Rufino Tan v Del Rosario.docx

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EN BANC

G.R. No. 109289 October 3, 1994

RUFINO R. TAN,petitioner,

vs.RAMON R. DEL ROSARIO, JR., ! SE"RETAR# OF FINAN"E $ JOSE U. ONG, !

"OMMISSIONER OF INTERNAL RE%ENUE, respondents.

G.R. No. 10944& October 3, 1994

"ARAG, "A'ALLES, JAMORA AND SOMERA LA( OFFI"ES, "ARLO A. "ARAG,

MANUELITO O. "A'ALLES, EL)IDIO ". JAMORA, JR. *+ 'ENJAMIN A. SOMERA,

JR.,petitioners,

vs.RAMON R. DEL ROSARIO, * -! cct/ ! SE"RETAR# OF FINAN"E *+ JOSE U. ONG,

* -! cct/ ! "OMMISSIONER OF INTERNAL RE%ENUE, respondents.

Rufino R. Tan for and in his own behalf.

Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. !"##$.

%ITUG, J.:

These two consolidated special civil actions for prohibition challenge, in G.R. No. 10!", the

constit#tionalit$ of Rep#blic Act No. %&', also co((onl$ )nown as the *i(plified Net +nco(e

Taation *che(e -*N+T/, a(ending certain provisions of the National +nternal Reven#e Code and, in

G.R. No. 10&&', the validit$ of *ection ', Reven#e Reg#lations No. !, pro(#lgated b$ p#blic

respondents p#rs#ant to said law.

2etitioners clai( to be tapa$ers adversel$ affected b$ the contin#ed i(ple(entation of the a(endator$

legislation.

+n G.R. No. 10!", it is asserted that the enact(ent of Rep#blic Act

No. %&' violates the following provisions of the Constit#tion3

Article 4+, *ection !'-1/ 5 Ever$ bill passed b$ the Congress shall e(brace onl$ one

s#b6ect which shall be epressed in the title thereof.


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Article 4+, *ection !"-1/ 5 The r#le of taation shall be #nifor( and e7#itable. The

Congress shall evolve a progressive s$ste( of taation.

Article +++, *ection 1 5 No person shall be deprived of . . . propert$ witho#t d#e process

of law, nor shall an$ person be denied the e7#al protection of the laws.

+n G.R. No. 10&&', petitioners, assailing *ection ' of Reven#e Reg#lations No. !, arg#e that p#blic

respondents have eceeded their r#le(a)ing a#thorit$ in appl$ing *N+T to general professional

partnerships.

The *olicitor General espo#ses the position ta)en b$ p#blic respondents.

The Co#rt has given d#e co#rse to both petitions. The parties, in co(pliance with the Co#rt8s directive,

have filed their respective (e(oranda.

G.R. %o. !"'"

2etitioner contends that the title of 9o#se Bill No. &1&, progenitor of Rep#blic Act No. %&', is a

(isno(er or, at least, deficient for being (erel$ entitled, *i(plified Net +nco(e Taation *che(e for

the *elfE(plo$ed

and 2rofessionals Engaged in the 2ractice of their 2rofession -2etition in G.R. No. 10!"/.

The f#ll tet of the title act#all$ reads3

An Act Adopting the *i(plified Net +nco(e Taation *che(e :or The *elfE(plo$ed

and 2rofessionals Engaged +n The 2ractice of Their 2rofession, A(ending *ections !1

and ! of the National +nternal Reven#e Code, as A(ended.

The pertinent provisions of *ections !1 and !, so referred to, of the National +nternal Reven#e Code,

as now a(ended, provide3

*ec. !1. Ta( on citi)ens or residents. 5

-f/ *i(plified Net +nco(e Ta for the *elfE(plo$ed and;or 2rofessionals Engaged in the2ractice of 2rofession. 5 A ta is hereb$ i(posed #pon the taable net inco(e as

deter(ined in *ection !% received d#ring each taable $ear fro( all so#rces, other than

inco(e covered b$ paragraphs -b/, -c/, -d/ and -e/ of this section b$ ever$ individ#al

whether

a citi


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>ver 210,000 200 ? =

b#t not over 20,000 of ecess over 210,000

>ver 20,000 2!,100 ? 1@=

b#t not over 21!0,00 of ecess over 20,000

>ver 21!0,000 21@,'00 ? !0=

b#t not over 2@0,000 of ecess over 21!0,000

>ver 2@0,000 2'1,'00 ? 0=

of ecess over 2@0,000

*ec. !.*eductions from gross income. 5 +n co(p#ting taable inco(e s#b6ect to ta

#nder *ections !1-a/, !&-a/, -b/ and -c/ and !@ -a/-1/, there shall be allowed as

ded#ctions the ite(s specified in paragraphs -a/ to -i/ of this section3+roided,howeer,

That in co(p#ting taable inco(e s#b6ect to ta #nder *ection !1 -f/ in the case of

individ#als engaged in b#siness or practice of profession, onl$ the following direct costsshall be allowed as ded#ctions3

