Consti Cases.docx

8/10/2019 Consti Cases.docx

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COMMISSIONER OF INTERNAL REVENUE,petitioner, vs. S.C. JOHNSON AND SON, INC., and COURT OFAPPEALS, respondents. G.R. No. 127105, June 25, 1999

This is a petition for review on certiorariunder Rule 45 of the Rules of Court seeking to set aside the decision

of the Court of Appeals dated November 7, 1996 in CA-GR SP No. 40802 affirming the decision of the Court of Tax

Appeals in CTA Case No. 5136.

The antecedent facts as found by the Court of Tax Appeals are not disputed, to wit:

[Respondent], a domestic corporation organized and operating under the Philippine laws, entered into a licenseagreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation based in

the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and technology

owned by the latter including the right to manufacture, package and distribute the products covered by the

Agreement and secure assistance in management, marketing and production from SC Johnson and Son, U. S. A.

The said License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents,

Trade Marks and Technology Transfer under Certificate of Registration No. 8064 (Exh. A).

For the use of the trademark or technology, [respondent] was obliged to pay SC Johnson and Son, USA royalties

based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which

[respondent] paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00 (Exhs. B toL and submarkings).

On October 29, 1993, [respondent] filed with the International Tax Affairs Division (ITAD) of the BIR a claim for

refund of overpaid withholding tax on royalties arguing that, the antecedent facts attending [respondents] case

fall squarely within the same circumstances under which said MacGeorge and Gillete rulings were issued. Since the

agreement was approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the

[respondent]. We therefore submit that royalties paid by the [respondent] to SC Johnson and Son, USA is only

subject to 10% withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13

Paragraph 2 (b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2) (b)] (Petition for Review [filed

with the Court of Appeals], par. 12). [Respondents] claim for the refund ofP963,266.00 was computed as follows:

Gross 25% 10%

Month/ Royalty Withholding Withholding

Year Fee Tax Paid Tax Balance

______ _______ __________ __________ ______

July 1992 559,878 139,970 55,988 83,982

August 567,935 141,984 56,794 85,190

September 595,956 148,989 59,596 89,393

October 634,405 158,601 63,441 95,161

November 620,885 155,221 62,089 93,133

December 383,276 95,819 36,328 57,491

Jan 1993 602,451 170,630 68,245 102,368

February 565,845 141,461 56,585 84,877

March 547,253 136,813 54,725 82,088

April 660,810 165,203 66,081 99,122

May 603,076 150,769 60,308 90,461

P6,421,770 P1,605,443 P642,177 P963,266[1]

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The Commissioner did not act on said claim for refund. Private respondent S.C. Johnson & Son, Inc. (S.C.

Johnson) then filed a petition for review before the Court of Tax Appeals (CTA) where the case was docketed as

CTA Case No. 5136, to claim a refund of the overpaid withholding tax on royalty payments from July 1992 to May

1993.

On May 7, 1996, the Court of Tax Appeals rendered its decision in favor of S.C. Johnson and ordered the

Commissioner of Internal Revenue to issue a tax credit certificate in the amount of P963,266.00 representing

overpaid withholding tax on royalty payments beginning July, 1992 to May, 1993.[2]

The Commissioner of Internal Revenue thus filed a petition for review with the Court of Appeals whichrendered the decision subject of this appeal on November 7, 1996 finding no merit in the petition and affirming in

totothe CTA ruling.[3]

This petition for review was filed by the Commissioner of Internal Revenue raising the following issue:

THE COURT OF APPEALS ERRED IN RULING THAT SC JOHNSON AND SON, USA IS ENTITLED TO THE MOST

FAVORED NATION TAX RATE OF 10% ON ROYALTIES AS PROVIDED IN THE RP-US TAX TREATY IN RELATION

TO THE RP-WEST GERMANY TAX TREATY.

Petitioner contends that under Article 13(2) (b) (iii) of the RP-US Tax Treaty, which is known as the most

favored nation clause, the lowest rate of the Philippine tax at 10% may be imposed on royalties derived by a

resident of the United States from sources within the Philippines only if the circumstances of the resident of the

United States are similar to those of the resident of West Germany. Since the RP-US Tax Treaty contains no

matching credit provision as that provided under Article 24 of the RP-West Germany Tax Treaty, the tax on

royalties under the RP-US Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West

Germany Tax Treaty. Even assuming that the phrase paid under similar circumstances refersto the payment ofroyalties, and not taxes, as held by the Court of Appeals, still, the most favored nation clause cannot be invoked

for the reason that when a tax treaty contemplates circumstances attendant to the payment of a tax, or royalty

remittances for that matter, these must necessarily refer to circumstances that are tax-related. Finally, petitioner

argues that since S.C. Johnsons invocation of the most favored nation clause is in the nature of a claim forexemption from the application of the regular tax rate of 25% for royalties, the provisions of the treaty must be

construed strictly against it.

In its Comment, private respondent S.C. Johnson avers that the instant petition should be denied (1) because it

contains a defective certification against forum shopping as required under SC Circular No. 28-91, that is, thecertification was not executed by the petitioner herself but by her counsel; and (2) that the most favored nation

clause under the RP-US Tax Treaty refers to royalties paid under similar circumstances as those royalties subject to

tax in other treaties; that the phrase paid under similar circumstances does not refer to payment of the tax but to

the subject matter of the tax, that is, royalties, because the most favored nation clause is intended to allow the

taxpayer in one state to avail of more liberal provisions contained in another tax treaty wherein the country of

residence of such taxpayer is also a party thereto, subject to the basic condition that the subject matter of taxation

in that other tax treaty is the same as that in the original tax treaty under which the taxpayer is liable; thus, the RP-

US Tax Treaty speaks of royalties of the same kind paid under similar circumstances. S.C. Johnson also contends

that the Commissioner is estopped from insisting on her interpretation that the phrase paid under similarcircumstances refers to the manner in which the tax is paid, for the reason that said interpretation is embodied in

Revenue Memorandum Circular (RMC) 39-92 which was already abandoned by the Commissioners predecessorin 1993; and was expressly revoked in BIR Ruling No. 052-95 which stated that royalties paid to an American

licensor are subject only to 10% withholding tax pursuant to Art 13(2)(b)(iii) of the RP-US Tax Treaty in relation to

the RP-West Germany Tax Treaty. Said ruling should be given retroactive effect except if such is prejudicial to the

taxpayer pursuant to Section 246 of the National Internal Revenue Code.

