Taxation Case Digest2
Taxation Case Digest2
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CASE DIGEST
NOTES AND LEGAL FORMS
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GUESTBOOK
TAXATION
Commissioner vs. Algue
158 SCRA 9
Facts:
The Philippine Sugar Estate Development Company (PSEDC). Appointed Algue Inc. as its agent.
Algue received a commission of 125,000.00 and it was from their commission that it paid organizers of
VOICP 75,000.00 in proportional fees. He received an assessment from the CIR. He filed a letter of
protest or reconsideration. The CIR contends that the claimed deduction was properly disallowed because
it was not an ordinary, reasonable or necessary expense.
Ruling:
No. taxes are the lifeblood of the government and should be collected without unnecessary
hindrance. Every person who is able to pay must contribute his share in the running of the government.
The government for its part is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method
of exaction by those in the seat of power.
On the other hand, such collection should be made in accordance with law as any arbitrariness
will negate the very reason for government itself.
BP 135 was enacted. Sison, as a taxpayer alleged that Sison is thereof unduly discriminated
against him by the imposition of higher rate upon his income as a professional, that it amounts to class
legislation, and that it transgresses against the equal protection and due process clauses of the 1987
Constitution as well as the rule requiring the uniformity in taxation.
Ruling:
No. it is manifest that the field of state activity has assumed a much wider scope. The reason was
clearly set forth by justice Makalintal, thus: the areas which need to be left with private enterprise and
initiative and which the government was called upon to enter optionally, and only because it was better
equipped to administer for the public welfare than any individual or groups and individual continue to
lose their well-defined boundaries and to be absorbed within the activities that the government must
undertake in the sovereign capacity if it is to meet the increasing social challenges of the times. Hence,
there is a need for more revenues. The power to tax, on inherent prerogative, has to be reconciled to
assure the performance of vital state functions. It is the source of public funds. Taxes, being the lifeblood
of the government, their prompt and certain availability is of the essence.
Marcos II vs. CA
Facts:
Ferdinand Marcos II assailed the decision of the CA declaring the deficiency income tax
assessments upon the estate and the properties of his late father final despite the pendency of the probate
proceedings of the will of the late president. On the other hand, the BIR argued that the state authority to
collect taxes is paramount.
Issue: is the approval of the court mandatory requirement in the collection of taxes?
Ruling:
No. the enforcement of tax laws and collection of taxes are of paramount importance for the
sustenance of government. Taxes are the lifeblood of the government and should be collected without
unnecessary hindrance. However, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interest of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
(Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency
income tax assessments and estate tax assessments upon the estate and properties of his late
father despite the pendency of the probate proceedings of the will of the late President. On the
other hand, the BIR argued that the States authority to collectinternal revenue taxes is
paramount.
Petitioner further argues that "the numerous pending court cases questioning the late
president's ownership or interests in several properties (both real and personal) make the total
value of his estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the estate tax and their issuance
of the Notices of Levy and sale are premature and oppressive." He points out the pendency of
Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to
question the ownership and interests of the late President in real and personal properties
located within and outside the Philippines. Petitioner, however, omits to allege whether the
properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate
were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court
is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the
decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax
assessments over the properties indubitably included in his estate.
Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the
deceaseds estate, is not a mandatory requirement in the collection of estate taxes.
There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity
of the probate or estate settlement court's approval of the state's claim for estate taxes, before
the same can be enforced and collected.
The enforcement of tax laws and the collection of taxes are of paramount importance for the
sustenance of government. Taxes are the lifeblood of government and should be collected
without unnecessary hindrance. However, such collection should be made in accordance with
law as any arbitrariness will negate the existence of government itself.
It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and
lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is
upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of
error in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner
has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise
to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged.
But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.)
64 Phil 353
Facts:
Thomas Hanley died in Zamboanga, leaving a will which provided among others that the
property given to Matthew Henley will belong to him only after 10 years after Thomas death.
Consequently, the CIR assessed inheritance tax against the estate. Lorenzo, the trustee of the estate paid
the assessments on protest. He contended that the inheritance tax should have been after 10 years.
Ruling:
No. the only benefit on which the taxpayer is entitled is that derived from the enjoyment of the
privileges of living in an organized society established and safeguarded by the devotion of taxes to the
public purpose. The government promised nothing to the person taxed beyond what maybe anticipated
from administration of the laws for the general good.
Taxes are essential for the existence of the government. The obligation to pay taxes rest not upon
the privileges enjoyed by or the protection afforded to the citizen by the government, but upon the
necessity of money fort the support of the estate. For this reason, no one is allowed to object or resist
payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax.
Facts:
Philex Mining Corporation assails the decision of the court of appeals which affirmed the
decision of the court of tax appeals ordering philex to pay its excise tax liability philex refused to pay and
contended it has pending claims for vat input credit or refund against the government which should be
made compensate or set-off its tax liability.
Ruling:
No. tax cannot be the subject for compensation for simple reason that the government and the
tax payer are not mutual creditors and debtors of each other. Debts are due in the government in its
corporate capacity while taxes are due to the government in its sovereign capacity. A tax payer cannot
refuse to pay his taxes when they fall due simply because he has a claim against the government that the
collection of the tax is contingent on the result of the law suit it filed against the government.
FACTS:
Francia was the registered owner of a house and lot in Pasay City. A portion of said property was
expropriated by the republic. It appeared that Francia did not pay his real estate taxes from 1963 to 1977.
He contended that his tax delinquency had been extinguished by legal compensation since the
government owed him 4,116 when a portion of his land was expropriated.
RULING:
No. there can be no off-setting of taxes original the claims against the claims that the taxpayer
may have against the government. Taxes cannot be the subject of compensation. The government and the
taxpayer are not mutually creditor and debtors of each other and a claim for each other and a claim for
taxes is not such a debt demand, contract or judgement as is allowed to be set-off. Furthermore, the tax
was due to the city government. While the expropriation effected by the national government. In fact, the
expropriation payment was already deposited with the PNB long before the sale at public auction of his
property was conducted.
8 SCRA 443
FACTS:
In Domingo vs. Moscoso, the Supreme Court declared at final and executor the order of the court
of first instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting
to 40, 058.55 by the estate of the late Walter Scott Pine. He petition for execution filed by the fiscal,
however, was denied by the lower court the court held that the execution is unjustified as the government
itself is indebted to the estate for 262,200; and ordered the amount of inheritance taxes be deducted from
the governments indebtedness to the estate.
Ruling:
Yes. The fact that the court having jurisdiction of the estate had found that the claim of the estate
against the government has been appropriated for the purpose by a corresponding law ( RA 2700) shows
that both the claim of the government for inheritance taxes and the claim of the intestate for services
regarded have already become overdue and demandable as well as fully liquidated. Compensation,
therefore, take place by operation of law, in accordance with the provisions of article 1279 and 1290 of the
civil code, and both debts are extinguished to the amount.
Facts:
The Philippine airlines is engaged in the air transportation business under a legislative franchise,
Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the secretary of
justice, PAL was determined not to have been paying motor vehicle registration fees since 1956. The Land
Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle
registration fees, PAL protested.
Ruling:
It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to
as a source of revenue as well as a means of regulation. The money collected under the motor vehicle law
is not intended for the expenditures of the motor vehicle office but accrue to the funds for the
construction and maintenance of the public roads, streets, and bridges. As the fees are not collected for
regulatory purpose as an incident to the enforcement of regulational governing operation of motor
vehicles on public highways, but to provide revenue with which the government is to construct and
maintain public highways for everyones use, they are taxes, not merely fees.
Facts:
Walter Lutz, as juridical administrator of the intestate estate of Antonio Ledesma, sought to
recover the sum of 14,666.40 paid by the estate as taxes from the commissioner under section V of the
commonwealth act 567 the sugar adjustment act. He alleged that such tax is unconstitutional as it is levied
for the aid and support of the sugar industry exclusively, which is in his opinion, not a public purpose.
Ruling:
Yes. The tax is levied with regulatory purpose; is to provide means for the rehabilitation and
stabilization of the sugar industry. The act is a primarily an exercise of police power, and not a pure
exercise of taxing power. As sugar production is one of the great industries of the Philippines, and that its
promotion, protection and advancement redounds greatly to the general welfare. The legislature found
that the general welfare demands that the industry should be stabilized, and provided that the
distribution of benefits therefrom be readjusted among its component to enable it to resist the added
strain of the increase in tax that it had to sustain.
Roxas et al vs CTA
Facts:
The Roxas brothers owned agricultural lands with a total area of 19,000 hectares. At the end of
the second world war, the tenant express their desire to purchase from the brothers the parcels where
they actually occupy. For its part, the government, in consonance with the constitutional mandate to
acquire big landed estate and apportion them among landless tenants, persuaded the brothers to part
with their landholdings. However, the government did not have the funds to cover the purchase price, so
Roxas allowed the farmers to buy the land for the same price but by instalment. Subsequently, the CIR
demanded that the brothers to pay real estate dealers tax for the sale of the said land.
Ruling:
No. the contention of the CIR Roxas y Cia should be considered a real estate dealer because it
engaged in the selling of real estate as without merit. The sale of the farm was not only in consonance with
but in obedience to the request and pursuant to the policy of the government to allocate lands to the
landless. It is the duty of the government to pay the agreed compensation after it persuaded Roxas y Cia to
sell the hacienda, and to subsequently subdivide them among the farmers at very reasonable terms and
prices.
Facts:
Ruling:
Yes. R.A. 920 is an invalid imposition, since it results in promotion of a private enterprise as it
benefit the property of a private individual. The provision that the land thereafter be donated to the
government has not cure the defect. The rule is that if the public advantage or benefit is merely
incidental in promotion of a particular enterprise, such defect shall render the law invalid. On the other
hand, if what is incidental is the promotion of a private enterprise the tax law shall be deemed for a
public purpose.
Facts:
Ruling:
No. for a valid delegation of power, it is essential that the law delegating the power must be 1.
Complete in itself, that it must set forth the policy to be executed by the delegate 2. It must fix the
standard limits of which are sufficiently determinate or determined to which the delegate must
conform. While the funds may be referred to as taxes, they are enacted in the exercise of the police power
of the state. The fund remains subject to the review and accounting of the COA. These measures comply
with the constitutional description of a special fund.
Basco vs. PAGCOR
Facts:
PAGCOR was created by virtue of PD 1067 A dated January 1, 1977 and granted a franchise
under PD 1067 B. subsequently. On July 11, 1983, it was created under PD 1869 to enable the
government to regulate and centralize all games of chance authorize by existing franchise or permitted by
law. Petitioners contend that the exemption clause in PD 1869 is violative of the principle of local
autonomy.
Ruling:
No. LGUs has no power to tax instrumentalities of the national government. PAGCOR is a GOCC
with an original charter. All of its stocks are owned by the national government. In addition to its
corporate power it also exercises regulatory powers. It should be exempt from local taxes otherwise its
operation might be burdened, impeded or subjected to control by any local government. Local
Government are not sovereign within the state or an imperium in imperio.
Facts:
MCIAA was created by virtue of RA 6958. Since the time of its creator, MCIAA enjoyed the
privilege of exemption from payment of realty taxes in accordance with sec. 14 of its charter. On October
11, 1994 however The treasurer of Cebu city demanded payments for realty taxes on several parcels of
lands belonging to the petitioners. MCIAA objected to such demand for payment as baseless and
unjustified, claiming in its favour Sec. 14 of R.A. 6958 which exempt it from payment of realty taxes.
Respondent refuse to cancel MCIAAs tax account, insisting that it is the GOCCs whose tax exemption
privilege has been withdrawn by virtue of Sec 193 and 234 of the LGC.
Ruling:
No. Sec 193 LGC prescribe the general rule that they are withdrawn upon the effectivity of the
code except those granted to local water districts, cooperative duly registered under R.A. 6938, non-stock,
non-profit hospitals and educational institutions, and unless otherwise provided in the LGC the latter
provision called only refer to Sec 234 which enumerate the properties exempt from real property tax but
the last paragraph of sec 234 further qualifies the retention of the exemption. Only to those enumerated
therein. Thus, for petitioner to be exempt must show that the parcels of land in question any of those
enumerated in 234.
Facts:
MIAA operates the NAIA complex in paraaque under EO 903. On June 28, 2001 MIAA received
final notices of real estate tax delinquency from the city for the taxable year 1992-2001. Consequently, the
city issue notice for levy on the airport land and buildings. MIAA opposed the levy and contended that
SEC. 21 of EO 903 specifically exempts it from the payment of real estate tax. MIAA invokes the principle
that the government cannot tax itself.
Ruling:
No. MIAA is not a GOCC but a government instrumentality vested with corporate powers to
perform efficiently government functions. A government instrumentality falls under sec 133(o) of the LGC
which limits the taxing powers of LGUs. The LGC recognize that the LGUs cannot tax the national
government, which delegated the power to tax. Moreover, the airport lands and buildings of MIAA are
owned by the republic is not taxable pursuant to Sec 234 (a) of the LGC.
Facts:
The suit was filed to nullify the concurrence of the Philippine senate to the presidents
notification of the WTO argument. It was contended that the argument places nationals and products of
member countries on the same footing as Filipinos and local products in contravention of the Filipino first
policy. Petitioners maintain that the Philippines because it meant that congress could not pass legislation
that would be good for national interest and general welfare if each legislation would not conform to the
WTO agreement.
Ruling:
No. while sovereignty has traditional been deemed absolute and all-encompassing in the
domestic level. It is however subject to restrictions and limitations voluntarily agreed to by the Philippines
expressly or impliedly, as a member of the family nations. Unquestionably, the constitution did not
envision hermit-type solution of the country from the rest of the world.
By the inherent nature, Treaties limit or restrict the absoluteness of sovereignty. By their
voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits
granted by a derived from a convention or pact.
Commissioner vs BOAC
Facts:
British overseas airways corp. (BOAC) a wholly owned British Corporation, is engaged in
international airlines business. From 1959to 1972, it has no loading rights for traffic purposes in the
Philippines but maintained a general sales agent in the Philippines which was responsible for selling,
BOAC tickets covering passengers and cargoes the CIR assessed deficiency income taxes against.
Ruling:
Yes. The source of income is the property, activity of service that produces the income. For the
source of income to be considered coming from the Philippines, it is sufficient that the income is derived
from the activity coming from the Philippines. The tax code provides that for revenue to be taxable, it
must constitute income from Philippine sources. In this case, the sale of tickets is the source of income.
The situs of the source of payments is the Philippines.
Tan vs. Del Rosario
Facts:
Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme
(SNIT) under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and
different treatment in the professionals which petitioners assail as unconstitutional for being isolative of
the equal protection clause in the constitution.
Ruling:
No. uniformity of taxation, like the hindered concept of equal protection, merely require that all
subjects or objects of taxation similarly situated are to be treated alike both privileges and liabilities.
Uniformity, does not offend classification as long as it rest on substantial distinctions, it is germane to the
purpose of the law. It is not limited to existing only and must apply equally to all members of the same
class.
The legislative intent is to increasingly shift the income tax system towards the scheduled
approach in taxation of individual taxpayers and maintain the present global treatment on taxable
corporations. This classification is neither arbitrary nor inappropriate.
Facts: Petitioner Abra Valley College is an educational corporation and institution of higher learning duly
incorporated with the SEC in 1948. On 6 July 1972, the Municipal and Provincial treasurers (Gaspar
Bosque and Armin Cariaga, respectively) and issued a Notice of Seizure upon the petitioner for the
college lot and building (OCT Q-83) for the satisfaction of said taxes thereon. The treasurers served upon
the petitioner a Notice of Sale on 8 July 1972, the sale being held on the same day. Dr. Paterno Millare,
then municipal mayor of Bangued, Abra, offered the highest bid of P 6,000 on public auction involving
the sale of the college lot and building. The certificate of sale was correspondingly issued to him.
The petitioner filed a complaint on 10 July 1972 in the court a quo 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. On 12 April 1973, 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.
The Supreme Court affirmed the decision of the CFI Abra (Branch I) 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).
Exemption in favour of property used exclusively for charitable or educational purposes is not
limited to property actually indispensable therefor but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes (Herrera v. Quezon City Board of
Assessment Appeals). While the Court allows a more liberal and non-restrictive interpretation of the
phrase exclusively used for educational purposes, reasonable emphasis has always been made that
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.
American Bible Society v. City of Manila
Facts: Plaintiff-appellant, American Bible Society, is a foreign, non-stock, non-profit, religious, missionary
corporation duly registered and doing business in the Philippines through its Philippine agency
established in Manila in November 1898. The defendant-appellee, City of Manila, is a municipal
corporation with powers that are to be exercised in conformity with the provisions of RA 409, (Revised
Charter of the City of Manila). In the course of its ministry, plaintiffs Philippine agency has been
distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation)
throughout the Philippines and translating the same into several Philippine dialects.
On 29 May 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting
the business of general merchandise since November 1945, without providing itself with the necessary
Mayors permit and municipal license, in violation of Ordinance 3000, as amended, and Ordinances
2529, 3028 and 3364, and required plaintiff to secure, within 3 days, the corresponding permit and
license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd
quarter of 1953, in the total sum of P5,821.45. On 24 October 1953, plaintiff paid to the defendant
under protest the said permit and license fees, giving at the same time notice to the City Treasurer that
suit would be taken in court to question the legality of the ordinances under which the said fees were
being collected, which was done on the same date by filing the complaint that gave rise to this action.
After hearing, the lower court dismissed the complaint for lack of merit. Plaintiff appealed to the CA,,
which in turn certified the case to the Supreme Court for the reason that the errors assigned involved
only questions of law.
The Supreme Court reversed the decision appealed and ordering the defendant to return to plaintiff the
sum of P5,891.45 unduly collected from it; without pronouncement as to costs.
Ruling:
A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit, missionary
organization at a minimal profit constitutes a curtailment of religious freedom and worship which is guaranteed by
the constitution. However, the income of such organization from any activity for profit or from any of their
property, real or personal, regardless of the disposition made of such income is taxable.
Tolentino vs. Secretary of Finance
Facts:
The VAT is levied on the sale, barter, or exchanged of the goods and properties as well as on the sale of
services. RA7116 seeks to wider the tax base of the existing VAT system and enhance it administration on by
amending the NIRC. CRTBA asserts that R.A. 7116 is unconstitutional as it violate the rule that taxes should be
uniform and equitable.
Issue: is it meritorious?
Ruling:
No. Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications
for purposes of taxation. To satisfy this requirement, it is enough that the statute or ordinance applies equally to all
persons, firms, and corporations placed in a similar situation.
G.R. L-15270
Facts:
In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester Ochangco
Herrera to establish and operate the St. Catherines Hospital. In 1953, the Herreras sent a letter to the
Quezon City Assessor requesting exemption from payment of real estate tax on the hospital, stating that
the same was established for charitable and humanitarian purposes and not for commercial gain. The
exemption was granted effective years 1953 to 1955. In 1955, however, the Assessor reclassified the
properties from exempt to taxable effective 1956, as it was ascertained that out 32 beds in the hospital,
12 of which are for pay-patients. A school of midwifery is also operated within the premises of the
hospital.
Ruling:
The admission of pay-patients does not detract from the charitable character of a hospital, if all its funds
are devoted exclusively to the maintenance of the institution as a public charity. The exemption in favour
of property used exclusively for charitable or educational purpose is not limited to property actually
indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purpose, such as in the case of hospitals a school for training nurses; a nurses
home; property used to provide housing facilities for interns, resident doctors, superintendents and other
members of the hospital staff; and recreational facilities for student nurses, interns and residents. Within
the purview of the Constitution, St. Catherines Hospital is a charitable institution exempt from taxation.
SongDiary
Taxation
Facts:
Petitioner acts as invesment manager of PFI &PBFI. It provides management &technical services and thus
respectively paid for its services. PFI & PBFI withhold the amount of equivalent to 5% creditable tax
regulation. On April 3, 1998, filed itrwith a net loss thus incurred with holding tax. Petitioner filed for
refund from BIR but was unanswered . CTA denied the petition for review. CA held that to request for
either a refund or credit of income taxpaid, a corporation must signify its intention by marking the
corresponding box on its annual corporate adjustment return.
Issue:
Ruling:
Any tax income that is paid in excess of its amount due to the government may be refunded, provided
that a taxpayer properly applies for the refund. One can not get a tax refund and a tax credit at the same
time for the same excess to income taxes paid. Failure to signify ones intention in Final Assessment
Return (FAR) does not mean outright barring of a valid request for a refund
Requiring that the ITR on the FAR of the succeeding year be presented to the BIR in requesting a tax
refund has no basis in law and jurisprudence. The Tax Code likewise allows the refund of taxes to taxpayer
that claims it in writing within 2 years after payment of the taxes. Technicalities and legalism should not
be misused by the government to keep money not belonging to it, and thereby enriched itself at the
expense of its law-abiding citizens.
Facts:
Samahan (union petitioner) , a registered union filed a petition for certification election. Private
responded questioned the status of petitioner as LLO on the ground of lack of proof that its contract of
affiliation with NAFLU-KMU has been submitted to BLR. Samahan averred that as an independent and
duly registered union, it has all the rights and privileges to act as a representative of its members for the
purpose of collecting bargaining with employers. Med-arbiter dismissed the petition. Meanwhile FWU
was allowed to conduct certification election, and eventually negotiated a CBA Private respondent filed a
motion to dismiss.
Issue:
Whether or not legal personality of the union (Samahan) having been established could be subject to
collateral attack.
Ruling:
Petitioner is an independently registered labor union thus its right to file petition for certification election
on its own is beyond question. Its failure to prove its affiliation with NAFLU-KMU cannot affect its right
to file petition as an independent union.
Petitioner seasonably appealed, thus it stopped the holding of any certification election. Accordingly,
there was an unresolved representation case at the time the CBA was entered by FWU and private
respondent. There should be no obstacle to the right of the employees of petitioner for a certification
election at the proper time, that is within 60 days prior to the expiration of the life of a certified CBA not
even by a collective agreement submitted during the pendency of the representation case (ALU-TUCP vs
Trajano)
CAIN VS IAC
GRN 72706
PARAS, J.:
FACTS:
Constantitno filed for probate of the will of his decased brother Nemesio. The spouse and adopted child of
the decedent opposed the probate of will because of preterition. RTC dismissed the petition of the wife.
CA reversed and the probate thus was dismissed
ISSUE:
Whether or not there was preterition of compulsory heirs in the direct line thus their omission shall not
annul the institution of heirs.
RULING:
Preterition consists in the omission of the forced heirs because they are not mentioned there in, or trough
mentioned they are neither instituted as heirs nor are expressly disinherited. As for the widow there is no
preterit ion because she is not in the direct line. However, the same cannot be said for the adopted child
whose legal adoption has not been questioned by the petitioner. Adoption gives to the adopted person the
same rights and duties as if he where a legitimate child of the adopter and makes the adopted person a
legal heir hence, this is a clear case of preterition.
The universal institution of petitioner together with his brothers and sisters to the entire inheritance of
the testator results in totally abrogating the will because the nullification of such institution of universal
heirs without any other testamentary disposition in the will amounts to a declaration that nothing was
written. No legacies and devisees having been provided in the will, the whole property of the deceased has
been left by universal title to petitioner and his brothers and sisters.
Gancayco, J.:
FACTS:
Petitioners bought two parcels of land and another 3 parcels the following year.The 2 parcels were sold in
1968 while the other 3 were sold in 1970.Realizing profits from the sale, petitioners filed capital gains
tax.However, they were assessed with deficiency tax for corporate income taxes.
ISSUE:
Whether or not petitioners formed an unregistered partnership thereby assessed with corporate income
tax.
RULING:
By the contract of partnership, two or more persons bind themselves to contribute money, industry or
property to a common fund with the intention of dividing profits among themselves.There is no evidence
though, that petitioners entered into an agreement to contribute MPI to a common fund and that they
intend to divide profits among themselves.The petitioners purchased parcels of land and became co-
owners thereof.Their transactions of selling the lots were isolated cases.The character of habituality
peculiar to the business transactions for the purpose of gain was not present.
The sharing of returns foes not in itself establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property.There must be a clear intent to form partnership,
the existence of a juridical personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property.
SARDANE VS ACOJEDO
Regalado, J.:
FACTS:
Sardane executed promissory notes in the amount of PhP5, 217.25.Because of failure to pay, Acojedo
brought an action for collection of sum of money.Sardane alleged that a partnership existed.MTC granted
the petition but RTC reversed upholding reason that there existed partnership between the 2 which could
then vary the meaning of the promissory notes.RTC concluded that PN involved were merely receipts for
the contributions to said partnership and upheld the claim that there was ambiguity in the PN hence,
parol evidence was allowable to contradict the terms of the represented loan contract.
ISSUE:
RULING:
Even if evidence other than PN may be admitted to alter the meaning conveyed thereby, still the evidence
is insufficient to prove that partnership existed between the private parties.The fact that he had received
50% of the net profits does not conclusively establish that he was a partner of Acojeda.Article 1769 NCC
explicitly provides that the receipt of a person of a share of the profits of the business is prima facie
evidence that he is a partner in the business; no such inference shall be drawn if such profits were
received in payment as wages of an employee.
FACTS:
In the year 2000, the GAA appropriated PhP 111,778,000,000.00 of IRA as programmed fund. It
appropriated a separate amount of P10B of IRA under the classification of unprogrammed fund, the latter
amount to be released only upon th occurrence of the conditions stated in the GAA.
ISSUE:
Whether or not the questioned provision violate the constitutional injunction that the just share of local
governments in the national taxes of the IRA shall be automatically released.
RULING:
Article X Section 6 of the Constitution provides: LGUs shall have a just share, as determined by law, in
the national taxes which shall be automatically released to them. While automatice release implies that
the just share should be released to them as a matter of course, withholding its release pending an event
contravened the constitutional mandate.
===========================
FACTS:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation and in the course
of its ministry, it has been selling bible and or gospel portions throughout the country and translating the
same into several Philippine dialects. The City of Manila considered appellant as conducting the business
of general merchandize and required it to secure the necessary permit and license fees.
ISSUE:
Whether or not appellant if engaged in business as a religious corporation and thus be made to pay fees or
taxes.
RULING:
It may be true that the price of bibles and pamphlets was a bit higher than the actual cost of the same, but
this could not mean that appellant is engaged in business for profit. For this reason, we believe that the
ordinance requiring them to pay fees or taxes would impair its free exercise of its religious freedom thru
distribution of pamphlets.
==================================
CIR VS. BRITISH OVERSEAS AIRWAYS
GRN L-65773-74 April 30, 1987
En Banc, Melecio-Herrera, J.:
FACTS:
British Overseas Airways is a 100% British Government-owned corporation engaged in international
airline business and is a member of the Interline Air Transport Association and thus it operates air
transportation service and sells transportation tickets over the routes of the other airline members. From
1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines but maintained a general
sales agent in the country. Warner Barnes was responsible for selling BOAC tickets covering passengers of
and cargos. The CIR assessed deficiency income taxes against BOAC.
ISSUE:
Whether or not the revenue derived by BOAC from ticket sales in the Philippines for its transportation
constitute income from Philippine sources and accordingly taxable.
RULING:
The source of an income is the property, activity or service that produced the income. For the source of
income to be considered as coming from the Philippines, it is sufficient that the income is derived from
activity within the Philippines. Herein, the sale of tickets is the activity that produced the income. The
tickets exchanged hands here and payment for fares were also made here in the Philippine currency. The
situs or the source of the payment is the Philippines. The flow of wealth proceeded from, and occurred
within, Philippine territory, enjoying the protection accorded by Philippine government. In consideration
of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in
relation to PD1355, ensures that international airlines are taxed on their income from Philippine sources.
The 2.5% tax on gross billings is an income tax. If it had been intended as an excise tax, it would have
been placed under Title V of the Tax Code covering taxes on business.
ISSUE:
Whether or not private respondent was entitled to moral and exemplary damages.
RULING:
The Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00
for the transportation expenses, but disagrees with the deletion of the award of moral and exemplary
damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault of
petitioner having been duly established, should be granted to respondents in the amount of P20,000.00
and P5,000.00, respectively.
================
FACTS:
Petitioner Sarkies advertised for a Corregidor tour for Independence Day 1971. Dizon family availed of the
promo and were brought to Corregidor, together with other excursionists, through a motorized boat
owned by Mendoza. A daughter of the Dizons died when the boat accidentally capsized on its way back to
Manila. A case was filed against Sarkies and Dizon, and the CA found them both liable for the reason that
the relationship between Sarkies and the excursionists was a single operation which in effect guaranteed
them safe passage all through out. Exemplary damages in the amount of 50,000 was likewise awarded.
ISSUE:
Whether or not the award for exemplary damages was with legal basis.
RULING:
The award of exemplary damages should be eliminated. In Munsayac vs. De Lara, 23 SCRA 1086, 1089
(1968), it was said:
"It is not enough to say that an example should be made, or corrective measures be employed, for the
public good especially in accident cases where public carriers are involved. The causative negligence in
such cases is personal to the employees actually in charge of the vehicles, and it is they who should be
made to pay this kind of damages by way of example or correction, unless by the demonstrative tolerance
or approval of the owners they themselves can be held at fault and their fault is of the character described
in article 2232 of the Civil Code."
In the case at bar, there is no showing that SARKIES acted "in a wanton . . . or malevolent manner" (Art.
2232, Civil Code).
ISSUE:
Whether or not the new building is liable to pay the 35% assessment level?
RULING:
We hold that the new building is an integral part of the hospital and should not be assessed as
commercial. Being a tertiary hospital, it is mandated to fully departmentalized and be equipped with the
service capabilities needed to support certified medical specialist and other licensed physicians. The fact
that they are holding office is a separate building does not take away the essence and nature of their
services vis-a-vis the overall operation of the hospital and to its patients.
Under the Local Government Code, Sec. 26: All lands, buildings and other improvements thereon
actually, directly and exclusively used for hospitals, cultural or scientific purposes and those owned and
used by local water districts shall be classified as special.
=======================================
Associaiton of Customs Brokers vs Manila
GRN L-4376 May 22, 1953
En Banc
FACTS:
The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax that is within
the power of the City under its revised charter. The ordinance was passed by the Municipal Board under
the authority conferred by section 18 of RA 409
ISSUE:
Whether or not the ordinance infringes on the uniformity of taxes as ordained by the Constitution.
RULING:
The Ordinance exacts the tax upon all motor vehicles operating within Manila and does not distinguish
between a motor vehicle registered in the City and one registered in another place nor does it distinguish
private of vehicle for hire. The distinction is important if we note that the ordinance intends to burden
with the tax only those registered in Manila. There is no pretense that the Ordinance equally applies to
vehicles who come to Manila for a temporary purpose.
FACTS:
Petitioners are retired justices of the Supreme Court and Court of Appeals who are currently receiving
pensions under RA 910 as amended by RA 1797. President Marcos issued a decree repealing section 3-A of
RA 1797 which authorized the adjustment of the pension of retired justices and officers and enlisted
members of the AFP. PD 1638 was eventually issued by Marcos which provided for the automatic
readjustment of the pension of officers and enlisted men was restored, while that of the retired justices
was not. RA 1797 was restored through HB 16297 in 1990. When her advisers gave the wrong information
that the questioned provisions in 1992 GAA were an attempt to overcome her earlier veto in 1990,
President Aquino issued the veto now challenged in this petition.
It turns out that PD 644 which repealed RA 1797 never became a valid law absent its publication, thus
there was no law. It follows that RA 1797 was still in effect and HB 16297 was superfluous because it tried
to restore benefits which were never taken away validly. The veto of HB 16297 did not also produce any
effect.
ISSUE:
Whether or not the veto of the President of certain provisions in the GAA of FY 1992 relating to the
payment of the adjusted pensions of retired Justices is constitutional or valid.
