegally collected tax.

II. The protest filed by the plaintiff implicitly carried with it
the demand on the Collector of Internal Revenue to decide the same. For
this reason, it should be concluded that the plaintiff, in formulating
his protest, substantially complied with the only two conditions
precedent prescribed by section 1579, as amended. As was stated by the
Supreme Court of Colorado in the case of the Board of County
Commissioners of Arapahoe County vs. Cutter (3 Colo. Rep.,
349, 351): “As the taxes were paid under protest no demand was
necessary before bringing suit. The object of a demand is to give the
party on whom it is made an opportunity to refund, without the expense
incident to litigation, the taxes that had been illegally exacted. But
where the taxes are paid under protest to the treasurer, who is armed
by the law with authority to coerce payment, no further demand is
required. Payment under such circumstances cannot be considered
voluntary. The protest by the tax payer is of itself a notice to the
treasurer that he regards the tax as illegal, and that he intends, if
need be, to enforce his right by an appropriate proceeding.”

III. The statutory provisions on taxes requiring conditions
precedent to the filing of an ordinary civil action for the refund: of
an illegally paid tax should be liberally construed by the courts to
enable them to inquire into and determine the merits of the case
(Connelly vs. City and County of San Francisco, 127 P., 834; Columbia Gaslight Co. vs. Mobley, 137 S. E., 211; 61 C. J., 994, sec. 1272).

For the foregoing reasons, I am of the opinion that the first two
causes of action should have been passed upon and not rejected flatly
merely for lack of the requisite referred to in the majority opinion.
After considering the evidence of record, which, in my opinion, shows
that the appellant was not bound to pay the taxes demanded, said two
causes of action should be decided in favor of the plaintiff and the
defendant should refund to it the sums of money collected illegally.

DIAZ, J.;

I concur in the dissenting opinion of Justice Imperial.

VILLA-REAL, J.;

I concur in the dissenting opinion of Justice Imperial.