Petitioner filed Reply alleging that the fact that the certification against forum shopping was signed by

petitioners counsel is not a fatal defect as to warrant the dismissal of this petition since Circular No. 28-91 applies

only to original actions and not to appeals, as in the instant case. Moreover, the requirement that the certification

should be signed by petitioner and not by counsel does not apply to petitioner who has only the Office of the

Solicitor General as statutory counsel. Petitioner reiterates that even if the phrase paid under similar

circumstances embodied in the most favored nation clause of the RP-US Tax Treaty refers to the payment of

royalties and not taxes, still the presence or absence of a matching credit provision in the said RP -US Tax Treaty

would constitute a material circumstance to such payment and would be determinative of the said clausesapplication.

We address first the objection raised by private respondent that the certification against forum shopping was

not executed by the petitioner herself but by her counsel, the Office of the Solicitor General (O.S.G.) through one of

its Solicitors, Atty. Tomas M. Navarro.

SC Circular No. 28-91 provides:

SUBJECT: ADDITIONAL REQUISITES FOR PETITIONS FILED WITH THE SUPREME COURT AND THE COURT OFAPPEALS TO PREVENT FORUM SHOPPING OR MULTIPLE FILING OF PETITIONS AND COMPLAINTS
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TO : xxx xxx xxx

The attention of the Court has been called to the filing of multiple petitions and complaints involving the same

issues in the Supreme Court, the Court of Appeals or other tribunals or agencies, with the result that said courts,

tribunals or agencies have to resolve the same issues.

(1) To avoid the foregoing, in every petition filed with the Supreme Court or the Court of Appeals, the petitioner

aside from complying with pertinent provisions of the Rules of Court and existing circulars, must certify under oath

to all of the following facts or undertakings: (a) he has not theretofore commenced any other action or proceedinginvolving the same issues in the Supreme Court, the Court of Appeals, or any tribunal or agency; xxx

(2) Any violation of this revised Circular will entail the following sanctions: (a) it shall be a cause for the summary

dismissal of the multiple petitions or complaints; xxx

The circular expressly requires that a certificate of non-forum shopping should be attached to petitions filed

before this Court and the Court of Appeals. Petitioners allegation that Circular No. 28-91 applies only to original

actions and not to appeals as in the instant case is not supported by the text nor by the obvious intent of the

Circular which is to prevent multiple petitions that will result in the same issue being resolved by different courts.

Anent the requirement that the party, not counsel, must certify under oath that he has not commenced any

other action involving the same issues in this Court or the Court of Appeals or any other tribunal or agency, we are

inclined to accept petitioners submission that since the OSG is the only lawyer for the petitioner, which is a

government agency mandated under Section 35, Chapter 12, title III, Book IV of the 1987 Administrative Code[4]to

be represented only by the Solicitor General, the certification executed by the OSG in this case constitutes

substantial compliance with Circular No. 28-91.

With respect to the merits of this petition, the main point of contention in this appeal is the interpretation of

Article 13 (2) (b) (iii) of the RP-US Tax Treaty regarding the rate of tax to be imposed by the Philippines upon

royalties received by a non-resident foreign corporation. The provision states insofar as pertinent that-

1) Royalties derived by a resident of one of the Contracting States from sources within the other

Contracting State may be taxed by both Contracting States.

2) However, the tax imposed by that Contracting State shall not exceed.

a) In the case of the United States, 15 percent of the gross amount of the royalties, and

b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties;

(ii) 15 percent of the gross amount of the royalties, where the royalties are paid by a corporation registered with

the Philippine Board of Investments and engaged in preferred areas of activities; and

(iii)the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar

circumstances to a resident of a third State.

xxx xxx xxx

(italics supplied)

Respondent S. C. Johnson and Son, Inc. claims that on the basis of the quoted provision, it is entitled to the

concessional tax rate of 10 percent on royalties based on Article 12 (2) (b) of the RP-Germany Tax Treaty which

provides:

(2) However, such royalties may also be taxed in the Contracting State in which they arise, and according

to the law of that State, but the tax so charged shall not exceed:

x x x

b) 10 percent of the gross amount of royalties arising from the use of, or the right to use, any patent,

trademark, design or model, plan, secret formula or process, or from the use of or the right to use,

industrial, commercial, or scientific equipment, or for information concerning industrial, commercial

or scientific experience.

For as long as the transfer of technology, under Philippine law, is subject to approval, the limitation of the tax rate

mentioned under b) shall, in the case of royalties arising in the Republic of the Philippines, only apply if the

contract giving rise to such royalties has been approved by the Philippine competent authorities.
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contracting parties.[8]As will be shown later, this dissimilarity is true particularly in the treaties between the

Philippines and the United States and between the Philippines and West Germany.

The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for

the avoidance of double taxation.[9]The purpose of these international agreements is to reconcile the national fiscal

legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different

jurisdictions.[10]More precisely, the tax conventions are drafted with a view towards the elimination

of international juridical double taxation, which is defined as the imposition of comparable taxes in two or morestates on the same taxpayer in respect of the same subject matter and for identical periods.[11], citing the

Committee on Fiscal Affairs of the Organization for Economic Co-operation and Development (OECD).11 Theapparent rationale for doing away with double taxation is to encourage the free flow of goods and services and the

movement of capital, technology and persons between countries, conditions deemed vital in creating robust and

dynamic economies.[12]Foreign investments will only thrive in a fairly predictable and reasonable international

investment climate and the protection against double taxation is crucial in creating such a climate.[13]

Double taxation usually takes place when a person is resident of a contracting state and derives income from,

or owns capital in, the other contracting state and both states impose tax on that income or capital. In order to

eliminate double taxation, a tax treaty resorts to several methods. First, it sets out the respective rights to tax of

the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some

cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or

capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of source

is limited.[14]

The second method for the elimination of double taxation applies whenever the state of source is given a full

or limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the

state of residence to allow relief in order to avoid double taxation. There are two methods of relief- the exemption

method and the credit method. In the exemption method, the income or capital which is taxable in the state of

source or situs is exempted in the state of residence, although in some instances it may be taken into account in

determining the rate of tax applicable to the taxpayers remaining income or capital. On the other hand, in the

credit method, although the income or capital which is taxed in the state of source is still taxable in the state of

residence, the tax paid in the former is credited against the tax levied in the latter. The basic difference between

the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the credit

method focuses upon the tax.[15]

In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the Philippines will give upa part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other

country.[16]Thus the petitioner correctly opined that the phrase royalties paid under similar circumstances in themost favored nation clause of the US-RP Tax Treaty necessarily contemplated circumstances that are tax-related.

