by MAVA

GREGORIO SARASOLA v. WENCESLAO TRINIDAD, GR No. 14595, 1919-10-11

Facts:

The complaint in this case was nled in the Court of First Instance of Manila for the purpose of having an injunction issue to restrain the defendant, the Collector of Internal Revenue, from the alleged illegal collection of taxes in the amount of ^11,739.29.

The defendant interposed a demurrer to the complaint, based on two grounds, namely: (1) that the court had no jurisdiction of the subject-matter of the action because of the provisions of section 1578 of the Administrative Code of 1917; and (2) that the facts stated in the... complaint did not entitle the plaintiff to the relief demanded. The Honorable James A. Ostrand, Judge of First Instance, sustained the demurrer, holding that "In the opinion, of the court, the case is still controlled by the decision of the Supreme Court in the case of Churchill... and Tait vs. Rafferty (32 Phil., 580). The fact that section 1579 of the Administrative Code of 1917 disallows interest on the internal revenue taxes recovered back is hardly sufficient to vary the rule." It is from the final order dismissing the complaint, without special... finding as to costs, that the plaintiff appeals to this court.

Sections 1578 and 1579 of the Administrative Code of 1917 read as follows:

"Sec. 1578. Injunction not available to restrain collection of tax. No court shall have authority to grant an injunction to restrain the collection of any internal-revenue tax. "Sec. 1579. Recovery of tax paid under protest. When the validity of any tax is... questioned, or its amount disputed, or other question raised as to liability therefor, the person against whom or against whose property the same is sought to be enforced shall pay the tax under instant protest, or upon protest within ten days, and shall thereupon request the... decision of the Collector of Internal Revenue. If the decision of the Collector of Internal Revenue is adverse, or if no decision is made by him within six months from the date when his decision was requested, the taxpayer may proceed, at any time within two years after the... payment of the tax, to bring an action against the Collector of Internal Revenue for the recovery without interest of the sum alleged to have been illegally collected, the process to be served upon him, upon the provincial treasurer, or upon the officer collecting the... tax."

Again expressly leaving out of our present consideration the phrase "without interest," a vast array of interpretative jurisprudence which culminates in, the decision in Churchill and Tait vs. Rafferty, supra, would leave no room... for doubt that such legislation is constitutional. The point, however, to keep sharply before us is, that until the enactment of the Administrative Code of 1917, no law of the Philippine Legislature or Commission had contained a provision permitting the recovery of taxes

"without interest," and no provision esentially the same can be found in the statutes of the United States or of the several States.

It is a wise and reasonable precaution for the security of the government. No government could exist'that permitted its collection to be delayed by every litigious man or every embarrassed man, to whom delay... was more important than the payment of costs." (State of Tennessee vs. Sneed [1877], 6 Otto, 69. See also 37 Cyc, 1267, 1268.) Again in the case of Snyder vs. Marks ([1883], 109 U. S., 185) the sole object of the suit was to restrain the collection of a tax which was assessed... under the United States Internal Revenue Laws. The court said: "The remedy of a suit to recover back the tax after it is paid, is provided by statute, and a suit to restrain its collection is forbidden. The remedy so given is exclusive, and no other remedy... can be substituted for it."

(Dows vs. The City of Chicago [1871], 11 Wall., 108) it was remarked that there... can be no case of equitable cognizance "where there is a plain and adequate remedy at law. And except where the special circumstances which we have mentioned exist, the party of whom an illegal tax is collected has ordinarily ample remedy, either by action against the officer... making the collection or the body to whom the tax is paid." Accordingly, it was held that since the plaintiff had his action after the tax was paid "against the officer or the city to recover back the money," a bill in equity to restrain the collection of a tax would not be... sustained. If the ground alleged is alone that the tax was illegal, this is not sufficient for the maintenance of an injunction

Issues:

"Is the legal provision prohibiting the courts from granting an injunction to restrain the collection of internal revenue taxes constitutional?

Ruling:

It is well settled both on principle and authority that interest is not to be awarded against a sovereign government, as the United States or a State, unless its consent has been manifested by an Act of its Legislature or by a lawful contract of its executive officers. If there... be doubt upon the subject, that doubt must be resolved in favor of the State.

In Gosman's Case ([1881], L. R. 17 Ch. Div., 771) Sir George Jessel, Master of the Rolls, speaking for the Court of Appeals, summed up the Law of England in this concise statement: "There is no ground... for charging the Crown with interest. Interest is only payable by statute or by contract." In Attorney-General vs. Cape Fear Navigation Co. ([1843], 37 N. C, 444) Chief Justice Ruffin laid down as undoubted law that "the State never pays interest unless she expressly engages to... do so."

Judge Cooley says that "The recovery (in tax suits) must be limited to the money received. * * * Interest is recoverable only when expressly allowed by statute.

