Consti_Lutz vs Araneta

7/28/2019 Consti_Lutz vs Araneta

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LUTZ vs ARANETAG.R. No. L-7859 December 22, 1955

FACTS:Plaintiff, Walter Lutz, in his capacityas Judicial Administrator of the IntestateEstate of Antonio Jayme Ledesma, soughtto recover from the Collector of InternalRevenue the sum of money paid by theestate as taxes, pursuant to theCommonwealth Act No. 567, otherwiseknown as the Sugar Adjustment Act. UnderSection 3 of said Act, taxes are levied onthe owners or persons in control of thelands devoted to the cultivation of sugarcane. Lutz alleged that such tax isunconstitutional and void, being levied forthe aid and support of the sugar industryexclusively, which in plaintiff's opinion isnot a public purpose for which a tax may beconstitutionally levied. The Court ofFirst Instance dismissed his petition, thusthis appeal before the Supreme Court.

ISSUE: Whether or not the tax levied underthe Sugar Adjustment Act ( CommonwealthAct 567) is unconstitutional

HELD: No. The tax is levied with aregulatory purpose, to provide means forthe rehabilitation and stabilization of thethreatened sugar industry. In other words,the act is primarily an exercise of the policepower.

The protection and promotion of the sugarindustry is a matter of public concern, itfollows that the Legislature may determinewithin reasonable bounds what is necessaryfor its protection and expedient for itspromotion. If objective and methods arealike constitutionally valid, no reason isseen why the state may not levy taxes toraise funds for their prosecution andattainment. Taxation may be made the

implement of the state's police power.

Hence it was competent for the legislatureto find that the general welfare demandedthat the sugar industry should be stabilizedin turn; and in the wide field of its policepower, the lawmaking body could providethat the distribution of benefits therefrombe readjusted among its components toenable it to resist the added strain of theincrease in taxes that it had to sustain.


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Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-7859 December 22,

1955

WALTER LUTZ, as JudicialAdministrator of the Intestate Estateof the deceased Antonio JaymeLedesma, plaintiff-appellant,vs.

J. ANTONIO ARANETA, as the Collectorof Internal Revenue, defendant-appellee.

Ernesto J. Gonzaga for appellant.Office of the Solicitor General Ambrosio

Padilla, First Assistant Solicitor GeneralGuillermo E. Torres and Solicitor FelicisimoR. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of FirstInstance of Negros Occidental to test thelegality of the taxes imposed byCommonwealth Act No. 567, otherwise

known as the Sugar Adjustment Act.

Promulgated in 1940, the law in questionopens (section 1) with a declaration ofemergency, due to the threat to ourindustry by the imminent imposition ofexport taxes upon sugar as provided in the

Tydings-McDuffe Act, and the "eventual lossof its preferential position in the UnitedStates market"; wherefore, the nationalpolicy was expressed "to obtain areadjustment of the benefits derived fromthe sugar industry by the componentelements thereof" and "to stabilize thesugar industry so as to prepare it for theeventuality of the loss of its preferentialposition in the United States market andthe imposition of the export taxes."

In section 2, Commonwealth Act 567provides for an increase of the existing taxon the manufacture of sugar, on agraduated basis, on each picul of sugar

manufactured; while section 3 levies onowners or persons in control of landsdevoted to the cultivation of sugar caneand ceded to others for a consideration, onlease or otherwise

a tax equivalent to the differencebetween the money value of therental or consideration collected andthe amount representing 12 percentum of the assessed value of suchland.

According to section 6 of the law

SEC. 6. All collections made underthis Act shall accrue to a special fundin the Philippine Treasury, to beknown as the 'Sugar Adjustment andStabilization Fund,' and shall be paid

out only for any or all of the followingpurposes or to attain any or all of thefollowing objectives, as may beprovided by law.

First, to place the sugar industry in aposition to maintain itself, despitethe gradual loss of the preferntiaposition of the Philippine sugar in theUnited States market, and ultimatelyto insure its continued existencenotwithstanding the loss of that

market and the consequent necessityof meeting competition in the freemarkets of the world;

Second, to readjust the benefitsderived from the sugar industry byall of the component elementsthereof the mill, the landownerthe planter of the sugar cane, andthe laborers in the factory and in thefield so that all might continueprofitably to engage

therein;lawphi1.net

Third, to limit the production of sugarto areas more economically suited tothe production thereof; and

Fourth, to afford labor employed inthe industry a living wage and toimprove their living and workingconditions: Provided, That thePresident of the Philippines may


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until the adjourment of the nextregular session of the NationalAssembly, make the necessarydisbursements from the fund hereincreated (1) for the establishment andoperation of sugar experimentstation or stations and theundertaking of researchers (a) toincrease the recoveries of thecentrifugal sugar factories with theview of reducing manufacturingcosts, (b) to produce and propagatehigher yielding varieties of sugarcane more adaptable to differentdistrict conditions in the Philippines,(c) to lower the costs of raising sugarcane, (d) to improve the buyingquality of denatured alcohol frommolasses for motor fuel, (e) todetermine the possibility of utilizingthe other by-products of the industry,(f) to determine what crop or cropsare suitable for rotation and for theutilization of excess cane lands, and(g) on other problems the solution ofwhich would help rehabilitate andstabilize the industry, and (2) for theimprovement of living and workingconditions in sugar mills and sugarplantations, authorizing him toorganize the necessary agency oragencies to take charge of theexpenditure and allocation of saidfunds to carry out the purposehereinbefore enumerated, and,likewise, authorizing thedisbursement from the fund hereincreated of the necessary amount oramounts needed for salaries, wages,travelling expenses, equipment, andother sundry expenses of saidagency or agencies.