In the case at bar, the state of source is the Philippines because the royalties are paid for the right to use

property or rights, i.e. trademarks, patents and technology, located within the Philippines .[17]The United States is

the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the RP-US Tax Treaty,

the state of residence and the state of source are both permitted to tax the royalties, with a restraint on the tax that

may be collected by the state of source.[18]Furthermore, the method employed to give relief from double taxation is

the allowance of a tax credit to citizens or residents of the United States (in an appropriate amount based upon the

taxes paid or accrued to the Philippines) against the United States tax, but such amount shall not exceed the

limitations provided by United States law for the taxable year.[19]

Under Article 13 thereof, the Philippines mayimpose one of three rates- 25 percent of the gross amount of the royalties; 15 percent when the royalties are paid

by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities;

or the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid under similar

circumstances to a resident of a third state.

Given the purpose underlying tax treaties and the rationale for the most favored nation clause, the

concessional tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes

imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under similar

circumstances. This would mean that private respondent must prove that the RP-US Tax Treaty grants similar tax

reliefs to residents of the United States in respect of the taxes imposable upon royalties earned from sources within

the Philippines as those allowed to their German counterparts under the RP-Germany Tax Treaty.

The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article24 of the RP-Germany Tax Treaty, supra, expressly allows crediting against German income and corporation tax of

20% of the gross amount of royalties paid under the law of the Philippines. On the other hand, Article 23 of the RP-

US Tax Treaty, which is the counterpart provision with respect to relief for double taxation, does not provide for

similar crediting of 20% of the gross amount of royalties paid. Said Article 23 reads:

Article 23

Relief from double taxation
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Double taxation of income shall be avoided in the following manner:

1) In accordance with the provisions and subject to the limitations of the law of the United States (as it

may be amended from time to time without changing the general principle thereof), the United States

shall allow to a citizen or resident of the United States as a credit against the United States tax the

appropriate amount of taxes paid or accrued to the Philippines and, in the case of a United States

corporation owning at least 10 percent of the voting stock of a Philippine corporation from which it

receives dividends in any taxable year, shall allow credit for the appropriate amount of taxes paid or

accrued to the Philippines by the Philippine corporation paying such dividends with respect to theprofits out of which such dividends are paid. Such appropriate amount shall be based upon the

amount of tax paid or accrued to the Philippines, but the credit shall not exceed the limitations (for the

purpose of limiting the credit to the United States tax on income from sources within the Philippines or

on income from sources outside the United States) provided by United States law for the taxable

year. xxx.

The reason for construing the phrase paid under similar circumstances as used in Article 13 (2) (b) (iii) ofthe RP-US Tax Treaty as referring to taxes is anchored upon a logical reading of the text in the light of the

fundamental purpose of such treaty which is to grant an incentive to the foreign investor by lowering the tax and at

the same time crediting against the domestic tax abroad a figure higher than what was collected in the Philippines.

In one case, the Supreme Court pointed out that laws are not just mere compositions, but have ends to be

achieved and that the general purpose is a more important aid to the meaning of a law than any rule whichgrammar may lay down.[20]It is the duty of the courts to look to the object to be accomplished, the evils to be

remedied, or the purpose to be subserved, and should give the law a reasonable or liberal construction which will

best effectuate its purpose.[21]The Vienna Convention on the Law of Treaties states that a treaty shall be

interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their

context and in the light of its object and purpose.[22]

As stated earlier, the ultimate reason for avoiding double taxation is to encourage foreign investors to invest in

the Philippines - a crucial economic goal for developing countries.[23]The goal of double taxation conventions

would be thwarted if such treaties did not provide for effective measures to minimize, if not completely eliminate,

the tax burden laid upon the income or capital of the investor. Thus, if the rates of tax are lowered by the state of

source, in this case, by the Philippines, there should be a concomitant commitment on the part of the state of

residence to grant some form of tax relief, whether this be in the form of a tax credit or exemption .[24]Otherwise,

the tax which could have been collected by the Philippine government will simply be collected by another state,

defeating the object of the tax treaty since the tax burden imposed upon the investor would remain unrelieved. If

the state of residence does not grant some form of tax relief to the investor, no benefit would redound to the

Philippines, i.e., increased investment resulting from a favorable tax regime, should it impose a lower tax rate on

the royalty earnings of the investor, and it would be better to impose the regular rate rather than lose much-

needed revenues to another country.

At the same time, the intention behind the adoption of the provision on relief from double taxation in the

two tax treaties in question should be considered in light of the purpose behind the most favored nation clause.

The purpose of a most favored nation clause is to grant to the contracting party treatment not less favorable than that

which has been or may be granted to the most favored among other co untries.[25]The most favored nation clause is intended

to establish the principle of equality of international treatment by providing that the citizens or subjects of the contractingnations may enjoy the privileges accorded by either party to those of the most favored nation .[26]The essence of the principle

is to allow the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of

residence of such taxpayer is also a party provided that the subject matter of taxation, in this case royalty income, is the same

as that in the tax treaty under which the taxpayer is liable. Both Article 13 of the RP-US Tax Treaty and Article 12 (2) (b) of the

RP-West Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of trademark, patent, and technology. The

entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties) would derogate from the

design behind the most favored nation clause to grant equality of international treatment since the tax burden laid upon the

income of the investor is not the same in the two countries. The similarity in the circumstances of payment of taxes is a

condition for the enjoyment of most favored nation treatment precisely to underscore the need for equality of treatment.

We accordingly agree with petitioner that since the RP-US Tax Treaty does not give a matching tax credit of 20 percent

for the taxes paid to the Philippines on royalties as allowed under the RP-West Germany Tax Treaty, private respondent

cannot be deemed entitled to the 10 percent rate granted under the latter treaty for the reason that there is no payment of

taxes on royalties under similar circumstances.