-a/ Raw (aterials, s#pplies and direct labor

-b/ *alaries of e(plo$ees directl$ engaged in activities in the co#rse of or p#rs#ant to the

b#siness or practice of their profession

-c/ Teleco((#nications, electricit$, f#el, light and water

-d/ B#siness rentals

-e/ epreciation

-f/ Contrib#tions (ade to the Govern(ent and accredited relief organin the basis of the above lang#age of the law, it wo#ld be diffic#lt to accept petitioner8s view that the

a(endator$ law sho#ld be considered as having now adopted agross inco(e, instead of as having still

retained the netinco(e, taation sche(e. The allowance for ded#ctible ite(s, it is tr#e, (a$ have


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significantl$ been red#ced b$ the 7#estioned law in co(parison with that which has prevailed prior to

the a(end(ent li(iting, however, allowable ded#ctions fro( gross inco(e is neither discordant with,

nor opposed to, the net inco(e ta concept. The fact of the (atter is still that vario#s ded#ctions, which

are b$ no (eans inconse7#ential, contin#e to be well provided #nder the new law.

Article 4+, *ection !'-1/, of the Constit#tion has been envisioned so as -a/ to prevent logrolling

legislation intended to #nite the (e(bers of the legislat#re who favor an$ one of #nrelated s#b6ects in

s#pport of the whole act, -b/ to avoid s#rprises or even fra#d #pon the legislat#re, and -c/ to fairl$

apprise the people, thro#gh s#ch p#blications of its proceedings as are #s#all$ (ade, of the s#b6ects of

legislation.1The above ob6ectives of the f#nda(ental law appear to #s to have been s#fficientl$ (et.

An$thing else wo#ld be to re7#ire a virt#al co(pendi#( of the law which co#ld not have been the

intend(ent of the constit#tional (andate.

2etitioner inti(ates that Rep#blic Act No. %&' desecrates the constit#tional re7#ire(ent that taation

shall be #nifor( and e7#itable in that the law wo#ld now atte(pt to ta single proprietorships and

professionals differentl$ fro( the (anner it i(poses the ta on corporations and partnerships. The

contention clearl$ forgets, however, that s#ch a s$ste( of inco(e taation has long been the prevailing

r#le even prior to Rep#blic Act No. %&'.

nifor(it$ of taation, li)e the )indred concept of e7#al protection, (erel$ re7#ires that all s#b6ects or

ob6ects of taation, si(ilarl$ sit#ated, are to be treated ali)e both in privileges and liabilities -Juan

Luna -ubdiision s. -armiento, 1 2hil. %1/. nifor(it$ does not forfend classification as long as3

-1/ the standards that are #sed therefor are s#bstantial and not arbitrar$, -!/ the categorif

co#rse, where a ta (eas#re beco(es so #nconscionable and #n6#st as to a(o#nt to confiscation of

propert$, co#rts will not hesitate to stri)e it down, for, despite all its plenit#de, the power to ta cannot

override constit#tional proscriptions. This stage, however, has not been de(onstrated to have been

reached within an$ appreciable distance in this controvers$ before #s.


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9aving arrived at this concl#sion, the plea of petitioner to have the law declared #nconstit#tional for

being violative of d#e process (#st perforce fail. The d#e process cla#se (a$ correctl$ be invo)ed

onl$ when there is a clear contravention of inherent or constit#tional li(itations in the eercise of the

ta power. No s#ch transgression is so evident to #s.

G.R. %o. !"##$

The several propositions advanced b$ petitioners revolve aro#nd the 7#estion of whether or not p#blic

respondents have eceeded their a#thorit$ in pro(#lgating *ection ', Reven#e Reg#lations No. !,

to carr$ o#t Rep#blic Act No. %&'.

The 7#estioned reg#lation reads3

*ec. '. General +rofessional +artnership5 The general professional partnership -G22/

and the partners co(prising the G22 are covered b$ R. A. No. %&'. Th#s, in deter(ining

the net profit of the partnership, onl$ the direct costs (entioned in said law are to be

ded#cted fro( partnership inco(e. Also, the epenses paid or inc#rred b$ partners intheir individ#al capacities in the practice of their profession which are not rei(b#rsed or

paid b$ the partnership b#t are not considered as direct cost, are not ded#ctible fro( his

gross inco(e.

The real ob6ection of petitioners is foc#sed on the ad(inistrative interpretation of p#blic respondents

that wo#ld appl$ *N+T to partners in general professional partnerships. 2etitioners cite the pertinent

deliberations in Congress d#ring its enact(ent of Rep#blic Act No. %&', also 7#oted b$ the 9onorable

9ernando B. 2ere, Now r. *pea)er, + wo#ld li)e to get the correct

i(pression of this bill. o we spea) here of individ#als who are earning, +

(ean, who earn thro#gh b#siness enterprises and therefore, sho#ld file an

inco(e ta ret#rn

R. 2EREH. That is correct, r. *pea)er. This does not appl$ to

corporations. +t applies onl$ to individ#als.

