Shell Co. of P.I., Ltd. vs. Vaño

Municipal ordinances imposing fixed annual occupation or business taxes under Commonwealth Act No. 472 are valid provided they are neither percentage taxes nor taxes on specified articles, which are the only exceptions expressly prohibited by the Act.

The Shell Company of the Philippine Islands, Ltd., a foreign corporation engaged in the storage of combustible materials and the manufacture of tin cans, was assessed annual occupation and business taxes by the Municipality of Cordova, Cebu, under three municipal ordinances adopted pursuant to Commonwealth Act No. 472. That Act authorizes municipal councils to impose license taxes on persons engaged in any occupation or business, or exercising privileges in the municipality, by requiring them to secure licenses at rates fixed by the council, provided the rates are just and uniform and do not constitute percentage taxes or taxes on specified articles. The parties submitted the case for judgment upon a stipulation of facts, reserving the right to introduce oral evidence, though none was ultimately offered by either party.

The Municipal Council of Cordova, Province of Cebu, adopted three ordinances relevant to this dispute. Ordinance No. 10, series of 1946, imposed an annual tax of ₱150 on the occupation or exercise of the privilege of installation manager. Ordinance No. 9, series of 1947, imposed an annual tax of ₱40 for local deposits in drums of combustible and inflammable materials and an annual tax of ₱200 for tin can factories. Ordinance No. 11, series of 1948, imposed an annual tax of ₱150 on tin can factories having a maximum output capacity of 30,000 tin cans. Each ordinance was approved by the Provincial Board of Cebu, and Ordinance No. 11, series of 1948, was additionally approved by the Secretary of Finance pursuant to section 4 of Commonwealth Act No. 472.

The Shell Company of P.I., Ltd., a foreign corporation, paid the taxes assessed under these ordinances. Payments evidenced by Official Receipts Nos. A-37607422, A-3769852, and A-21030388 were made under protest, while the payment evidenced by Official Receipt No. A-1280606 for ₱40 was not made under protest. Shell Company thereafter filed suit against E.E. Vaño, the Municipal Treasurer of Cordova, for refund of the taxes paid, contending that the ordinances imposing such taxes were ultra vires. The defendant denied that the ordinances were ultra vires.

The parties submitted the case upon a stipulation of facts, reserving the right to introduce oral evidence, but no such evidence was presented by either side. The trial court rendered judgment holding the ordinances valid and dismissing the complaint, prompting the plaintiff to appeal.

• Conflict with Revised Administrative Code: Petitioner contended that the annual taxes of ₱40 for local deposits of combustible materials and ₱200 for tin can factories were unauthorized and illegal because section 2244 of the Revised Administrative Code, which governs the regulative authority of municipal councils over businesses storing combustible or explosive materials, limits permit fees to no more than ₱10 per annum.
• Installation Manager Not a Taxable Calling: Petitioner argued that "installation manager" is merely a designation made by the company and cannot be deemed a "calling" as defined in section 178 of the National Internal Revenue Code, and that the installation manager is a salaried employee who may not be taxed by the municipal council under Commonwealth Act No. 472.
• Lack of Department of Finance Approval: Petitioner noted that Ordinance No. 10, series of 1946, which imposed a tax exceeding ₱50 per annum, did not appear to have been approved by the Department of Finance as required by section 4, paragraph 2, of Commonwealth Act No. 472.
• Discriminatory Ordinance: Petitioner claimed that the ordinance taxing installation managers was discriminatory and hostile because no other person in the locality exercised such designation or occupation.
• Prohibited Percentage Tax or Tax on Specified Articles: Petitioner contended that Ordinance No. 11, series of 1948, imposing a tax on tin can factories based on maximum annual output capacity, constituted a percentage tax or a tax on specified articles, both of which are prohibited under section 1 of Commonwealth Act No. 472.

• Validity of Ordinances: Respondent denied that the ordinances were ultra vires, maintaining that the taxes imposed were authorized under Commonwealth Act No. 472.