It bears stress that tax refunds are in the nature of tax exemptions. As such they are regarded as in derogation of

sovereign authority and to be construed strictissimi jurisagainst the person or entity claiming the exemption.[27]The burden of

proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of

organic or statute law.[28]Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however,

there is nothing on record to support a claim that the tax on royalties under the RP-US Tax Treaty is paid under similar

circumstances as the tax on royalties under the RP-West Germany Tax Treaty.

WHEREFORE, for all the foregoing, the instant petition is GRANTED. The decision dated May 7, 1996 of the Court of TaxAppeals and the decision dated November 7, 1996 of the Court of Appeals are hereby SET ASIDE.

SO ORDERED.
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Abra Valley College v. Aquino, G.R. No. L-39086 June 15, 1988

Facts:

Petitioner, an educational corporation and institution of higher learning duly incorporated with the

Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the Notice of Seizure

and the Notice of Sale of its lot and building located at Bangued, Abra, for non -payment of real estate taxes and

penalties amounting to P5,140.31. Said Notice of Seizure by respondents Municipal Treasurer and Provincial

Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision.

The trial court ruled for the government, holding that the second floor of the building is being used by the director

for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a

commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of

perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary

injunction before the Supreme Court, by filing said petition on 17 August 1974.

Issue:

whether or not the lot and building are used exclusively for educational purposes

Held:

Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption

from realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands,

buildings, and improvements used exclusively for religious, charitable or educational purposes.Reasonable

emphasis has always been made that the exemption extends to facilities which are incidental to and reasonably

necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial

purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the

building to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental

to the purpose of education. The test of exemption from taxation is the use of the property for purposes mentioned

in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax

be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for

commercial purposes (leased) and the second floor being used as incidental to education (residence of the

director).


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G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner, vs.HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA, Provincial Treasurer, Abra;GASPAR V. BOSQUE, Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO MILLARE,respondents.

This is a petition for review on certiorari of the decision *of the defunct Court of First Instance of Abra, Branch I,dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro

V. Borgonia, plaintiff vs. Armin M. Cariagaas Provincial Treasurer of Abra, Gaspar V. Bosque as MunicipalTreasurer of Bangued, Abra and Paterno Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued, Abra, the Provincial Treasurer of said

province against the lot and building of the Abra Valley Junior College, Inc., represented by Director Pedro

Borgonia located at Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should therefore pay all back taxes in the amount of

P5,140.31 and back taxes and penalties from the promulgation of this decision;

That the amount deposited by the plaintaff him the sum of P60,000.00 before the trial, be confiscated to apply forthe payment of the back taxes and for the redemption of the property in question, if the amount is less than

P6,000.00, the remainder must be returned to the Director of Pedro Borgonia, who represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of P6,000.00 also before the trial must be returned to

said Municipal Treasurer of Bangued, Abra;

And finally the case is hereby ordered dismissed with costs against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities andExchange Commission in 1948, filed a complaint (Annex "1" of Answer by the respondents Heirs of Paterno

Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quoto annul and declare void the "Notice of Seizure' and

the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and

penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot and building covered by Original

Certificate of Title No. Q-83 duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by

respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of

the said taxes thereon. The "Notice of Sale" was caused to be served upon the petitioner by the respondent

treasurers on July 8, 1972 for the sale at public auction of said college lot and building, which sale was held on the

same date. Dr. Paterno Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which

was duly accepted. The certificate of sale was correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed through counstel a motion to dismiss thecomplaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer, through then Provincial Fiscal

Loreto C. Roldan, filed their answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare; Rollo, pp.

98-100) to the complaint. This was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August

31, 1972.

On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at public auction, the respondent Judge, Hon.

Juan P. Aquino of the Court of First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the

respondents provincial and municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale.Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the trial court the sum of

P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its

questioned decision. Said Stipulations reads:

STIPULATION OF FACTS


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COME NOW the parties, assisted by counsels, and to this Honorable Court respectfully enter into the following

agreed stipulation of facts:

1. That the personal circumstances of the parties as stated in paragraph 1 of the complaint is admitted; but the

particular person of Mr. Armin M. Cariaga is to be substituted, however, by anyone who is actually holding the

position of Provincial Treasurer of the Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot and buildings thereon located in

Bangued, Abra under Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal treasurer of Bangued, Abra caused to be served upon the

Abra Valley Junior College, Inc. a Notice of Seizure on the property of said school under Original Certificate of Title

No. 0-83 for the satisfaction of real property taxes thereon, amounting to P5,140.31; the Notice of Seizure being the

one attached to the complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley Junior College, Inc. was sold at public auction for

the satisfaction of the unpaid real property taxes thereon and the same was sold to defendant Paterno Millare who

offered the highest bid of P6,000.00 and a Certificate of Sale in his favor was issued by the defendant Municipal

Treasurer.

5. That all other matters not particularly and specially covered by this stipulation of facts will be the subject ofevidence by the parties.

WHEREFORE, it is respectfully prayed of the Honorable Court to consider and admit this stipulation of facts on the

point agreed upon by the parties.

Aside from the Stipulation of Facts, the trial court among others, found the following: (a) that the school is

recognized by the government and is offering Primary, High School and College Courses, and has a school

population of more than one thousand students all in all; (b) that it is located right in the heart of the town of

Bangued, a few meters from the plaza and about 120 meters from the Court of First Instance building; (c) that the

elementary pupils are housed in a two-storey building across the street; (d) that the high school and college

students are housed in the main building; (e) that the Director with his family is in the second floor of the main

building; and (f) that the annual gross income of the school reaches more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as agreed by the parties, is whether or not

the lot and building in question are used exclusively for educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon. Eustaquio Z. Montero, filed a

Memorandum for the Government on March 25, 1974, and a Supplemental Memorandum on May 7, 1974, wherein

they opined "that based on the evidence, the laws applicable, court decisions and jurisprudence, the school

building and school lot used for educational purposes of the Abra Valley College, Inc., are exempted from the

payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44 and 49).