RULING:
The veto of these specific provisions in the GAA is tantamount to dictating to the Judiciary ot its funds
should be utilized, which is clearly repugnant to fiscal autonomy. Pursuant to constitutional mandate, the
Judiciary must enjoy freedom in the disposition of the funds allocated to it in the appropriations law.
Any argument which seeks to remove special privileges given by law to former Justices on the ground that
there should be no grant of distinct privileges or preferential treatment to retired Justices ignores these
provisions of the Constitution and in effect asks that these Constitutional provisions on special
protections for the Judiciary be repealed.
The petition is granted and the questioned veto is illegal and the provisions of 1992 GAA are declared
valid and subsisting.
FACTS:
MB Estate of Bacolod City donated Php 10,000 in cash to Fr. Ruiz, then the Parish Priest of Victorias, who
was the predecessor of petitioner. MB Estate filed their donors gift tax but petitioner is on protest
regarding donees tax claiming that assessment of gift tax against the Catholic Church is against the law;
that when the donation was made. He was not yet the parish priest.
ISSUE:
Whether or not petitioner should be liable for assessed donees gift tax dontated.
RULING:
A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter
vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an
impairment of Constitution exempt from taxation as employed in the Constitution should not be
interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant
of such privilege by law, in favor of petitioner, the exemption herein must be denied.
PAL VS EDU
HR L-41383 August 15, 1988
Gutierrez, J.:
FACTS:
PAL is engaged in air transportation business under a legislative franchise wherein it is exempt from tax
payment. PAL has not been paying motor vehicle registration since 1956. The Land Registration
Commissioner required all tax exempt entities including PAL to pay motor vehicle registration fees.
ISSUE:
Whether or not registration fees as to motor vehicles are taxes to which PAL is exempted.
RULING:
Taxes are for revenue whereas fees are exactions for purposes of regulation and inspection, and are for
that reason limited in amount to what is necessary to cover the cost of the services rendered in that
connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a
fee. The money collected under Motor Vehicle Law is not intended for the expenditures of the MV Office
but accrues to the funds for the construction and maintenance of public roads, streets and bridges.
As fees are not collected for regulatory purposes as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways but to provide revenue with which the
Government is to construct and maintain public highways for everyones use, they are veritable taxes, not
merely fees. PAL is thus exempt from paying such fees, except for the period between June 27, 1968 to
April 9, 1979 where its tax exemption in the franchise was repealed.
CALTEX PHILIPPINES VS CA
G.R. 925585 MAY 8, 1992
Davide, J.:
FACTS:
In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on
petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall
be held in abeyance. Petitioner requested COA for the early release of its reimbursement certificates from
the OPSF covering claims with the Office of Energy Affairs. COA denied the same.
ISSUE:
Whether of not petitioner can avail of the right to offset any amount that it may be required under the law
to remit to the OPSF against any amount that it may receive by way of reimbursement.
RULING:
It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually debtors and creditors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
The oil companies merely acted as agents for the government in the latters collection since taxes are
passed unto the end-users, the consuming public.
DOMINGO VS GARLITOS
G.R. NO. 18993 June 29, 1963
Labrador, J.:
FACTS:
In Domingo vs. Moscoso, the Supreme Court declared as final and executor the order of the lower court
for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by the
estate of the of the late Walter Price. The petitioner for execution filed by the fiscal was denied by the
lower court. The court held that the execution is unjustified as the Government is indebted to the estate
for Php262,200 and ordered the amount of inheritance taxes can be deducted from the Governments
indebtedness to the estate.
ISSUE:
Whether of not a tax and a debt may be compensated.
RULING:
The court having jurisdiction of the Estate had found that the claim of the Estate against the government
has been recognized and the amount has already been appropriated by a corresponding law. Both the
claim of the Government for inheritance taxes and the claim of the intestate for services rendered have
already become overdue and demandable is well as fully liquidated. Compensation takes place by
operation of law and both debts are extinguished to the concurrent amount. Therefore the petitioner has
no clear right to execute the judgment for taxes against the estate of the deceased Walter Price.
FACTS:
The President issued an EO which imposed, across the board, including crude oil and other oil products,
additional duty ad valorem. The Tariff Commission held public hearings on said EO and submitted a
report to the President for consideration and appropriate action. The President, on the other hand issued
an EO which levied a special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported
oil products.
ISSUE:
Whether of not the President may issue an EO which is tantamount to enacting a bill in the nature of
revenue-generating measures.
RULING:
The Court said that although the enactment of appropriation, revenue and tariff bills is within the
province of the Legislative, it does not follow that EO in question, assuming they may be characterized as
revenue measure are prohibited to the President, that they must be enacted instead by Congress. Section
28 of Article VI of the 1987 Constitution provides:
The Congress may, by law authorize the President to fix tariff rates and other duties or imposts
The relevant Congressional statute is the Tariff and Customs Code of the Philippines and Sections 104 and
401, the pertinent provisions thereof.
2006 Bar Operations Commission Team Research Head:
Sheila Panganiban
Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by
the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her
death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR
conducted an administrative investigation of the decedents tax liability and found a deficiency income tax
for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered
mail a demand letter and assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila,
which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner
of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedents deficiency
income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984,
Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied
BIRs claim against the estate on the ground that no proper notice of the tax assessment was made on the
proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice of assessment was
binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedents death.
Consequently, as the estate failed to question the assessment within the statutory period of thirty days,
the assessment became final, executory, and incontestable.
Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana
through PhilTrust was a valid service as to bind the estate.
(2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and
incontestable.
Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the
moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the
taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform
respondent of the decedents death, the consequence thereof merely refer to the imposition of certain
penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period
for making deficiency tax assessment or waiver of the notice requirement for such assessment.
(2) The assessment was served not even on an heir or the estate but on a completely disinterested party.
This improper service was clearly not binding on the petitioner. The most crucial point to be remembered
is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was
therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this
assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have
become final, executory and incontestable. Respondents claim for collection filed with the court only on
November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.
TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES OF ELECTRIC COOPERATIVES BY THE
LOCAL GOVERNMENT CODE
PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THE SECRETARY OF
DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT
GR. No. 143076. June 10, 2003
Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other
electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine
Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of
Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric
cooperatives organized and existing under PD 269, as amended, and registered with the National
Electrification Administration (NEA).
Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National
Government, local government, and municipal taxes and fee, including franchise, fling recordation,
license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative
proceedings in which it may be party.
From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the
Philippine Government, acting through the National Economic council (now National Economic
Development Authority) and the NEA, entered into six loan agreements with the government of the
United States of America, through the United States Agency for International Development (USAID) with
electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax
application of the loan and any property or commodity acquired through the proceeds of the loan.
Petitioners allege that with the passage of the Local Government Code their tax exemptions have been
validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193
provides for the withdrawal of tax exemption privileges granted to all persons, whether natural or
juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same
cooperatives from payment of real property tax.
Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause
since the provisions unduly discriminate against petitioners who are duly registered cooperatives under
PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines?
(2) Is there an impairment of the obligations of contract under the loan entered into between the
Philippine and the US Governments?
Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable
classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to
the purpose of the law; (c) not limited to the existing conditions only; and (d) apply equally to all
members of the same class. We hold that there is reasonable classification under the Local Government
Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric
cooperatives under RA 6938.
First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the
former, the government is the one that funds those so-called electric cooperatives, while in the latter, the
members make equitable contribution as source of funds.
a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make equitable
contributions to capital. Petitioners themselves admit that to qualify as a member of an electric
cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even
refundable the moment the member is no longer interested in getting electric service from the cooperative
or will transfer to another place outside the area covered by the cooperative. However, under the
Cooperative Code, the articles of cooperation of a cooperative applying for registration must be
accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by
the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least
25% of the total subscription has been paid and in no case shall the paid-up share capital be less than
P2,000.00.
b. Extent of Government Control over Cooperatives The extent of government control over electric
cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of
these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the
development and operations of these electric cooperatives. Consequently, amendments were primarily
geared to expand the powers of NEA over the electric cooperatives o ensure that loans granted to them
would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be self-
sufficient and independent organizations with minimal government intervention or regulation.
Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose
of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy,
does not mean that the exercise of the power by the local governments is beyond the regulation of
Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the
local government units and to limit exemptions from local taxation to entities specifically provided
therein.
Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited
to existing conditions and apply equally to all members of the same class.
(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the
obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the
change must not only impair the obligation of the existing contract, but the impairment must be
substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties
with reference to each other and not with respect to non-parties.
The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of
any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if
any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus,
the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously
enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under
the loan agreements as, in fact, no tax exemption is granted therein.
TARIFF AND CUSTOMS LAWS; PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES
Chief State Prosecutor JOVENCITO R. ZUO, ATTY. CLEMENTE P. HERALDO, Chief of the Internal
Inquiry and Prosecution Division-customs Intelligence and Investigation Service (IIPD-CIIS), and
LEONITO A. SANTIAGO, Special Investigator of the IIPD-CIIS vs. JUDGE ARNULFO G. CABREDO,
Regional Trial Court, Branch 15, Tabaco City, Albay
AM. No. RTJ-03-1779, April 30, 2003
Facts: Atty. Winston Florin, the Deputy Collector of Customs of the Sub-Port of Tabaco, Albay, issued on
September 3, 2001 Warrant of Seizure and Detention (WSD) No. 06-2001against a shipment of 35, 000
bags of rice aboard the vessel M/V Criston for violation of Sec. 2530 of the Tariff and Customs Code of the
Philippines (TCCP).
A few days, after the issuance of the warrant of seizure and detention, Antonio Chua, Jr. and Carlos
Carillo, claiming to be consignees of the subject goods, filed before the Regional Trial Court of Tabaco
City, Albay a Petition with Prayer for the Issuance of Preliminary Injunction and Temporary Restraining
Order (TRO). The said petition sought to enjoin the Bureau of Customs and its officials from detaining the
subject shipment.
By virtue of said TRO, the 35,000 bags of rice were released from customs to Antonio Chua, Jr. and Carlos
Carillo.
In his complaint, Chief State Prosecutor Zuo alleged that respondent Judge violated Administrative
Circular No. 7-99, which cautions trial court judges in their issuance of TROs and writs of preliminary
injunctions. Said circular reminds judges of the principle, enunciated in Mison vs. Natividad, that the
Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts
cannot interfere with his exercise thereof or stifle or put it to naught.
Issue: Whether or not the issuance of the TRO was illegal and beyond the jurisdiction of the RTC.
Held: The collection of duties and taxes due on the seized goods is not the only reason why trial courts are
enjoined from issuing orders releasing imported articles under seizure and forfeiture proceedings by the
Bureau of Customs. Administrative Circular No. 7-99 takes into account the fact that the issuance of TROs
and the granting of writs of preliminary injunction in seizure and forfeiture proceedings before the Bureau
of Customs may arouse suspicion that the issuance or grant was fro considerations other than the strict
merits of the case. Furthermore, respondent Judges actuation goes against settled jurisprudence that the
Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts
cannot interfere with his exercise thereof or stifle and put it to naught.
Respondent Judge cannot claim that he issued the questioned TRO because he honestly believed tat the
Bureau of Customs was effectively divested of its jurisdiction over the seized shipment.
Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdiction over
seizure and forfeiture cases, a taint of illegality is correctly imputed, the most that can be said is that
under these circumstance, grave abuse of discretion may oust it of its jurisdiction. This does mean,
however, that the trial court is vested with competence to acquire jurisdiction over these seizure and
forfeiture cases. The proceedings before the Collector of Customs are not final. An appeal lies to the
Commissioner of Customs and, thereafter, to the Court of Tax Appeals. It may even reach this Court
through an appropriate petition for review. Certainly, the RTC is not included therein. Hence, it is devoid
of jurisdiction.
Clearly, therefore, respondent Judge had no jurisdiction to take cognizance of the petition and issue the
questioned TRO.
It is a basic principle that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture
proceedings of dutiable goods. A studious and conscientious judge can easily be conversant with such an
elementary rule.
Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under
Commonwealth Act 120. It is tasked to undertake the development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal, and other sources, as well as, the transmission
of electric power on a nationwide basis.
For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed
the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the formers gross
receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to
pay the tax assessment. It argued that the respondent has no authority to impose tax on government
entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all
forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the
assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest. Respondent
alleged that petitioners exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local
Government Code). The trial court issued an order dismissing the case. On appeal, the Court of Appeals
reversed the decision of the RTC and ordered the petitioner to pay the city government the tax
assessment.
Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are
wholly owned by the National Government and its charter characterized is as a non-profit organization?
(2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local
Government Code (LGC)?
Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate
and distinct entity from the National Government. It can sue and be sued under its own name, and can
exercise all the powers of a corporation under the Corporation Code.
To be sure, the ownership by the National Government of its entire capital stock does not necessarily
imply that petitioner is no engage din business.
(2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the National Government from the coverage of local taxation. Although
as a general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its
agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC
authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative
purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the
language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing
statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more unequivocal language could have been
used.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) vs. CITY OF DAVAO and
ADELAIDA B. BARCELONA, in her capacity as City Treasurer of Davao
GR. No. 143867, March 25, 2003
Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was
paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA 7082. The exemption from
all taxes on this franchise or earnings thereof was subsequently withdrawn by RA 7160 (LGC), which at
the same time gave local government units the power to tax businesses enjoying a franchise on the basis of
income received or earned by them within their territorial jurisdiction. The LGC took effect on January 1,
1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides:
Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a tax on
businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the income receipts realized within the territorial
jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and
Smart Information Technologies, Inc. (Smart) franchises which contained in leiu of all taxes provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which
provides that any advantage, favor, privilege, exemption, or immunity granted under existing franchises,
or may hereafter be granted, shall ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to the grantees of such franchises. The
law took effect on March 16, 1995.
In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange, it was
required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the
power of the city government to collect the local franchise tax and demanded a refund of what had been
paid as a local franchise tax for the year 1997 and for the first to the third quarters of 1998.
Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from
payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.
Held: Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the
same grant of tax exemption must be deemed to have become ipso facto part of its previously granted
telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and
unequivocal provision of law expressed in a language too plain to be mistaken and assuming for the
nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting
tax exemption to PLDT is not a direct, clear and unequivocal way of communicating the legislative
intent.
Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption
from regulations and requirements imposed by the National Telecommunications Commission (NTC).
For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications
service from its rate or tariff regulations if the service has sufficient competition to ensure fair and
reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is
the exemption from the requirement of securing permits from the NTC every time a telecommunications
company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language
too plain to be mistaken.
REMEDIES OF A TAXPAYER UNDER THE NIRC; POWER OF THE CTA TO REVIEW RULINGS OR
OPINIONS OF COMMISSIONER
COMMISSIONER OF INTERNAL REVENUE vs. LEAL
GR. No. 113459, November 18, 2002
Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on dealers in securities and
lending investors, the Commissioner of Internal Revenue issued Memorandum Order (RMO) No. 15-91
dated March 11, 1991, imposing five percent (5%) lending investors tax on pawnshops based on their
gross income and requiring all investigating units of the Bureau to investigate and assess the lending
investors tax due from them. The issuance of RMO No. 15-91 was an offshoot of petitioners evaluation
that the nature of pawnshop business is akin to that of lending investors.
Subsequently, petitioner issued Revenue Memorandum Circular No. 43-91 dated May 27, 1992, subjecting
the pawn ticket to the documentary stamp tax as prescribed in Title VII of the Tax Code.
Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of
Josefina Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and RMC No.
43-91 but the same was denied with finality by petitioner in October 30, 1991.
Consequently, on March 18, 1992, respondent filed with the RTC a petition for prohibition seeking to
prohibit petitioner from implementing the revenue orders.
Petitioner, through the Office of the Solicitor-General, filed a motion to dismiss the petition on the ground
that the RTC has no jurisdiction to review the questioned revenue orders and to enjoin their
implementation. Petitioner contends that the subject revenue orders were issued pursuant to his power
to make rulings or opinions in connection with the Implementation of the provisions of internal revenue
laws. Thus, the case falls within the exclusive appellate jurisdiction of the Court of Tax Appeals, citing
Sec. 7(1) of RA 1125.
The RTC issued an order denying the motion to dismiss holding that the revenue orders are not
assessments to implement a Tax Code provision, but are in effect new taxes (against pawnshops) which
are not provided for under the Code, and which only Congress is empowered to impose. The Court of
Appeals affirmed the order issued by the RTC.
Issue: Whether or not the Court of Tax Appeals has jurisdiction to review rulings of the Commissioner
implementing the Tax Code.
Held: The jurisdiction to review rulings of the Commissioner pertains to the Court of Tax Appeals and
NOT to the RTC. The questioned RMO and RMC are actually rulings or opinions of the Commissioner
implementing the Tax Code on the taxability of the Pawnshops.
Under RA 1125, An Act Creating the Court of Tax Appeals, such rulings of the Commissioner of Internal
Revenue are appealable to that court:
Sec. 7 Jurisdiction The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by
appeal, as herein provided--
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Revenue Code or other laws or part of law administered by the Bureau of
Internal Revenue.
xxxxxx
tax remedies; section 220; who should institute appeal in tax cases
Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the Petition for Review on
Certiorari submitted by the Commissioner of Internal Revenue for non-compliance with the procedural
requirement of verification explicit in Sec. 4, Rule 7 of the 1997 Rules of Civil Procedure and, furthermore,
because the appeal was not pursued by the Solicitor-General. When the motion for reconsideration filed
by the petitioner was likewise denied, petitioner filed the instant motion seeking an elucidation on the
supposed discrepancy between the pronouncement of this Court, on the one hand that would require the
participation of the Office of the Solicitor-General and pertinent provisions of the Tax Code, on the other
hand, that allow legal officers of the Bureau of Internal Revenue (BIR) to institute and conduct judicial
action in behalf of the Government under Sec, 220 of the Tax Reform Act of 1997.
Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (as distinguished from
commencement of proceeding) without the participation of the Solicitor-General?
Held: NO. The institution or commencement before a proper court of civil and criminal actions and
proceedings arising under the Tax Reform Act which shall be conducted y legal officers of the Bureau of
Internal Revenue is not in dispute. An appeal from such court, however, is not a matter of right. Sec. 220
of the Tax Reform Act must not be understood as overturning the long-established procedure before this
Court in requiring the Solicitor-General to represent the interest of the Republic. This court continues to
maintain that it is the Solicitor-General who has the primary responsibility to appear for the government
in appellate proceedings. This pronouncement finds justification in the various laws defining the Office of
the Solicitor-General, beginning with Act No. 135, which took effect on 16 June 1901, up to the present
Administrative Code of 1987. Sec. 35, Chapter 12, Title III, Book IV of the said code outlines the powers
and functions of the Office of the Solicitor General which includes, but not limited to, its duty to--
1. Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings;
represent the Government and its officers in the Supreme Court, the Court of Appeals, and all other courts
or tribunals in all civil actions and special proceedings in which the Government or any officer thereof in
his official capacity is a party.
2. Appear in any court in any action involving the validity of any treaty, law, executive order, or
proclamation, rule or regulation when in his judgment his intervention is necessary or when requested by
the Court.
COCONUT OIL REFINERS ASSOCIATION, INC. et al vs. RUBEN TORRES, as Executive Secretary, et al
G.R. No. 132527. July 29, 2005
Facts: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound and
balanced conversion of the Clark and Subic military reservations and their extensions into alternative
productive uses in the form of special economic zones in order to promote the economic and social
development of Central Luzon in particular and the country in general. The law contains provisions on tax
exemptions for importations of raw materials, capital and equipment. After which the President issued
several Executive Orders as mandated by the law for the implementation of RA 7227. Herein petitioners
contend the validity of the tax exemption provided for in the law.
Issue: Whether or not the Executive Orders issued by President for the implementation of the tax
exemptions constitutes executive legislation.
Held: To limit the tax-free importation privilege of enterprises located inside the special economic zone
only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to
create a free port where the free flow of goods or capital within, into, and out of the zones is insured.
The phrase tax and duty-free importations of raw materials, capital and equipment was merely cited as
an example of incentives that may be given to entities operating within the zone. Public respondent SBMA
correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely
to support their restrictive interpretation, does not apply when words are mentioned by way of example. It
is obvious from the wording of RA No. 7227, particularly the use of the phrase such as, that the
enumeration only meant to illustrate incentives that the SSEZ is authorized to grant, in line with its being
a free port zone.
The Court finds that the setting up of such commercial establishments which are the only ones duly
authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12
of RA No. 7227 that . . .the Subic Special Economic Zone shall be developed into a self-sustaining,
industrial, commercial, financial and investment center to generate employment opportunities in and
around the zone and to attract and promote productive foreign investments. However, the Court
reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax
and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of
the SSEZ, are null and void for being contrary to Section 12 of RA No. 7227. Said Section clearly provides
that exportation or removal of goods from the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines.
TAX EXEMPTIONS; NULLITY OF TAX DECLARATIONS AND TAX ASSESSMENTS
Facts: RCPI was granted a franchise under RA 2036, the law provides tax exemption for several properties
of the company. Section 14 of RA 2036 reads: In consideration of the franchise and rights hereby granted
and any provision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now
or may hereafter be required by law from other individuals, co partnerships, private, public or quasi-
public associations, corporations or joint stock companies, on real estate, buildings and other personal
property except radio equipment, machinery and spare parts needed in connection with the business of
the grantee, which shall be exempt from customs duties, tariffs and other taxes, as well as those properties
declared exempt in this section. In consideration of the franchise, a tax equal to one and one-half per
centum of all gross receipts from the business transacted under this franchise by the grantee shall be paid
to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts
as prescribed in this Act. Said tax shall be in lieu of any and all taxes of any kind, nature or description
levied, established or collected by any authority whatsoever, municipal, provincial or national, from which
taxes the grantee is hereby expressly exempted. Thereafter, the municipal treasurer of Tupi, South
Cotabato assessed RCPI real property taxes from 1981 to 1985. The municipal treasurer demanded that
RCPI pay P166,810 as real property tax on its radio station building in Barangay Kablon, as well as on its
machinery shed, radio relay station tower and its accessories, and generating sets. The Local Board of
Assessment Appeals affirmed the assessment of the municipal treasurer. When the case reach the C A, it
ruled that, petitioner is exempt from paying the real property taxes assessed upon its machinery and radio
equipment mounted as accessories to its relay tower. However, the decision assessing taxes upon
petitioners radio station building, machinery shed, and relay station tower is valid.
Issue: (1) Whether or not appellate court erred when it excluded RCPIs tower, relay station building and
machinery shed from tax exemption.
(2) Whether or not appellate court erred when it did not resolve the issue of nullity of the tax declarations
and assessments due to non-inclusion of depreciation allowance.
Held: (1) RCPIs radio relay station tower, radio station building, and machinery shed are real properties
and are thus subject to the real property tax. Section 14 of RA 2036, as amended by RA 4054, states that
in consideration of the franchise and rights hereby granted and any provision of law to the contrary
notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law
from other individuals, co partnerships, private, public or quasi-public associations, corporations or joint
stock companies, on real estate, buildings and other personal property. The clear language of Section 14
states that RCPI shall pay the real estate tax.
(2) The court held the assessment valid. The court ruled that, records of the case shows that RCPI raised
before the LBAA and the CBAA the nullity of the assessments due to the non-inclusion of depreciation
allowance. Therefore, RCPI did not raise this issue for the first time. However, even if we consider this
issue, under the Real Property Tax Code depreciation allowance applies only to machinery and not to real
property.
The Honorable Secretary of Finance vs. THE HONORABLE RICARDO M. ILARDE, Presiding Judge,
Regional Trial Court, 6th Judicial Region, Branch 26, Iloilo City, and CIPRIANO P. CABALUNA, JR
G.R. No. 121782. May 9, 2005
Facts: Cabaluna with his wife owns several real property located in Iloilo City. Cabaluana is the Regional
Director of Regional Office No. VI of the Department of Finance in Iloilo City. After his retirement, there
are tax delinquencies on his properties; he paid the amount under protest contending that the penalties
imposed to him are in excess than that provided by law. After exhausting all administrative remedies, he
filed a suit before the RTC which found that Section 4(c) of Joint Assessment Regulation No. 1-85 and
Local Treasury Regulation No. 2-85 issued on August 1, 1985 by respondent Secretary (formerly Minister)
of Finance is null and void; (2) declaring that the penalty that should be imposed for delinquency in the
payment of real property taxes should be two per centum on the amount of the delinquent tax for each
month of delinquency or fraction thereof, until the delinquent tax is fully paid but in no case shall the total
penalty exceed twenty-four per centum of the delinquent tax as provided for in Section 66 of P.D. 464
otherwise known as the Real Property Tax Code.
Issue: Whether or not the then Ministry of Finance could legally promulgate Regulations prescribing a
rate of penalty on delinquent taxes other than that provided for under Presidential Decree (P.D.) No. 464,
also known as the Real Property Tax Code.
Held: The Ministry of Finance now Secretary of Finance cannot promulgate regulations prescribing a rate
of penalty on delinquent taxes. The Court ruled that despite the promulgation of E.O. No. 73, P.D. No. 464
in general and Section 66 in particular, remained to be good law. To accept the Secretarys premise that
E.O. No. 73 had accorded the Ministry of Finance the authority to alter, increase, or modify the tax
structure would be tantamount to saying that E.O. No. 73 has repealed or amended P.D. No. 464. Repeal
of laws should be made clear and expressed. Repeals by implication are not favored as laws are presumed
to be passed with deliberation and full knowledge of all laws existing on the subject. Such repeals are not
favored for a law cannot be deemed repealed unless it is clearly manifest that the legislature so intended
it. Assuming argumenti that E.O. No. 73 has authorized the petitioner to issue the objected Regulations,
such conferment of powers is void for being repugnant to the well-encrusted doctrine in political law that
the power of taxation is generally vested with the legislature. Thus, for purposes of computation of the real
property taxes due from private respondent for the years 1986 to 1991, including the penalties and
interests, is still Section 66 of the Real Property Tax Code of 1974 or P.D. No. 464. The penalty that ought
to be imposed for delinquency in the payment of real property taxes should, therefore, be that provided
for in Section 66 of P.D. No. 464, i.e., two per centum on the amount of the delinquent tax for each month
of delinquency or fraction thereof but in no case shall the total penalty exceed twenty-four per centum of
the delinquent tax.
Facts: Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of plastic
products, it imports synthetic resin and other chemicals for the manufacture of its products. For this
purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry)
with the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October
1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and
Investigation Bureau (EIIB), received confidential information that the respondent had imported
synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a
subpoena to present its books of account which it failed to do. The bureau cannot find any original copies
of the products Hentex imported since the originals were eaten by termites. Thus, the Bureau relied on the
certified copies of the respondents Profit and Loss Statement for 1987 and 1988 on file with the SEC, the
machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts
from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that
Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the
income and sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the
copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly
authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the
BIR investigators.
Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency income
tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent
evidence and the law.
Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the
Commissioner of Internal Revenue has the power to make assessments and prescribe additional
requirements for tax administration and enforcement. Among such powers are those provided in
paragraph (b), which provides that Failure to submit required returns, statements, reports and other
documents. When a report required by law as a basis for the assessment of any national internal
revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to
believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper
tax on the best evidence obtainable. This provision applies when the Commissioner of Internal Revenue
undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a
return in case of a taxpayers failure to file one, or to amend a return already filed in the BIR. The best
evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting
records of the taxpayer who is the subject of the assessment process, the accounting records of other
taxpayers engaged in the same line of business, including their gross profit and net profit sales. Such
evidence also includes data, record, paper, document or any evidence gathered by internal revenue
officers from other taxpayers who had personal transactions or from whom the subject taxpayer received
any income; and record, data, document and information secured from government offices or agencies,
such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs
Commission. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does
not include mere photocopies of records/documents. The petitioner, in making a preliminary and final tax
deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of
records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as
proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no
probative value as basis for any deficiency income or business taxes against a taxpayer.
Issue: Whether or not the company is subject to zero-rate tax pursuant to the Tax Reform Act of 1997.
Held: Services performed by VAT-registered persons in the Philippines (other than the processing,
manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are
zero-rated. Respondent is a VAT-registered person that facilitates the collection and payment of
receivables belonging to its non-resident foreign client, for which it gets paid in acceptable foreign
currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category as processing, manufacturing or
repacking of goods and should, therefore, be zero-rated. In reply to a query of respondent, the BIR
opined in VAT Ruling No. 080-89 that the income respondent earned from its parent companys regional
operating centers (ROCs) was automatically zero-rated effective January 1, 1988. Service has been defined
as the art of doing something useful for a person or company for a fee or useful labor or work rendered
or to be rendered by one person to another. For facilitating in the Philippines the collection and payment
of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in duly accounted
acceptable foreign currency, respondent renders service falling under the category of zero rating.
Pursuant to the Tax Code, a VAT of zero percent should, therefore, be levied upon the supply of that
service.
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of
the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are
zero-rated, while imports are taxed. VAT rate for services that are performed in the Philippines, paid for
in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
Thus, for the supply of service to be zero-rated as an exception, the law merely requires that first, the
service be performed in the Philippines; second, the service fall under any of the However, the law clearly
provides for an exception to the destination principle; that is, for a zero percent categories in Section
102(b) of the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance
with BSP rules and regulations. Indeed, these three requirements for exemption from the destination
principle are met by respondent. Its facilitation service is performed in the Philippines. It falls under the
second category found in Section 102(b) of the Tax Code, because it is a service other than processing,
manufacturing or repacking of goods as mentioned in the provision. Undisputed is the fact that such
service meets the statutory condition that it be paid in acceptable foreign currency duly accounted for in
accordance with BSP rules. Thus, it should be zero-rated. Posted by UNC Bar Operations
Commission 2007 at 3:29 AM 1 comments 2006 Remedial Law Case Digests
CRIMINAL PROCEDURE
PRELIMINARY INVESTIGATION
SPO4 EDUARDO ALONZO VS. JUDGE CRISANTO C. CONCEPCION, Presiding Judge, Regional Trial
Court of Malolos City, Branch 12, Province of Bulacan
A.M. No. RTJ-04-1879. January 17, 2005
Facts: In a wedding party, SPO4 Eduardo Alonzo, Jun Rances, Zoilo Salamat and Rey Santos were
drinking together at the same table. While waiting to be seated, Pedrito Alonzo was introduced by SPO4
Alonzo to Rances as his nephew and as the son of ex-Captain Alonzo. SPO4 Alonzo then introduced him to
Salamat. Pedrito and his companions took their seats and started drinking at the table across SPO4
Alonzos table. After some time, Pedrito stood up to urinate at the back of the house. Santos passed a bag
to Salamat, and they followed Pedrito. Rances likewise followed them. A shot rang out. Salamat was seen
placing a gun inside the bag as he hurriedly left. The wedding guests ran after Salamat. They saw him and
Rances board a vehicle being driven by Santos. Pedritos uncle, Jose Alonzo, sought the help of SPO4
Alonzo to chase the culprits. He refused and even disavowed any knowledge as to their identity.
Jose Alonzo filed a complaint for murder against Salamat, Rances, Santos, SPO4 Alonzo and a certain
Isidro Atienza. A preliminary investigation1 was conducted by the Assistant Provincial Prosecutor where
Jose Alonzo and his four witnesses testified. Upon review of the records of the case by the 3rd Assistant
Provincial Prosecutor, it was recommended that Salamat be charged with murder as principal, and Santos
and Rances as accessories. With regard to SPO4 Alonzo and Isidro Atienza, the prosecutor found that no
sufficient evidence was adduced to establish their conspiracy with Salamat. Judge Concepcion of the RTC
issued an Order directing the Office of the Provincial Prosecutor to amend the information, so as to
include all the aforenamed persons as accused in this case, all as principals.
Issue: Whether or not the court has authority to review and reverse the resolution of the Office of the
Provincial Prosecutor or to find probable cause against a respondent for the purpose of amending the
Information.