• Regulative Authority vs. Taxing Power: Whether the ₱40 and ₱200 taxes imposed under Ordinance No. 9, series of 1947, are invalid for exceeding the ₱10 permit-fee ceiling in section 2244 of the Revised Administrative Code.
• Taxability of Installation Manager: Whether the occupation of "installation manager" may be subjected to municipal occupation tax under Commonwealth Act No. 472, even if the person holding the designation is a salaried employee.
• Department of Finance Approval: Whether the absence of Department of Finance approval invalidates Ordinance No. 10, series of 1946, which imposed a tax exceeding ₱50 per annum.
• Discriminatory Ordinance: Whether the ordinance taxing installation managers is discriminatory and hostile because only one person in the locality exercises that occupation.
• Prohibited Tax Form: Whether Ordinance No. 11, series of 1948, imposing a tax on tin can factories based on maximum annual output capacity, constitutes a prohibited percentage tax or tax on specified articles under Commonwealth Act No. 472.

• Regulative Authority vs. Taxing Power: No. The taxes of ₱40 and ₱200 were imposed under the taxing authority of Commonwealth Act No. 472, not under the regulative provisions of section 2244 of the Revised Administrative Code, which governs permit fees and is distinct from the power to impose license taxes.
• Taxability of Installation Manager: Yes. Even a salaried employee's occupation is taxable, and one occupation does not become exempt by being conducted with another for which tax has been paid; the occupation tax must be paid by each individual engaged in a calling subject thereto.
• Department of Finance Approval: Not reached. The issue was not raised in the court below and cannot be raised for the first time on appeal; the stipulation of facts justifies the presumption that the ordinance was approved in accordance with law.
• Discriminatory Ordinance: No. The fact that only one person in the locality exercises the calling does not make the ordinance discriminatory, as it is applicable to any person or firm who exercises such occupation.
• Prohibited Tax Form: No. The tax on tin can factories based on maximum annual output capacity is a tax on business, not a percentage tax or a tax on specified articles, which are the only exceptions under section 1 of Commonwealth Act No. 472.

• Regulative Authority vs. Taxing Power: The permit fee and the regulative authority referred to in section 2244 of the Revised Administrative Code are distinct from the license tax authority conferred by Commonwealth Act No. 472. The latter authorizes municipal councils to impose license taxes upon persons engaged in any occupation or business by requiring them to secure licenses at rates fixed by the council, provided the rates are just and uniform and do not constitute percentage taxes or taxes on specified articles. Because the ordinances in question were adopted under Commonwealth Act No. 472, the ₱10 permit-fee ceiling in the Revised Administrative Code does not apply.
• Taxability of Installation Manager: Even if the installation manager is a salaried employee, the position constitutes an occupation subject to municipal tax. Section 178 of the National Internal Revenue Code provides that one occupation or line of business does not become exempt by being conducted with some other occupation or business for which tax has been paid, and the occupation tax must be paid by each individual engaged in a calling subject thereto. Section 179 of the same Code further provides that payment of occupation tax does not exempt a person from municipal taxes on the same occupation for local purposes where authorized by law.
• Department of Finance Approval: Although the stipulation of facts does not show that Ordinance No. 10, series of 1946, was approved by the Department of Finance as required by section 4, paragraph 2, of Commonwealth Act No. 472 for taxes exceeding �50 per annum, this point was not raised in the court below. The issue joined by the parties was whether the municipal council was empowered to adopt the ordinance, not whether it was approved by the Department of Finance. The absence of any statement to the contrary in the stipulation justifies the presumption that the ordinance was approved in accordance with law.
• Discriminatory Ordinance: The fact that no other person in the locality exercises the designation or calling of "installation manager" does not render the ordinance discriminatory or hostile. The ordinance is and will be applicable to any person or firm who exercises such calling or occupation, satisfying the requirement of uniformity.
• Prohibited Tax Form: Ordinance No. 11, series of 1948, imposes a tax on the business of manufacturing tin cans having a maximum annual output capacity of 30,000 tin cans. It is not a percentage tax because it is not based on a share of or the amount of proceeds realized from the sale of tin cans, but on the business of manufacturing them at a stated capacity. It is not a tax on specified articles because the specific taxes enumerated in the National Internal Revenue Code are those imposed upon things manufactured or produced in the Philippines for domestic sale or consumption or upon things imported, such as distilled spirits, tobacco products, matches, manufactured oils and fuels, and similar items—not on the business of manufacturing tin cans. Neither does the ordinance fall under any of the prohibitions in section 3 of Commonwealth Act No. 472.