Nonetheless, the trial court disagreed because of the use of the second floor by the Director of petitioner school forresidential purposes. He thus ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6, 1974 within which to perfect its appeal

(Per Order dated August 6, 1974; Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant

petition for review oncertiorari with prayer for preliminary injunction before this Court, which petition was filed

on August 17, 1974 (Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to the petition (Rollo, p. 58).

Respondents were required to answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

I. THE COURTA QUOERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF THE COLLEGE LOT AND

BUILDING USED FOR EDUCATIONAL PURPOSES OF THE PETITIONER.

II.THE COURTA QUOERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE

NOT USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT RESIDES

IN ONE ROOM OF THE COLLEGE BUILDING.

III.THE COURTA QUOERRED IN DECLARING THAT THE COLLEGE LOT AND BUILDING OF THE PETITIONER ARE

NOT EXEMPT FROM PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.


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IV.THE COURTA QUOERRED IN ORDERING THE CONFISCATION OF THE P6,000.00 DEPOSIT MADE IN THE

COURT BY PETITIONER AS PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used exclusively for educational purposes."

Petitioner contends that the primary use of the lot and building for educational purposes, and not the incidental

use thereof, determines and exemption from property taxes under Section 22 (3), Article VI of the 1935

Constitution. Hence, the seizure and sale of subject college lot and building, which are contrary thereto as well as to

the provision of Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal basis andtherefore void.

On the other hand, private respondents maintain that the college lot and building in question which were subjected

to seizure and sale to answer for the unpaid tax are used: (1) for the educational purposes of the college; (2) as the

permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-

laws and grandchildren; and (3) for commercial purposes because the ground floor of the college building is being

used and rented by a commercial establishment, the Northern Marketing Corporation (See photograph attached as

Annex "8" (Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in the case at bar is Section 22,

paragraph 3, Article VI, of the then 1935 Philippine Constitution, which expressly grants exemption from realty

taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, andimprovements used exclusively for religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by Republic Act No. 409,

otherwise known as the Assessment Law, provides:

The following are exempted from real property tax under the Assessment Law:

(c) churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used

exclusivelyfor religious, charitable, scientific or educational purposes.

In this regard petitioner argues that the primary use of the school lot and building is the basic and controlling

guide, norm and standard to determine tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217 [1916], this Court ruled that while

it may be true that the YMCA keeps a lodging and a boarding house and maintains a restaurant for its members,

still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for

religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation.

In the case of Bishop ofNueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352 [1972], this Court included in

the exemption a vegetable garden in an adjacent lot and another lot formerly used as a cemetery. It was clarified

that the term "used exclusively" considers incidental use also. Thus, the exemption from payment of land tax in

favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden

devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but servessolely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious

functions.

The phrase "exclusively used for educational purposes" was further clarified by this Court in the cases of Herrera

vs. Quezon City Board of assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal Revenue vs. Bishop of

the Missionary District, 14 SCRA 991 [1965], thus

Moreover, the exemption in favor of property used exclusively for charitable or educational purposes is 'not

limited to property actually indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends to facilities

which are incidental to and reasonably necessary for the accomplishment of said purposes, such as in the case of

hospitals, "a school for training nurses, a nurses' home, property use to provide housing facilities for interns,

resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for studentnurses, interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a firm used for the inmates of the

institution. (Cooley on Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution

(Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and non-restrictive interpretation of the

phrase "exclusively used for educational purposes" as provided for in Article VI, Section 22, paragraph 3 of the

1935 Philippine Constitution, reasonable emphasis has always been made that exemption extends to facilities


12/75

which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated,

the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence.

Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the

Director and his family, may find justification under the concept of incidental use, which is complimentary to the

main or primary purposeeducational, the lease of the first floor thereof to the Northern Marketing Corporation

cannot by any stretch of the imagination be considered incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have been raised for the first time in this Court.

That the matter was not taken up in the to court is really apparent in the decision of respondent Judge. No mentionthereof was made in the stipulation of facts, not even in the description of the school building by the trial judge,

both embodied in the decision nor as one of the issues to resolve in order to determine whether or not said

properly may be exempted from payment of real estate taxes (Rollo, pp. 17-23). On the other hand, it is noteworthy

that such fact was not disputed even after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the first time on appeal.

Nonetheless, as an exception to the rule, this Court has held that although a factual issue is not squarely raised

below, still in the interest of substantial justice, this Court is not prevented from considering a pivotal factual

matter. "The Supreme Court is clothed with ample authority to review palpable errors not assigned as such if it

finds that their consideration is necessary in arriving at a just decision." (Perez vs. Court of Appeals, 127 SCRA 645

[1984]).

Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the school building as well as

the lot where it is built, should be taxed, not because the second floor of the same is being used by the Director and

his family for residential purposes, but because the first floor thereof is being used for commercial purposes.

However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be

returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I, is hereby AFFIRMED subject

to the modification that half of the assessed tax be returned to the petitioner.

SO ORDERED.


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JOSE U. ONG and G.R. No. 126858

NELLY M. ONG, vs. Sandiganbayan, September 16, 2005

This Petition for Certiorari,[1]dated December 13, 1996 seeks the nullification of the Resolutions of the

Sandiganbayan dated August 18, 1994[2]and October 22, 1996.[3]The first assailed Resolution denied petitioners

motion to dismiss the petition for forfeiture filed against them, while the second questioned Resolution denied their

motion for reconsideration.

The antecedents are as follows:

Congressman Bonifacio H. Gillego executed a Complaint-Affidavit[4]on February 4, 1992, claiming that

petitioner Jose U. Ong, then Commissioner of the Bureau of Internal Revenue (BIR), has amassed properties worth

disproportionately more than his lawful income. The complaint pertinently states:

In his Statement of Assets and Liabilities as of December 31, 1989 (Annex A), Commissioner Jose

U. Ong declared P750,000.00 as his cash on hand and in banks. Within a short period thereafter, he was

able to acquire prime real estate properties mostly in the millionaires choice areas in Alabang,

Muntinglupa, Metro Manila costing millions of pesos as follows:

1. A house and lot in Alabang bought on October 9, 1990 for P5,500,000.00, now titled in thename of Jose U. Ong under Transfer Certificate of Title No. 172168, Registry of Deeds for Makati

(Annexes B & C);

2. Another lot in Alabang bought for P5,700,000.00, now titled in the name of Jose U. Ong and

Nelly M. Ong under Transfer Certificate of Title No. 173901. Registered on January 25, 1991 in

the Registry of Deeds for Makati (Annex D);

3. Still another lot in Alabang bought for P4,675,000.00 on January 16, 1991, now titled in the

name of spouses Jose U. Ong and Nelly Mercado Ong under Transfer Certificate of Title No.

173760 in the Registry of Deeds for Makati (Annexes E and F);

4. Again, another lot in Alabang bought on December 3, 1990 for P5,055,000.00, now titled in thename of the Children of Commissioner Ong and his son-in-law under transfer Certificate of Title

No. 173386 in the Registry of Deeds for Makati (Annex G and H);

5. Again, a lot in Makati bought for P832,000.00 on July 1, 1990, now titled in the name of the

Daughter of Commissioner Ong and his son-in-law under transfer certificate of title No. 171210

in the Registry of Deeds of Makati (Annex I & J).

The above documented purchases of Commissioner Ong alone which are worth millions of

pesos are obviously disproportionate to his income of just a little more than P200,000.00 per

annum.[5]

Ong submitted an explanation and analysis of fund sourcing, reporting his net worth covering the calendaryears 1989 to 1991 and showing his sources and uses of funds, the sources of the increase in his net worth and his

net worth as of December 13, 1991.[6]

The Director*of the Fact-Finding and Intelligence Bureau of the Office of the Ombudsman (Ombudsman)

ordered the conduct of a pre-charge investigation on the matter. A Fact-Finding Report[7]was promptly

submitted*with the following recommendation:

1. Forfeiture Proceedings be instituted against the properties of Jose U. Ong which he

illegitimately acquired in just a span of two (2) years as Commissioner of the Bureau of Internal

Revenue. Such properties are briefly specified as follows:

a) House and lot in Ayala Alabang bought on October 9, 1990 for P5.5 million under TCTNo. 172168 of the Registry of Deeds for Makati, Metro Manila;

b) Lot in Ayala Alabang bought on January 23, 1991 for P5.5 million under TCT No.

173901;

c) Lot in Ayala Alabang bought on January 16, 1991 for P4,675,000.00 under TCT No.

173760;
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d) Lot in Ayala Alabang bought on December 3, 1990 for P5,055,000.00 under TCT No.

173386; and

e) Condominium Unit 804, located at the eight floor of the Asian Mansion, bought

for P744,585.00 under CCT No. 20735 of the Registry of Deeds for Makati, Metro

Manila.[8]

Finding that a preliminary inquiry under Sec. 2 of Republic Act No. 1379 (RA 1379) should be conducted,

Ong was directed to submit his counter-affidavit and other controverting evidence in the Order[9]dated November

18, 1992. For this purpose, Ong was furnished copies of Gillegos Complaint-Affidavit and the Fact-Finding

Report, with annexes and supporting documents.

Ong filed a Counter-Affidavit[10]dated December 21, 1992, submitting his Statement of Assets and Liabilities

for the years 1988-1990, income tax return for 1988, bank certificate showing that he obtained a loan from Allied

Banking Corporation (Allied Bank), certificate from SGV & Co. (SGV) showing that he received retirement benefits

from the latter, a document entitled Acknowledgement of Trust showing that he acquired one of the questioned

assets for his brother-in-law, and other documents explaining the sources of funds with which he acquired the

questioned assets.

In view of Ongs arguments, the Ombudsman issued anotherOrder[11]dated February 11, 1993, the

pertinent portions of which state:

Results of the subpoena duces tecum ad testificandum issued to Allied Banking Corporation, Sycip,

Gorres, Velayo & Co., including the BIR insofar as it pertains to the production of the documents that

respondents claimed in justification of the sources of his funding/income, proved negative since Allied

Bank could not produce documents that would show availment of the loan, nor could SGV itemize the

documents/vouchers that would, indeed signify the grant and receipt of the claimed retirement benefits, as

well as the BIR insofar as it pertains on respondents filed income tax returns for the years 1987, 1988,

1989, 1990 and 1991.

Such being the case, and in line with respondents defense as claimed in his counter-affidavit that all

his acquisitions were from legitimate and valid sources based from his (respondents) salary and other

sources of income, and he being the recipient thereof, copies of which he is entitled as a matter of right andparty recipient on the claimed loan and retirement benefits, respondent Jose U. Ong, is hereby directed to

submit in writing within a period of fifteen (15) days from receipt of this ORDER, the following, namely:--

a) all documents in his possession relevant to the approval by the Allied Banking Corporation on

the P6.5 million term loan including documents in availment of the loan such as the execution of

promissory note/s, execution of real/chattel mortgage/s and the fact of its registration with the Register of

Deeds, credit agreements, receipt of payment on amortization of the loan, if any, and such other pertinent

documents that will show existence and availment of the loan granted;

b) All documents in his possession that he was indeed granted by SGV and Co. P7.8 million as

retirement benefits including such additional benefits as claimed as evidenced by vouchers, accounting

records, computation of benefits, that would signify fact of receipt of the claimed retirement benefits;

c) All documents showing the money market placements such as but not limited to the (a)

confirmation sale on the placements and (b) confirmation of the purchase on the placements;

d) Income tax returns as filed in the Bureau of Internal Revenue for the years, 1987, 1988, 1989,

1990 and 1991.

Failure of the respondent to comply with this ORDER within the period hereinabove prescribed

shall be deemed a waiver on his part to submit the required controverting evidence and that he has no

evidence on hand to show proof on the existence of the claimed defenses as above set forth and that this

case shall be considered for resolution without further notice.[12]

Instead of complying with the Order, Ong filed a Motion,[13]dated February 17, 1993 for its recall, the

voluntary inhibition of the handling investigators, and reassignment of the case. Ong objected to the proceedings

taken thus far, claiming that he was not notified of the subpoenas issued to SGV and Allied Bank requiring them to

substantiate Ongs claims. TheOrder allegedly violates his right to due process and to be presumed innocentbecause it requires him to produce evidence to exculpate himself.