Held: The function of a preliminary investigation is to determine whether there is sufficient ground to
engender a well-founded belief that a crime has been committed and the respondent is probably guilty
thereof, and should be held for trial. It is through the conduct of a preliminary investigation that the
prosecutor determines the existence of a prima facie case that would warrant the prosecution of a case. As
a rule, courts cannot interfere with the prosecutor's discretion and control of the criminal prosecution.
The reason for placing the criminal prosecution under the direction and control of the fiscal is to prevent
malicious or unfounded prosecution by private persons. However, while prosecuting officers have the
authority to prosecute persons shown to be guilty of a crime they have equally the legal duty not to
prosecute when after an investigation, the evidence adduced is not sufficient to establish a prima facie
case.
In a clash of views between the judge who did not investigate and the prosecutor who did, or between the
fiscal and the offended party or the accused, that of the prosecutor's should normally prevail.
Issue: Whether or not the extinction of respondents criminal liability carries with it the extinction of their
civil liability.
Held: When a criminal action is instituted, the civil action for the recovery of civil liability arising from the
offense charged shall be deemed instituted with the criminal action unless the offended party waives the
civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal
action.
The prime purpose of the criminal action is to punish the offender in order to deter him and others from
committing the same or similar offense, to isolate him from society, to reform and rehabilitate him or, in
general, to maintain social order. The sole purpose of the civil action is the restitution, reparation or
indemnification of the private offended party for the damage or injury he sustained by reason of the
delictual or felonious act of the accused.
The extinction of the penal action does not carry with it the extinction of the civil action. However, the
civil action based on delict shall be deemed extinguished if there is a finding in a final judgment in the
criminal action that the act or omission from where the civil liability may arise does not exist. In this case,
the petitioner failed to adduce proof of any ill-motive on the part of either respondent to kill the deceased
and as held by the the trial court and the CA, the prosecution failed to adduce preponderant evidence to
prove the facts on which the civil liability of the respondents rest, i.e., that the petitioner has a cause of
action against the respondents for damages.
Issues: 1) Whether or not the trial court erred in issuing a search warrant.
2) Whether or not the accused-appellant waived his right to question the legality of the search.
3) Whether or not evidence seized pursuant to an illegal search be used as evidence against the accused.
Held: 1) The issuance of a search warrant is justified only upon a finding of probable cause. Probable
cause for a search has been defined as such facts and circumstances which would lead a reasonably
discreet and prudent man to believe that an offense has been committed and that the objects sought in
connection with the offense are in the place sought to be searched. In determining the existence of
probable cause, it is required that: 1) The judge must examine the complaint and his witnesses personally;
2) the examination must be under oath; 3) the examination must be reduced in writing in the form of
searching questions and answers. The prosecution failed to prove that the judge who issued the warrant
put into writing his examination of the applicant and his witnesses on the form of searching questions and
answers before issuance of the search warrant. Mere affidavits of the complainant and his witnesses are
not sufficient. Such written examination is necessary in order that the judge may be able to properly
determine the existence and non-existence of probable cause. Therefore, the search warrant is tainted
with illegality by failure of the judge to conform with the essential requisites of taking the examination in
writing and attaching to the record, rendering the search warrant invalid.
2) At that time the police officers presented the search warrant, appellant could not determine if the
search warrant was issued in accordance with law. It was only during the trial that appellant, through his
counsel, had reason to believe that the search warrant was illegally issued. Moreover, appellant
seasonably objected on constitutional grounds to the admissibility of the evidence seized pursuant to said
warrant during the trial, after the prosecution formally offered its evidence. Under the circumstances, no
intent to waive his rights can reasonably be inferred from his conduct before or during the trial.
3) No matter how incriminating the articles taken from the appellant may be, their seizure cannot validate
an invalid warrant. The requirement mandated by the law that the examination of the complaint and his
witnesses must be under oath and reduced to writing in the form of searching questions and answers was
not complied with, rendering the search warrant invalid. Consequently, the evidence seized pursuant to
illegal search warrant cannot be used in evidence against appellant in accordance with Section 3 (2)
Article III of the Constitution.
Facts: Private complainant Elizabeth Genteroy was introduced to accused Crispin Billaber by her friends.
The accused told Genteroy that he could help her acquire the necessary papers and find her a job abroad.
Genteroy introduced the accused to Raul Durano. The accused offered Durano a job as his personal driver
in the U.S. Durano and Genteroy paid the accused and asked for receipt, but the accused said that it was
not necessary since they will leave together.
Meanwhile, Genteroy introduced the accused to Tersina Onza and offered a job abroad. Thereafter, the
accused instructed the three private complainants, Genteroy, Durano and Onza to meet him at the airport
on the agreed date, however, the accused failed to show up.
Durano chanced upon the accused at the canteen. A commotion ensued when Durano tried to stop the
accused from leaving. A police officer brought both Durano and the accused to the PNP station. The
prosecution offered in evidence a certificate from the POEA stating that the accused was not licensed or
authorized to recruit workers for employment abroad. The accused denied receiving money from private
complainants and interposed a defense of frame-up and extortion against Durano.
Issues: 1) Whether or not the trial court erred in not considering that the accused arrested without
warrant.
2) Whether or not the court acquired jurisdiction over the person of the accused.
Held: 1) It appears that accused-appellant was brought to the police station, together with the
complainant Durano, not because of the present charges but because of the commotion that ensued
between the two at the canteen. At the police station, Durano and the other complainants then executed
statements charging appellant with illegal recruitment and estafa. As to whether there was an actual arrest
or whether, in the commotion, the appellant committed, was actually committing, or was attempting to
commit an offense, have been rendered moot.
2) Appellant did not allege any irregularity in a motion to quash before entering his plea, and is therefore
deemed to have waived any question of the trial courts jurisdiction over his person.
Facts: Solier informed the police that Tudtud would come back with new stocks of marijuana. Policemen
saw two men alighted from the bus, helping each other carry a carton/ box, one of them fitted the
description of Tudtud. They approached the two and Tudtud denied that he carried any drugs. The latter
opened the box, beneath dried fish where two bundles, one wrapped in a plastic bag and another in
newspapers. Policemen asked Tudtud to unwrap the packages and contained what seemed to the police as
marijuana leaves. The two did not resist the arrest. Charged with illegal possession of prohibited drugs,
they pleaded not guilty and interposed the defense that they were framed up. The trial court convicted
them with the crime charged and sentenced them to suffer the penalty of reclusion perpetua.
Issue: Whether or not searches and seizures without warrant may be validly obtained.
Held: The rule is that a search and seizure must be carried out through or with a judicial warrant;
otherwise such search and seizure becomes reasonable within the meaning of the constitutional
provision, and any evidence secured thereby will be inadmissible in evidence for any purpose in any
proceeding. Except with the following instances even in the absence of a warrant: 1) Warrantless search
incidental to a lawful arrest, 2) Search in evidence in plain view, 3) Search of a moving vehicle, 4)
Consented warrantless search, 5) Customs search, 6) Stop and frisk and 7) Exigent and emergency
circumstances.
The long standing rule in this jurisdiction, applied with a degree of consistency, is that, a reliable
information alone is not sufficient to justify a warrantless arrest. Hence, the items seized were held
inadmissible, having been obtained in violation of the accuseds constitutional rights against unreasonable
searches and seizures.
CIVIL ACTION ARISING FROM DELICT; EFFECT OF ACQUITTAL ON THE CIVIL ASPECT; EFFECT
OF GRANT OF DEMURRER ON THE CIVIL ASPECT OF THE CASE
Facts: Petitioner Anamer Salazar purchased 300 cavans of rice from J.Y. Brothers Marketing. As payment
for these, she gave a check drawn against the Prudential Bank by one Nena Timario. J.Y. accepted the
check upon the petitioners assurance that it was good check. Upon presentment, the check was
dishonored because it was drawn under a closed account. Upon being informed of such dishonor,
petitioner replaced the check drawn against the Solid Bank, which, however, was returned with the word
DAUD (Drawn against uncollected deposit).
After the prosecution rested its case, the petitioner filed a Demurrer to Evidence with Leave of Court. The
trial court rendered judgment acquitting the petitioner of the crime charged but ordering her to pay, as
payment of her purchase. The petitioner filed a motion for reconsideration on the civil aspect of the
decision with a plea that she be allowed to present evidence pursuant to Rule 33 of the Rules of Court, but
the court denied the motion.
Issues: 1) Does the acquittal of the accused in the criminal offense prevent a judgment against her on the
civil aspect of the case?
2) Was the denial of the motion for reconsideration proper?
Held: 1) The rule on the Criminal Procedure provides that the extension of the penal action does not carry
with it the extension of the civil action. Hence, the acquittal of the accused does not prevent a judgment
against him on the civil aspect of the case where a) the acquittal is based on reasonable doubt as only
preponderance of evidence is required; b) where the court declared that the liability of the accused is only
civil; c) where the civil liability of the accused does not arise from or is not based upon the crime of which
the accused was acquitted.
2) No, because after an acquittal or grant of the demurrer, the trial shall proceed for the presentation of
evidence on the civil aspect of the case. This is so because when the accused files a demurrer to evidence,
the accused has not yet adduced evidence both on the criminal and civil aspect of the case. The only
evidence on record is the evidence for the prosecution. What the trial court should do is to set the case for
continuation of the trail for the petitioner to adduce evidence on the civil aspect and for the private
offended party adduce evidence by way of rebuttal as provided for in Sec.11, Rule 119 of the Revised Rules
on Criminal Procedure. Otherwise, it would be a nullity for the reason that the constitutional right of the
accused to due process is thereby violated.
Facts: Appellant Efren Mateo was charged with ten counts of rape by his step-daughter Imelda Mateo.
During the trial, Imeldas testimonies regarding the rape incident were inconsistent. She said in one
occasion that incident of rape happened inside her bedroom, but other times, she told the court that it
happened in their sala. She also told the court that the appellant would cover her mouth but when asked
again, she said that he did not. Despite the irreconcilable testimony of the victim, the trial court found the
accused guilty of the crime of rape and sentenced him the penalty of reclusion perpetua. The Solicitor
General assails the factual findings of the trial and recommends an acquittal of the appellant.
Issue: Whether or not this case is directly appeallable to the Supreme Court.
Held: While the Fundamental Law requires a mandatory review by the Supreme Court of cases where the
penalty imposed is reclusion perpetua, life imprisonment, or death, nowhere, however, has it proscribed
an intermediate review. If only to ensure utmost circumspection before the penalty of death, reclusion
perpetua or life imprisonment is imposed, the Court now deems it wise and compelling to provide in these
cases a review by the Court of Appeals before the case is elevated to the Supreme Court. Where life and
liberty are at stake, all possible avenues to determine his guilt or innocence must be accorded an accused,
and no case in the evaluation of the facts can ever be overdone. A prior determination by the Court of
Appeals on, particularly, the factual issues, would minimize the possibility of an error of judgment. If the
Court of Appeals should affirm the penalty of death, reclusion perpetua or life imprisonment, it could then
render judgment imposing the corresponding penalty as the circumstances so warrant, refrain from
entering judgment and elevate the entire records of the case to the Supreme Court for its final disposition.
Under the Constitution, the power to amend rules of procedure is constitutionally vested in the Supreme
Court
Article VIII, Section 5. The Supreme Court shall have the following powers:
(5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading,
practice, and procedure in all courts.
Procedural matters, first and foremost, fall more squarely within the rule-making prerogative of the
Supreme Court than the law-making power of Congress. The rule here announced additionally allowing
an intermediate review by the Court of Appeals, a subordinate appellate court, before the case is elevated
to the Supreme Court on automatic review is such a procedural matter.
Pertinent provisions of the Revised Rules on Criminal Procedure, more particularly Section 3 and Section
10 of Rule 122, Section 13 of Rule 124, Section of Rule 125, and any other rule insofar as they provide for
direct appeals from the Regional Trial Courts to the Supreme Court in cases where the penalty imposed is
death reclusion perpetua or life imprisonment, as well as the resolution of the Supreme Court en banc,
dated 19 September 1995, in Internal Rules of the Supreme Court in cases similarly involving the death
penalty, are to be deemed modified accordingly.
A.M. No. 00-5-03-SC
RESOLUTION
Acting on the recommendation of the Committee on Revision of the Rules of Court submitting for this
Courts consideration and approval the Proposed Amendments to the Revised Rules of Criminal
Procedure to Govern Death Penalty Cases, the Court Resolved to APPROVE the same.
The amendment shall take effect on October 15, 2004 following its publication in a newspaper of general
circulation not later than September 30, 2004
September 28, 2004
_____________________________________
AMENDED RULES TO GOVERN REVIEW OF
DEATH PENALTY CASES
Rule 122, Sections 3 and 10, and Rule 124, Sections 12 and 13, of the Revised Rules of Criminal Procedure,
are amended as follows:
RULE 122
Sec. 3. How appeal taken (a) The appeal to the Regional Trial Court, or to the Court of Appeals in cases
decided by the Regional Trial Court in the exercise of its original jurisdiction, shall be by notice of appeal
filed with the court which rendered the judgment or final order appealed from and by serving a copy
thereof upon the adverse party.
(b) The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its
appellate jurisdiction shall be by petition for review under Rule 42.
(c) The appeal in cases whereby the penalty imposed by the Regional Trial Court is reclusion perpetua, life
imprisonment or where a lesser penalty is imposed for offenses committed on the same occasion on the or
which arose out of the same occurrence that gave rise to the more serious offense for which the penalty of
death, reclusion perpetua, or life imprisonment is imposed, shall be by notice of appeal to the Court of
Appeals in accordance with paragraph (a) of this Rule.
(d) No notice of appeal is necessary in cases where the Regional Trial Court imposed the death penalty.
The Court of Appeals shall automatically review the judgment as provided in Section 10 of this Rule. (3a)
xxx
RULE 124
Sec. 12. Power to receive evidence. The Court of Appeals shall have the power to try cases and conduct
hearings, receive evidence and perform all acts necessary to resolve the factual issues raised in cases
falling within its original and appellate jurisdiction, including the power to grant and conduct new trials
or further proceedings. Trials or hearing in the Court of Appeals must be continuous and must be
completed within three months, unless extended by the Chief Justice. (12a)
Sec. 13. Certification or appeal of case to the Supreme Court. (a) Whenever the Court of Appeals finds
that the penalty of death should be imposed, the court shall render judgment but refrain from making an
entry of judgment and forthwith certify the case and elevate its entire record to the Supreme Court for
review.
(b) Where the judgment also imposes a lesser penalty for offenses committed on the same occasion or
which arose out of the same occurrence that gave rise to the more severe offense for which the penalty is
imposed, and the accused appeals, the appeal shall be included in the case certified for review to the
Supreme Court.
(c) In cases where the Court of Appeals imposes reclusion perpetua, life imprisonment or a lesser penalty,
it shall render and enter judgment imposing such penalty. The judgment may be appealed to the Supreme
Court by notice of appeal file with the Court of Appeals. (13a)
EVIDENCE
Facts: City Administrator Rodel M. Maara lodged a complaint against petitioner Inocelia S. Autencio
with the Office of the City Mayor for dishonesty and misconduct in office. The complaint alleged that Riza
Bravo, an employee of the City Assessors Office charged with the preparation of the payroll of casual
employees, changed the September 1996 payroll prepared by her upon the order of petitioner. After
hearing, the Office for Legal Services issued a resolution/decision, declaring the petitioner guilty of
misconduct in office for allowing irregularities to happen which led to illegal payment of salaries to
casuals. However, as regards to the charge of dishonesty, the same was found wanting due to insufficiency
of evidence. A penalty of forced resignation with forfeiture of retirement benefits except for earned leave
accumulated before the filing of the complaint was imposed. In return, petitioner alleged that she had
waived her right to present her evidence at a formal hearing and agreed to submit the case for resolution,
only because of the manifestation of the complainant and the hearing officer that she could be held liable
only for the lesser offense of simple negligence.
Held: Petitioner was afforded due process. On the formal charge against her, she had received sufficient
information which, in fact, enabled her to prepare her defense. She filed her Answer controverting the
charges against her and submitted Affidavits of personnel in the Assessors Office to support her claim of
innocence. A pre-hearing conference was conducted by the legal officer, during which she -- assisted by
her counsel -- had participated. Finally, she was able to appeal the ruling of City Mayor Badoy to the CSC,
and then to the CA.
Finally, settled is the rule in our jurisdiction that the findings of fact of an administrative agency must be
respected, so long as they are supported by substantial evidence. It is not the task of this Court to weigh
once more the evidence submitted before the administrative body and to substitute its own judgment for
that of the latter in respect of the sufficiency of evidence. In any event, the Decisions of the CSC and the
Court of Appeals finding petitioner guilty of the administrative charge prepared against her are supported
by substantial evidence.
Issue: Whether or not the court errs when it held that the trial court correctly applied the rules of evidence
in disregarding the conflicting PC-INP and NBI questioned document reports.
Held: Petitioner has shown no reason why the ruling made by the trial court on the credibility of the
respondents witnesses below should be disturbed. Findings by the trial court as to the credibility of
witnesses are accorded the greatest respect, and even finality by appellate courts, since the former is in a
better position to observe their demeanor as well as their deportment and manner of testifying during the
trial.
Finally, the questioned Deed of Absolute Sale in the present case is a notarized document. Being a public
document, it is prima facie evidence of the facts therein expressed. It has the presumption of regularity in
its favor and to contradict all these, evidence must be clear, convincing, and more than merely
preponderant. Petitioner has failed to show that such contradictory evidence exists in this case. Posted by
UNC Bar Operations Commission 2007 at 3:23 AM 0 comments 2006 Criminal Law Case Digests
EVANGELINE LADONGA VS. PEOPLE OF THE PHILIPPINES
G.R. No. 141066. February 17, 2005
Facts: In 1989, spouses Adronico and Evangeline Ladonga became Alfredo Oculams regular customers in
his pawnshop business. Sometime in May 1990, the Ladonga spouses obtained a P9,075.55 loan from
him, guaranteed by United Coconut Planters Bank (UCPB) Check No. 284743, post dated to July 7, 1990
issued by Adronico; sometime in the last week of April 1990 and during the first week of May 1990, the
Ladonga spouses obtained an additional loan of P12,730.00, guaranteed by UCPB Check No. 284744, post
dated to July 26, 1990 issued by Adronico; between May and June 1990, the Ladonga spouses obtained a
third loan in the amount of P8,496.55, guaranteed by UCPB Check No. 106136, post dated to July 22,
1990 issued by Adronico; the three checks bounced upon presentment for the reason CLOSED
ACCOUNT; when the Ladonga spouses failed to redeem the check, despite repeated demands, he filed a
criminal complaint against them. While admitting that the checks issued by Adronico bounced because
there was no sufficient deposit or the account was closed, the Ladonga spouses claimed that the checks
were issued only to guarantee the obligation, with an agreement that Oculam should not encash the
checks when they mature; and, that petitioner is not a signatory of the checks and had no participation in
the issuance thereof. The RTC rendered a joint decision finding the Ladonga spouses guilty beyond
reasonable doubt of violating B.P. Blg. 22. Petitioner brought the case to the Court of Appeals. The Court
of Appeals affirmed the conviction of petitioner.
Issue: Whether or not the petitioner who was not the drawer or issuer of the three checks that bounced
but her co-accused husband under the latters account could be held liable for violations of Batas
Pambansa Bilang 22 as conspirator.
Held: The conviction must be set aside. Article 8 of the RPC provides that a conspiracy exists when two
or more persons come to an agreement concerning the commission of a felony and decide to commit it.
To be held guilty as a co-principal by reason of conspiracy, the accused must be shown to have performed
an overt act in pursuance or furtherance of the complicity. The overt act or acts of the accused may consist
of active participation in the actual commission of the crime itself or may consist of moral assistance to
his co-conspirators by moving them to execute or implement the criminal plan. In the present case, the
prosecution failed to prove that petitioner performed any overt act in furtherance of the alleged
conspiracy. Apparently, the only semblance of overt act that may be attributed to petitioner is that she was
present when the first check was issued. However, this inference cannot be stretched to mean concurrence
with the criminal design. Conspiracy must be established, not by conjectures, but by positive and
conclusive evidence. Conspiracy transcends mere companionship and mere presence at the scene of the
crime does not in itself amount to conspiracy. Even knowledge, acquiescence in or agreement to
cooperate, is not enough to constitute one as a party to a conspiracy, absent any active participation in the
commission of the crime with a view to the furtherance of the common design and purpose
Facts: Before us is the Motion for Reconsideration filed by herein accused-appellant of our Decision dated
24 October 2003 in G.R. No. 152589 and No. 152758. In said decision, we modified the ruling of the
Regional Trial Court (RTC), Branch 61, Gumaca, Quezon, in Crim. Case No. 6636-G finding accused-
appellant guilty of rape under Articles 266-A and 266-B of the Revised Penal Code and instead, we
adjudged him guilty only of attempted rape. We, however, upheld the ruling of the court a quo with regard
to Crim. Case No. 6637-G finding accused-appellant guilty of incestuous rape of a minor under Art. 266-B
of the Revised Penal Code as amended by Republic Act No. 8353 and for this, we sentenced accused-
appellant to suffer the ultimate penalty of death.
Issue: Whether or not the accused committed attempted rape or acts of lasciviousness.
Held: After a thorough review and evaluation of the records of this case, we find no sufficient basis to
modify our earlier decision convicting accused-appellant of attempted rape in Crim. Case No. 6636-
G.There is an attempt to commit rape when the offender commences its commission directly by overt acts
but does not perform all the acts of execution which should produce the felony by reason of some cause or
accident other than his own spontaneous desistance. Upon the other hand, Article 366 of the Revised
Penal Code states: (a)ny person who shall commit any act of lasciviousness upon the other person of
either sex, under any of the circumstances mentioned in the preceding article, shall be punished by
prision correccional. As explained by an eminent author of criminal law, rape and acts of lasciviousness
have the same nature. There is, however, a fundamental difference between the two. In rape, there is the
intent to lie with a woman whereas this element is absent in acts of lasciviousness. In this case, the series
of appalling events which took place on the night of 18 March 1998 inside the humble home of private
complainant and of accused-appellant, establish beyond doubt that the latter intended to ravish his very
own flesh and blood. As vividly narrated by private complainant before the trial court, accused-appellant,
taking advantage of the cover of darkness and of the absence of his wife, removed her (private
complainants) clothing and thereafter placed himself on top of her. Accused-appellant, who was similarly
naked as private complainant, then proceeded to kiss the latter and he likewise touched her breasts until
finally, he rendered private complainant unconscious by boxing her in the stomach. These dastardly acts
of accused-appellant constitute the first or some subsequent step in a direct movement towards the
commission of the offense after the preparations are made. Far from being mere obscenity or lewdness,
they are indisputably overt acts executed in order to consummate the crime of rape against the person of
private complainant.
Facts: Information for libel was filed before the RTC, Branch 20, Naga City, against the petitioner and
Ramos who were then the managing editor and correspondent, respectively, of the Bicol Forum, a local
weekly newspaper circulated in the Bicol Region. It states: On or about the 18th day up to the 24th day of
August, 1986, in the Bicol Region comprised by the Provinces of Albay, Catanduanes, Sorsogon, Masbate,
Camarines Sur, and Camarines Norte, and the Cities of Iriga and Naga, Philippines, and within the
jurisdiction of this Honorable Court under R.A. No. 4363, and B.P. Blg. 129, the above-named accused
who are the news correspondent and the managing editor, respectively, of the local weekly newspaper
Bicol Forum, did then and there willfully, unlawfully and feloniously, without justifiable motive and with
malicious intent of impeaching, discrediting and destroying the honor, integrity, good name and
reputation of the complainant as Minister of the Presidential Commission on Government Reorganization
and concurrently Governor of the Province of Camarines Sur, and to expose him to public hatred, ridicule
and contempt, write, edit, publish and circulate an issue of the local weekly newspaper BICOL FORUM
throughout the Bicol Region, with banner headline and front page news item read by the public
throughout the Bicol Region VILLAFUERTES DENIAL CONVINCES NO ONE. The trial court found
the petitioner guilty. The Court of Appeals likewise upheld the decision of the trial court.
Held: No. Libel is defined as a public and malicious imputation of a crime, or of a vice or defect, real or
imaginary, or any act, omission, condition, status, or circumstance tending to cause the dishonor,
discredit, or contempt of a natural person or juridical person, or to blacken the memory of one who is
dead. The law recognizes two kinds of privileged matters. First are those which are classified as
absolutely privileged which enjoy immunity from libel suits regardless of the existence of malice in fact.
The other kind of privileged matters are the qualifiedly or conditionally privileged communications which,
unlike the first classification, may be susceptible to a finding of libel provided the prosecution establishes
the presence of malice in fact. The exceptions provided for in Article 354 of the Revised Penal Code fall
into this category. The interest of society and the maintenance of good government demand a full
discussion of public affairs. Complete liberty to comment on the conduct of public men is a scalpel in the
case of free speech. The sharp incision of its probe relieves the abscesses of officialdom. Men in public life
may suffer under a hostile and an unjust accusation; the wound can be assuaged with the balm of a clear
conscience. Rising superior to any official, or set of officials, to the Chief Executive, to the Legislature, to
the Judiciary to any or all the agencies of Government public opinion should be the constant source of
liberty and democracy.
Facts: Convicted by the Sandiganbayan in its Crim. Case No. 23261 of the crime of illegal use of public
funds defined and penalized under Article 220 of the Revised Penal Code, or more commonly known as
technical malversation, appellant Norma A. Abdulla is now before this Court on petition for review under
Rule 45. Along with Nenita Aguil and Mahmud Darkis, appellant was charged under an Information
which pertinently reads: That on or about November, 1989 or sometime prior or subsequent thereto, in
Jolo, Sulu, Philippines and within the jurisdiction of this Honorable Court, the above-named accused:
NORMA A. ABDULLA and NENITA P. AGUIL, both public officers, being then the President and cashier,
respectively, of the Sulu State College, and as such by reason of their positions and duties are accountable
for public funds under their administration, while in the performance of their functions, conspiring and
confederating with MAHMUD I. DARKIS, also a public officer, being then the Administrative Officer V of
the said school, did then and there willfully, unlawfully and feloniously, without lawful authority, apply
for the payment of wages of casuals, the amount of FORTY THOUSAND PESOS (P40,000.00), Philippine
Currency, which amount was appropriated for the payment of the salary differentials of secondary school
teachers of the said school, to the damage and prejudice of public service .Appellants co-accused, Nenita
Aguil and Mahmud Darkis, were both acquitted. Only appellant was found guilty and sentenced by the
Sandiganbayan in its decision. Upon motion for reconsideration, the Sandiganbayan amended appellants
sentence by deleting the temporary special disqualification imposed upon her. Still dissatisfied, appellant,
now before this Court, persistently pleas innocence of the crime charged.
Issue: 1) Whether or not there was unlawful intent on the appellants part.
2) Whether or not the essential elements of the crime of technical malversation is present.
Held: The Court must have to part ways with the Sandiganbayan in its reliance on Section 5 (b) of Rule
131 as basis for its imputation of criminal intent upon appellant. The presumption of criminal intent will
not automatically apply to all charges of technical malversation because disbursement of public funds for
public use is per se not an unlawful act. Here, appellant cannot be said to have committed an unlawful act
when she paid the obligation of the Sulu State College to its employees in the form of terminal leave
benefits such employees were entitled to under existing civil service laws. There is no dispute that the
money was spent for a public purpose payment of the wages of laborers working on various projects in
the municipality. It is pertinent to note the high priority which laborers wages enjoy as claims against the
employers funds and resources. Settled is the rule that conviction should rest on the strength of evidence
of the prosecution and not on the weakness of the defense. Absent this required quantum of evidence
would mean exoneration for accused-appellant. The Sandiganbayans improper reliance on Sec. 5(b) of
Rule 131 does not save the day for the prosecutions deficiency in proving the existence of criminal intent
nor could it ever tilt the scale from the constitutional presumption of innocence to that of guilt. In the
absence of criminal intent, this Court has no basis to affirm appellants conviction. 2. The Court notes that
there is no particular appropriation for salary differentials of secondary school teachers of the Sulu State
College in RA 6688. The third element of the crime of technical malversation which requires that the
public fund used should have been appropriated by law, is therefore absent. The authorization given by
the Department of Budget and Management for the use of the forty thousand pesos (P40,000.00)
allotment for payment of salary differentials of 34 secondary school teachers is not an ordinance or law
contemplated in Article 220 of the Revised Penal Code. Appellant herein, who used the remainder of the
forty thousand pesos (P40,000.00) released by the DBM for salary differentials, for the payment of the
terminal leave benefits of other school teachers of the Sulu State College, cannot be held guilty of technical
malversation in the absence, as here, of any provision in RA 6688 specifically appropriating said amount
for payment of salary differentials only. In fine, the third and fourth elements of the crime defined in
Article 220 of the Revised Penal Code are lacking in this case. Acquittal is thus in order.
ENRIQUE TOTOY RIVERA Y DE GUZMAN VS. PEOPLE OF THE PHILIPPINES
G.R. No. 138553. June 30, 2005
Facts: On May 6, 1993, in the Regional Trial Court at La Trinidad, Benguet an information for direct
assault was filed against petitioner, allegedly committed, as follows: That on or about the 20th day of
March, 1993, at Tomay, Shilan, Municipality of La Trinidad, Province of Benguet, Philippines, and within
the jurisdiction of this Honorable Court, the above-named accused, did then and there willfully,
unlawfully and feloniously attack, employ force and seriously resist one Lt. EDWARD M. LEYGO,
knowing him to be a policeman, by then and there challenging the latter to a fistfight and thereafter
grappling and hitting the said policeman on his face, thus injuring him in the process while the latter was
actually engaged in the performance of his official duties. The trial court convicted petitioner of the crime
of direct assault. The Court of Appeals affirmed the decision of the trial court.
Issue: Whether or not the Court of Appeals erred in affirming the judgment of conviction rendered by the
trial court.
Held: Direct assault, a crime against public order, may be committed in two ways: first, by any person or
persons who, without a public uprising, shall employ force or intimidation for the attainment of any of the
purposes enumerated in defining the crimes of rebellion and sedition; and second, by any person or
persons who, without a public uprising, shall attack, employ force, or seriously intimidate or resist any
person in authority or any of his agents, while engaged in the performance of official duties, or on
occasion of such performance. Unquestionably, petitioners case falls under the second mode, which is the
more common form of assault and is aggravated when: (a) the assault is committed with a weapon; or (b)
when the offender is a public officer or employee; or (c) when the offender lays hand upon a person in
authority. In any event, this Court has said time and again that the assessment of the credibility of
witnesses and their testimonies is best undertaken by the trial court, what with reality that it has the
opportunity to observe the witnesses first-hand and to note their demeanor, conduct, and attitude while
testifying. Its findings on such matters, absent, as here, of any arbitrariness or oversight of facts or
circumstances of weight and substance, are final and conclusive upon this Court and will not to be
disturbed on appeal.
Facts: Early in the morning of August 25, 1994, Romeo C. Boringot was awakened by his wife Aida, the
latter having heard somebody shouting invectives at her husband, viz: You ought to be killed, you devil.
So Romeo stood up and peeped to see who was outside. When he did not see anybody, he proceeded
towards the road.
Upon passing by a coconut tree, he was suddenly hacked at the back with bolo which was more that 1 foot
long. He looked back at his assailant and he recognized him to be appellant Conrado whom he knew since
the 1970s and whose face he clearly saw as light from the moon illuminated the place. Appellant went on
hacking him, hitting him in different parts of the body, including ears and the head. While hitting him,
appellant was shouting invectives at him. Appellant also hit him with a guitar causing Romeo to sustain
an injury on his forehead. All in all, he sustained 11 wounds.
Petitioner invoked self-defense. The trial court rejected petitioners plea of self-defense and convicted him
of frustrated homicide.