As this is the main rule, the converse proposition must be equally true, that taxes only draw interest as do sums of money when expressly authorized. A corollary to the principle is also self-evident, that interest cannot be recovered on an abatement unless the statute provides... for it

The only contrary dictum is to the effect that where an illegal tax has been collected, the citizen who has... paid and is obliged to bring suit against the collector is entitled to interest from the time of the illegal exaction

It has been urged that since interest is in the nature of damages, it is proper for allowance. While this may be true in the general run of cases, it is not necessary true when the sovereign power is concerned. The state is not amenable to judgments for damages or costs without... its consent,... Our statute, it will be remembered, not only does not authorize interest but negatives the payment of interest. While, therefore, coming under the purview of the general principle pertaining to legislative discretion, it also avoids any trouble to be found in those decisions... which allow interest without any express provision on the subject, because the statute provides that interest shall not be allowed. From whatever direction we look at the subject, therefore, we reach either the conclusion that the law is valid, or that the plaintiff has not... proven such a case of irreparable injury as would warrant the issuance of the extraordinary writ of injunction.

The reason for what superficially seems to be a harsh ruling goes back to the fundamental conception of the nature of taxation. It is but a truism to restate that taxation is an attribute of sovereignty. It is the strongest of all the powers of government. It involves, as Chief

Justice Marshall in his historical statement said, the power to destroy. (McCulloch vs. Maryland [1819], 4 Wheat., 316; Loan Association vs. Topeka [1875], 20 Wall., 655.) "The right of taxation where it exists," the court said in Austin vs. Aldermen ([1868], 7 Wall., 694), "is... necessarily unlimited in its nature. It carries with it inherently the power to embarrass and destroy."

Public policy decrees that, since upon the prompt collection of revenue there depends the very existence of government itself, whatever determination shall be arrived at by the Legislature should not be interfered with, unless there be a clear violation of some constitutional... inhibition.

"It is upon taxation that the several states chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost importance to all of them that the modes adopted to enforce the taxes... levied should be interfered with as little as possible. Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the taxes, may derange the operations of government, and thereby cause serious detriment to the public."

"The

Government may fix the conditions upon which it will consent to litigate the validity of its original taxes." Or as said in a New York case, "The power of taxation being legislative, all the incidents are within the control of the Legislature." (Genet vs. City of Brooklyn

[1885], 99 N. Y., 296.) Or as said by Chief Justice Marshall in McCulloch vs. Maryland, supra, "The people of a state give to their government a right of taxing themselves and their property, and as the exigencies of the Government cannot be limited, they prescribe no limit to... the exercise of this right, resting confidently on the interest of the legislator and on the influence of the constituents over their representatives, to guard themselves against its abuse."

Applying these well-known principles to the case at bar, it wouldseem that the legislature has considered that a law providing for the payment of a tax with a right to bring a suit before a tribunal to recover back the same without interest is a full and adequate remedy for the... aggrieved taxpayer. The disallowance of interest in such case, like the other steps prescribed as conditional to recovery, has been made one of the conditions which the lawmakers have seen fit. to attach to the remedy provided. As the Legislature in the exercise of its wide... discretionary power, has deemed the remedy provided in section 1579 of the Administrative Code to be an adequate mode of testing the validity of an internal revenue tax and has willed that such a remedy shall be exclusive, the courts not only owe it to a coordinate branch of the... government to respect the opinion thus announced, but have no right to interfere with the enforcement of such a law.

"That the Supreme Court and the Courts of First Instance of the Philippine Islands shall possess and exercise... jurisdiction as heretofore provided and such additional jurisdiction as shall hereafter be prescribed by law. * * *" The Supreme Court of the Philippines, in interpreting these provisions, has reached the conclusion that they had the effect of taking one or more Acts of the

Philippine Commission and Legislature out of the field of ordinary legislation and making of them in effect basic laws. In other words, it was held that the Legislature could add to but could not diminish the jurisdiction of the courts. (Barrameda vs. Moir [1913], 25 Phil., 44.)

But any argument predicated upon such a proposition must necessarily assume that the Philippine courts have had the power to restrain by injunction the collection of taxes. And since, with or without a law, the Philippine courts would not have presumed to issue an injunction to... restrain the collection of a tax, the prohibition expressed in the law has had no other effect than to confirm a universal principle. This was expressly decided in the case of Churchill and Tait vs. Rafferty, supra, and has since then not been open to discussion.

To conclude in answer to the argument made by appellant, we can say that sections 1578 and 1579 of the Administrative Code establish an adequate remedy at law and that we are not convinced that the enforcement of the tax will produce irreparable injury, and, in answer to the... argument of appellee, that sections 1578 and 1579 of the Administrative Code of 1917 are valid. The result is, thus, to affirm the final order appealed from.

Principles: