Facts:

The case involves the Government of the Philippine Islands as the plaintiff and El Monte de Piedad y Caja de Ahorros de Manila as the defendant. The judgment being appealed was rendered by the Court of First Instance of Manila on October 12, 1916, in favor of the plaintiff, ordering the defendant to pay the sum of P138,790.12, with interest at 6% per annum from March 4, 1915. The action was initiated to recover internal-revenue taxes assessed on the monthly deposits and the capital employed by the defendant bank from August 1, 1904, to June 30, 1914, along with statutory penalties for non-payment. The case was presented based on a stipulation of facts, supplemented by both oral and documentary evidence.

El Monte de Piedad y Caja de Ahorros de Manila was established under a royal order from the King of Spain on July 8, 1880, aimed at providing a safe investment for the savings of the poor and offering loans at low interest rates. The institution operates under the authority...

Facts:

1. Parties Involved:

   • Plaintiff: The Government of the Philippine Islands.
   • Defendant: El Monte de Piedad y Caja de Ahorros de Manila (a banking institution).

2. Nature of the Case:

   • The Government sought to recover internal-revenue taxes assessed on the defendant's monthly deposits and capital employed in banking from August 1, 1904, to June 30, 1914, including statutory penalties for refusal to pay.

3. Background of the Defendant:

   • The defendant was organized under the canon law by a royal order of the King of Spain on July 8, 1880.
   • Its purpose was to provide safe investment opportunities for the savings of the poor and to assist the needy by offering loans at low interest rates.
   • The institution was governed by the Catholic Archbishop of Manila, who had the authority to change its statutes and by-laws.
   • Depositors were entitled to a fixed annual interest of 4%, with no further participation in profits.

4. Tax Assessment:

   • The Government assessed taxes under Section 111 of Act No. 1189 (Internal Revenue Law), which imposed:
     • A monthly tax of 1/18 of 1% on deposits subject to payment by check or draft.
     • A monthly tax of 1/24 of 1% on capital employed in banking.

5. Defendant's Defense:

   • The defendant claimed it was a savings bank under the exception in Section 111, which exempted savings banks from taxes if they:
     • Had no capital stock.
     • Did not engage in business other than receiving deposits to be loaned or invested solely for the benefit of depositors.
     • Did not profit from the deposits.
   • The defendant also argued it had no taxable capital.

6. Admitted Facts:

   • The defendant was engaged in banking business.
   • The amount of deposits and accrued profits (P549,912.52) was undisputed.
   • The defendant was a profit-making institution, with profits belonging to the institution itself, not the depositors.

Issue:

• (Unlock)

Ruling:

• (Unlock)

Ratio:

1. Definition of a Savings Bank:

   • To qualify as a savings bank under Section 111, an institution must:
     • Have no capital stock.
     • Engage solely in receiving deposits to be loaned or invested for the benefit of depositors.
     • Not profit from the deposits.
   • The defendant failed to meet these criteria because it was a profit-making institution, and its profits belonged to the institution, not the depositors.

2. Taxable Capital:

   • The term "capital" in the Internal Revenue Law refers to the money used by a bank in its business, not just fixed or stated capital.
   • The accrued profits or surplus (P549,912.52) were used in the defendant's banking business and thus constituted taxable capital.

3. Practical Construction of the Statute:

   • The failure of officials to assess taxes does not constitute a practical construction of the statute when the statute is clear and unambiguous.
   • The defendant, being a bank engaged in banking business, is presumed liable for taxes unless it can show a clear legislative intent to exempt it.

4. Burden of Proof:

   • The burden is on the defendant to prove it falls within an exception to the tax law.
   • The defendant failed to meet this burden, as it could not demonstrate that it qualified as a savings bank under the exception.