Held: The petitioner was burdened to prove, with clear and convincing evidence, the confluence of the
three essential requisites for complete self-defense: (a) unlawful aggression on the part of the victim; (b)
reasonable means used by the person defending himself to repel or prevent the unlawful to repel or
prevent the unlawful aggression; (c) lack of sufficient provocation on the part of the person defending
himself. By invoking self-defense, the petitioner thereby submitted having deliberately caused the victims
injuries. The burden of proof is shifted to him to prove with clear and convincing all the requisites of his
affirmative defense. He must rely on the strength of his own evidence and not the weakness of that of the
disbelieved after the petitioner admitted inflicting the mortal injuries on the victim. In this case, the
petitioner failed to prove his affirmative defense.
The number, nature and location of the victims wounds belie the petitioners claim that the said wounds
or the victim were inflicted as they duel with each other.
Witness for the petitioner testified that the wounds sustained by petitioner could not have been caused by
bolo.
Petitioner never surrendered voluntarily to the police and admitted that he had injured the victim. This
would have bolstered his claim that he hacked the victim to defend himself. The petitioner did not do so.
Facts: Veronico Tenebro contracted marriage with Leticia Ancajas on April 10, 1990. The two were wed by
a judge at Lapu-Lapu City. The two lived together continuously and without interruption until the later
part of 1991, when Tenebro informed Ancajas that he had been previously married to a certain Hilda
Villareyes on Nov. 10, 1986. Tenebro showed Ancajas a photocopy of a marriage contract between him
and Villareyes. Invoking this previous marriage, petitioner thereafter left the conjugal dwelling which he
shared with Ancajas, stating that he was going to cohabit with Villareyes.
On January 25, 1993, petitioner contracted yet another marriage, this one with a certain Nilda Villegas.
When Ancajas learned of this third marriage, she verified from Villareyes whether the latter was indeed
married to the petitioner. Villareyes confirmed in handwritten letter that indeed Tenebro was her
husband.
Ancajas thereafter filed a complaint for bigamy against petitioner. During trial, Tenebro admitted having
married to Villareyes and produced two children. However, he denied that he and Villareyes were validly
married to each other, claiming that no marriage ceremony took place. He alleged that he signed a
marriage contract merely to enable her to get the allotment from his office in connection with his work as
a seaman. The trial court found him guilty of bigamy.
Issues: (1) Whether or not the petitioner is guilty of the crime of bigamy.
(2) What is the effect of declaration of nullity of the second marriage of the petitioner on the ground of
psychological incapacity?
Held: (1) Yes, petitioner is guilty of the crime of bigamy. Under Article 349 of the Revised Penal Code, the
elements of the crime of bigamy are: (1) that the offender has been legally married; (2) that the first
marriage has not been legally dissolved or, in case his or her spouse is absent, the absent spouse could not
yet be presumed dead according to the Civil Code; (3) that he contracts a second or subsequent marriage;
and (4) that the second or subsequent marriage has all the essential requisites for validity. The
prosecution sufficient evidence, both documentary and oral, proved the existence of the marriage between
petitioner and Villareyes.
(2) A second or subsequent marriage contracted during subsistence of petitioners valid marriage to
Villareyes, petitioners marriage to Ancajas would be null and void ab initio completely regardless of
petitioners psychological capacity or incapacity. Since a marriage contracted during the subsistence of a
valid marriage is automatically void, the nullity of this second marriage is not per se an argument for the
avoidance of criminal liability for bigamy. Pertinently, Article 349 of the RPC criminalizes any person
who shall contract a second or subsequent marriage before the former marriage has been legally
dissolved, or before the absent spouse has been declared presumptively dead by means of a judgment
rendered in the proper proceedings. A plain reading of the law, therefore, would indicate that the
provision penalizes the mere act of contracting a second or subsequent marriage during the subsistence of
a valid marriage.
Facts: On March 16, 1996, businessman Alexander Saldaa went to Sultan Kudarat with three other men
to meet a certain Macapagal Silongan alias Commander Lambada. They arrived in the morning and were
able to talk to Macapagal concerning the gold nuggets that purportedly being sold by the latter. The
business transaction was postponed and continued in the afternoon due to the death of Macapagals
relative and that he has to pick his brother in Cotabato City.
Then at around 8:30 PM, as they headed to the highway, Macapagal ordered the driver to stop. Suddenly,
15 armed men appeared. Alexander and his three companions were ordered to go out of the vehicle, they
were tied up, and blindfolded. Macapagal and Teddy were also tied and blindfolded, but nothing more was
done to them. Alexander identified all the abductors including the brothers of Macapagal.
The four victims were taken to the mountain hideout in Maguindanao. The kidnappers demanded P15,
000,000 from Alexanders wife for his release, but the amount was reduced to twelve million. The victims
were then transferred from one place to another. They made Alexander write a letter to his wife for his
ransom. But on several occasions, a person named Mayangkang himself would write to Alexanders wife.
The two other victims managed to escape but Alexander was released after payment of ransom. The trial
court convicted Macapagal and his companions of the crime of Kidnapping for Ransom with Serious
Illegal Detention.
Issue: Whether it is necessary that there is actual payment of ransom in the crime of Kidnapping.
Held: No, it is necessary that there is actual payment of ransom in the crime of Kidnapping. For the crime
to be committed, at least one overt act of demanding ransom must be made. It is not necessary that there
be actual payment of ransom because what the law requires is merely the existence of the purpose of
demanding ransom. In this case, the records are replete with instances when the kidnappers demanded
ransom from the victim. At the mountain hideout where Alexander was first taken, he was made a letter to
his wife asking her to pay ransom of twelve million. Also Mayangkang himself wrote more letters to his
family threatened the family to kill Alexander if the ransom was not paid.
Facts: Petitioner Edward Ong, representing ARMAGRI International Corporation (ARMAGRI), executed
two trust receipts acknowledging receipt from the Solid Bank Corp. of goods valued at P 2,532,500 and P
2, 050,000. In addition, he bounded himself to any increase or decrease of interest rate in case Central
Bank floated rates and to pay any additional penalty until the trust receipts are fully paid.
When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the
Bank despite several demand letters. The trial court convicted Ong of two counts of estafa for violation of
the Trust Receipts Law.
Issue: Whether the appellant is guilty of two counts estafa for violation of the Trust Receipts Law.
Held: Yes, he is guilty for failure by the entrustee to account for the goods received in trust constitutes
estafa. The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the
sale of goods, or (2) return the goods covered by the trust receipts if the good are not sold. The mere
failure to account or return gives rise to the crime which is malum prohibitum. There is no requirement to
prove intent to defraud.
The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan
transactions of ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least a return
of the goods. ARMAGRI failed tom pay or return the goods despite repeated demands by the Bank.
It is well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to account,
upon demand, for funds or property held in trust is evidence of conversion or misappropriation. Under
the law, mere failure by the entrustee to account for the goods received in trust constitutes estafa. The
Trust Receipts Law punishes dishonesty and abuse of confidence in the handling of money or goods to
prejudice the public order. The mere failure to deliver proceeds of the sale or the goods if not sold
constitutes a criminal offense that causes prejudice not only to the creditor, but also to the public interest.
Evidently, the Bank suffered prejudice for neither money nor the goods were turned over the Bank.
PARRICIDE; ELEMENTS
Facts: Armando Dalag, a member of the Philippine National Police, was lawfully married to Leah Nolido
Dalag. They had three children. Their marriage was far from idyllic. Their covertures were marred by
violent quarrels, with Leah always at the losing end. Each time the couple had a quarrel, she sustained
contusions, bruises and lumps on different parts of her body.
On August 15, 1996, Armando was drinking when Leah admonished him not to do so. Leah was then
banged on the wall by Armando. Then he pushed and kicked Leah on the left side of her body which
caused her to fall on the ground. Even as Leah was already lying prostrate, Armando continued to beat her
up, punching her on the different parts of her body. Leah then fled to the house of Felia Horilla but
Armando ran after her and herded her back to their house. Leah fell again to the ground and lost her
consciousness. The trial court convicted Armando of parricide.
Held: Yes, the trial court correctly concluded that the injuries sustained by Leah that caused her death
were the consequence of the appellants deliberate and intentional acts.
The crime of parricide is defined by Article 246 of the Revised Penal Code thus: Any person who shall kill
his father, mother, or child, whether legitimate or illegitimate, or any of his ascendants, or descendants, or
his spouse, shall be guilty of parricide and shall be punished by the penalty of reclusion perpetua to death.
The prosecution is mandated to prove the following essential elements: (1) a person is killed; (2) the
deceased is killed by the accused; and (3) the deceased is the father, mother or child, whether legitimate
or illegitimate, or a legitimate other ascendant or other descendant, or the legitimate spouse of the
accused. The prescribed penalty for the crime is reclusion perpetua to death. The key element in parricide
of a spouse, the best proof of the relationship between the accused and the deceased would be the
marriage certificate.
Facts: Sometime in 1998, ten-year old Richelle Cosada was told by appellant Benjamin Hilet, the common
law husband of her mother not to go to school and watch the house. At about 10 AM, while her mother
was out selling fish, Richelle saw appellant sharpening his bolo. Moments later, appellant dragged her
towards the room and raped her. She kept the afternoon of March 17, 1999. Richelle finally confided to her
mother. The latter asked their neighbor to report the incident to the police. The trial court convicted the
appellant guilty of two counts of statutory rape.
Held: No, time is not an essential element of statutory rape. An information is valid as long as it distinctly
states the elements of the offense and the acts or omission constitutive thereof. The exact date of the
commission of a crime is not an essential element of rape. Thus, in a prosecution of rape, the material fact
or circumstance to be considered is the occurrence of rape, not the time of its commission.
It is not necessary to state the precise time when the offense was committed except when time is a
material ingredient of the offense. In statutory rape, time is not an essential element. What is important is
the information alleges that the victim is a minor under twelve years of age and the accused had carnal
knowledge of her, even if no force or intimidation was used or she was not otherwise deprived of reason.
Facts: Reynaldo Diaz, a tricycle driver, went to a coffee shop to meet Ronnie Sanchez and this Sanchez
disclosed to Diaz his plan to rob Rosita Sy. Thereafter Belleza Lozada arrived. They planned to wait Rosita
Sy as she would normally leave her drugstore between 10:30 and 11 PM. They have also planned to kill
Rosita Sy, upon realizing that Sy would be killed, Diaz excused himself on the pretext that he would get a
weapon but he delayed himself and the plan was not implemented that night because of the delay. They
have agreed to pursue it the next day. Diaz deliberately stayed away from their meeting place the next day.
The following day, he learned over the radio that a lifeless body of Rosita was found in a remote area.
Issue: Whether or not all elements of a Robbery with Homicide are present to constitute a penalty of
death.
Held: The SC ruled that all the elements were present. The taking with animo lurid or personal property
belonging to another person by means of violence against or intimidation of person or using force upon
thing constitutes robbery, and the complex crime of robbery with homicide arises when by reason or on
the occasion of robbery, someone is killed. All these elements have satisfactorily been shown by the
prosecution.
Facts: On or about the 15th day of November 1995, at Barangay Bilwang, Municipality of Isabel, province
of Leyte, accused Marivic Genosa, with intent to kill, with treachery and evident premeditation, did then
and there willfully, unlawfully and feloniously attack, assault, hit and wound BEN GENOSA, her
legitimate husband, with the use of a hard deadly weapon, which the accused had provided herself for the
purpose, inflicting several wounds which caused his death.
The lower court found the accused, Marivic Genosa y Isidro, GUILTY beyond reasonable doubt of the
crime of parricide and sentenced the accused with the penalty of DEATH.
On appeal, the appellant alleged that despite the evidence on record of repeated and severe beatings she
had suffered at the hands of her husband, the lower court failed to appreciate her self-defense theory. She
claimed that under the surrounding circumstances, her act of killing her husband was equivalent to self-
defense.
Issue: Whether or not the battered woman syndrome as a viable plea within the concept of self-defense
is applicable in this case.
Held: No. The court, however, is not discounting the possibility of self-defense arising from the battered
woman syndrome. We now sum up our main points. First, each of the phases of the cycle of violence must
be proven to have characterized at least two battering episodes between the appellant and her intimate
partner. Second, the final acute battering episode preceding the killing of the batterer must have produced
in the battered persons mind an actual fear of an imminent harm, from her batterer and an honest belief
that she needed to use force in order to save her life. Third, at the time of the killing, the batterer must
have posed probablenot necessarily immediate and actualgrave harm to the accused, based on the
history of violence perpetrated by the former against the latter. Taken altogether, these circumstances
could satisfy the requisites of self-defense. Under the existing facts of the present case, however, not all of
these elements were duly established.
Facts: The spouses Vivencio and Teodora Brigole had four children. Two of them were girls and named-
Norelyn and Doneza. Teodora left Vivencio and kept custody of their fpur children. Then, Teodora and
Levi started living together as husband and wife.
Sometime in 1995, Norelyn, who was barely ten years old, was gathering firewood with the appellant Levi
in his farm. While they were nearing a guava tree, the appellant suddenly boxed her on the stomach.
Norelyn lost consciousness. She had her clothes when she woke up. She had a terrible headache and felt
pain in her vagina. She also had a bruise in the middle portion of her right leg. The appellant warned not
to tell her mother about it, otherwise he would kill her.
The sexual assaults were repeated several times so she decided to tell her sister and eventually her
mother. The trial court found the accused guilty of the crime rape and sentenced him to death.
Held: Yes, the accused is guilty of the crime charged. For the accused to held guilty of consummated rape,
the prosecution must prove beyond reasonable doubt that: 1) there had been carnal knowledge of the
victim by the accused; 20 the accused achieves the act through force or intimidation upon the victim
because the latter is deprived of reason or otherwise unconscious. Carnal knowledge of the victim by the
accused may be proved either by direct evidence or by circumstantial evidence that rape had been
committed and that the accused is the perpetrator thereof. A finding of guilt of the accused for rape may
be based solely on the victims testimony if such testimony meets the test of credibility. Corroborating
testimony frequently unavailable in rape cases is not indispensable to warrant a conviction of the accused
for the crime. This Court has ruled that when a woman states that she has been raped, she says in effect all
that would necessary to show rape did take place. However, the testimony of the victim must be
scrutinized with extreme caution. The prosecution must stand or fall on its own merits.
The credibility of Norelyn and the probative weight of her testimony cannot be assailed simply because
her admission that it took the appellant only short time to insert his penis into her vagina and to satiate
his lust. The mere entry of his penis into the labia of the pudendum, even if only for a short while, is
enough insofar as the consummation of the crime of rape is concerned, the brevity of time that the
appellant inserted penis into the victims vagina is of no particular importance.
Posted by UNC Bar Operations Commission
TAXATION II
COMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND CEMENT COMPANY and
COURT OF TAX APPEALS
FACTS: By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on
appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to
refund to the Cebu Portland Cement Company the amount of P359,408.98, representing overpayments of
ad valorem taxes on cement produced and sold by it after October 1957.
On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the
private respondent, the latter moved for a writ of execution to enforce the said judgment.
The motion was opposed by the petitioner on the ground that the private respondent had an outstanding
sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was
still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge.
On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the alleged sales tax liability
of the private respondent was still being questioned and therefore could not be set-off against the refund.
ISSUE:
Whether or not the judgment debt can be enforced against private respondents sales tax liability, the
latter still being questioned.
RULING:
The argument that the assessment cannot as yet be enforced because it is still being contested loses sight
of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes
could be postponed by simply questioning their validity, the machinery of the state would grind to a halt
and all government functions would be paralyzed.
The Tax Code provides: Sec. 291. Injunction is not available to restrain collection of tax. - No court shall
have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or
charge imposed by this Code.
It goes without saying that this injunction is available not only when the assessment is already being
questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is
still-and only-on the administrative level. There is all the more reason to apply the rule here because it
appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4
million is still due from the private respondent.
COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX APPEALS
FACTS: The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto
Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the
formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately,
after its incorporation largely through the promotion of the said persons, this new corporation purchased
the PSEDC properties. For this sale, Algue received as agent a commission of P126, 000.00, and it was
from this commission that the P75, 000.00 promotional fees were paid to the a forenamed individuals.
The petitioner contends that the claimed deduction of P75, 000.00 was properly disallowed because it
was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it
differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private
respondent for actual services rendered. The payment was in the form of promotional fees.
ISSUE:
Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed
by private respondent Algue as legitimate business expenses in its income tax returns.
RULING:
The Supreme Court agrees with the respondent court that the amount of the promotional fees was not
excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to
surrender part of one's hard earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government.
FACTS: On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of
1960, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act, requiring
any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the selling price of any motor
vehicle and prohibiting the registration of the sale of the motor vehicle in the Motor Vehicles Office of the
City of Iloilo unless the tax has been paid.
C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles in the
City of Iloilo, is one of those affected by the enactment of the ordinance, and believing that the same is
invalid for having been passed in excess of the authority conferred by law upon the municipal board, he
filed on June 27, 1960 a petition for declaratory judgment with the Court of First Instance of Iloilo praying
that said ordinance be declared void ab initio.
The court a quo rendered decision on December 8, 1960 holding that that part of the ordinance which
requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1% of the selling price is valid, but
the portion thereof which requires the payment of the tax as a condition precedent for the registration of
the sale in the Motor Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264.
Both parties have appealed.
ISSUE:
Whether or not the ordinance in question is valid even with regard to the portion which requires the
payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office of
said city.
RULING:
The City of Iloilo has the authority and power to approve the ordinance in question for it merely imposes a
percentage tax on the sale of a second-hand motor vehicle that may be carried out within the city by any
person, firm, association or corporation owning or dealing with it who may come within the jurisdiction.
The requirement of the ordinance cannot be considered a tax in the light viewed by the court a quo for the
same is merely a coercive measure to make the enforcement of the contemplated sales tax more effective.
Well-settled is the principle that taxes are imposed for the support of the government in return for the
general advantage and protection which the government affords to taxpayers and their property. Taxes
are the lifeblood of the government.
FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor
vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1) while it
levies a so-called property tax it is in reality a license tax which is beyond the power of the Municipal
Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it
constitutes double taxation.
The respondents contend on their part that the challenged ordinance imposes a property tax which is
within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act
No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it
constitute double taxation.
ISSUE:
RULING:
The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the
ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not
distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it
distinguish between a motor vehicle registered in the City of Manila and one registered in another place
but occasionally comes to Manila and uses its streets and public highways. This is an inequality which we
find in the ordinance, and which renders it offensive to the Constitution.
FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for
1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and
exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal
Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss
only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of
P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary
and necessary expenses in the same return was the amount of P340, 822.04, representing margin fees it
had paid to the Central Bank on its profit remittances to its New York head office.
On August 5, 1964, the CIR granted a tax credit of P221, 033.00 only, disallowing the claimed deduction
for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be
considered taxes or allowed as deductible business expenses.
Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid
contending that the margin fees were deductible from gross income either as a tax or as an ordinary and
necessary business expense. However, Essos appeal was denied.
ISSUE:
(2) Whether or not the margin fees are necessary and ordinary business expenses.
RULING:
(1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee
are applied to strengthen our country's international reserves. The margin fee was imposed by the State in
the exercise of its police power and not the power of taxation.
(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and
helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is
normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin
fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a
separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can
never be said therefore that the margin fees were appropriate and helpful in the development of Esso's
business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs
of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a
loss in the Philippines exclusively.
PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY
FACTS: On December 24, 1969, the City Council of Quezon City adopted Ordinance No. 7997, otherwise
known as the Market Code of Quezon City. Section 3 of said ordinance provides that privately owned and
operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders
showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross
receipts from stall rentals to the City, ... , as supervision fee.
On July 15, 1972, Progressive Development Corporation (Progressive), owner and operator of a public
market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with
Preliminary Injunction against Quezon City on the ground that the supervision fee or license tax imposed
by the above-mentioned ordinance is in reality a tax on income which Quezon City may not impose, the
same being expressly prohibited by Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act.
In its Answer, Quezon City, through the City Fiscal, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income.
The lower court ruled that the questioned imposition is not a tax on income, but rather a privilege tax or
license fee which local governments, like Quezon City, are empowered to impose and collect.
ISSUE:
Whether the tax imposed by Quezon City on gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax.
RULING:
No. The tax imposed in the controverted ordinance constitutes, not a tax on income, not a city income tax
(as distinguished from the national income tax imposed by the National Internal Revenue Code) within
the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of
the business in which Progressive is engaged. While it is true that the amount imposed by the questioned
ordinances may be considered in determining whether the exaction is really one for revenue or
prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be
reasonable.
PHILIPPINE AIRLINES, INC. v. EDU
FACTS: The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a
legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation
and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration
fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed
under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land
Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied
the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo
Carbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified
the case to the Supreme Court.
ISSUE:
RULING:
Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor
vehicle registration fees are actually taxes intended for additional revenues of the government even if one
fifth or less of the amount collected is set aside for the operating expenses of the agency administering the
program.
FACTS: On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said
city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).
Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any
position or occupation or business enumerated therein, whether permanent, temporary or casual, without
first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign countries, or in the technical
assistance programs of both the Philippine Government and any foreign government, and those working
in their respective households, and members of religious orders or congregations, sect or denomination,
who are not paid monetarily or in kind.
Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila filed a petition with the CFI of
Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of the
rule of the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Villegas
filed the present petition.
ISSUE:
RULING:
Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which requires
that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and
judgment in the processing and approval or disapproval of applications for employment permits and
therefore is regulatory in character the second part which requires the payment of P50.00 as employee's
fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from
aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise
money under the guise of regulation.
CITY OF MANILA, ET AL
Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay
the license fees but not the municipal sales taxes; and since it already paid the license fees aforesaid, the
sales taxes paid by it amounting to the sum of P15, 208.00 under the three ordinances is an
overpayment made by mistake, and therefore refundable.
The City contends that for the permit issued to it Tabacalera is subject to pay the license fees prescribed
by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816.
ISSUE:
RULING:
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the
business of selling liquor or alcoholic beverages. On the other hand, it is clear that Ordinances Nos. 3634,
3301, and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue
measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of
such merchandise.
That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is
collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor. On
the other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes
based on the sales made of the same article or merchandise. It is already settled in this connection that
both a license fee and a tax may be imposed on the same business or occupation, or for selling the same
article, this not being in violation of the rule against double taxation.
FACTS: Appellees are foreign shipping companies licensed to do business in the Philippines, with offices
in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its territorial waters.
As the city treasurer assessed and attempted to collect from them the anchorage fees prescribed in the
aforesaid amendatory ordinance, they filed the present action for Declaratory Relief to have the courts
determine its validity. Upon their petition the lower court issued a writ of preliminary injunction
restraining appellants from collecting or attempting to collect from them the fees prescribed therein.
Appellant contended that, through its city council, it had authority to enact the questioned ordinance in
the exercise of either its revenue-raising power or of its police power. The question to be resolved is
whether the City of Basilan has the authority to enact Ordinance 180 and to collect the anchorage fees
prescribed therein.
ISSUE:
RULING:
Under paragraph (a) sec. 14, R.A. 288, it is clear that the City of Basilan may only levy and collect taxes for
general and special purposes in accordance with or as provided by law; in other words, the city of Basilan
was not granted a blanket power of taxation. The use of the phrase "in accordance with law" which, in
our opinion, means the same as "provided by law" clearly discloses the legislative intent to limit the
taxing power of the City.
It has been held that the power to regulate as an exercise of police power does not include the power to
impose fees for revenue purposes. Appellant city's own contention that the questioned ordinance was
enacted in the exercise of its power of taxation makes it obvious that the fees imposed are not merely
regulatory.
FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the
General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to
reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from
exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the
OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino promulgated E. O. 137
expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a
result of the reduction of domestic prices of petroleum products.
The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected
for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only
for the purpose indicated, and not channelled to another government objective." Petitioner further points
out that since "a 'special fund' consists of monies collected through the taxing power of a State, such
amounts belong to the State, although the use thereof is limited to the special purpose/objective for which
it was created."
ISSUE:
Whether or not the funds collected under PD 1956 is an exercise of the power of taxation
RULING:
The levy is primarily in the exercise of the police power of the State. While the funds collected may be
referred to as taxes, they are exacted in the exercise of the police power of the State.
What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax." The Court is cited to this requirement by the petitioner on the premise that what is
involved here is the power of taxation; but as already discussed, this is not the case. What is here involved
is not so much the power of taxation as police power. Although the provision authorizing the ERB to
impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked
that the overriding consideration is to enable the delegate to act with expediency in carrying out the
objectives of the law which are embraced by the police power of the State.
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
FACTS: Joint appeal by three sugar centrals, respondents herein. from a decision of the Court of First
Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be
collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be
devoted only to the specific purpose for which the assessment was authorized; a special assessment being
a levy upon property predicated on the doctrine that the property against which it is levied derives some
special benefit from the improvement. It is not a tax measure intended to raise revenues for the
Government.
ISSUE:
RULING:
The Court deemed it relevant to discuss its holding in Lutz v. Araneta. For in this Lutz case,
Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, all collections made thereunder
"shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and
Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or
all of the following objectives, as may be provided by law." Analysis of the Act, and particularly Section 6,
will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police
power.
On the authority of the above case, then, We hold that the special assessment at bar may be considered as
similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power
of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the
general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private
citizen may lawfully resist.
FACTS:
This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of
Victorias, Negros Occidental.
The disputed ordinance imposed license taxes on operators of sugar centrals and sugar refineries. The
changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar
refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual
output capacity.
For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery
located in the Municipality of Victorias comes within these items.
Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The
plaintiff contends that the ordinance is discriminatory since it singles out plaintiff which is the only
operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality.
The trial court rendered its judgment declaring that the ordinance in question refers to license taxes or
fees. Both plaintiff and defendant directly appealed to the Supreme Court.
ISSUE:
Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment
or as a revenue measure?
RULING:
The present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount
of maximum annual tax set forth in the ordinance, P40, 000. 00 for sugar centrals, and P40, 000.00 for
sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the
ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection,
supervision or regulation. Given the purposes just mentioned, we find no warrant in logic to give our
assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning
conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the
ordinance.
FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of
the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Plaintiff, Walter Lutz seeks to recover from the Collector of Internal Revenue the sum of P14, 666.40 paid
by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging
that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutionally
levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case
directly to the Supreme Court.
ISSUE:
Is the tax provided for in Commonwealth Act No. 567 a pure exercise of the taxing power?
RULING:
Analysis of the Act, and particularly of section 6 will show that the tax is levied with a regulatory purpose,
to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words,
the act is primarily an exercise of the police power.
The protection and promotion of the sugar industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is necessary for its protection and expedient
for its promotion. If objective and methods are alike constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the
implement of the state's police power.
(PCGG) vs. COCOFED, ET AL. and BALLARES, ET AL., EDUARDO M. COJUANGCO JR. and
the
FACTS: The PCGG issued and implemented numerous sequestrations, freeze orders and provisional
takeovers of allegedly ill-gotten companies, assets and properties, real or personal.
Among the properties sequestered by the Commission were shares of stock in the United Coconut
Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-called
Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo
Cojuangco Jr... On January 23, 1995, the trial court rendered its final Decision nullifying and setting aside
the Resolution of the Sandiganbayan which lifted the sequestration of the subject UCPB shares.
ISSUE:
Are the Coconut Levy Funds raised through the States police and taxing powers?
RULING:
Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional
contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support
of government and for all public needs.
Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution
from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for
the support of the government.
Taxation is done not merely to raise revenues to support the government, but also to provide means for
the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest
as to be within the police power of the State.
FACTS: On August 31, 1954, petitioner Wenceslao Pascual instituted this action for declaratory relief, with
injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public
Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00
"for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals;
that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing
but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . .
situated at . . . Pasig, Rizal" which projected feeder roads "do not connect any government property or any
important premises to the main highway";
Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue",
and that the petition did "not state a cause of action".
ISSUE:
Should appropriation using public funds be made for public purposes only?
RULING:
The right of the legislature to appropriate funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a
tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be
made for other than for a public purpose.
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is
designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,
although each advantage to individuals might incidentally serve the public.
FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the
General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to
reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from
exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the
OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino promulgated E. O. 137
expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a
result of the reduction of domestic prices of petroleum products.
The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected
for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only
for the purpose indicated, and not channelled to another government objective." Petitioner further points
out that since "a 'special fund' consists of monies collected through the taxing power of a State, such
amounts belong to the State, although the use thereof is limited to the special purpose/objective for which
it was created."
ISSUE:
Do the powers granted to the ERB under P.D. 1956 partake of the nature of the taxation power of the
State?
RULING:
NO. The OPSF was established "for the purpose of minimizing the frequent price changes brought about
by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum
products. While the funds collected may be referred to as taxes, they are exacted in the exercise of the
police power of the State.
PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. vs. MUNICIPALITY OF
TANAUAN
FACTS: In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264
(Local Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance
Nos. 23 and 27 issued by the Municipality of Tanauan, Leyte as null and void.
Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-
sixteenth (1/16) of a centavo for every bottle of soft drink corked. On the other hand, Municipal Ordinance
No. 27 levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of
the municipality a tax of one centavo (P0.01) on each gallon of volume capacity. The tax imposed in both
Ordinances Nos. 23 and 27 is denominated as "municipal production tax.
ISSUES:
2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific taxes?
RULING:
1. NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial
department of the government without infringing upon the theory of separation of powers. But as an
exception, the theory does not apply to municipal corporations. Legislative powers may be delegated to
local governments in respect of matters of local concern.
2. NO. The Municipality of Tanauan discovered that manufacturers could increase the volume contents of
each bottle and still pay the same tax rate since tax is imposed on every bottle corked. To combat this
scheme, Municipal Ordinance No. 27 was enacted. As such, it was a repeal of Municipal Ordinance No. 23.
In the stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing Municipal
Ordinance No. 27 only. Hence, there was no case of double taxation.
ISSUE:
Should the subject properties maintained by petitioner SSS be exempt from payment of real property tax?
RULING:
Further, P.D. 24 has amended the Social Security Act of 1954 expressly exempting the SSS from payment
of any tax thereby removing all doubts as to its exemption.
FACTS: Petitioner Sea-Land Service Incorporated, an American international shipping company licensed
by the Securities and Exchange Commission to do business in the Philippines entered into a contract with
the United States Government to transport military household goods and effects of U.S. military
personnel assigned to the Subic Naval Base. Sea-Land paid its corresponding corporate income tax for the
taxable year 1984 at the rate of 1.5% in accordance with Section 25(a) (2) of the National Internal Revenue
Code in relation to Article 9 of the RP-US Tax Treaty. Subsequently, Sea-Land filed a claim for refund
alleging that the taxes it paid were made in mistake because under the RP-US Military Base Agreement, it
is exempt from the payment of taxes.
ISSUE:
Does the income that petitioner derived from services in transporting the household goods and effects of
U.S. military personnel fall within the tax exemption provided in the RP-US Military Bases Agreement?
RULING:
NO. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally
in favour of the taxing power. The transport or shipment of household goods and effects of U.S. military
personnel is not included in the term "construction, maintenance, operation and defense of the bases.
Neither could the performance of this service to the U.S. government be interpreted as directly related to
the defence and security of the Philippine territories
FACTS: On April 17, 1970, Atlas Consolidated Mining and Development Corporation entered into a Loan
and Sales Contract with Mitsubishi Metal Corporation for purposes of the projected expansion of the
productive capacity of the former's mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to
extend a loan to Atlas 'in the amount of $20,000,000.00, United States currency. Atlas, in turn undertook
to sell to Mitsubishi all the copper concentrates produced for a period of fifteen (15) years. Mitsubishi
thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank) for purposes of its
obligation under said contract. Its loan application was approved on May 26, 1970 in the equivalent sum
of $20,000,000.00 in United States currency at the then prevailing exchange rate.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the
latter totalling P13, 143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in the
amount of P1, 971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the
National Internal Revenue Code, as amended by Presidential Decree No. 131, and duly remitted to the
Government.
ISSUE:
Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from
gross income taxation pursuant to Section 29 of the tax code and, therefore, exempt from withholding tax.
RULING:
The court ruled in the negative. Eximbank had nothing to do with the sale of the copper concentrates
since all that Mitsubishi stated in its loan application with the former was that the amount being procured
would be used as a loan to and in consideration for importing copper concentrates from Atlas. Such an
innocuous statement of purpose could not have been intended for, nor could it legally constitute, a
contract of agency. The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole
creditor of ATLAS, the former being the owner of the $20 million upon completion of its loan contract
with EXIMBANK of Japan.
It is settled a rule in this jurisdiction that laws granting exemption from tax are construed strictissimi juris
against the taxpayer and liberally in favour of the taxing power. Taxation is the rule and exemption is the
exception.
FACTS: The 31st Infantry Post Exchange is a post exchange constituted in accordance with Army
regulations and the laws of the United States. in the course of its duly authorized business transactions,
the Exchange made many purchases of various and diverse commodities, goods, wares and merchandise
from various merchants in the Philippines. The Commissioner collected a sales tax of 1 1/2 % of the gross
value of the commodities, etc. from the merchants who sold said commodities to the Exchange. A formal
protest was lodged by the Exchange.
ISSUE:
Whether or not the petitioner is exempt from the sales tax imposed against its suppliers.
RULING:
The court ruled in the negative. Taxes have been collected from merchants who made sales to Army Post
Exchanges since 1904 (Act 1189, Section 139). Similar taxes are paid by those who sell merchandise to the
Philippine Government, and by those who do business with the US Army and Navy in the Philippines.
Herein, the merchants who effected the sales to the Post Exchange are the ones who paid the tax; and it is
the officers, soldiers, and civilian employees and their families who are benefited by the post exchange to
whom the tax is ultimately shifted.
An Army Post Exchange, although an agency within the US Army, cannot secure exemption from taxation
for merchants who make sales to the Post Exchange.
FACTS: Respondent Marubeni Corporation is a foreign corporation and is duly registered to engage in
business in the Philippines. Sometime in November 1985, petitioner Commissioner of Internal Revenue
issued a letter of authority to examine the books of accounts of the Manila branch office of Respondent
Corporation.
In the course of the examination, petitioner found respondent to have undeclared income from two (2)
contracts in the Philippines. Petitioner's revenue examiners recommended an assessment for deficiency
income, branch profit remittance, and contractors and commercial broker's taxes. Respondent
questioned this assessment. Respondent then received a letter form petitioner assessing respondent
several deficiency taxes. On September 26, 1986, respondent filed two (2) petitions for review with the
Court of Tax Appeals.
Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid
income taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the
income tax amnesty should comply with certain requirements. In accordance with the terms of E.O. No.
41, respondent filed its tax amnesty return dated October 30, 1986. On November 17, 1986, the scope and
coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64.
ISSUE:
Whether or not herein respondent's deficiency tax liabilities were extinguished upon respondent's
availment of tax amnesty under Executive Orders Nos. 41 and 64.
RULING:
Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those
taxpayers "with income tax cases already filed in court as of the effectivity hereof." The point of reference
is the date of effectivity of E.O. No. 41. The difficulty lies with respect to the contractor's tax assessment
and respondent's availment of the amnesty under E.O. No. 64 including estate and donor's taxes and tax
on business.
In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should be construed
strictly against the taxpayer. The term "income tax cases" should be read as to refer to estate and donor's
taxes and taxes on business while the word "hereof," to E.O. No. 64. Since Executive Order No. 64 took
effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of
effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986. There is nothing in
E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original
issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of its provisions should apply
retroactively.
FACTS: William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US $ 6,443.83,
including freight, insurance and other charges. After acquiring a permit to sell the car from the base
commander of Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps
stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred
Meneses, a Filipino. As a result of the transaction, the Commissioner rendered Reagan liable for income
tax in the sum of P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air
Base, which as he contends is a base outside the Philippines.
ISSUE:
RULING:
The court ruled in the negative. The Philippines, as an independent and sovereign country, exercises its
authority over its entire domain. Any state may, however, by its consent, express or implied, submit to a
restriction of its sovereign rights. It may allow another power to participate in the exercise of
jurisdictional right over certain portions of its territory. By doing so, it by no means follows that such
areas become impressed with an alien character. The areas retain their status as native soil. Clark Air Base
is within Philippine territorial jurisdiction to tax, and thus, Reagan was liable for the income tax arising
from the sale of his automobile in Clark. The law does not look with favour on tax exemptions and that he
who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical
to be misinterpreted. Reagan has not done so, and cannot do so.
Special Economic Zone and granted there to special privileges. President Ramos issued Executive Order
No. 97, clarifying the application of the tax and duty incentives. The President issued Executive Order No.
97-A, specifying the area within which the tax-and-duty-free privilege was operative. The petitioners
challenged before this Court the constitutionality of EO 97-A for allegedly being violative of their right to
equal protection of the laws. This Court referred the matter to the Court of Appeals. Proclamation No. 532
was issued by President Ramos. It delineated the exact metes and bounds of the Subic Special Economic
and Free Port Zone, pursuant to Section 12 of RA 7227. Respondent Court held that "there is no
substantial difference between the provisions of EO 97-A and Section 12 of RA 7227. In both, the 'Secured
Area' is precise and well-defined as '. . . the lands occupied by the Subic Naval Base and its contiguous
extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the
Philippines and the United States of America, as amended . . .'"
ISSUE:
Whether or not Executive Order No. 97-A violates the equal protection clause of the Constitution
RULING:
No. The Court found real and substantive distinctions between the circumstances obtaining inside and
those outside the Subic Naval Base, thereby justifying a valid and reasonable classification. The
fundamental right of equal protection of the laws is not absolute, but is subject to reasonable
classification. If the groupings are characterized by substantial distinctions that make real differences, one
class may be treated and regulated differently from another. The classification must also be germane to
the purpose of the law and must apply to all those belonging to the same class.
FACTS: Republic Act No. 7227 set out the policy of the government to accelerate the sound and balanced
conversion into alternative productive uses of the former military bases. It created Bases Conversion and
Development Authority. It also created the Subic Special Economic and Free Port Zone. It granted the
Subic SEZ incentives. It expressly gave authority to the President to create through executive
proclamation, subject to the concurrence of the local government units directly affected, other Special
Economic Zones in the areas covered. BCDA entered into a Memorandum of Agreement and Escrow
Agreement with Tuntex and Asiaworld. BCDA, Tuntex and Asiaworld executed a Joint Venture
Agreement. The Sangguniang Panlungsod of Baguio City asked BCDA to exclude all the barangays partly
or totally located within Camp John Hay from the reach or coverage of any plan or program for its
development. The sanggunian adopted and submitted a 15-point concept for the development of Camp
John Hay. BCDA, Tuntex and AsiaWorld agreed to some, but rejected or modified the other proposals.
They stressed the need to declare Camp John Hay a SEZ as a condition precedent in accordance R.A. No.
7227. The sanggunian requested the Mayor to order the determination of realty taxes which may be
collected from real properties of Camp John Hay. It was intended to intelligently guide the sanggunian in
determining its position on whether Camp John Hay be declared a SEZ, it being of the view that such
declaration would exempt the camps property and the economic activity therein from local or national
taxation. The sanggunian passed a resolution seeking the issuance by President Ramos of a presidential
proclamation declaring an area of 288.1 hectares of the camp as a SEZ. President Ramos issued
Proclamation No. 420 which established a SEZ on a portion of Camp John Hay.
ISSUE:
RULING:
While the grant of economic incentives may be essential to the creation and success of SEZs, free trade
zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A.
No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds
no support therein. Neither does the same grant of privileges to the John Hay SEZ find support in the
other laws specified under Section 3 of Proclamation No. 420, which laws were already extant before the
issuance of the proclamation or the enactment of R.A. No. 7227. More importantly, the nature of most of
the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of the
state constitution that has full power to exempt any person or corporation or class of property from
taxation, its power to exempt being as broad as its power to tax. The challenged grant of tax exemption
would circumvent the Constitutions imposition that a law granting any tax exemption must have the
concurrence of a majority of all the members of Congress.
FACTS: Republic Act No. 7227 was enacted providing for the sound and balanced conversion of the Clark
and Subic military reservations and their extensions into alternative productive uses in the form of special
economic zones in order to promote the economic and social development of Central Luzon in particular
and the country in general. President Ramos issued Executive Order No. 80 which declared that Clark
shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under
Republic Act No. 7227. The CSEZ shall have all the applicable incentives in the Subic Special Economic
and Free Port Zone under RA 7227. The CSEZ Main Zone covering the Clark Air Base proper shall have all
the investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited
incentives. The full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ
Sub-Zone shall be determined by the BCDA. BCDA passed Board Resolution No. 93-05-034 allowing the
tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ.
The President issued EO No. 97, Clarifying the Tax and Duty Free Incentive Within the Subic Special
Economic Zone Pursuant to R.A. No. 7227. EO 97-A was issued, Further Clarifying the Tax and Duty-
Free Privilege within the Subic Special Economic and Free Port Zone.
ISSUE:
Whether or not Executive Order No. 97-A, Section 5 of Executive Order No. 80, and Section 4 of BCDA
Board
RULING:
The Court finds that the setting up of such commercial establishments which are the only ones duly
authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12
of Republic Act No. 7227 that . . . the Subic Special Economic Zone shall be developed into a self-
sustaining, industrial, commercial, financial and investment centre to generate employment opportunities
in and around the zone and to attract and promote productive foreign investments. The Court reiterates
that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-
free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ,
are null and void for being contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides
that exportation or removal of goods from the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff
Code and other relevant tax laws of the Philippines.
ISSUE:
Whether or not the properties of respondent Roman Catholic Bishop should be exempt from taxation
RULING:
Respondent Judge would not have erred so grievously had he merely compared the provisions of the
present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings,
and improvements." There is a marked difference. Under the 1935 Constitution: "Cemeteries, churches,
and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present
Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for
the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also
"actually and "directly" used for religious or charitable purposes. The Constitution is worded differently.
The change should not be ignored. It must be duly taken into consideration.
FACTS: Motions were filed seeking reconsideration of the Supreme Court decision dismissing the
petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners
in these cases.
ISSUES:
1. Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as
required by Art. VI Sec. 24 of the Constitution.
2. Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III Secs. 4
and 5 of the Constitution.
3. Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the Constitution.
4. Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the
Constitution.
5. Whether or not there is violation of the due process clause under Art. III Sec. 1 of the Constitution.
RULING:
1. While Art. VI Sec. 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of
the public debt, bills of local application, and private bills must "originate exclusively in the House of
Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise
of this power, the Senate may propose an entirely new bill as a substitute measure.
2. Since the law granted the press a privilege, the law could take back the privilege anytime without
offense to the Constitution. The VAT is not a license tax. It is not a tax on the exercise of a privilege, much
less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the
sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press
to its payment is not to burden the exercise of its right any more than to make the press pay income tax or
subject it to general regulation is not to violate its freedom under the Constitution.
3. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive.
What it simply provides is that Congress shall "evolve a progressive system of taxation."
4. Contracts must be understood as having been made in reference to the possible exercise of the rightful
authority of the government and no obligation of contract can extend to the defeat of that authority.
5. On the alleged violation of due process, hardship to taxpayers alone is not an adequate justification for
adjudicating abstract issues. Otherwise, adjudication would be no different from the giving of advisory
opinion that does not really settle legal issues. We are told that it is our duty under Art. VIII, Sec. 1 (2) to
decide whenever a claim is made that "there has been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or instrumentality of the government." This duty can only
arise if an actual case or controversy is before us.
FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition
for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section
4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of
goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These
questioned provisions contain a uniformp ro v is o authorizing the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions
have been satisfied. Petitioners argue that the law is unconstitutional.
ISSUES:
2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.
3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the
Constitution.
RULING:
1. Since there is no question that the revenue bill exclusively originated in the House of Representatives,
the Senate was acting within its constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and
franchise taxes.
2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative process can go forward.
3. The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the States power
is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a
clear showing of unreasonableness, discrimination, or arbitrariness.
FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation engaged
in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of
Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra
was classified as agricultural food product under Sec. 103(b) of the National Internal Revenue Code and,
therefore, exempt from VAT at all stages of production or distribution.
Petitioner sought to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by
respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner
organization as the classification had the effect of denying to the petitioner the exemption it previously
enjoyed when copra was classified as an agricultural food product under Sec. 103(b) of the NIRC
ISSUE:
Whether there is violation of equal protection clause because while coconut farmers and copra producers
are exempt, traders and dealers are not, although both sell copra in its original state.
RULING:
There is a material or substantial difference between coconut farmers and copra producers, on the one
hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely
sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a
reasonable basis for classifying them differently.
RA No. 7654, was enacted and became effective on 03 July 1993. It amended Section
142(c)(1) of the NIRC. About a month after the enactment and two (2) days before the
effectively of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93")
Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR. Fortune
Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was
denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem tax deficiency amounting to P9, 598, 334. 00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. The CTA
upheld the position of Fortune Tobacco and adjudged RMC No. 37-93 as defective.
ISSUE:
RULING:
A reading of RMC 37-93, particularly considering the circumstances under which it has
been issued, convinces us that the circular cannot be viewed simply as a corrective
measure or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in
fact and most importantly, been made in order to place "Hope Luxury," "Premium More"
and "Champion" within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654.
In so doing, the BIR not simply interpreted the law; verily, it legislated under its quasi-
legislative authority. The due observance of the requirements of notice, of hearing, and of
publication should not have been then ignored. The Court is convinced that the hastily
promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.
FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant
serving the adjoining municipalities of Lingayen and Binmaley, Pangasinan, pursuant to the municipal
franchise granted it by their respective municipal councils, under Resolution Nos. 14 and 25 of June 29
and July 2, 1946, respectively. Section 10 of these franchises provides that said grantee shall pay 2% of
their gross earnings obtained thru this privilege. On November 21, 1955, the Bureau of Internal Revenue
(BIR) assessed against and demanded from the private respondent the total amount of P19,293.41
representing deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise
tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in Section 259 of
the National Internal Revenue Code, instead of the lower rates as provided in the municipal franchises.
Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963,
granting to the private respondent a legislative franchise for the operation of the electric light, heat, and
power system in the same municipalities of Pangasinan. Section 4 thereof provides that: In consideration
of the franchise and rights hereby granted, the grantee shall pay into the Internal Revenue office of each
Municipality in which it is supplying electric current to the public under this franchise, a tax equal to two
per centum of the gross receipts from electric current sold or supplied under this franchise. The petitioner
submits that the said law is unconstitutional insofar as it provides for the payment by the private
respondent of a franchise tax of 2% of its gross receipts, while other taxpayers similarly situated were
subject to the 5% franchise tax imposed in Section 259 of the Tax Code, thereby discriminatory and
violative of the rule on uniformity and equality of taxation.
ISSUE:
Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity and
equality of taxation" clause of the Constitution.
RULING:
Uniformity means that all property belonging to the same class shall be taxed alike The Legislature has
the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions
have never been deemed violative of the equal protection clause. Charters or special laws granted and
enacted by the Legislature are in the nature of private contracts. They do not constitute a part of the
machinery of the general government.
FACTS: This petition seeks to nullify Executive Order No. 273 (EO 273, for short), issued by the President
of the
Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the
National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and
other provisions of the 1987 Constitution.
ISSUE:
Whether or not EO 273 was enacted by the president with grave abuse of discretion and whether or not
such law is unconstitutional.
RULING:
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or
despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the
VAT had been extensively discussed by these framers and other government agencies involved in its
implementation, even under the past administration. The petitioners have failed to adequately show that
the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which
are actually hearsay and have evidentiary value. To justify the nullification of a law, there must be a clear
and unequivocal breach of the Constitution, not a doubtful and argumentative implication. The disputed
sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business
with an aggregate gross annual sales exceeding P200, 000.00. Small corners a r i- s a r i stores are
consequently exempt from its application.
FACTS: Petitioner assailed the validity of Section 1 of Batas Pambansa Blg. 135 which further amends
Section 21 of the
National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d)
interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from
trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of
taxable partnership, (f) adjusted gross income.
Petitioner as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the
imposition of higher rates of tax upon his income arising from the exercise of his profession vis -a- vis
those which are imposed upon fixed income or salaried individual taxpayers. He characterizes the above
section as arbitrary amounting to class legislation, oppressive and capricious in character.
ISSUE:
Whether or not BP 135 Sec 1 is violative of due process and equal protection clause.
RULING:
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void or its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a need for of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. Due process was not violated.
FACTS:
On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city
ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).
Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any
position or occupation or business enumerated therein, whether permanent, temporary or casual, without
first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00
except persons employed in the diplomatic or consular missions of foreign countries, or in the technical
assistance programs of both the Philippine Government and any foreign government, and those working
in their respective households, and members of religious orders or congregations, sect or denomination,
who are not paid monetarily or in kind.
Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila filed a petition with the CFI of
Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of the
rule of the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Villegas
filed the present petition.
ISSUE:
Whether or not the 50.00 employment permit fee imposed by virtue of Ordinance No. 6537 is a violation
of the equal protection clause.
RULING:
The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid
substantial differences in situation among individual aliens who are required to pay it. Although the equal
protection clause of the Constitution does not forbid classification, it is imperative that the classification
should be based on real and substantial differences having a reasonable relation to the subject of the
particular legislation. The same amount of P50.00 is being collected from every employed alien whether
he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid
executive.
Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the
mayor in the exercise of the power which has been granted to him by the ordinance.
FACTS: The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: 1)
tenement house, P25.00anually; 2) tenement house, partly or wholly engaged in or dedicated to business
in the streets of J.M. Basa, Iznart Aldequer, and P24.00 per apartment; 3) tenement house, partly or
wholly engaged in business in any other streets, P12.00 per apartment.
The validity and constitutionality of this ordinance were challenged by the spouses Villanueva, owners of
4 tenement houses containing 34 apartments.
ISSUE:
RULING:
No. This court has ruled that tenement houses constitute a distinct class of property. It has likewise ruled
that taxes are uniform and equal when imposed upon all properties of the same class or character within
the taxing authority. The fact, therefore, that the owners of other classes of buildings in the City of Iloilo
do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and
equality of the tax imposition.
FACTS: The City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance
No. 122. Ordinance No. 110 as amended, imposes a tax on any person, association, etc. of P0.10 per case
of 24 bottles of Pepsi- Cola and the plaintiff Pepsi-Cola paid under protest. The plaintiff filed a complaint
for the recovery of the amount paid under protest on the ground that Ordinance No. 110 is illegal, that the
tax imposed is excessive and that it is unconstitutional. Plaintiff maintains that the ordinance is null and
void because it is unjust and discriminatory.
ISSUE:
Whether or not the ordinance in question is violative of the uniformity required by the Constitution?
RULING:
Yes. Only sales by agents or consignees of outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if
the same exceeded those made by said agents or consignees of producers or merchants established
outside the City of Butuan, would be exempt from the disputed tax. The classification to be valid and
reasonable must be: 1) based upon substantial distinctions; 2)germane to the purpose of the ordinance; 3)
applicable, not only to present conditions, but also to future conditions substantially identical to those
present; and 4) applicable equally to all those who belong to the same class. These conditions are not fully
met by the ordinance in question.
FACTS: The Municipal Board of Ormoc City passed Ordinance No. 4 imposing on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax
equivalent to one per centum (1%) per export sale to USA and other foreign countries. Payments for said
tax were made, under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before
the Court of First Instance of Leyte a complaint against the City of Ormoc as well as its Treasurer,
Municipal Board and Mayor alleging that the ordinance is unconstitutional for being violative of the equal
protection clause and the rule of uniformity of taxation. The court rendered a decision that upheld the
constitutionality of the ordinance. Hence, this appeal.
ISSUE:
Whether or not constitutional limits on the power of taxation, specifically the equal protection clause and
rule of uniformity of taxation, were infringed?
RULING:
Yes. Equal protection clause applies only to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is based
upon substantial distinctions; 2) these are germane to the purpose of the law; 3) the classification applies
not only to present conditions, but also to future conditions substantially identical to those present; and
4) the classification applies only to those who belong to the same class.
A perusal of the requisites shows that the questioned ordinance does not meet them, for it taxes only
centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. The taxing
ordinance should not be singular and exclusive as to exclude any subsequently established sugar central
for the coverage of the tax.
LUTZ v. ARANETA
FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of
the taxes imposed by Commonwealth Act No. 567 (Sugar Adjustment Act). Section 3 of the said law levies
on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise a tax equivalent to the difference between the money value of the
rental or consideration collected and the amount representing 12 per centum of the assessed value of such
land. Plaintiff Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Ledesma, seeks to
recover from the Collector of Internal Revenue the sum paid by him as taxes alleging that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in
plaintiffs opinion is not a public purpose for which a tax may be constitutionally levied. The action having
been dismissed by the Court of First Instance, the plaintiffs appealed the case.
ISSUE:
A tax is uniform, within the constitutional requirement, when it operates with the same force and effect in
every place where the subject of it is found. "Uniformity," as applied to the constitutional provision that all
taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. The
statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric
sign, bill-board, etc., wherever found in the Philippine Islands. Or in other words, "the rule of taxation"
upon such signs is uniform throughout the Islands. The Legislature selected signs and billboards as a
subject for taxation and it must be presumed that it, in so doing, acted with a full knowledge of the
situation.
FACTS:
Manila Electric Company (MERALCO) was granted a franchise from certain municipalities of Laguna. On
September 13, 1991, Republic Act 7160, otherwise known as the Local Government Code of 1991 was
enacted, enjoining local government units to create their own sources of revenue and to levy taxes, fees
and charges, subject to the limitations expressed therein, consistent with the basic policy of local
autonomy. Pursuant to this Code, respondent province enacted a Provincial Ordinance providing that a
tax on business enjoying franchise, at a rate of 50% of 1% of the gross annual receipts... On the basis of
such ordinance, the Provincial Treasurer sent a demand letter to MERALCO for the tax payment.
MERALCO paid under protest. Thereafter, a formal claim for refund was sent by MERALCO to the
Provincial Treasurer claiming that the franchise tax it had paid and continue to pay to the National
Government already includes the franchise tax as provided under Presidential Decree 551.
The claim was denied. MERALCO filed an appeal with the trial court but was dismissed. Thus the petition.
ISSUE
Whether the imposition of a franchise tax under section 2.09 of the Laguna Provincial Ordinance No. 01-
92 violates the non-impairment clause of the Constitution.
RULING
No. Although local governments do not have the inherent power to tax, such power may be delegated to
them either by basic law or by statute. This is provided under Article X of the 1987 Constitution. The
rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers.
The Local Government Code of 1991 repealed the Tax Code. It explicitly authorizes provincial
governments, notwithstanding any exemption granted by any law, or other special laws, xxx (to) impose
a tax on business enjoying a franchise.
The phrase, in lieu of all taxes has to give way to the peremptory language of the Local Government
Code.
FACTS:
Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June 17, 1961
under Republic Act 3247. It was amended by Republic Act 3570 and Republic Act 6020. On June 28,
1973, the Local Tax Code was promulgated which provides that the province may impose a tax on
businesses enjoying franchise. Pursuant thereto, the Province of Misamis enacted Provincial Revenue
Ordinance No. 19. It demanded payment. CEPALCO refused to pay, alleging that it is exempt from all
taxes except the franchise tax required by Republic Act 6020. The provincial fiscal upheld the ordinance.
CEPALCO paid under protest. On appeal to the Secretary of Justice, ruled in favour of CEPALCO. The
province filed a petition with the trial court but was dismissed. Thus, the petition.
ISSUE
RULING
Yes. First off, there is no provision in PD No. 231 expressly or impliedly amending or repealing sec. 3 of
RA 6020 which exempts CEPALCO. The rule is that a special and local statute applicable to a particular
case is not repealed by a later statute which is general in its terms, provisions and application even if the
terms of the general act are broad enough to include the cases in the special law unless there is manifest
intent to repeal or alter the special law.
The franchise of CEPALCO expressly exempts it from payment of all taxes of whatever authority except
3% tax on its gross earnings. Such exemption is part of the inducement for the acceptance of the franchise
and the rendition of public service by the grantee.
Local Tax Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it crystal
clear that the franchise tax provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be imposed on
companies with franchises that do not contain the exempting clause in-lieu-of-all-taxes.
FACTS: Petitioner Cagayan Electric Power and Light Co., Inc (CEPALCO) is the holder of a legislative
franchise, Republic
Act 3247 under which, it is exempted from taxes, and assessments of whatever authority upon privileges,
earnings, income, franchise, and poles, wires transformers, and insulators.
On June 27, 1968, Republic Act 5431 amended Section 24 of the Tax Code, making the petitioner liable for
income tax in addition to franchise tax. On August 4, 1969, Republic Act 6020 was enacted under which,
the petitioner was again tax exempted.
The Commissioner of Internal Revenue (CIR) sent a demand letter on February 15, 1973, requiring
petitioner to pay the deficiency for income taxes for 1968-1971. Upon petitioner's contention, the CIR
cancelled the assessments for 1970 but insisted those for 1968 and 1969.
Petitioner filed a petition for review with the tax court which held petitioner responsible only for the
period from January 1 to August 3, 1969, or before the passage of Republic Act 6420 which reiterated its
tax exemption. Thus, the appeal.
ISSUE:
RULING:
Yes. Congress could impair petitioner's franchise by making it liable for income tax from which heretofore
it was exempted by virtue of the exemption provided in its franchise. The Constitution provides that a
franchise is subject to amendment, alteration, or repeal by Congress when public interest so requires.
Petitioner's franchise, under the Republic Act 3247 also provides it is subject to the Constitution.
Republic Act 5431 withdrew petitioner's exemption but was restored by subsequent enactment. Thus, it is
only liable for the period of January 1 to August 3, 1969 when its tax exemption was modified.
FACTS: On June 11, 1949, Alfredo, Mario and Benjamin Benito formed a partnership to operate an
electric plant. Such electric plant was granted a franchise in the year 1915 to supply electric current to the
municipalities of Albay. The franchise, the Certificate of public convenience and the electric plant was
transferred to the said partnership. Under its franchise, the original grantee and successors-in-interest
paid a franchise tax of 2% on the gross earnings, until October 1, 1946, when section 259 of the National
Internal Revenue Code was amended by Republic Act 39, which increased the franchise tax to 5%.
On a date undisclosed, petitioner filed a petition for refund contending that on its charter, it was liable to
pay a franchise tax of 2% and not 5% of its earnings and receipts.
As several petitions were not given definite action, thus petitioner filed with the Court of Tax Appeals
(CTA) a petition, praying for refund from the period of January 20, 1947 to October 14, 1958. The CTA
dismissed the petition.
Thus, the petition, on the ground that Act No.2475, as amended by Act 2620, granting its franchise
constitute a private contract between the petitioner and the Government and such cannot be amended,
altered or repealed by Section 259 of the Tax Code.
ISSUE
RULING
Yes. Petitioner's franchise does not specifically state that the rate of the franchise tax shall be 2% of his
gross earnings or receipts. It simply provides that the grantee and successors-in-interest shall pay the
same franchise tax imposed upon other grantees at the time Act No. 2475 was enacted. Franchise holders
did pay the rate of 2% until the rate was increased to 5%.
Also, prior to its amendment, Section 259 of the Tax Code merely provided that grantees of franchises
should pay on their gross earnings or receipts such taxes...as are specified in special charters upon whom
franchises are conferred. This does not cover franchise holders whose charters did not specify the rate of
franchise tax. It was covered under Section 10 of Act No. 3636. Consequently, section 259 of the Tax Code
became the basic franchise tax to be paid by holders of all existing and future franchises. Such being the
case, the act amending the section must be deemed applied to petitioner.
FACTS:
In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may 1867,
granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is now
the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall
within the provisions of Section 134 of Act 1189 (Internal Revenue Act). The defendant Commissioner,
JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which plaintiff Casanovas
paid under protest.
ISSUE:
The deed constituted a contract between the Spanish Government and Casanovas. The obligation in the
contract was impaired by the enactment of Section 134 of the Internal Revenue Law, thereby infringing
the provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with
Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by
reason of illegality in the procedure by which they were obtained, or for failure to comply with the
conditions prescribed as requisites for their retention in the laws under which they were granted. There is
no claim in this case that there was any illegality in the procedure by which these concessions were
obtained, nor is there any claim that the plaintiff has not complied with the conditions prescribed in the
royal decree of 1867. As to the allegation that the section violates uniformity of taxation, the Court found
it unnecessary to consider the claim in view of the result at which the Court has arrived.
FACTS:
ISSUE:
Whether or not the municipal ordinances violate the freedom of religious profession and worship.
RULING:
A tax on the income of one who engages in religious activities is different from a tax on property used or
employed in connection with those activities. It is one thing to impose a tax on the income or property of a
preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the
exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the
press are not altogether free from the burdens of the government, the act of distributing and selling bibles
is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price
of bibles, etc. is a little higher than actual cost of the same does not necessarily mean it is already engaged
in business for profit. Ordinance 2529 and 3000 are not applicable to the Society for in doing so it would
impair its free exercise and enjoyment of its religious profession and worship as well as its rights of
dissemination of religious beliefs.
ABRA VALLEY COLLEGE, INC vs. HON. JUAN P. AQUINO, Judge, Court of First Instance,
Abra
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.
RULING:
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).
FACTS:
Respondent Bishop of the Missionary District of the Philippines Islands of the Protestant, Episcopal
Church in the U.S.A. is a corporation sole duly registered with the Securities and Exchange Commission.
On the other hand, the Missionary District of the Philippine Islands of the Protestant Episcopal Church
the U.S.A. (hereinafter referred to as Missionary District) is a duly incorporated and established religious
society and owns and operates the St. Luke's Hospital in Quezon City, the Brent Hospital in Zamboanga
City and the St. Stephen's High School in Manila.
In 1957 to 1959, the Missionary District received various shipments of materials, supplies, equipment and
other articles intended for use in the construction and operation of the new St. Lukes Hospital. On these
shipments, the Commissioner collected compensation tax. The Missionary District filed claims for refund,
but which was denied by the Commissioner on the ground that St. Lukes Hospital was not a charitable
institution and therefore was not exempt from taxes because it admits pay patients.
ISSUE: Whether or not the shipments for St. Lukes Hospital are tax-exempt.
RULING:
The following requisites must concur in order that a taxpayer may claim exemption under the law (1) the
imported articles must have been donated; (2) the donee must be a duly incorporated or established
international civic organization, religious or charitable society, or institution for civic religious or
charitable purposes; and (3) the articles so imported must have been donated for the use of the
organization, society or institution or for free distribution and not for barter, sale or hire.
As the law does not distinguish or qualify the enjoyment or the exemption (as the Secretary of Finance did
in Department Order 18, series of 1958), the admission of pay patients does not detract from the
charitable character of a hospital, if its funds are devoted exclusively to the maintenance of the institution.
Thus, the shipments are tax exempt.
FACTS: Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10, 000.00 in cash to Rev. Fr.
Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for
the construction of a new Catholic Church in the locality. The total amount was actually spent for the
purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29,
1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against
the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest.
Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the
motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals.
ISSUE:
Whether or not the assessment for donees gift tax was valid, considering the fact that the Constitution
exempts petitioner from taxation
RULING:
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches
and parsonages or convents, appurtenant thereto, and allla n d s,b u ild in g s, and improvements used
exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case,
what the Collector assessed was a donees gift tax; the assessment was not on the properties themselves. It
did not rest upon general ownership; it was an excise upon the use made of the properties, upon the
exercise of the privilege of receiving the properties. Manifestly, gift tax is not within the exempting
provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the
transfer of property by way of gift inter vivo, the imposition of which on property used exclusively for
religious purposes, does not constitute an impairment of the Constitution.
FACTS: On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to establish
and operate the "St. Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa Heights, Quezon City
(Exhibit "F-1", p. 7, BIR rec.). On or about January 3, 1953, the petitioners sent a letter to the Quezon City
Assessor requesting exemption from payment of real estate tax on the lot, building and other
improvements comprising the hospital stating that the same was established for charitable and
humanitarian purposes and not for commercial gain. After an inspection of the premises in question and
after a careful study of the case, the exemption from real property taxes was granted effective the years
1953, 1954 and 1955.
Subsequently, however, the Quezon City Assessor notified the petitioners that the aforesaid properties
were re- classified from exempt to "taxable" and thus assessed for real property taxes. The petitioners
appealed the assessment to the Quezon City Board of Assessment Appeals, which affirmed the decision of
the City Assessor. A motion for reconsideration thereof was denied. From this decision, the petitioners
instituted the instant appeal. The building involved in this case is principally used as a hospital.
ISSUE:
Whether or not the lot, building and other improvements occupied by the St. Catherine Hospital are
exempt from the real property tax.
RULING:
It is well settled, that the admission of pay-patients does not detract from the charitable character of a
hospital, if all its funds are devoted "exclusively to the maintenance of the institution" as a "public
charity". In other words, where rendering charity is its primary object, and the funds derived from
payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere
fact that a profit has been made will not deprive the hospital of its benevolent character"
Moreover, the exemption in favour of property used exclusively for charitable or educational purposes is
"not limited to property actually indispensable" therefor, but extends to facilities which are "incidental to
and reasonably necessary for" the accomplishment of said purposes.
Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital is,
therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from claiming
that it is devoted exclusively to benevolent purposes, it being admitted that the income derived from pay-
patients is devoted to the improvement of the charity wards, which represent almost two-thirds (2/3) of
the bed capacity of the hospital, aside from "out-charity patients" who come only for consultation.
FACTS: The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia,
possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four
sides of which face on public streets. On the south side is a part of the churchyard, the convent and an
adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in which there is a
stable and a well for the use of the convent. In the center is the remainder of the churchyard and the
church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly
stood a tower, the base of which still be seen, containing a total area of 8,955 square meters.
As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot
adjoining the convent and the lot which formerly was the cemetery with the portion where the tower
stood.
The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax,
alleging that the collection of this tax is illegal. The lower court absolved the defendants from the
complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which
formerly was the cemetery and on the portion where the lower stood, was illegal. Both parties appealed
from this judgment.
ISSUE
Whether or not the lots of petitioner are exempted from land tax
RULING
The exemption in favour of the convent in the payment of the land tax (sec. 344 [c] Administrative Code)
refers to the home of the parties who presides over the church and who has to take care of himself in order
to discharge his duties. In therefore must, in the sense, include not only the land actually occupied by the
church, but also the adjacent ground destined to the ordinary incidental uses of man.
The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land
tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any
special pronouncement as to costs.
FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people, pursuant to its
religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676, 829.80 from leasing out a portion
of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from
parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR)
issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees
and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of
YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA)
on
March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:
ISSUE:
Whether or not the YMCA is exempted from rental income derived from the lease of its properties
RULING
Petitioner argues that while the income received by the organizations enumerated in Section 27 (now
Section 26)
of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as
such," the exemption does not apply to income derived "xxx from any of their properties, real or personal,
or from any of their activities conducted for profit, regardless of the disposition made of such income xxx"
We agree with the commissioner.
In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the
last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the
same Code.
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and CONSTANTINO P. ROSAS
FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land where
erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big
space at the ground floor is being leased to private parties, for canteen and small store spaces, and to
medical or professional practitioners who use the same as their private clinics for their patients whom
they charge for their professional services. Almost one-half of the entire area on the left side of the
building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of
Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.
On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property
taxes in the amount of P4, 554,860 by the City Assessor of Quezon City but the former filed a Claim for
Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable
institution.
ISSUE:
Whether or not the petitioners real properties are exempted from realty tax exemptions.
RULING:
Even as we find that the petitioner is a charitable institution, those portions of its real property that are
leased to private entities are not exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes. What is meant by actual, direct and exclusive use of the property
for charitable purposes is the direct and immediate and actual application of the property itself to the
purposes for which the charitable institution is organized.
Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law
too plain to be mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy
any property tax exemption privileges for its real properties as well as the building constructed thereon. If
the intentions were otherwise, the same should have been among the enumeration of tax exempt
privileges under Section 2.
G. R. No. L-24265
28 December 1979
FACTS: Petitioner Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of
Procter and
Gamble Trading Company engaged in the manufacture of soap, edible oil, margarine and other similar
products. Petitioner maintains a bodega in the municipality of Jagna, where it stores copra purchased in
the municipality and ships the same for its manufacturing and other operations. In 1954, the Municipal
Council of Jagna enacted Ordinance 4, imposing storage fees of all exportable copra deposited in the
bodega within the jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid
the municipality, allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the
Ordinance be declared inapplicable to it, and if not, that it be declared ultra vires and void.
ISSUE:
RULING:
The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon
municipalities by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the
Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the
privilege of storing copra within the municipalitys territorial jurisdiction. Such fees imposed do not
amount to double taxation. For double taxation to exist, the same property must be taxed twice, when it
should be taxed but once. A tax on the companys products is different from the tax on the privilege of
storing copra in a bodega situated within the territorial boundary of the municipality.
FACTS: On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company commenced a
complaint before the
Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264-the Local
Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. M. O. No.
23, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked." On the other hand, M. O. No. 27, which was approved on
October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity." The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.' The CFI of Leyte rendered judgment "dismissing the complaint and upholding the
constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal. Hence
this petition. The petitioner contends Ordinances Nos. 23 and 27 constitute double taxation because these
two ordinances cover the same subject matter and impose practically the same tax rate and impose
percentage or specific taxes.
ISSUES:
Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?
RULING:
No, the Ordinances does not constitute double taxation. The difference between the two ordinances
clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for
every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is
thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect.
On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to
enact an ordinance similar to that previously declared by this Court as ultra vires (taxing tenement
houses), enacted Ordinance 11, series of 1960 which taxes those involve in the business of renting
apartment houses.
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement
houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S.
Villanueva are owners of ten apartments.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint,
respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of
1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to
enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving
said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund
the amounts collected from them under the said ordinance.
On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal.
ISSUE:
Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?
RULING:
There is no double taxation. It is a well-settled rule that a license tax may be levied upon a business or
occupation although the land or property used in connection therewith is subject to property tax. In order
to constitute double taxation in the objectionable or prohibited sense the same property must be taxed
twice when it should be taxed but once; both taxes must be imposed on the same property or subject-
matter, for the same purpose, by the same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character
of tax." It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although
imposed by the same taxing authority, are not of the same kind or character.
FACTS: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real
estate in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila). The said co-
owners leased to Construction Components International Inc. the same property and providing that
during the existence or after the term of this lease the lessor should he decide to sell the property leased
shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. On
August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations
under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the conformity and consent of
lessors Delfin Pacheco and Pelagia Pacheco. On January 3, 1976, a deed of exchange was executed
between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the
former conveyed to the latter the leased property together with another parcel of land for 2,500 shares of
stock of defendant corporation with a total value of P1,500,000.00.
On the ground that it was not given the first option to buy the property, respondent Hydro Pipes
Philippines, Inc., a complaint for reconveyance of Lot. No. 1095 in its favour. The Court of First Instance
of Bulacan ruled in favor of the plaintiff. The lower court's decision was affirmed on appeal by the
Intermediate Appellate Court.
ISSUE:
Whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and
the Delpher Trades Corporation on the other was meant to be a contract of sale.
RULING:
We rule for the petitioners. In the case at bar, in exchange for their properties, the Pachecos acquired
2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently,
the Pachecos became stockholders of the corporation by subscription. "The essence of the stock
subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be
formed."
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was
to invest their properties and change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their properties and at the same time
save on inheritance taxes.
The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted
to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his
taxes or altogether avoid them, by means which the law permits, cannot be doubted."
FACTS: In 1952 the Collector of Internal Revenue assessed against the petitioner deficiency sales taxes
and surcharges for the year 1949 and the first four months of 1950 in the aggregate sum of P89,123.58.
The assessment was appealed to the Board of Tax Appeals, whence the case was transferred to the Court
of Tax Appeals upon its organization in 1954, and there was affirmed in its decision dated February 28,
1952. The deficiency taxes in question were assessed on importations of textiles from abroad. The goods
were withdrawn from Customs by Pan- Asiatic Commercial Co., Inc., which paid, in the name of the
petitioner, the corresponding advance sales tax under section 183(b) of the Internal Revenue Code. The
assessment for the deficiency was made against the petitioner, Heng Tong Textiles Co., Inc. on the ground
that it was the real importer of the goods and did not pay the taxes due on the basis of the gross selling
prices thereof.
ISSUE:
Whether or not petitioner was guilty of fraud so as to warrant the imposition of a penalty of 50% on the
deficiency.
RULING:
Petitioner excepts to the conclusion of the Court of Tax Appeals and avers that the importation papers
were placed in the name of the petitioner only for purposes of accommodation, that is, to introduce the
petitioner to textile suppliers abroad; and that the petitioner was not in a financial position to make the
importations in question. These circumstances show nothing but a private arrangement between the
petitioner and Pan-Asiatic Commercial, which in no way affected the role of the petitioner as the importer.
The arrangement resorted to does not by itself alone justify the penalty imposed. Section 183(a),
paragraph 3, of the Internal Revenue Code, as amended by Republic Act No. 253, speaks of willful neglect
to file the return or wilful making of a false or fraudulent return. An attempt to minimize one's tax does
not necessarily constitute fraud. It is a settled principle that a taxpayer may diminish his liability by any
means which the law permits.
ISSUE:
RULING:
Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e . , the payment of less
than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is
due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and (3) a course of action or failure of action which is unlawful. All these
factors are present in the instant case. The scheme resorted to by CIC in making it appear that there were
two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be
considered a legitimate tax planning. Such scheme is tainted with fraud. Altonagas sole purpose of
acquiring and transferring title of the subject properties on the same day was to create a tax shelter. The
sale to him was merely a tax ploy, a sham, and without business purpose and economic substance.
Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.
FACTS: From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined
and manufactured mineral oils as well as motor and diesel fuels. Said oil companies paid the specific taxes
imposed on the sale of said products. Being included in the purchase price of the oil products, the specific
taxes paid by the oil companies were eventually passed on to the petitioner in this case.
Petitioner filed before Respondent CIR a claim for refund in the amount of P120, 825.11, representing
25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner
in its operations as forest concessionaire.
On January 20, 1983, petitioner filed at the CTA a petition for review. The CTA rendered its decision
finding petitioner entitled to a partial refund of specific taxes in the reduced amount of P2, 923.15. In
regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates
deemed paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153
and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. The Court of Appeals
affirmed the CTA Decision. Hence, this petition for review.
ISSUE:
Whether or not petitioner is entitled to the refund of 25% of the amount of specific taxes it actually paid
on various refined and manufactured mineral oils.
RULING:
At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435,
which was enacted to provide means for increasing the Highway Special Fund.
A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other
hand, once the tax is unquestionably imposed, [a] claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be mistaken. Since the partial refund authorized
under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris
against the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid
must expressly be granted in a statute stated in a language too clear to be mistaken.
FACTS: The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene
gases. It made various sales of its products to the National Power Corporation and to the Voice of America
an agency of the United States Government. The sales to the NPC amounted to P145, 866.70, while those
to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue
assessed against, and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax
and surcharge, pursuant to the Sec.186 of the National Internal Revenue Code.
The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA
are exempt from taxation.
ISSUE:
Is the petitioner exempt from paying tax on sales it made to the 1) NPC and the 2) VOA because both
entities are exempt from taxation?
RULING:
1) No. SC holds that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the
manufacturer or producer and not a tax on the purchaser except probably in a very remote and
inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is
permissible.
2) No. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the
bases," in a word, only sales to the quartermaster, are exempt under Article V from taxation. Sales of
goods to any other party even if it be an agency of the United States, such as the VOA, or even to the
quartermaster but for a different purpose, are not free from the payment of the tax.
FACTS: Ateneo de Manila is an educational institution with auxiliary units and branches all over the
Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal
personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in
social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its
research activities from international organizations, private foundations and government agencies.
On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a
demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged
deficiency contractor's tax the value of which was later on, upon private respondents request for
reinvestigation, reduced to P46,516.41,
Unsatisfied, Private respondent filed in the Court of Tax Appeals a petition for review of the said letter-
decision of the petitioner which rendered a decision in its favour and ordered the tax assessment
cancelled.
ISSUE:
Is Ateneo de Manila University, through its auxiliary unit or branch the Institute of Philippine Culture
performing the work of an independent contractor and, thus, subject to the three percent contractor's
tax levied by then Section 205 of the National Internal Revenue Code?
RULING:
No, The Supreme Court held that Ateneo de Manila University is not subject to the contractors tax. It
explained that to fall under its coverage, Section 205 of the National Internal Revenue Code requires that
the independent contractor be engaged in the business of selling its services. The Court, however, found
no evidence that Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was
ever engaged in a business apart from and independently of the academic purposes of the university.
Moreover, the Court of Tax Appeals accurately and correctly declared that the funds received by the
Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations which
are tax-exempt" as shown by private respondent's compliance with the requirement of Section 123 of the
National Internal Revenue Code providing for the exemption of such gifts to an educational institution.
FACTS: Respondent Commission on Audit (COA) directed petitioner Caltex Philippines, Inc. (CPI) to
remit to the Oil Price Stabilization Fund (OPSF) its collection of the additional tax on petroleum products
pursuant to P.D. 1956, as well as unremitted collections of the above tax covering the years 1986, 1987 and
1988, with interests and surcharges, and advising it that all its claims for reimbursements from the OPSF
shall be held in abeyance pending such remittance. COA further directed petitioner oil company to desist
from further offsetting the taxes collected against outstanding claims for 1989 and subsequent periods.
Its motion for reconsideration of the eventual decision of the COA on the matter having been denied, CPI
imputes that respondent commission erred in preventing the former from exercising the right to offset its
remittances against the reimbursement vis--vis the OPSF.
ISSUE:
Whether or not the amounts due to the OPSF from petitioner may be offset against the latters
outstanding claims from said fund?
RULING:
No. It is settled that a taxpayer may not offset taxes due from claims that he may have against the
Government. Taxes cannot be the subject of compensation because the Government and the taxpayer are
not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set off.
The Court further ruled that taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of the Government. Taxes may be levied for a regulatory purpose such as to provide
means for the rehabilitation and stabilization of a threatened industry which is affected with public
interest, a concern which is within the police power of the State to address.
FACTS: Herein petitioner imported various engine parts and other equipment for which it paid, under
protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal
Revenue, it filed a Petition for Review with the Court of Tax Appeals in order to be granted a refund.
Petitioner contends that tugboats are included in the term cargo vessels which are exempted from
compensating tax under article 190 of the National Internal Revenue Code. He argues that in legal
contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading
and unloading of a vessel in part constitute a single vessel. Accordingly, it concludes that the engines,
spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are
exempt from compensating tax. On the other hand, respondent contends that "tugboats" are not "Cargo
vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by
themselves but are mainly employed for towing and pulling purposes.
ISSUE:
Whether or not tugboats are included in the term cargo vessels which are exempted from compensating
tax under article 190 of the National Internal Revenue Code.
RULING:
No. tugboats are not included in the term cargo vessels which are exempted from compensating tax
under article 190 of the National Internal Revenue Code. The Supreme Court explained that under the
definition of tugboat, a diesel or steam power vessel designed primarily for moving large ships to and
from piers for towing barges and lighters in harbors, rivers and canals. Which clearly do not fall under
the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction
that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible
pretence being entertained to justify non-compliance. All that has to be done is to apply it in every case
that falls within its terms.
FACTS: National Development Company (NDC) is a domestic corporation with principal offices in
Manila. It entered into contracts in Tokyo with several Japanese shipbuilding companies for the
construction of twelve ocean-going vessels.
Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes
were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic
of the Philippines. Thereafter, remaining payments and the interests thereon were remitted in due time by
the NDC to Tokyo. After the vessels were delivered, the NDC remitted to the shipbuilders in Tokyo the
interest on the balance of the purchase price. No tax was withheld. The Commissioner of Internal Revenue
held that the interest remitted to the Japanese shipbuilders on the unpaid balance of the purchase price of
the vessels acquired by petitioner is subject to income tax under the Tax Code. The petitioner argues that
the Japanese shipbuilders were not subject to tax under the Tax Code. Petitioner contends that the
interest payments were obligations of the Republic of the Philippines and that the promissory notes of the
NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code.
ISSUE:
Whether petitioner should not be held liable due to the undertaking signed by the Secretary of Finance
and because the interest payments were obligations of the Republic of the Philippines and that the
promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of
the Tax Code as alleged by petitioner.
RULING: No. Petitioner should be held liable. There is nothing in Section 29(b)[4] of the Tax Code
exempting the interests from taxes. Furthermore in the said undertaking, petitioner has not established a
clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be
categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favour
of the taxing power. It is not the NDC that is being taxed. It was the income of the Japanese shipbuilders
and not the Republic of the Philippines that was subject to the tax the NDC did not withhold. In effect,
therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the
same from the Japanese shipbuilders.
FACTS: MERALCO is the holder of a franchise by the Municipal Board of the City of Manila to Mr Charles
M. Swift and later assumed and taken over by petitioner to construct, maintain, and operate an electric
light, heat, and power system in the City of Manila and its suburbs. In two separate occasions, MERALCO
imported copper wires, transformers, and insulators for use in the operation of its business. The Collector
of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax for
the said importation. MERALCO claims for a refund alleging that it was exempted from such
compensating tax based on paragraph 9 of its franchise.
The court stated that MERALCO's claim for exemption from the payment of the compensating tax is not
clear or expressed. Hence, this appeal.
ISSUE:
Whether or not petitioner is exempted to pay compensating tax for its purchase or receipt of commodities,
goods, wares, or merchandise outside the Philippines.
RULING: No. One who claims to be exempt from the payment of a particular tax must do so under clear
and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer.
In the case at bar, the Court is not aware whether or not the tax exemption provisions contained in Par. 9,
Part Two of Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal
franchise granted because no admissible copy of Ordinance of the said Board was ever presented in
evidence by the petitioner. Furthermore there is no "plain and unambiguous terms" declaring petitioner
MERALCO exempt from paying a compensating tax on its imports of poles, wires, transformers, and
insulators. The last clause of paragraph 9 merely reaffirms, what has been expressed in the first sentence
that petitioner is exempted from payment of property tax. A compensating tax is not a property tax but an
excise tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a
privilege.
G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993
FACTS:
Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of
hydraulic power and the production of power from other sources. Several laws were enacted granting NPC
tax and duty exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the
Republic of the Philippines, its provinces, cities and municipalities "directly or indirectly," on all
petroleum products used by NPC in its operation. However P.D. No. 1931 withdrew all tax exemption
privileges granted in favour of government-owned or controlled corporations including their subsidiaries
but empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to
restore, partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege enjoyed by
NPC under said section covers only taxes for which it is directly liable and not on taxes which are only
shifted to it.
In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax
exempt, regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different
occasions restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration
of the tax exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes paid on
petroleum products. On August 6, 1987, the Secretary of Justice, Opinion opined that "the power
conferred upon Fiscal Incentives Review Board constitute undue delegation of legislative power and,
therefore, unconstitutional. However, respondents Finance Secretary and the Executive Secretary
declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and
taxes imposed on the petroleum products purchased locally and used for the generation of electricity.
Thereafter investigations were made for the refund of the tax payments of the NPC which includes
Millions of pesos Tax refund. Petitioner, as member of the Philippine Senate introduced as Resolution
Directing the Senate Blue Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive
Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly Caltex
(Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the Non-
Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in
Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance.
ISSUE:
Whether or not respondent NPC is legally entitled to the questioned tax and duty refunds.
RULING:
Yes. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting NPC to the said taxes. Also in
G.R. No. No. 88291 the Supreme Court ruled in favour of respondents. NPC under the provisions of its
Revised Charter retains its exemption from duties and taxes imposed on the petroleum products
purchased locally and used for the generation of electricity. Presidential Decree No. 938 amended the tax
exemption of NPC by simplifying the same law in general terms. It succinctly exempts NPC from "all
forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds,
supersedeas bonds, in any court or administrative proceedings." the NPC electric power rates did not
carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid
to the government, no part thereof was recovered from the sale of electricity produced. As a consequence,
as of our most recent information, some P1.55 B in claims represent amounts for which the oil suppliers
and NPC are "out-of-pocket. There would have to be specific order to the Bureaus concerned for the
resumption of the processing of these claims.
COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS, INC. and THE
COURT OF TAX
APPEALS
FACTS: The World Health Organization (WHO for short) is an international organization which has a
regional office in Manila. An agreement was entered into between the Republic of the Philippines and the
said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the
Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect
taxes. The WHO decided to construct a building to house its own offices, as well as the other United
Nations offices stationed in Manila. A bidding was held for the building construction. The WHO informed
the bidders that the building to be constructed belonged to an international organization exempted from
the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and
should not include items for such taxes, licenses and other payments to Government agencies."
Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short).
Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding
payment of for the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in
the construction of the latter's building. WHO. The WHO issued a certification that the bid of John
Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World
Health Organization office building because such can be considered as an indirect tax to WHO. However,
The Commissioner of Internal Revenue contends that the 3% contractor's tax is not a direct nor an
indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the
tax exemption agreement
ISSUE:
Whether or not the said 3% contractors tax imposed upon petitioner is covered by the direct and indirect
tax exemption granted to WHO by the government.
RULING:
Yes. The 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax
exemption granted to WHO. Hence, petitioner cannot be held liable for such contractors tax. The
Supreme Court explained that direct taxes are those that are demanded from the very person who, it is
intended or desired, should pay them; while indirect taxes are those that are demanded in the first
instance from one person in the expectation and intention that he can shift the burden to someone else.
While it is true that the contractor's tax is payable by the contractor, However in the last analysis it is the
owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to
the owner as a matter of self-preservation. Thus, it is an indirect tax against the WHO because, although it
is payable by the petitioner, the latter can shift its burden on the WHO.
FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various
programs and activities that are beneficial to the public, especially the young people, pursuant to its
religious, educational and charitable objectives.
The Commissioner of Internal Revenue issued an assessment to private respondent, in the total amount of
P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding
taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent
formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8,
1985. In reply, the Commissioner denied the claims of YMCA.
YMCA filed a petition for review at the Court of Tax Appeals. The CTA ruled in favor of the YMCA. The
Commissioner elevated the case to the Court of Appeals which initially decided in its favor by reinstating
the assessment of deficiency fixed, contract of Appeals which initially decided in its favor by reinstating
the assessment of deficiency fixed, contractors and income taxes. However, finding merit in YMCAs
motion for reconsideration, the appellate court reversed itself and promulgated the first assessed
resolution dated September 28, 1995 granting said motion of YMCA by affirming the CTAs decision in
toto. On February 29, 1996, the Court of Appeals denied the Commissioners motion for reconsideration.
ISSUE:
Whether or not the rental income of YMCA on its real estate is subject to tax.
RULING:
The Court ruled that the exemption claimed by the YMCA is expressly disallowed by the very wording of
the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax
imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the
rent income of the YMCA from its real property, the Court is duty-bound to abide strictly by its literal
meaning and to refrain from resorting to any convoluted attempt at construction.
FACTS: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to
continue the deduction of withholding taxes from salaries of the Justices of the Supreme Court and other
members of the judiciary. This was affirmed by the Supreme Court en banc on December 4, 1987.
Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53,
respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They seek to
prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial Officer of the
Supreme Court, from making any deduction of withholding taxes from their salaries. They contend that
this constitutes diminution of salary contrary to Section 10, Article VIII of the 1987 Constitution, which
provides that the salary of the members of the Supreme Court and judges of lower courts shall be fixed by
law and that during their continuance in office, their salary shall not be decreased. With the filing of the
petition, the Court deemed it best to settle the issue through judicial pronouncement, even if it had dealt
with the matter administratively.
ISSUE:
Whether or not the salaries of judges are subject to tax.
RULING:
The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers.
Although such intent was somehow and inadvertently not clearly set forth in the final text of the 1987
Constitution, the deliberations of the 1986 Constitutional Commission negate the contention that the
intent of the framers is to revert to the original concept of non-diminution of salaries of judicial officers.
Hence, the doctrine in Perfecto v. Meer and Endencia vs. David do not apply anymore. Justices and judges
are not only the citizens whose income has been reduced in accepting service in government and yet
subject to income tax. Such is true also of Cabinet members and all other employees.
FACTS: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of
Bangued. The bishop claims tax exemption from real estate tax based on the provisions of Section 17,
paragraph 3, Article VII of the 1973 Constitution. He filed an action for declaratory relief. Judge
Hernando of the CFI Abra presided over the case. The petitioner province filed a motion to dismiss, based
on lack of jurisdiction, which was denied. It was followed by a summary judgment granting the exemption
without hearing the side of the petitioner.
The Supreme Court granted the petition, set aside the June 19, 1978 resolution, and ordered the
respondent judge, or whoever is acting on his behalf, to hear the case on merit; without costs.
ISSUE:
RULING: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property
from taxes as they should not only be exclusively but also actually and directly used for religious
purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that
there is compliance with the constitutional provision that allows an exemption. There was an allegation of
lack of jurisdiction and of lack of cause of action, which should have compelled the judge to accord a
hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from
taxation is not favored and is never presumed, so that if granted, it must be strictly construed against the
taxpayer. There must be proof of the actual and direct use of the lands, buildings, and improvements for
religious (or charitable) purposes to be exempted from taxation.
The case was remanded to the lower court for a trial on merits.
G.R. No. 54908 and G.R. No. 80041, January 22, 1990
FACTS: Mitsubishi Metal Corporation, a Japanese corporation licensed to do business in the Philippines,
entered into a
Loan and Sale Contract with Atlas Consolidated Mining and Development Coporation whereby Mitsubishi
lent $20,000,000 for the expansion of the latters mines, particularly the installation of a new
concentrator for copper production. Atlas, in turn, undertook to sell to Mitsubishi all of the copper
concentrates produced by said machine for 15 years.
For this purpose, Mitsubishi applied for and was granted a loan by the Export- Import Bank of Japan
(Eximbank) and a consortium of Japanese banks. As agreed upon between Mitsubishi and Atlas, the latter
gave interest payments for 1974 and 1975 amounting to P13,143,966.79, with the corresponding 15% tax
thereon withheld and remitted to the Government as required by the Tax Code.
On March 5, 1976, Mitsubishi filed a claim for tax credit of the sum of P1,972,595.01 representing the tax
withheld on the interest payment. That claim, not having been acted upon by the BIR, Mitsubishi then
filed a petition contending that Mitsubishi was a mere agent of Eximbank, a Japanese Government
financing institution which financed the loan. Such governmental status of Eximbank was the basis of
Mitsubishis claim for exemption from paying tax on the interest payments pursuant to Section 29 (b) (8)
(A) (now, Section 32 [B][7][a], 1997 NIRC). The CTA granted the tax credit in favor of Mitsubishi, which
later executed a waiver in favour of Atlas.
ISSUE:
Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from
gross income taxation and thus exempt from withholding tax.
RULING:
It is settled that laws granting exemption from tax are construed strictissimi juris against the taxpayer and
liberally in favour of the taxing power. Taxation is the rule and exemption is the exception. The burden of
proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so
claimed, which onus private respondents have failed to discharge.
The taxability of a party cannot be blandly glossed over on the basis of a supposed broad, pragmatic
analysis alone without substantial supportive evidence, lest governmental operations suffer due to
diminution of much needed funds.
FACTS: The World Health Organization (WHO) entered into a Host Agreement with the Republic of the
Philippines which provides that "the Organization, its assets, income and other properties shall be exempt
from all direct and indirect taxes. When the WHO decided to construct a building to house its own offices
in Manila, it entered into a further agreement with the Government that it may import into the country
materials and fixtures required for the construction free from all duties and taxes. After inviting bids, the
contract was awarded to respondent John Gotamco & Sons, Inc. for the stipulated price of P370,000.00.
Thereafter, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding
payment of P16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it
received from the WHO in the construction of the latter's building. Respondent Gotamco appealed the
Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of
Gotamco and reversed the Commissioner's decision. Hence, petitioner brought the case to the Supreme
Court.
Petitioner maintains the position that the contractor's tax is a tax due primarily and directly on the
contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be
deemed an indirect taxation upon it.
ISSUE:
Whether or not John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the
National Internal Revenue Code.
RULING:
No, The Supreme Court held that Respondent John Gotamco and Sons, Inc. is not required to pay the 3%
contractors tax under the National Internal Revenue Code. It explained that direct taxes are those that
are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes
are those that are demanded in the first instance from one person in the expectation and intention that he
can shift the burden to someone else. The contractor's tax is of course payable by the contractor but in the
last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted
by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an
indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on
the WHO. It is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be
said that 'this tax has no bearing upon the World Health Organization. Accordingly, finding no reversible
error committed by the respondent Court of Tax Appeals, the Supreme Court affirmed the appealed
decision.
September 4, 1930
FACTS: Petitioner Thirty-first Infantry Post Exchange is an agency within the United States Army, under
the control of the officers of the Army. All of the goods sold to and purchased by the petitioner are
intended for resale to and are in fact resold to the officers, soldiers and the civilian employees of the Army,
and their families. Juan Posadas, Jr., Collector of Internal Revenue of the Philippine Islands, and his
predecessors in that office, have collected from the merchants who made the sales of the commodities,
goods, wares, and merchandise to the plaintiff Exchange, taxes at the rate of one and one-half per centum
on the gross value in money of the commodities. The effect of the demand and collection of taxes was to
increase the cost thereof to the plaintiff Exchange. Contending that the merchandises are exempted from
taxes, petitioner brought the case before the Supreme Court.
ISSUE:
Whether or not merchandise is relieved from said tax when it is sold to the Army or Navy of the United
States for resale to individuals by means or through the post exchanges or ship's stores
RULING:
No, The Supreme Court ruled that merchandise is not exempted from taxes when it is sold to the Army of
the United States for resale. It explained that although The revenue laws at that time provided that "no
specific tax shall be collected on any articles sold and delivered directly to the United States Army or Navy
for actual use or issue by the Army or Navy, and any taxes which have been paid on articles so sold and
delivered for such use or issue shall be refunded upon such sale and delivery, the Court is not inclined to
believe that goods sold to the soldiers and sailors of the Army and Navy, even though they be sold through
said exchanges by the intervention of officers of the Army and Navy, are goods sold directly to the United
States Army or Navy for actual use or issue by the Army or Navy.
PLDT vs. City of Davao
FACTS: Petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayor's Permit to
operate its Davao Metro Exchange. However, Respondent City of Davao withheld action on the
application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for
the first to the fourth quarter of 1999. Petitioner protested the assessment of the local franchise tax and
requested a refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of
1998. Petitioner contended that it was exempted from the payment of franchise tax based on an opinion of
the Bureau of Local Government Finance (BLGF) citing Section 23 of RA 7925 which provides equality of
treatment in the telecommunication industry. Nevertheless, respondent Adelaida B. Barcelona, City
Treasurer of Davao, denied the protest and claim for tax refund of petitioner.
ISSUE:
RULING:
No, the Supreme Court held that Petitioner PLDT is not exempted from the local franchise tax because it
does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax
exemption to all telecommunications entities. It explained that the acceptance of petitioner's theory would
result in absurd consequences. It is different if Congress enacts a law specifically granting uniform
advantages, favour, privilege, exemption, or immunity to all telecommunications entities. Furthermore,
the court emphasized that tax exemptions are highly disfavoured.