Plaintiff, Walter Lutz, in his capacity as

Judicial Administrator of the Intestate Estateof Antonio Jayme Ledesma, seeks torecover from the Collector of InternalRevenue the sum of P14,666.40 paid by theestate as taxes, under section 3 of the Act,for the crop years 1948-1949 and 1949-1950; alleging that such tax isunconstitutional and void, being levied forthe aid and support of the sugar industryexclusively, which in plaintiff's opinion isnot a public purpose for which a tax may beconstitutioally levied. The action having

been dismissed by the Court of FirstInstance, the plaintifs appealed the casedirectly to this Court (Judiciary Act, section17).

The basic defect in the plaintiff's position ishis assumption that the tax provided for inCommonwealth Act No. 567 is a pureexercise of the taxing power. Analysis ofthe Act, and particularly of section 6(heretofore quoted in full), will show thatthe tax is levied with a regulatory purposeto provide means for the rehabilitation andstabilization of the threatened sugarindustry. In other words, the act is primarilyan exercise of the police power.

This Court can take judicial notice of thefact that sugar production is one of thegreat industries of our nation, sugar

occupying a leading position among itsexport products; that it gives employmentto thousands of laborers in fields andfactories; that it is a great source of thestate's wealth, is one of the importantsources of foreign exchange needed by ourgovernment, and is thus pivotal in the plansof a regime committed to a policy ofcurrency stability. Its promotion, protectionand advancement, therefore redoundsgreatly to the general welfare. Hence it wascompetent for the legislature to find that

the general welfare demanded that thesugar industry should be stabilized in turn;and in the wide field of its police power, thelawmaking body could provide that thedistribution of benefits therefrom bereadjusted among its components to enableit to resist the added strain of the increasein taxes that it had to sustain (Sligh vsKirkwood, 237 U. S. 52, 59 L. Ed. 835

Johnson vs. State ex rel. Marey, 99 Fla1311, 128 So. 853; Maxcy Inc. vs. Mayo,103 Fla. 552, 139 So. 121).

As stated in Johnson vs. State ex rel. Marey,with reference to the citrus industry inFlorida

The protection of a large industryconstituting one of the great sourcesof the state's wealth and thereforedirectly or indirectly affecting thewelfare of so great a portion of thepopulation of the State is affected to


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such an extent by public interests asto be within the police power of thesovereign. (128 Sp. 857).

Once it is conceded, as it must, that theprotection and promotion of the sugarindustry is a matter of public concern, itfollows that the Legislature may determinewithin reasonable bounds what is necessaryfor its protection and expedient for itspromotion. Here, the legislative discretionmust be allowed fully play, subject only tothe test of reasonableness; and it is notcontended that the means provided insection 6 of the law (above quoted) bear norelation to the objective pursued or areoppressive in character. If objective andmethods are alike constitutionally valid, noreason is seen why the state may not levytaxes to raise funds for their prosecution

and attainment. Taxation may be made theimplement of the state's police power(Great Atl. & Pac. Tea Co. vs. Grosjean, 301U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler,297 U. S. 1, 80 L. Ed. 477; M'Culloch vs.Maryland, 4 Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden thesugar producers themselves can hardly bea ground of complaint; indeed, it appearsrational that the tax be obtained preciselyfrom those who are to be benefited from

the expenditure of the funds derived fromit. At any rate, it is inherent in the power totax that a state be free to select thesubjects of taxation, and it has beenrepeatedly held that "inequalities whichresult from a singling out of one particularclass for taxation, or exemption infringe noconstitutional limitation" (Carmichael vs.Southern Coal & Coke Co., 301 U. S. 495,81 L. Ed. 1245, citing numerous authorities,at p. 1251).

From the point of view we have taken itappears of no moment that the funds raisedunder the Sugar Stabilization Act, now inquestion, should be exclusively spent in aidof the sugar industry, since it is that veryenterprise that is being protected. It maybe that other industries are also in need ofsimilar protection; that the legislature is notrequired by the Constitution to adhere to apolicy of "all or none." As ruled in Minnesotaex rel. Pearson vs. Probate Court, 309 U. S.

270, 84 L. Ed. 744, "if the law presumablyhits the evil where it is most felt, it is not tobe overthrown because there are otherinstances to which it might have beenapplied;" and that "the legislative authorityexerted within its proper field, need notembrace all the evils within its reach" (N. LR. B. vs. Jones & Laughlin Steel Corp. 301 US. 1, 81 L. Ed. 893).

Even from the standpoint that the Act is apure tax measure, it cannot be said that thedevotion of tax money to experimentastations to seek increase of efficiency insugar production, utilization of by-productsand solution of allied problems, as well asto the improvements of living and workingconditions in sugar mills or plantationswithout any part of such money beingchanneled directly to private persons

constitutes expenditure of tax money foprivate purposes, (compare Everson vsBoard of Education, 91 L. Ed. 472, 168 ALR1392, 1400).

The decision appealed from is affirmedwith costs against appellant. So ordered.

Paras, C. J., Bengzon, Padilla, Reyes, A.,Jugo, Bautista Angelo, Labrador, andConcepcion, JJ., concur.

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Consti_Lutz vs Araneta