-*ee eliberations on 9. B. No. &1&, A#g#st ', 11, '31@ 2.. E(phasis o#rs/.

>ther deliberations s#pport this position, to wit3

R. ABAIA . . . Now, r. *pea)er, did + hear the Gentle(an fro(

Batangas sa$ that this bill is intended to increase collections as far as

individ#als are concerned and to (a)e collection of taes e7#itable


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R. 2EREH. That is correct, r. *pea)er.

-1d. at '3&0 2.. E(phasis o#rs/.

+n fact, in the sponsorship speech of *enator a(intal Ta(ano on the *enate version of

the *N+T*, it is categoricall$ stated, th#s3

This bill, r. 2resident, is not applicable to b#siness corporations or topartnerships it is onl$ with respect to individ#als and professionals.

-E(phasis o#rs/

The Co#rt, first of all, sho#ld li)e to correct the apparent (isconception that general professional

partnerships are s#b6ect to the pa$(ent of inco(e ta or that there is a difference in the ta treat(ent

between individ#als engaged in b#siness or in the practice of their respective professions and partners

in general professional partnerships. The fact of the (atter is that a general professional partnership,

#nli)e an ordinar$ b#siness partnership -which is treated as a corporation for inco(e ta p#rposes and

so s#b6ect to the corporate inco(e ta/, is not itself an inco(e tapa$er. The inco(e ta is i(posed noton the professional partnership, which is ta ee(pt, b#t on the partners the(selves in their individ#al

capacit$ co(p#ted on their distrib#tive shares of partnership profits. *ection ! of the Ta Code, which

has not been a(ended at all b$ Rep#blic Act %&', is eplicit3

*ec. !. Ta liabilit$ of (e(bers of general professional partnerships. 5 -a/ 2ersons

eercising a co((on profession in general partnership shall be liable for inco(e ta onl$

in their individ#al capacit$, and the share in the net profits of the general professional

partnership to which an$ taable partner wo#ld be entitled whether distrib#ted or

otherwise, shall be ret#rned for taation and the ta paid in accordance with theprovisions of this Title.

-b/ +n deter(ining his distrib#tive share in the net inco(e of the partnership, each partner

5

-1/ *hall ta)e into acco#nt separatel$ his distrib#tive share of the

partnership8s inco(e, gain, loss, ded#ction, or credit to the etent provided

b$ the pertinent provisions of this Code, and

-!/ *hall be dee(ed to have elected the ite(i


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deriving inco(e fro( an$ so#rce whatsoever are treated in al(ost invariabl$ the sa(e (anner and

#nder a co((on set of r#les.

De can well appreciate the concern ta)en b$ petitioners if perhaps we were to consider Rep#blic Act

No. %&' as an entirel$ independent, not (erel$ as an a(endator$, piece of legislation. The view can

easil$ beco(e ($opic, however, when the law is #nderstood, as it sho#ld be, as onl$ for(ing part of,

and s#b6ect to, the whole inco(e ta concept and precepts long obtaining #nder the National +nternal

Reven#e Code. To elaborate a little, the phrase inco(e tapa$ers is an all e(bracing ter( #sed in the

Ta Code, and it practicall$ covers all persons who derive taable inco(e. The law, in lev$ing the ta,

adopts the (ost co(prehensive tasitusof nationalit$ and residence of the tapa$er -that renders

citi


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treat(ent of professionals who practice their respective professions individ#all$ and of those who do it

thro#gh a general professional partnership.

D9ERE:>RE, the petitions are +*+**E. No special prono#nce(ent on costs.

*> >RERE.

%arasa, C.J., Cru), 2eliciano, Regalado, *aide, Jr., Romero, /ellosillo, 3elo, 4uiason, +uno,5apunan and 3endo)a, JJ., concur.

+adilla and /idin, JJ., are on leae.

Foot*ote!

1 J#stice +sagani A. Cr#< on 2hilippine 2olitical Faw 1 edition, pp. 1&'1&%, citing

with approval Coole$ on Constit#tional Fi(itations.

! A s$ste( e(plo$ed where the inco(e ta treat(ent varies and (ade to depend on the

)ind or categor$ of taable inco(e of the tapa$er.

A s$ste( where the ta treat(ent views indifferentl$ the ta base and generall$ treats in

co((on all categories of taable inco(e of the tapa$er.

& A general professional partnership, in this contet, (#st be for(ed for the sole p#rpose

of eercising a commonprofession, no part of the inco(e of which is derived fro( itsengaging in an$ trade b#siness otherwise, it is s#b6ect to ta as an ordinar$ b#siness

partnership or, which is to sa$, as a corporation and thereb$ s#b6ect to the corporate

inco(e ta. The onl$ other ee(pt partnership is a 6oint vent#re for #nderta)ing

constr#ction pro6ects or engaging in petrole#( operations p#rs#ant to an operating

agree(ent #nder a service contract with the govern(ent -see *ections !0, ! and !&,

National +nternal Reven#e Code/.

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Rufino Tan v Del Rosario.docx