FACTS:
Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with
the BIR. However, before the said claim for refund could be acted upon by public respondent
Commissioner of Internal Revenue, petitioner filed a petition for review with the Court of Tax Appeals
(CTA) to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period
under the then Section 243 of the NIRC. The CTA rendered its decision denying SEA-LANDs claim for
refund of the income tax it paid in 1984.
ISSUE:
Whether or not the income that petitioner derived from services in transporting the household goods and
effects of U.S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the
RP-US Military Bases Agreement.
RULING:
No, The Supreme Court held that the petitioner is not included in the tax exemption provided in the RP-
US Military Bases Agreement. It explained that although the Military Bases agreement provides that no
US national shall be liable to pay income tax in the Philippines in respect of any profits derived under a
contract made in the United States with the government of the United States in connection with the
construction, maintenance, operation and defense of the bases it is obvious that the transport or shipment
of household goods and effects of U.S. military personnel is not included in the term "construction,
maintenance, operation and defense of the bases." Neither could the performance of this service to the
U.S. government be interpreted as directly related to the defence and security of the Philippine territories.
FACTS: Province of Laguna by virtue of existing laws then in effect, issued resolutions through their
respective municipal councils granting franchise in favor of petitioner Manila Electric Company
(MERALCO) for the supply of electric light, heat and power within their concerned areas. On 19 January
1983, MERALCO was likewise granted a franchise by the National Electrification Administration to
operate an electric light and power service in the Municipality of Calamba, Laguna. On 12 September
1991, Local Government Code of 1991, was enacted enjoining (directing) local government units to
create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations
expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions of the
Code, respondent province enacted Laguna Provincial Ordinance No. 01-92.
Respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment.
Petitioner MERALCO paid the tax, which then amounted to P19, 520,628.42, under protest. A formal
claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the
franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already
included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that the
imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it
concerned MERALCO, contravened the provisions of Section 1 of P.D. 551.
ISSUE:
Whether or not the tax exemption should be withdrawn to give way to the authoritative language of the
Local Government Code specifically providing for the withdrawal of such exemption without violating the
Constitution.
RULING:
Yes. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts.
These contractual tax exemptions, however, are not to be confused with tax exemptions granted under
franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment
clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public
utility shall be granted except under the condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common good so requires.
FACTS: Congress passed into law RA 7227. Section 12 thereof created the Subic Special Economic Zone
and granted thereto special privileges. The President issued Executive Order No. 97-A (EO 97-A),
specifying within which the tax-and-duty-free privilege was operative.
On October 26, 1994, the petitioners challenged before this Court the constitutionality of EO 97-A for
allegedly being violative of their right to equal protection of the laws. In a Resolution dated June 27, 1995,
this Court referred the matter to the Court of Appeals, pursuant to Revised Administrative Circular No. 1-
95.
Petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality of Subic in
Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A, according to
them, narrowed down the area within which the special privileges granted to the entire zone would apply
to the present fenced-in former Subic Naval Base only. It has thereby excluded the residents of the first
two components of the zone from enjoying the benefits granted by the law. It has effectively discriminated
against them, without reasonable or valid standards, in contravention of the equal protection guarantee.
ISSUE:
Whether the provisions of Executive Order No. 97-A confining the application of R.A. 7227 granting tax
and duty incentives only to businesses and residents within the secured area and excluding the residents
of the zone outside of the secured area is discriminatory or not.
RULING:
No. We rule in favour of the constitutionality and validity of the assailed EO. Said Order is not violative of
the equal protection clause; neither is it discriminatory. Rather, we find real and substantive distinctions
between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a
valid and reasonable classification.
There are substantial differences between the big investors who are being lured to establish and operate
their industries in the so-called secured area and the present business operators outside the area. On the
one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand,
definitely none of such magnitude. In the first, the economic impact will be national; in the second, only
local. Even more important, at this time the business activities outside the secured area are not likely to
have any impact in achieving the purpose of the law, which is to turn the former military base top r o d u c
t iv e use for the benefit of the Philippine economy. There is, then, hardly any reasonable basis to extend
to them the benefits and incentives accorded in RA 7227.
FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of
Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug
Airport in Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x
(Sec. 3, RA 6958).
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty
taxes in accordance with Section 14 of its Charter On October 11, 1994, however, Mr. Eustaquio B. Cesa,
Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on
several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favour the
aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that
it is an instrumentality of the government performing governmental functions, citing Section 133 of the
Local Government Code of 1991 which puts limitations on the taxing powers of local government units.
ISSUE:
Can the City of Cebu demand payment of realty taxes on several parcels of land belonging to the
petitioner?
RULING:
Yes. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC,
exemptions from payment of real property taxes granted to natural or juridical persons, including
government-owned or controlled corporations, except as provided in the said section, and the petitioner
is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax
granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn.
FACTS: The question involving this case is the scope of the tax exemption provision in Article XII, Par. 2,
of the RP-US Military Bases Agreement of 1947.
The private respondents are citizens of the United States; holders of American passports and admitted as
Special Temporary Visitors under Section 9 (a) visa of the Philippine Immigration Act of 1940, as
amended; civilian employees in the U.S. Military Base in the Philippines in connection with its
construction, maintenance, operation, and defence; and incomes are solely derived from salaries from the
U.S. government by reason of their employment in the U.S. Bases in the Philippines."
The Court a quo after due hearing, rendered its judgment in favour of respondents cancelling and setting
aside the assessments for deficiency income taxes of respondents for the taxable years 1969-1972,
inclusive of interests and penalties.
ISSUE:
Whether or not the public respondent erred in holding that private respondents are exempted from
paying Philippine income tax.
RULING:
The law and the facts of the case are so clear that there is no room left for Us to doubt the validity of
private respondents' defence. In order to avail oneself of the tax exemption under the RP-US Military
Bases Agreement: he must be a national of the United States employed in connection with the
construction, maintenance, operation or defence, of the bases, residing in the Philippines by reason of
such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of PI-US Military
Bases Agreement of 1947). Said circumstances are all present in the case at bar. Likewise, We find no
justifiable reason to disturb the findings and rulings of the lower court in its decision.
FACTS: On July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate
and centralize all games of chance authorized by existing franchise or permitted by law. To attain these
objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing
clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly
repealed, amended or modified.
But petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose
taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy.
They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise
holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of
whatever nature, whether National or Local."
ISSUE:
Whether or not P.D. 1869 constitutes a waiver of the right of the city of Manila to impose taxes and legal
fees to PAGCOR.
RULING:
The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the
Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it".
Its "power to tax" therefore must always yield to a legislative act which is superior having been passed
upon by the state itself which has the "inherent power to tax". The Charter of the City of Manila is subject
to control by Congress.
FACTS: On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal Revenue,
commenced an action to collect from the spouses Antonio Pastor and Clara Reyes-Pastor deficiency
income taxes for the years 1955 to 1959. The Pastors filed a motion to dismiss the complaint, but the
motion was denied. On August 2, 1975, they filed an answer admitting there was an assessment against
them of P17,117.08 for income tax deficiency but denying liability therefor. They contended that they had
availed of the tax amnesty under P.D.'s Nos. 23, 213 and 370 and had paid the corresponding amnesty
taxes amounting to P10,400 or 10% of their reported untaxed income under P.D. 23, P2,951.20 or 20% of
the reported untaxed income under P.D. 213, and a final payment on October 26, 1973 under P.D. 370
evidenced by the Government's Official Receipt No. 1052388. Consequently, the Government is in
estoppel to demand and compel further payment of income taxes by them.
ISSUE:
Whether or not the payment of deficiency income tax under the tax amnesty and its acceptance by the
Government operated to divest the Government of the right to further recover from the taxpayer, even if
there was an existing assessment against the latter at the time he paid the amnesty tax.
RULING:
Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct,
since the latter have already paid almost the equivalent amount to the Government by way of amnesty
taxes under P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax
failings, the Government is estopped from collecting the difference between the deficiency tax assessment
and the amount already paid by them as amnesty tax.
A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an
absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it,
and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to
reform a chance to do so and thereby become a part of the new society with a clean slate.
FACTS: On 22 August 1986, E.O. 41 was promulgated declaring a one-time tax amnesty on unpaid income
taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years 1981
to 1985.
Availing itself of the amnesty, respondent R.O.H. Auto Products Philippines, Inc., filed, in October 1986
and November 1986, its Tax Amnesty Return and Supplemental Tax Amnesty Return, respectively, and
paid the corresponding amnesty taxes due. Prior to this availment, petitioner Commissioner of Internal
Revenue, in a communication received by private respondent on 13 August 1986, assessed the latter
deficiency income and business taxes for its fiscal years ended 30 September 1981 and 30 September 1982
in an aggregate amount of P1,410,157.71. The taxpayer wrote back to state that since it had been able to
avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The
request was denied by the Commissioner, on the ground that Revenue Memorandum Order 4-87,
implementing E.O. 41, had construed the amnesty coverage to include only assessments issued by the
Bureau of Internal Revenue after the promulgation of the executive order on 22 August 1986 and not to
assessments theretofore made.
ISSUE:
Whether or not the position taken by the Commissioner coincides with the meaning and intent of E.O. 41.
RULING:
The period of the amnesty was later extended to 05 December 1986 from 31 October 1986 by E.O. 54,
dated 04 November 1986, and, its coverage expanded, under E.O. 64, dated 17 November 1986, to include
estate and honors taxes and taxes on business.
If, as the Commissioner argues, E.O. 41 had not been intended to include 1981-1985 tax liabilities already
assessed (administratively) prior to 22 August 1986, the law could have simply so provided in its
exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been
designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically
excepted by it.
Hilado vs. Collector of Internal Revenue
FACTS: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City. He is
claiming a deductible item of P12, 837.65 from his gross income under the General Circular V-123 issued
by the Collector of Internal Revenue. Subsequently, the Secretary of Finance, through the Collector, issued
General Circular V-139 which revoked and declared void Circular V-123. It provided that losses of
property which occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery,
theft, or embezzlement are deductible in the year of actual loss or destruction of said property. Thereafter,
the deductions were disallowed.
ISSUE:
Whether or not Hilado can claim compensation for destruction of his property during the war under the
laws in effect at that time.
RULING: Philippines Internal Revenue Laws are not political in nature and as such were continued in
force during the period of enemy occupation and in effect were actually enforced by the occupation
government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying
enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his
properties during the battle for the liberation of the Philippines. Under the Philippine Rehabilitation Act
of 1948, the payment of claims by the War Damage Commission depended upon its discretions non-
payment of which does not give rise to any enforceable right. Assuming that the loss (deductible item)
represents a portion of the 75% of his war damage claim, the amount would be at most a proper deduction
of his 1950 gross income (not on his 1951 gross income) as the last instalment and notice of
discontinuation of payment by the War Damage Commission was made in 1950.
Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary
FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose
members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental.
The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991,
which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b)
of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or
distribution. Under Sec. 103(b) of the NIRC, the sale of agricultural food products in their original state is
exempt from VAT at all stages of production or distribution. The reclassification had the effect of denying
to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food
product under 103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds.
ISSUE:
Whether RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution.
RULING:
The court ruled in the negative. Petitioner claims that RMC No. 47-91 is violative of the equal protection
clause because while coconut farmers and copra producers are exempt, traders and dealers are not,
although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of
the VAT payment of traders and dealers. The argument has no merit. There is a material or substantial
difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers,
on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not
forbid the differential treatment of persons so long as there is a reasonable basis for classifying them
differently. It is not true that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are
subject to 10% VAT on the sale of services.
Commissioner of Internal Revenue vs. Court of Appeals and Alhambra Industries, Inc
FACTS:
Alhambra Industries, Inc. is a domestic corporation engaged in the manufacture and sale of cigar and
cigarette products. On 7 May 1991 private respondent received a letter dated 26 April 1991 from the
Commissioner of Internal Revenue assessing it deficiency Ad Valorem Tax (AVT) in the amount P
488,396.62. Private respondent filed a protest against the proposed assessment with a request that the
same be withdrawn and cancelled. Petitioner denied such protest. The dispute arose from the discrepancy
in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR
Ruling 473-88 dated 4 October 1988 which excluded the VAT from the tax base in computing the fifteen
percent (15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11 February 1991 which included back the
VAT in computing the tax base for purposes of the fifteen percent (15%) ad valorem tax.
ISSUE:
Whether Sec. 142 (d) of the Tax Code, which provides for the inclusion of the VAT in the tax base for
purposes of computing the 15% ad valorem tax, is the applicable law in the instant case as it specifically
applies to the manufacturer's wholesale price of cigar and cigarette products and not Sec. 127 (b) of the
Tax Code which applies in general to the wholesale of goods or domestic products.
RULING:
Sec. 142 being a specific provision applicable to cigar and cigarettes must prevail over Sec. 127 (b), a
general provision of law insofar as the imposition of the ad valorem tax on cigar and cigarettes is
concerned. Consequently, the application of Sec. 127 (b) to the wholesale price of cigar and cigarette
products for purposes of computing the ad valorem tax is patently erroneous. Accordingly, BIR Ruling
473-88 is void ab initio as it contravenes the express provisions of Sec. 142 (d) of the Tax Code.
However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the
Commissioner of Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers. The BIR is now ordered to refund private respondent of the collected taxes
form the latter.
Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc
FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant
serving the adjoining municipalities of Lingayen and Binmaley, both in the province of Pangasinan,
pursuant to the municipal franchise granted it by their respective municipal councils.
On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the
private respondent the total amount of P19, 293.41 representing deficiency franchise taxes and surcharges
for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts. The private respondent
requested for a reinvestigation of the case on the ground that instead of incurring a deficiency liability, it
made an overpayment of the franchise tax. In its letters dated July 2, and August 9, 1958 to the petitioner
Commissioner, the private respondent protested the said assessment and requested for a conference with
a view to settling the liability amicably. In his letters dated July 25 and August 28, 1958, the
Commissioner denied the request of the private respondent. Thus, the appeal to the respondent Court of
Tax Appeals. Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1
963, granting to the private respondent a legislative franchise for the operation of the electric light, heat,
and power system in the same municipalities of Pangasinan and comes with it a tax equal to two per
centum of the gross receipts from electric current sold or supplied under this franchise.
ISSUES:
(1) Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal Revenue Code
assessed against the private respondent on its gross receipts realized before the effectivity of R.A- No.
3843 is collectible.
(2) Whether or not the respondent taxpayer is liable for the fixed and deficiency percentage taxes in the
amount of P3, 025.96 for the period before the approval of its municipal franchises.
RULING:
R.A. No. 3843 provided that the private respondent should pay only a 2% franchise tax on its gross
receipts, "in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established,
or collected by any authority whatsoever, municipal, provincial, or national, now or in the future ... and
effective further upon the date the original franchise was granted, no other tax and/or licenses other than
the franchise tax of two per centum on the gross receipts ... shall be collected, any provision of law to the
contrary notwithstanding." Thus, by virtue of R.A- No. 3843, the private respondent was liable to pay only
the 2% franchise tax, effective from the date the original municipal franchise was granted. As to the
second issue, the legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other
than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover
the period before the franchise was granted, i.e. before February 24, 1948. However, as pointed out by the
respondent court in its findings, during the period covered by the instant case, that is from January 1,
1946 to December 31, 1961, the private respondent paid the amount of P34,184.36, which was very much
more than the amount rightfully due from it. Hence, the private respondent should no longer be made to
pay for the deficiency tax in the amount of P3, 025.98 for the period from January 1, 1946 to February 29,
1948.
FACTS: During the period pertinent to this case, Petitioner Corporation was engaged in the business of
telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or
business within the Philippines for which petitioner paid rentals after withholding income tax of 30%of
one-half of the film rentals. In implementing Section 4(b) of the Tax Code, the Commissioner issued
General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned
over to the BIR 30% of of the film rentals paid by it to foreign corporations not engaged in trade or
business in the Philippines. The last year that the company withheld taxes pursuant to the Circular was in
1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from
30% to 35% and revising the tax basis from such amount referring to rents, etc. to gross income. In
1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax
for years 1965 to 1968. The company requested for reconsideration; where the Commissioner did not act
upon.
ISSUES:
Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively
applied.
RULING:
Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply
them would be prejudicial to taxpayers. Herein, the prejudice the company of the retroactive application
of Memorandum Circular 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the
last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and
demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a
period of time commencing in 1965. The company was no longer in a position to withhold taxes due from
foreign corporations because it had already remitted all film rentals and had no longer control over them
when the new circular was issued. Insofar as the enumerated exceptions are concerned, the company does
not fall under any of them.
FACTS: Petitioner PBcom paid its quarterly income tax for the first and second quarters of 1985 totalling
to P5, 016,954.00. Subsequently, PBcom suffered losses so that when it filed its Annual Income Tax for
the year- ended December 31, 1986, it reported a net loss and declared no tax payable for the year.
Petitioner also earned rental income for both 1985 and 1986 and the corresponding tax thereof was
withheld and remitted by the lessees to the BIR.
On August 7, 1987 or after more than two years from payment of taxes, PBcom filed for a tax refund.
Pending investigation of the BIR, petitioner filed a petition for review with the Court of Tax Appeals. The
CTA denied the tax refund on the ground that application for refund must be made within two years from
the payment of tax as provided by the National Internal Revenue Code. Petitioner contended that the two
year period has been changed to ten years upon a memorandum issued by the Commissioner of Internal
Revenue. The Court of Appeal affirmed in toto the ruling of the CTA.
ISSUE:
Did the CTA err in denying the plea for tax refund on the ground of prescription?
RULING:
No. The relaxation of revenue regulation by a memorandum issued by the BIR is not warranted as it
disregards the two year period set by law. Section 230 of the National Internal Revenue Code of 1977
provides for the two year period for filing a claim for refund or credit. When the Acting Commissioner of
Internal Revenue issued a memorandum changing the prescriptive period of two years to ten years, such
circular created a clear inconsistency with the provision of Section 230 of NIRC. In so doing, the BIR did
not simply interpret the law, rather it legislated guidelines contrary to the statute passed by the congress.
Petitioner filed a motion for reconsideration, but it was denied by the CTA, hence this petition contending
that private respondent has the burden of proof to support its claim of refund, that it failed to prove that it
did not realize any receipt from its charter agreement and it suppressed evidence when it did not present
its charter agreement.
ISSUE:
Whether or not private respondent failed to prove that it derived no receipt from its charter agreement,
hence, not entitled to a refund.
RULING:
Reyes v. Almonzor
FACTS: The National legislature enacted R.A. 6359 which prohibits an increase in monthly rentals of
dwelling unit or land on which anothers dwelling is located, where the rental does not exceed Php300.00.
The act also suspended article 1673 of the Civil Code thereby disallowing ejectment of lessees. These
prohibitions were made absolute by the filing of Presidential Decree 20. Consequently, petitioners herein
are precluded from increasing monthly rentals and in ejecting the lessees.The respondent city assessor of
Manila reassessed the value of the petitioners properties based on the scheduled market value thereof.
This entailed an increase in the tax rates prompting petitioners to file a Memorandum of Disagreement
with the Board of Tax Assessment Appeals averring that the reassessment was excessive, unwarranted,
inequitable, confiscatory and unconstitutional considering that the tax imposed upon them is greater than
the annual income derived from the property. They also argued that the income approach should have
been used in determining the land values instead of the comparable sales approach. The Board of tax
Assessment Appeals considered the assessment valid and the same was affirmed by the Central Board of
Assessment appeals, hence this petition.
ISSUE:
Did the board err in adopting the comparable sales approach in fixing the assessed value of the
properties?
RULING:
It is unquestionable that both the Comparable Sales Approach and the Income Approach are generally
acceptable methods of appraisal for taxation purposes. However, it is conceded that the proprietary of
one, as against the other would depend on several factors. Hence, as early as 1923, it has been stressed
that the assessors , in finding the value of the property, have to consider all the circumstances and
elements of value and must exercise a prudent discretion in reaching conclusions.
Commissioner of Internal Revenue v. Algue, Inc., and the Court of Tax Appeals
FACTS: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering,
construction and other allied activities, received a letter from the petitioner assessing it a delinquency
income tax for the year 1958 and 1959. After four days from its receipt, Algue filed a letter of protest which
was stamped and received by the petitioner. Despite the protest, private respondent received a warrant of
distraint and levy. Algue refused to receive it on the ground of pending protest until it was finally
informed that the BIR was not taking any action on the protest. It therefore filed a petition for review of
the decision of the Commissioner of Internal Revenue (CIR) with the Court of Tax Appeals. The CTA ruled
in favour of Algue holding that the Php75, 000.00 in dispute shall be considered as deductible from
income it being in the form of promotional expense and contrary to petitioners contention that it was not
an ordinary and reasonable business expense.
ISSUE:
Did the Collector of Internal Revenue correctly disallow the deduction claimed by private respondent
Algue as legitimate business expense in its Income Tax Return?
RULING:
We agree with respondent court that the amount of promotional fee was not excessive and was
reasonable, hence, allowing the deduction of the disputed amount in the Income Tax Return of private
respondent. The finding of respondent court is in accordance with the provision of the Tax Code on
deductions from gross income.
The solicitor general is correct in saying that the burden to prove the validity of claimed deduction is on
the tax payer. The private respondent has proved this. The amount in dispute was necessary and
reasonable in the light of the efforts of the respondent corporation to induce investors.
FACTS: Engracio Francia is the registered owner of a residential lot and a two-story house located in
Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the
Republic for the sum of P4,116.00. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate
taxes. Thus, on December 5, 1977, his property was sold at public auction pursuant the Real Property Tax
Code in order to satisfy a tax delinquency of P2, 400.00. Ho Fernandez was the highest bidder for the
property. Francia was not present during the auction sale since he was in Iligan City at that time helping
his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing In re: Petition for Entry of
New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT and the issuance in his
name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill
of Sale had been issued in favour of Ho Fernandez by the City Treasurer on December 11, 1978. The
auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the
Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. The lower court
rendered a decision against his favour. The Intermediate Appellate Court affirmed the decision of the
lower court in toto. Hence, this petition for review.
ISSUE:
Whether or not the contention of Francia that his tax delinquency of P2,400.00 has been extinguished by
legal compensation is correct claiming that the government owed him P4,116.00 when a portion of his
land was expropriated on October 15, 1977.
RULING:
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no
off-setting of taxes against the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax is being collected. The collection of a tax cannot await the results of a lawsuit against the
government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on.
FACTS: Respondent Itogon-Suyoc Mines, Inc. filed on January 13, 1961, its income tax return for the
fiscal year 1959- 1960. It declared a taxable income of P114,368.04 and a tax due thereon amounting to
P26,310.41, for which it paid on the same day, the amount of P13,155.20 as the first installment of the
income tax due. On May 17, 1961, petitioner filed an amended income tax return, reporting therein a net
loss of P331, 707.33. It thus sought a refund from the Commissioner of Internal Revenue, now the
petitioner. On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the
fiscal year 1960-1961, setting forth its income tax liability to the tune of P97,345.00, but deducting the
amount of P13,155.20 representing alleged tax credit for overpayment of the preceding fiscal year 1959-
1960. 0n December 18, 1962, petitioner Commissioner of Internal Revenue assessed against the
respondent the amount of P1, 512.83 as 1% monthly interest on the aforesaid amount of P13,155.20 from
January 16, 1962 to December 31, 1962. The basis for such an assessment was the absence of legal right to
deduct said amount before the refund or tax credit thereof was approved by petitioner Commissioner of
Internal Revenue. Such an assessment was contested by respondent before the Court of Tax Appeals
which ruled in its favour. Hence this petition for review.
ISSUE:
Whether or not the Court of Tax Appeals erred when it absolved Respondent Corporation "from liability
to pay the sum of P1, 512.83 as 1% monthly interest for delinquency in the payment of income tax for the
fiscal year 1960-1961.
RULING:
It could not be error for the Court of Tax Appeals, considering the admitted fact of overpayment, entitling
respondent to refund, to hold that petitioner should not repose an interest on the aforesaid sum of
P13,155.20 "which after all was paid to and received by the government even before the incidence of the
tax in question." It would be, according to the Court of Tax Appeals, "unfair and unjust" to do so. The
National Internal Revenue Code provides that interest upon the amount determined as a deficiency shall
be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the
specified. It is made clear, however, in an earlier provision found in the same section that if in any
preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet
refunded, may be deducted from the tax to be paid. There is no question respondent was entitled to a
refund. Instead of waiting for the sum involved to be delivered to it, it deducted the said amount from the
tax that it had to pay. That it had a right to do according to the law.
FACTS: This is a petition for certiorari and mandamus against respondent judge seeking to annul certain
orders of the court and for an order in this Court to direct respondent to execute the judgment in favor of
the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in
Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court
declared as final and executory the order for the payment by the estate of the estate and inheritance taxes,
charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special
proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order
to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court
below for the execution of the judgment. The petition was, however, denied by the court which held that
the execution is not justifiable
ISSUE:
Whether or not the petitioner has the clear right to execute the judgment for taxes against the estate of the
deceased Walter Scott Price.
RULING:
The petition to set aside the above orders of the court below and for the execution of the claim of the
Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle
claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to
present a claim before the probate court so that said court may order the administrator to pay the amount
thereof. Another ground for denying the petition is the fact that the court having jurisdiction of the estate
had found that the claim of the estate against the Government has been recognized and an amount of
P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700).
Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of
the intestate for services rendered have already become overdue and demandable is well as fully
liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of
Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. It is
clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate
of the deceased Walter Scott Price.
FACTS: There are three causes of action in this case in which the defendants admitted all these three
liabilities with an aggregate amount of P4, 802.37. Though such liabilities are admitted it interposed the
defence though exhibits that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber
Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period
commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the
Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of
Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest
charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue
Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest
for commercial purposes. The total amount of the reforestation charges paid by Mambulao Lumber
Company is P9,127.50, and it is the contention of the defendant that since the Republic of the Philippines
has not made use of those reforestation charges collected from it for reforesting the denuded area of the
land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be
refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of
the Philippines for reforestation charges.
ISSUE:
Whether or not the sum of P9, 127.50 paid by defendant company to plaintiff as reforestation charges
from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due
and owing from defendant to plaintiff.
RULING:
The court find defendants claim devoid of any merit. Note that there is nothing in the law which requires
that the amount collected as reforestation charges should be used exclusively for the reforestation of the
area covered by the license of a licensee or concessionaire, and that if not so used; the same should be
refunded to him. The general rule, based on grounds of public policy is well-settled that no set-off is
admissible against demands for taxes levied for general or local governmental purposes. The reason on
which the general rule is based, is that taxes are not in the nature of contracts between the party and party
but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of
which, the personal consent of individual taxpayers is not required.
FACTS: Acting upon an authority granted by the Office of the President, the Province was able to
negotiate with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four parcels of land located
in Ugong Norte, Pasig. Three deeds of absolute sale were executed on April 22 and May 9, 1975, whereby
Ortigas transferred its ownership over a total of 192,177 square meters of land to the Province at P110.00
per square meter. The projected construction, however, never materialized because of the decimation of
the Provinces resources brought about by the creation of the Metro Manila Commission (MMC) in 1976.
The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for
P700.00 per square meters. The said property was eventually sold to Valley View Realty Development
Corporation (Valley View) for P700.00 per square meter or a total of P134,523,900.00, of which 30
million was given as down payment. On May 10, 1988, after learning about the sale, Ortigas filed before
Branch 151 of the Regional Trial Court of Pasig an action for rescission of contract plus damages with
preliminary injunction against the Province. Docketed as Civil No. 55904, the complaint alleged that the
Province violated one of the terms of its contracts with Ortigas by selling the subject lots which were
intended to be utilized solely as a site for the construction of the Rizal Technological Colleges and the
Rizal Provincial Hospital.
ISSUE:
RULING:
Petitioner and respondents agree that to constitute a taxpayers suit, two requisites must be met, namely,
that public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is
violated or some irregularity is committed, and that the petitioner is directly affected by the alleged ultra
vires act. In the case at bar, disbursement of public funds was only made in 1975 when the Province
bought the lands from Ortigas at P110.00 per square meter in line with the objectives of P.D. 674.
Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use of public
money. When, however, no such unlawful spending has been shown, as in the case at bar, petitioner, even
as a taxpayer cannot question the transaction validly executed by and between the Province and Ortigas
for the simple reason that it is not privy to said contract. In other words, petitioner has absolutely no
cause of action, and consequently no locus standi, in the instant case.
FACTS:
All thirty-five (35) petitioners in this Special Civil Action for Prohibition and Mandamus with Prayer for
Preliminary Injunction and/or Restraining Order seek to enjoin the Presidential Commission on Good
Government (PCGG) from proceeding with the auction sale scheduled on 11 January 1991 by Christie's of
New York of the Old Masters Paintings and 18th and 19th century silverware seized from Malacaang and
the Metropolitan Museum of Manila and placed in the custody of the Central Bank.
On 9 August 1990, Mateo A.T. Caparas, then Chairman of PCGG, wrote then President Corazon C.
Aquino, requesting her for authority to sign the proposed Consignment Agreement between the Republic
of the Philippines through PCGG and Christie, Manson and Woods International, Inc. concerning the
scheduled sale on 11 January 1991 of eighty-two (82) Old Masters Paintings and antique silverware seized
from Malacaang and the Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of
the late President Marcos, his relatives and cronies.
On 14 August 1990, then President Aquino, through former Executive Secretary Catalino Macaraig, Jr.,
authorized Chairman Caparas to sign the Consignment Agreement allowing Christie's of New York to
auction off the subject art pieces for and in behalf of the Republic of the Philippines. On 15 August 1990,
PCGG, through Chairman Caparas, representing the Government of the Republic of the Philippines,
signed the Consignment Agreement with Christie's of New York.
ISSUE:
Can petitioners as taxpayers challenge the validity of the acts of the PCGG?
RULING:
No. They lack basis in fact and in law. These paintings legally belongs to the foundation or corporation or
the members thereof, although the public has been given the opportunity to view and appreciate these
paintings when they were placed on exhibit. Similarly, as alleged in the petition, the pieces of antique
silverware were given to the Marcos couple as gifts from friends and dignitaries from foreign countries on
their silver wedding and anniversary, an occasion personal to them
Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the
government. A taxpayer's suit can prosper only if the governmental acts being questioned involve
disbursement of public funds upon the theory that the expenditure of public funds by an officer of the
state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds,
which may be enjoined at the request of a taxpayer.
FACTS:
This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a
representative suit for and in behalf of those who wish to participate in the election irrespective of party
affiliation, to compel the respondent COMELEC to call a special election to fill up existing vacancies
numbering twelve (12) in the Interim Batasan Pambansa.
Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of
Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner
Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special
election as mandated by the 1973 Constitution.
The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that
petitioners lack standing to file the instant petition for they are not the proper parties to institute the
action
ISSUE:
RULING:
As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money
is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as
is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no
expenditure of public funds. It is only when an act complained of, which may include a legislative
enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may
be allowed
http://www.scribd.com/doc/38458348/Taxation-for-Digest
TAXATION 02
PART I
The revenue examiner went beyond the authority conferred by LOA. A LOA authorizes or empowers a
designated revenue officer to examine, verify and scrutinize a taxpayers books and records in relation to
his internal revenue tax liability for a particular period. The LOA, the examiners were authorize to
examine Sonys book of accounts and other accounting records for the period 1997 and unverified prior
years. However, CIRs basis for deficiency vat for 1997 was 1998. They acted without authority in arriving
at the deficiency vat assessment. It should be considered without force and effect a nullity.
A LOA should cover a taxable period not exceeding 1 year. The practice of issuing LOA covering audit of
unverified prior years is prohibited.