A Resolution[14]dated May 31, 1993 was thereafter issued finding that Ong miserably failed to substantiate

his claim that the sources of financing his said acquisition came from his other lawful income, taking into account

his annual salary of P200,000.00 more or less and his cash standing at the time, even without considering his
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normal expenses befitting his stature and position in the Government, as well as his acquisition of movable

properties for the calendar year[s] 1989 to 1991, totaling P930,000.00, and concluding that the properties

acquired by him in a matter of ELEVEN (11) MONTHS from October, 1990 to September, 1991, during his

incumbency as Commissioner of the Bureau of Internal Revenue, are manifestly and grossly disproportionate to his

salary as a public official and his other lawful income.[15]

The Resolution directed the filing by the Ombudsman, in collaboration with the Office of the Solicitor

General (OSG), of a petition for recovery of ill-gotten/unexplained wealth under RA 1379, in relation to RAs 3019

and 6770, against Ong and all other persons concerned.

The Resolution was reviewed by the Office of the Special Prosecutor (Special Prosecutor) which concurred

with the findings and recommendation of the Ombudsman.[16]

A Petition[17]dated November 15, 1993 for forfeiture of unlawfully acquired property was accordingly filed

before the Sandiganbayan by the Republic, through the Special Prosecutor and the Deputy Ombudsman for

Luzon,[18]against Ong and his wife, petitioner Nelly Ong, and docketed as Civil Case No. 0160.

The Petition alleged that the total value of the questioned assets is P21,474,585.00 which is grossly

disproportionate to Ongs lawful income from his public employment and other sources amountingto P1,060,412.50, considering that Nelly Ong has no visible means of income. This circumstance allegedly gave rise

to the presumption under Sec. 2 of RA 1379 that the questioned properties were unlawfully acquired.

In its Order[19]dated November 17, 1993, the Sandiganbayan directed the issuance of a writ of preliminary

attachment against the properties of petitioners. The writ, issued on November 18, 1993, was duly served and

implemented as shown in the Sheriffs Return dated December 1, 1993.[20]

Petitioners Jose and Nelly Ong filed anAnswer[21]dated January 27, 1994, denying that their lawful income

is grossly disproportionate to the cost of the real properties they acquired during the incumbency of Ong as BIR

Commissioner. According to them, the Special Prosecutor and the Ombudsman intentionally failed to consider the

retirement and separation pay Ong received from SGV and other lawful sources of funds used in the acquisition of

the questioned properties.

They presented several affirmative defenses, such as the alleged deprivation of their right to due processconsidering that no preliminary investigation was conducted as regards Nelly Ong, and the nullity of the

proceedings before the Ombudsman because the latter, who acted both as investigator and adjudicator in the

determination of the existence of probable cause for the filing of the case, will also prosecute the same. Moreover,

the Petition also allegedly failed to state a cause of action because RA 1379 is unconstitutional as it is vague and

does not sufficiently define ill-gotten wealth and how it can be determined in violation of the non-delegation of

legislative power provision, and insofar as it disregards the presumption of innocence by requiring them to show

cause why the properties in question should not be declared property of the state. They also objected to the fact

that they were not notified of the Resolutiondirecting the filing of the case and were thereby prevented from filing

a motion for reconsideration.

A hearing of petitioners affirmative defenses was conducted as in a motion to dismiss, after which the

Sandiganbayan issued the assailedResolution dated August 18, 1994. The Sandiganbayan ruled that a petition forforfeiture is an action in rem,civil in character. As such, the participation of Nelly Ong in the inquiry to determine

whether the properties acquired by her husband are manifestly disproportionate to his salary and other lawful

income is not a mandatory requirement. Neither is the conduct of a preliminary investigation as regards Nelly Ong

required. Further, Nelly Ong was only impleaded in the petition as a formal party.

The court held that the power of the Ombudsman to investigate and prosecute unexplained wealth cases is

founded on RAs 1379, 3019 and 6770. The Sandiganbayan, moreover, declared that the Petition sufficiently states a

cause of action.

Petitioners filed a Motion for Reconsideration[22]dated September 11, 1994, averring that although a

forfeiture proceeding is technically a civil action, it is in substance a criminal proceeding as forfeiture is deemed a

penalty for the violation of RA 1379. Hence, Nelly Ong is entitled to a preliminary investigation. To proceed againsther conjugal share of the questioned assets without giving her the opportunity to present her side in a preliminary

investigation violates her right to due process.

Petitioners reiterated their argument that they were not notified of the Resolution directing the filing of the

petition for forfeiture and were consequently deprived of their right to file a motion for reconsideration under RA

6770 and pertinent rules.

The Sandiganbayan issued the second assailed Resolution dated October 22, 1996, directing the

Ombudsman to furnish petitioners with a copy of the Resolution to file the forfeiture case and giving them a period
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of five (5) days from receipt of the Resolution within which to file a motion for reconsideration. The Ombudsman

was given a period of sixty (60) days to resolve the motion for reconsideration and to report to the court the action

it has taken thereon.

Instead of awaiting the Ombudsmans compliance with theResolution, petitioners filed the instant Petition

for Certiorari contending that the Sandiganbayan gravely abused its discretion in ruling that Nelly Ong is not

entitled to preliminary investigation; failing to annul the proceedings taken before the Ombudsman despite the

alleged bias and prejudice exhibited by the latter and the disqualification of the Ombudsman from acting both as

prosecutor and judge in the determination of probable cause against petitioners; and failing to declare RA 1379

unconstitutional.

The OSG filed a Comment[23]dated December 10, 1997, averring that the reason why Nelly Ong was not

made a party to the proceedings before the Ombudsman is because her husband never mentioned any specific

property acquired solely and exclusively by her. What he stated was that all the acquisitions were through his own

efforts. Hence, the Sandiganbayan correctly held that Nelly Ong is a mere formal party.

Furthermore, the presumption of innocence clause of the Constitution refers to criminal prosecutions and

not to forfeiture proceedings which are civil actions in rem. The Constitution is likewise not violated by RA 1379

because statutes which declare that as a matter of law a particular inference follows from the proof of a particular

fact, one fact becomingprima facie evidence of another, are not necessarily invalid, the effect of the presumption

being merely to shift the burden of proof upon the adverse party.

Neither is the constitutional authority of the Supreme Court to promulgate rules concerning the protectionand enforcement of constitutional rights, pleading, practice and procedure in all courts violated by RA 1379

merely by authorizing the OSG to grant immunity from criminal prosecution to any person who testifies to the

unlawful manner in which a respondent has acquired any property. There is no showing that the OSG or the

Ombudsman is about to grant immunity to anybody under RA 1379. At any rate, the power to grant immunity in

exchange for testimony has allegedly been upheld by the Court.