• One Occupation Does Not Become Exempt by Being Conducted with Another — Under section 178 of the National Internal Revenue Code, the fact that a person pays occupation tax for one business does not exempt a separate occupation conducted alongside it from municipal occupation tax. The Court applied this principle to reject Shell Company's argument that its installation manager, being a salaried employee, could not be taxed by the municipal council.
• Issues Not Raised Below Cannot Be Raised on Appeal — A party may not raise for the first time on appeal a ground not presented to the trial court. The Court applied this rule to decline review of whether Ordinance No. 10 lacked Department of Finance approval, the issue below having been confined to the municipal council's authority to enact the ordinance.
• Presumption of Validity of Ordinance Approval — Where the stipulation of facts is silent on whether an ordinance requiring Department of Finance approval actually received such approval, the presumption is that the ordinance was approved in accordance with law.
• Uniformity Not Defeated by Singularity of Taxpayer — A tax ordinance is not discriminatory merely because only one person in the locality currently exercises the taxed occupation, so long as the ordinance applies to any person who may engage in that occupation.
• Real Party in Interest in Tax Refund Actions — In an action for refund of municipal taxes paid under an allegedly illegal ordinance, the real party in interest is the municipality concerned, not the municipal treasurer, because the municipality is the entity empowered to sue and be sued. (Citing Tan vs. De la Fuente, 90 Phil. 519.)

• "the permit and the fee referred to may be required and charged by the Municipal Council of Cordova in the exercise of its regulative authority, whereas the ordinance which imposes the taxes in question was adopted under and pursuant to the provisions of Commonwealth Act No. 472" — This passage distinguishes the regulative permit-fee authority under the Revised Administrative Code from the taxing power conferred by Commonwealth Act No. 472, establishing that the ₱10 ceiling does not constrain license taxes imposed under the latter.
• "even if the installation manager is a salaried employee of the plaintiff, still it is an occupation 'and one occupation or line of business does not become exempt by being conducted with some other occupation or business for which such tax has been paid'" — This articulates the principle that separate occupations remain separately taxable, rejecting the argument that salaried employment status exempts an individual from municipal occupation tax.
• "it is not a percentage tax because it is tax on business and the maximum annual output capacity is not a percentage, because it is not a share or a tax based on the amount of the proceeds realized out of the sale of the tin cans manufactured therein but on the business of manufacturing tin cans having a maximum annual output capacity of 30,000 tin cans." — This defines the distinction between a permissible business tax based on output capacity and a prohibited percentage tax, clarifying the scope of the exceptions under Commonwealth Act No. 472.

• Tan vs. De la Fuente, 90 Phil. 519 — Cited for the proposition that in an action for refund of municipal taxes paid under an allegedly illegal ordinance, the real party in interest is the municipality, not the municipal treasurer, as the municipality is the entity empowered to sue and be sued.

• Section 2244, Revised Administrative Code — Authorizes municipal councils, in the exercise of regulative authority, to require persons engaged in businesses such as storing combustible or explosive materials to obtain a permit for which a reasonable fee not exceeding ₱10 per annum may be charged. The Court held this provision inapplicable because the taxes were imposed under Commonwealth Act No. 472, not under the regulative authority.
• Section 1, Commonwealth Act No. 472 — Authorizes municipal councils to impose license taxes upon persons engaged in any occupation or business by requiring them to secure licenses at rates fixed by the council, provided the rates are just and uniform and do not constitute percentage taxes or taxes on specified articles. The Court applied this provision to sustain all three ordinances.
• Section 3, Commonwealth Act No. 472 — Sets forth prohibitions on certain municipal taxes. The Court found that Ordinance No. 11, series of 1948, did not fall under any of these prohibitions.
• Section 4, Commonwealth Act No. 472 — Requires approval by the Secretary of Finance for municipal taxes in excess of ₱50 per annum. The Court declined to invalidate Ordinance No. 10 for lack of such approval, the issue not having been raised below and the stipulation of facts supporting a presumption of regularity.
• Section 178, National Internal Revenue Code (Commonwealth Act No. 466) — Defines "calling" and provides that one occupation or line of business does not become exempt by being conducted with another for which tax has been paid. The Court relied on this provision to uphold the tax on installation managers.
• Section 179, National Internal Revenue Code (Commonwealth Act No. 466) — Provides that payment of occupation tax does not exempt a person from municipal taxes on the same occupation for local purposes where authorized by law. The Court cited this to confirm that municipal occupation taxes may be imposed in addition to national occupation taxes.

Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, Jugo, Bautista Angelo, Labrador, Concepcion, and Diokno, JJ., concurred.