The OSG further argued that the Ombudsman did not exhibit any bias and partiality against Ong. It

considered his claim that he received retirement benefits from SGV, obtained a loan from Allied Bank, and had high

yielding money market placements, although it found that these claims were unsubstantiated based on its

investigation. Moreover, the sending of subpoenas to SGV and Allied Bank was in accordance with the powers ofthe Ombudsman under RA 6770.

The OSG likewise alleged that RA 1379 is not vague as it defines legitimately acquired property and

specifies that the acquisition of property out of proportion to the legitimate income of a public officer is proscribed.

Petitioners filed a Reply to Comment[24]dated April 1, 1998, reiterating their arguments.

In the Resolution[25]dated April 14, 1999, the Court gave due course to the petition and required the parties

to submit their respective memoranda. Accordingly, petitioners filed their Memorandum[26]dated June 29, 1999,

while the OSG submitted its Memorandum[27]dated September 27, 1999. The Special Prosecutor submitted its

own Memorandum[28]dated June 20, 1999.

We deny the petition.

Petitioners contend that Nelly Ong was denied due process inasmuch as no separate notices or subpoena

were sent to her during the preliminary investigation conducted by the Ombudsman. They aver that Nelly Ong is

entitled to a preliminary investigation because a forfeiture proceeding is criminal in nature.

On the other hand, the OSG and the Ombudsman contend that Nelly Ong is not entitled to preliminary

investigation,first,because forfeiture proceedings under RA 1379 are in the nature of civil actions in rem and

preliminary investigation is not required; second,because even assuming that the proceeding is penal in character,

the right to a preliminary investigation is a mere statutory privilege which may be, and was in this case, withheld

by law; and third, because a preliminary investigation would serve no useful purpose considering that none of thequestioned assets are claimed to have been acquired through Nelly Ongs funds.

In Republic v. Sandiganbayan,[29]we ruled that forfeiture proceedings under RA 1379 are civil in nature and

not penal or criminal in character, as they do not terminate in the imposition of a penalty but merely in the

forfeiture of the properties illegally acquired in favor of the State. Moreover, the procedure outlined in the law is

that provided for in a civil action, viz:

Sec. 3. The petition.The petition shall contain the following information:

(a) The name and address of the respondent.
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(b) The public office or employment he holds and such other public officer or employment which

he has previously held.

(c) The approximate amount of property he has acquired during his incumbency in his past and

present offices and employments.

(d) A description of said property, or such thereof as has been identified by the Solicitor General.

(e) The total amount of his government salary and other proper earnings and incomes from

legitimately acquired property, and

(f) Such other information as may enable the court to determine whether or not the respondent

has unlawfully acquired property during his incumbency.

Sec. 4. Period for the answer.The respondent shall have a period of fifteen days within which

to present his answer.

Sec. 5. Hearing.The court shall set a date for a hearing which may be open to the public, and

during which the respondent shall be given ample opportunity to explain, to the satisfaction of the

court, how he has acquired the property in question.

Sec. 6.Judgment.If the respondent is unable to show to the satisfaction of the court that he has

lawfully acquired the property in question, then the court shall declare such property, forfeited in

favor of the State, and by virtue of such judgment the property aforesaid shall become property of

the State:Provided, that no judgment shall be rendered within six months before any general

election or within three months before any special election. The court may, in addition, refer thiscase to the corresponding Executive Department for administrative or criminal action, orboth. [Emphasis supplied.]

Hence, unlike in a criminal proceeding, there is to be no reading of the information, arraignment, trial and reading

of the judgment in the presence of the accused.[30]

In the earlier case of Cabal v. Kapunan,[31]however, we declared that forfeiture to the State of property of a

public official or employee partakes of the nature of a penalty and proceedings for forfeiture of property, although

technically civil in form, are deemed criminal or penal. We clarified therein that the doctrine laid down inAlmeda

v. Perez[32]that forfeiture proceedings are civil in nature applies purely to the procedural aspect of such

proceedings and has no bearing on the substantial rights of the respondents therein. This ruling was reiterated

in Katigbak v. Solicitor General,[33]where we held that the forfeiture of property provided for in RA 1379 is in the

nature of a penalty.

It is in recognition of the fact that forfeiture partakes the nature of a penalty that RA 1379 affords the

respondent therein the right to a previous inquiry similar to a preliminary investigation in criminal cases.

Preliminary investigation is an inquiry or proceeding to determine whether there is sufficient ground toengender a well-founded belief that a crime has been committed and the respondent is probably guilty thereof, and

should be held for trial. Although the right to a preliminary investigation is not a fundamental right guaranteed by

the Constitution but a mere statutory privilege, it is nonetheless considered a component part of due process in

criminal justice.[34]

It is argued, however, that even if RA 1379 is considered a criminal proceeding, Nelly Ong is still not

entitled to a preliminary investigation because the law itself withholds such right from a respondent who is not

himself or herself a public officer or employee, such as Nelly Ong.

RA 1379, entitled An Act Declaring Forfeiture in Favor of the State of Any Property Found to Have Been

Unlawfully Acquired by Any Public Officer or Employee and Providing for the Procedure Therefor, expressly affords a

respondent public officer or employee the right to a previous inquiry similar to preliminary investigation incriminal cases, but is silent as to whether the same right is enjoyed by a co-respondent who is not a public officer

or employee. Sec. 2 thereof provides:

Sec. 2. Filing of petition.Whenever any public officer or employeehas acquired duringhis incumbency an amount of property which is manifestly out of proportion to his salary as such

public officer or employee and to his other lawful income and the income from legitimately

acquired property, said property shall be presumedprima facie to have been unlawfully acquired.

The Solicitor General, upon complaint by any taxpayer to the city or provincial fiscal who

shall conduct a previous inquiry similar to preliminary investigations in criminal casesand
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shall certify to the Solicitor General that there is reasonable ground to believe that there has been

committed a violation of this Act and the respondent is probably guilty thereof, shall file, in thename and on behalf of the Republic of the Philippines, in the Court of First Instance

Documents

Consti Cases.docx