2) TAX ASSESSMENT
An assessment contains not only a computation of tax liabilities, but also a demand for payment within a
prescribed period. It also signals the time when penalties and interests begin to accrue against the
taxpayer. To enable the taxpayer to determine the remedies thereon, due process requires that it must be
served and received by the taxpayer. Accordingly, an affidavit which was executed by the revenue officer
stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion cannot be
deemed an assessment that can be questioned before the CTA. The fact that the complaint itself was
specifically directed and sent to DOJ and not to Pascor shows that the intent of the CIR was to file a
criminal complaint for tax evasion and not to issue an assessment.
1) PRESCRIPTION
a) The Government because tax officers would be obliged to act promptly in making of assessment.
b) The Citizens because after the lapse of the period of prescription, citizens would have the feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers,
not to determine the latters real liability, but to take advantage of every opportunity to molest, peaceful
law-abiding citizens. Without such legal defenses, taxpayers would furthermore be under obligation to
always keep their books and keep them open for inspection subject to harassment by unscrupulous tax
agents. The law on prescription being a remedial measure should be interpreted in a way conducive to
bring about the beneficent purpose of affording protection to the taxpayer within the contemplation of the
Commissioner which recommends the approval of the law.
b) COUNTING OF PERIODS
The 2-year prescriptive period is reckoned from the filing of the final adjusted return. Art. 13 NCC,
provides that when the law speaks of a year, it is understood to be equivalent to 365 days. A year is
equivalent to 365 days regardless of whether it is a regular year or a leap year.
The SC is persuaded by the fundamental principle invoked by CIR that limitations upon the right of the
government to assess and collect taxes will not be presumed in the absence of clear legislation to the
contrary and that where the government has not by express statutory provision provided a limitation
upon its right to assess unpaid taxes, such right is imprescriptible.
The SC, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and
collect the assessment in question had prescribed after 5 years, and instead rules that there is no such
time limit on the right of the CIR to assess the 25% tax on unreasonably accumulated surplus provided in
Sec. 25 of NIRC, since there is no express statutory provision limiting such right or providing for its
prescription. The underlying purpose of the additional tax in question on a corporation's improperly
accumulated profits or surplus is as set forth in the text of Sec. 25 of NIRC itself to avoid the situation
where a corporation unduly retains its surplus instead of declaring and paving dividends to its
shareholders or members who would then have to pay the income tax due on such dividends received by
them. The record amply shows that Ayala Securities is a mere holding company of its shareholders
through its mother company, a registered co-partnership then set up by the individual shareholders
belonging to the same family and that the prima facie evidence and presumption set up by the Tax Code,
therefore applied without having been adequately rebutted by the Ayala Securities.
CIRs plausible alternative contention is that even if the 25% surtax were to be deemed subject to
prescription, computed from the filing of the income tax return in 1955, the intent to evade payment of
the surtax is an inherent quality of the violation and the return filed must necessarily partake of a false
and/or fraudulent character which would make applicable the 10-year prescriptive period provided in Sec.
332(a) of the Tax Code and since the assessment was made in 1961 (the 6th year), the assessment was
clearly within the 10-year prescriptive period. The Court sees no necessity, however, for ruling on this
point in view of its adherence to the ruling in the earlier raise of United Equipment & Supply Co., supra,
holding that the 25% surtax is not subject to any statutory prescriptive period.
Since no percentage tax return was actually filed by taxpayer to reflect the sales of its logs to Japan, the
10-year prescriptive period for cases where returns are not filed applies. Even if an ITR which happens to
be the wrong return had been filed, and even considering that the income from said sales were all
reflected therein, still, this would not take the place of the correct return which for purposes of tax in
question should actually be the percentage tax return.
The percentage tax on sale has now been replaced by the 10% VAT.
Mere understatement of gross earnings not of itself proves fraud. The allegation of fraud with intention
to evade the franchise tax has not been proved satisfactorily. The 1st quarter of 1960, the gross receipts
of Butuan Sawmill as a franchise grantee amounted to P1, 369,383.10. Only P16, 799.56 represented the
alleged unrecorded and under reported receipts of Butuan Sawmill. However, a big portion of the
unrecorded receipts of P16, 799.56 was not reflected in the book of accounts of the taxpayer because it
represented the cost of the electric current used free of charge by its officer and employees. It cannot be
charged that Butuan Sawmill intended to defraud the government of the franchise tax. Fraud, being
absent, the right of the government to assess the franchise tax had already prescribed.
Where the amended return is substantially different from the original return, the right of the BIR to assess
the tax counted from the filing of the amended return. If the assessment is counted from the filing of the
original return, this would permit taxpayers to evade taxes by simply reporting in their original return,
heavy losses and amending the same after the lapse of the prescriptive period when the Commissioner has
already lost his authority to assess the tax. The objective of the Tax Code is to impose taxes, not to
enhance tax avoidance to the prejudice of the government.
Where the return was made in the wrong form, the filing thereof did not start the running of the period
of limitations, and where the return was very deficient; there was no return at all. If the taxpayer failed
to observe the law, Sec. 332 of NIRC grants CIR a 10 year period within which to bring an action for tax
collection, applies. Sec. 94 obligates him to make a return or amend one already filed based on his own
knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon
the taxes due. The running of the period of limitations should be reckoned from the date the fraud was
discovered.
CIR v. CTA
The cause of action has already prescribed. Sec. 332 of NIRC does not apply to income taxes if the
collection of said taxes will be made by summary proceedings, but if the collection is to be effected by
court action, Sec. 332 of NIRC will be the controlling provision. The BIR only made the assessment on
1951 and had up to 1956 to file the necessary action. It was only on 1957 that the action was filed in court
for collection of alleged deficiency income tax far beyond the 5 year period.
A waiver of statute of limitations, to a certain extent, is a derogation of the taxpayers right to security
against prolonged and unscrupulous investigations and must therefore be carefully and strictly
construed. The waiver of statute of limitations is not a waiver of the right to invoke the defense of
prescription as erroneously held by the CA. It is an agreement between the taxpayer and the BIR that
the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does
not mean that the taxpayer relinquishes the right to invoke prescription unequally particular where the
language of the document is equivocal. For the purpose of safeguarding taxpayers from an unreasonable
examination, investigation or assessment, our tax law provides a statute of limitations in the collection of
taxes. The law of prescription being a remedial measure should be liberally construed in order to afford
such protection. The exception to the law on prescription should perforce be strictly construed.
In three different cases of (1) false return, (2) fraudulent return with intent to evade tax, and (3) failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may begin
without assessment, at any time within 10 years after discovery of the falsity, fraud or omission.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of NIRC
should be applicable to normal circumstances, but where the government is placed at a disadvantage so as
to prevent its lawful agents from proper assessment of tax liabilities due to false return, fraudulent returns
intended to evade payment of tax or failure to file returns, the period of 10 years provided in Sec. 332(a) of
NIRC, from time of discovery of the falsity, fraud or omission even seems to be inadequate and should be
the one enforced.
Under Sec. 333 of the Tax Code, the running of the prescriptive period to collect deficiency taxes shall be
suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint
and levy or instituting a proceeding in court, and for 60 days thereafter. In the case at bar, the pendency
of the taxpayers appeal in CTA and in SC had the effect of temporarily staying the hands of the
Commissioner. If the taxpayers stand that the pendency of the appeal did not stop the running of the
period because the CTA did not have jurisdiction over the case is upheld, taxpayers would be encouraged
to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the
running of the prescriptive period was suspended.
He who prevents a thing from being done may not avail himself of the non-performance which he has
himself occasioned, for the law says to him in effect this is your own act, and therefore you are
damnified. The tax could have been collected, but the government withheld action at the specific request
of plaintiff. The plaintiff is now stopped and should not be permitted to raise the defense of statute of
limitations.
The 3 year statute of limitations on the tax collection of an assessed tax provided under Sec. 269(c) of the
Tax Code of 1977, a law enacted to protect the interests of taxpayers, must be given effect. In providing for
exception, the law strictly limits the suspension of the running of the prescription period to, among other
instances, protest wherein the taxpayer requests for a reinvestigation. In this case, the taxpayer merely
filed 2 protest letters requesting for reconsideration, and where the BIR could not have conducted a
reinvestigation because of new or additional evidence was submitted, the running of statute of limitations
cannot be interrupted. The tax which is the subject of the decision issued by CIR on October 08, 2002
affirming the formal assessment issued on April 14, 1994 can no longer be the subject of any proceeding
for its collection. The right of the government to collect the alleged deficiency tax is barred by
prescription.
SEC. 3, RR 12-99
1) DUE PROCESS
CIR v. ALBERTO BENIPAYO
To sustain the deficiency tax assessed against Benipayo would amount to a finding that he had, for a
considerable period of time, cheated and defrauded the government by selling each adult patron 2
childrens tax-free tickets instead of 1 ticket subject to the amusement tax. Fraud is a serious charge and to
sustained, must be supported by clear and convincing proof which, in this case, is lacking.
The law is specific and clear. The rule on The Best Evidence Obtainable applies when a tax report
required by law for the purpose of assessment is not available or when tax report is incomplete or
fraudulent.
The tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the
duty to prove otherwise. In the absence of proof of irregularities in the performance of duties, an
assessment duly made by the BIR examiner and approved by his superior officers will not be disturbed.
All presumptions are in favour of the correctness of tax assessments. The fraudulent acts detailed in the
decision under review had not been satisfactorily rebutted by Sy Po. There are indeed clear indications on
the part of taxpayer to deprive the government of the tax due.
The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory. The taxpayers shall be informed in
writing of the law and the facts on which the assessment is made; otherwise the assessment shall be void.
RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old
requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 of informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made, otherwise, the
assessment itself would be invalid.
The record shows that CIR failed to comply with the procedural due process requirement in order to
sustain the validity and legality of an assessment.
First, the report of investigation sent prior to the issuance of PAN indicated that there is a finding of
deficiency income tax of only P4, 511,035.67. If ever they should properly issue against ABC the same
should have reflected the finding made on report. Instead, the PAN completely departed from the result
by increasing the alleged tax liability of ABC.
Secondly, the law and rules and regulation is issued pursuant thereto clearly gives the taxpayer the right
to reply to the PAN. The period given to taxpayer is 15 days from receipt of PAN. Here, the CIR withheld
PAN to ABC. CIR through registered mail sent the PAN to ABCs former address. Further, merely 4 days
after the PAN was received and without waiting for the lapse of the mandatory 15 day period to reply, CIR
issued the assessment, even before it could be given a chance to be heard.
The sending of PAN and assessment notice to the wrong address may only be seen as an attempt to
mislead or confuse ABC.
In the observance of procedural due process, the SC is always mindful that a taxpayer being made
liable with his property be given an opportunity to be heard which is one of its essential elements. With
the failure of CIR to strictly comply with the procedure prescribed by law, and failure of ABC to receive a
copy of the alleged assessment, the latter was not afforded its right to be heard for it was denied the
opportunity to protest or dispute the alleged assessment.
Assessment is a notice to the effect that the amount stated is due as a tax and a demand for the
payment thereof. It fixes and determines the tax liability of a taxpayer. As soon as it served, an obligation
arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Sec. 228 of NIRC
does not only require that there must be an investigation and determination of taxpayers liability.
The Commissioner or his duly authorized representative is required to send notice of assessment to the
taxpayer in order to give the latter an opportunity to file a protest. An assessment is deemed made only
when the same is actually received by the taxpayer.
The document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the
CIR releases, mails or sends such notice to the taxpayer. Although, there is no specific requirement that
the taxpayer should receive the notice within the prescriptive period, due process requires at the very least
that such notice actually be received. If it appears that the person liable for payment did not receive the
assessment, the assessment could not become final and executory.
CIR v. DOMINADOR MENGUITO
While the lack of PRN and PAN is a deviation from the requirements under Sec. 1 and 2 of RR 12-
85, the same cannot detract from the fact that the FAN were issued to and actually received by Menguito
in accordance with Sec. 228 of NIRC. The stringent requirement that an assessment notice is satisfactorily
proven to have been issued and released or, if receipt thereof is denied that the said assessment notice
have been served on taxpayer, applies only to FAN but not PRN or PAN. The issuance of valid FAN is a
substantive pre-requisite to tax collection, for it contains not only a computation of tax liabilities but also
a demand for payment within a prescribed period, thereby signalling the time when penalties and
interests begin to accrue against the taxpayer and enabling the latter to determine his remedies thereof.
Due process requires that it must be served on and received by taxpayer.
A PRN and PAN do not bear the gravity of a FAN. The PRN and PAN merely hint at the initial findings of
the BIR against a taxpayer and invited the latter to an Informal Conference or Clarificatory Meeting.
Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof.
Hence, the lack of such notices inflicts no prejudice on taxpayer for as long as the latter is properly served
with FAN. In the case of Menguito, a FAN was received by him as acknowledge in his petition for review
and joint stipulation, and on the basis thereof, he filed a protest with the BIR and eventually a petition for
CA.
Since the office of the CIR is charged with the administration of revenue laws, which is the primary
responsibility of the executive branch of the government, mandamus may not lie against the
Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that
would be tantamount to a usurpation of executive function.
Such absence of arbitrariness or grave abuse so as to go beyond the statutory authority is not
subject to the contrary judgment or control of others. Discretion when applied to public functionaries,
means a power or right conferred upon them by law of acting officially, under certain circumstances,
uncontrollable by the judgment or conscience of others. A purely ministerial act or duty in contradiction
to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed
manner in obedience to the mandate of a legal authority, without regard to or the exercise of his own
judgment upon the propriety or impropriety of the act done.If the law imposes a duty upon a public
officer and gives him the right to decide how or when the duty shall be performed, such duty is
discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires
neither the exercise of official discretion or judgment.
NPC availed of subsidy granted to GOCC that were made subject to tax payments. Sec. 23 of PD 1177,
mandates that the Secretary of Finance and Commissioner of Budget had to establish the necessary
procedures to accomplish the tax payment/ tax subsidy scheme of the government in effect, NPC did not
put out any cash to pay any tax as it got from the general fund the amounts necessary to pay the different
revenue collector for the taxes it had to pay.
The tax exemption withdrawn by Sec. 1 of PD 1931 was therefore the same NPC tax exemption
privileges withdrawn by Sec. 23 of PD 1177. NPC could no longer obtain a subsidy for the taxes it had to
pay. It could however, under PD 1931 ask for a total restoration of its tax exemption privileges, which it
did, and the same were granted under FIRB Resolution 10-85 and 1-86 as approved by the Minister of
Finance.
The oil companies which supply bunker fuel oil to NPC have to pay taxes imposed upon said bunker
fuel oil sold to NPC. By indirect taxation, the economic burden is expected to be passed on through the
channels of commerce to the user or consumer of the goods sold. The NPC has been exempted from both
direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of
indirect taxation.
The presumption that a letter duly directed and mailed was received in the regular course of mail
cannot apply where none of the required facts to raise this presumption, i.e., that the letter was properly
addressed with postage prepaid and that it was mailed, have been shown.
Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment
to a taxpayer, made without the supporting evidence, cannot suffice to prove that such notice was sent
and received; otherwise, the taxpayer would be at the mercy of the revenue officers, without adequate
protection or defense.
When a mail matter is sent by registered mail, there exists a presumption set forth under Sec. 3(v)
Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in
order to raise this presumption are:
While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still
merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts
the burden upon the party favoured by the presumption to prove that the mailed letter was indeed
received by the addressee.
Entries in official records made in the performance of a duty specially enjoined by law, are prima
facie evidence of the facts therein stated. Where it has been held that an entrant must have personal
knowledge of the facts stated by him or such facts were acquired by him from reports made by persons
under a legal duty to submit the same. There are 3 requisites for admissibility:
a) Entry was made by a public officer, or by another person specially enjoined by law to do so;
b) It was made by public officer in the performance of his duties; and
c) The public officer or other person had sufficient knowledge of facts by him.
In this case, the entries made by Versola were not based on her personal knowledge as she did not
attest to the fact that she personally prepared and mailed the assessment notice, nor was it stated in the
transcript of stenographic notes how and from whom she obtained the pertinent information.
With the issuance of RR 12-85 providing for the distinction between a request for reconsideration
and a request for reinvestigation. It bears to emphasize that under Sec. 224 of NIRC the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, and
not a request for reconsideration.
- Can suspend the running of the statute of limitations on collection of assessed tax.
- Does not suspend the running of the statute of limitations on collection of assessed tax.
The BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of
the statute of limitations. The act of requesting a reinvestigation alone does not suspend the period. The
request should first be granted in order to effect suspension.
The objections to the assessment should have been raised, considering the ample remedies afforded
the taxpayer by the Tax Code, with the BIR and the CTA, and cannot be raised now via Petition for
Certiorari, under the pretext of grave abuse of discretion. The course of action taken by Marcos II reflects
his disregard or even repugnance of the established institutions for governance in the scheme of a well-
ordered society. The subject tax assessments having become final, executory and enforceable, the same
can no longer be contested by means of a disguise protest. Certiorari may not be used as a substitute for
a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of
sufficient attack against the actuations of government.
Where there was an opportunity to raise objections to government action, and such opportunity was
disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the
orderly functions of the government. He who comes to court must come with clean hands. Otherwise, he
not only taints his name, but ridicules the very structure of established authority.
As provided in Sec. 228, the failure of the taxpayer to appeal from an assessment on time rendered
the assessment final, executory and demandable. RCBC is precluded from disputing the correctness of the
assessment. While the right to appeal a decision of the Commissioner of CTA is merely a statutory
remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a
statutory remedy provides as a condition precedent that the action to enforce it must be commenced
within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised
in a MTD.
The assessment for deficiency income tax for 1947 has become final and executory, and therefore,
Ker, may not anymore raise defenses which go into the merits of assessment, i.e. prescription of the
Commissioners right to assess the tax. However, Ker raised the defense of prescription in the
proceedings below, and the Republic, instead of questioning the right of Ker to raise such defense,
litigated on it and submitted the issue for resolution of the court. By its actuation, the government
should be considered to have waived its right to object to the setting up of such defenses.
The commencement of the 5-year period should be counted from Aug. 29, 1958, the date of the
letter of demand of the BIR Commissioner to Mambulao. It is this demand or assessment that is
appealable to the CTA. The complaint for collection was filed in the CFI on Aug. 25, 1961, very much
within the 5-year period prescribed by Sec. 332 (c) of the Tax Code. The right of the Commissioner to
collect the forest charges and surcharges in the amount of P15, 443.55 has not prescribed.
It is also not disputed the Mambulao requested for a reinvestigation of its tax liability. In reply,
Republic gave Mambulao 20-days from receipt thereto to submit the results of its verification of payments
and failure to comply would be an abandonment of the request for reinvestigation. Neither did it appeal to
the CTA within 30-days from receipt of the letter, thus making the assessment final and executory.
The effect of Prulifes lack of supporting documents submitted is that, it lost its chance to further
contesting the premium tax assessment. The finality of the assessment simply means that where the
taxpayer decides to forgo with the opportunity to present the documents in support of its claim within 60
days from the filing of its protest, it merely lost its chance to further contest the assessment.
Its non-compliance with the submission of the necessary documents would either mean that Prulife
no longer wishes to further submit any document for the reason that its protest letter filed was more than
enough to support its claim, or that Prulife failed to comply thus it can no longer give justification with
regard to its objections as to the correctness of the assessment notices.
The necessity of the submission of the supporting documents lies on Prulife. It cannot be left to the
discretion of the CIR for in doing so would leave Prulifes case at the mercy of the whims of the CIR. It is
for Prulife to decide whether or not supporting documents are necessary to support its protest for it is the
best position, being the affected party to the assessment to determine which documents are necessary and
essential to garner a favourable decision from CIR.
The mere claim of Prulife that its cash collection did not comprise entirely of premiums collected
cannot be given credence. Prulife should have presented supporting documents to prove such claim. Since
Prulife failed to present a scintilla of evidence to that effect, CTA sustains CIRs basis of such collections.
Assessments should not be based on presumption no matter how logical the presumption might be. In
order to stand the test of judicial scrutiny, the assessment must be based on actual facts.
The case at bar, reveals that ABN-AMRO filed its letter of protest on January 28, 2004, it has 60-
days until March 28, 2004 within which to submit the relevant supporting documents. Records of the
case, is bereft of proof that ABN-AMRO had submitted the relevant documents on or before March 28,
2004. The 180-day period shall be reckoned from the filing of the protest on January 28, 2004 which ends
on July 26, 2004.
Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and
whose appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes
already paid under protest, his action is devoid of merit. For in the same way that the expedient of an
appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to
test the legality of an assessment which is Sec. 360 of the Tax Code not available to revive the right to
contest the validity of an assessment which had become final for failure to appeal the same on time.
1) PERIOD TO DECIDE
The general rule is that the CIR Commissioner may delegate any power vested upon him by law to
Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him
under Sec. 7 of NIRC.
Sec. 7 Authority of the Commissioner to Delegate Power The Commissioner may delegate the power
vested in him under the pertinent provisions of this Code to any or such subordinate officials with the
rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be
imposed under rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner. Provided, however, that the following powers of the
Commissioner shall not be delegated:
a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;
c) The power to compromise or abate;
d) The power to assign or reassign internal revenue officers to establishment where articles subject to
excise tax are produce and kept.
The authority to make tax assessments may be delegated to subordinate officers. Said assessment has the
same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter
such as in the case.
C. REMEDY OF TAXPAYER
SEC.3.5.1,RR12-99
SEC.228 OF NIRC
RA 9282, as amended by RA 9503
RR OF CTA, AM 05-11-07-CTA
1) CIR FAILS TO ACT ON PROTEST WITHIN 180 DAYS FROM SUBMISSION OF RELEVANT
DOCUMENTS
Lascona argues that its failure to appeal to the CTA within 30 days from the lapse of the 180-day period
did not make the assessment final and executory simply because CIR did not act upon the protest within
the 180-day period. In such a situation, Lascona contends that it had the option to appeal to the CTA or to
continue with the proceedings on its protest in the administrative level. Once a decision is rendered by the
Commissioner on the protest, the 30-day period to appeal from receipt of the decision is mandatory.
In case of inaction, Sec. 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to
the CTA within 30 days from the lapse of the 180-day period; or second, he may wait until the
Commissioner decides on his protest before he elevates his case. The court believes that the taxpayer was
given this option so that in case his protest is not acted upon within the 180-day period, he may be able to
seek immediate relief and need not wait for an indefinite period of time for the Commissioner to decide.
But if he chooses to wait for a positive action on the part of the Commissioner, then the same could not
result in the assessment becoming final, executory and demandable.
As provided in Sec. 228, the failure of a taxpayer to appeal from an assessment on time rendered the
assessment final, executory and demandable. Consequently, RCBC is precluded from disputing the
correctness of the assessment. While the right to appeal a decision o the Commissioner to the CTA is
merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is
jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be
commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith
may be raised in a MTD.
Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before
he can go to court for the purpose of collecting the tax assessed. On the contrary, Sec. 305 withholds from
all courts, except the CTA the authority to restrain the collection of any national internal-revenue tax, free
of charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and
prompt collection of taxes.
Before the creation of the CTA the remedy of a taxpayer who desired to contest an assessment issued by
the CIR was to pay the tax and bring an action in the ordinary courts for its recovery pursuant to Sec. 306
of the Tax Code. Collection or payment of the tax was not made to wait until after the CIR has resolved all
issues raised by the taxpayer against an assessment. RA 1125 creating the CTA allows the taxpayer to
dispute the correctness of legality of an assessment both in the purely administrative level and in said
court, but it does not stop or prohibit the CIR from collecting the tax through any of the means provided
in Sec. 316 of the Tax Code, except when enjoined by CTA.
Acting Commissioner Plana wrote a letter in an answer to the request of the taxpayer for the cancellation
of the assessments and the withdrawal of the warrants of distraint. He justified the assessments by stating
that the rental income of Advertising Associates from the billboards and neon signs constituted fees or
compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes with 10-
days from receipt of the demand; otherwise, the Bureau would enforce the warrants of distraint. In his
demand letter, he states that:
This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the CTA
within 30 days from receipt of this letter.
No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the
Commissioner's final decision within the meaning of Sec. 7 RA 1125. The Commissioner said so. He even
directed the taxpayer to appeal it to the Tax Court. The directive is in consonance with this Court's dictum
that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what
constitute his final determination of the disputed assessment. That procedure is demanded by the
pressing need for fair play, regularity and orderliness in administrative action.
The record shows that on January 14, 1965, Algue received a letter from CIR assessing it for delinquency
income taxes for 1958 and 1959. Four days thereafter, Algue filed a letter of protest or request for
reconsideration which letter was stamp-received on the same day in the office of the CIR. On March 12,
1965, a warrant of distraint and levy was presented to Algue who refused to receive it on the ground of the
pending protest. A photocopy was given to the BIR agent, who deferred service of the warrant. On April 7,
1965, Algue was finally informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy. 16 days later, Algue filed a petition for review on
the decision of the CIR with the CTA.
The forgoing circumstances show that the petition was filed seasonably. RA 1125 states that the appeal
may be made within 30 days after receipt of the decision or ruling challenged.
It is true that as a rule the warrant of distraint and levy is proof of the finality of the assessment and
renders hopeless a request for reconsideration, being tantamount to an outright denial thereof and makes
the said request deemed rejected. But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine. The proven fact is that 4 days after Algue received the notice of
assessment; it filed its letter of protest. This was apparently not taken into account before the warrant of
distraint and levy was issued; indeed, such protest could not be located in the office of CIR. It was only
after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax
authorities. During the intervening period, the warrant was premature and could therefore not be served.
There is no reason for the Court to disagree from or reverse the CTAs conclusion that under the
circumstances of the case, what may be considered as final decision or assessment of the Commissioner is
the filing of the complaint for collection in the CFI. The summons of which was served on Yabes on
January 20, 1971, and that therefore the appeal with the CTA was filed on time.
The dismissal of the complaint is not sufficient. The ends of justice would best be served by considering
the complaint filed in the Civil case not only as a final notice of assessment but also as a counterclaim in
the CTA case, in order to avoid multiplicity of suits, as well as to expedite the settlement of the
controversy between the parties. The 2 case involves the same parties, the same subject matter and the
same issue, which is the liability of the heirs of Yabes for commercial brokers fixed and percentage taxes
due from Yabes. Wherefore, the petition is granted and the writs prayed for are issued. The question
orders are annulled and set aside and the complaint in the Civil case should be dismissed, the same to be
transferred to the CTA to be considered therein as a counterclaim in the CTA case. The TRO is made
permanent.
There appears to be no dispute that CIR did not rule on Union Shippings motion for reconsideration but
contrary to the ruling of the Court, left Union Shipping in the dark as to which action of the Commissioner
is the decision appealable to CTA. Had he categorically stated that he denies Union Shippings motion for
reconsideration and that his action constitutes his final determination of the disputed assessment, Union
Shipping without needless difficulty would have been able to determine when his right to appeal accrues
and the resulting confusion would have been avoided.
Under the circumstances, CIR, not having clearly signified his final action on the disputed assessment,
legally the period to appeal has not commenced to run. Thus, it was only when Union Shipping received
the summons on the civil suit for collection of deficiency income on December 1978 that the period to
appeal commenced to run.
The request for reinvestigation and reconsideration was in effect considered denied by CIR when the
latter filed a civil suit for collection of deficiency income. So that when Union Shipping filed an appeal
with the CTA, it consumed a total of only 13 days, well within the 30 day period to appeal.
The Final Notice Before Seizure cannot but be considered as the Commissioners decision disposing of the
request for reconsideration filed by Isabela, who received no other response to its request. Not only was
the Notice the only response received; its content and tenor supported the theory that it was the CIRs
final act regarding the request for reconsideration. The very title expressly indicated that it was a final
notice prior to seizure of property. The letter itself clearly stated that Isabela was being given this Last
Opportunity to pay; otherwise, its properties would be subjected to distraint and levy.
Sec. 228 of NIRC states that a delinquent taxpayer may nevertheless directly appeal a disputed
assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. In
this case, the period of 180 days had already lapsed when Isabela filed its request for reconsideration on
March 1990, without any action on the part of the CIR.
Jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a
decision on a disputed or protested assessment.
D. NON-RETROACTIVITY OF RULINGS
SEC. 4 OF NIRC
CIR v. PHILIPPINE HEALTH CARE PROVIDERS INC.
Sec. 246 of the 1997 Tax Code, as amended provides that rulings, circulars, rules and regulations
promulgated by the CIR Commissioner have no retroactive application if to apply them would prejudice
the taxpayer. The exceptions to this rule are:
Where the taxpayer deliberately misstates or omits material facts from his return or in any document
required of him by the BIR; Where the facts subsequently gathered by the BIR are materially different
from the facts on which the ruling is based;
Where the taxpayer acted in bad faith.
Philhealths failure to describe itself as a health maintenance organization which is subject to VAT, is
not tantamount to bad faith. It is apparent that when VAT Ruling was issued in Philhealths favor, the
term health maintenance organization was yet unknown or had no significance for taxation purposes.
Under Sec. 246, the CIR Commissioner is precluded from adopting a position contrary to one previously
taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency
withholding income taxes was made, 3 years after a new BIR Circular reversed a previous one, upon which
the taxpayer had relied upon; such an assessment was prejudicial to the taxpayer. The rule, otherwise,
opined the Court, would be contrary to the tenets of good faith, equity and fair play. The rule is that the
BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the
taxpayer, as in this case.
The rule states that the taxpayer may file a claim for refund or credit with the BIR Commissioner, within 2
years after payment of tax, before any suit in CTA is commenced. The 2-year prescriptive period provided,
should be computed from the time of filing the Adjustment Return and final payment of the tax for the
year. When the Acting Commissioner issued RMC 7-85, changing the prescriptive period of 2 years to 10
years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with
the provision of Sec. 230 of NIRC. The BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by the Congress.
The Revenue Memorandum circulars are considered administrative rulings which are issued from time to
time by the BIR Commissioner. The interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. Courts will not countenance
administrative issuances that override, instead of remaining consistent and in harmony with, the law they
seek to apply and implement.
RR OF CTA, AM 05-11-07-CTA
PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIR
The contentions of PRC that nobody is in a better position to determine when an obligation becomes a
bad debt that the creditor itself, and that its judgment should not be substituted by that of CTA as it is the
PRC which has the facilities in ascertaining the collectability or un-collectability of these debts, are
presumptuous and uncalled for. The CTA is a highly specialized body specifically created for the purpose
of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether
or not the debt is deductible through the evidence presented before it. Because of this recognizable
expertise, the finding of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse
on its part. The findings of fact of the CTA are binding on the SC and in the absence of strong reason for
the SC to delve into facts, only questions of law are open for determination.
1) TAX LIEN
It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant on a judgment. The tax lien attaches not only from the service of the warrant of distraint of
personal property but from the time the tax become due and payable.
CIR v. NLRC
It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private
litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of
distraint of personal property but from the time the tax became due and payable. Besides, the distraint on
the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were
made by CIR, through the Commissioner, long before the writ of execution was issued by the RTC. There
is no question then that at the time the writ of execution was issued, the 2 barges were no longer
properties of the Maritime Company of the Philippines. The power of the court in execution of judgments
extends only to the properties unquestionably belonging to the judgment debtor.
Art. 110 of the Labour Code do not purport to create a lien in favour of workers or employees for unpaid
wages either upon all of the properties or upon any particular property owned by their employer. Claims
for unpaid wages do not fall at all time within the category of specially preferred claims established under
Art. 2241 and Art. 2242 of the CC, except to the extent that such claims for unpaid wages are already
covered by Art. 2241(6): claims for labourers wages, on the goods manufactured or the work done; or by
Art. 2242(3): claims of labourers and other workers engaged in the construction, reconstruction or repair
of buildings, canals and other works, upon said buildings, canals and other works. To the extent that
claims for unpaid wages fall outside the scope of Art. 2241(6) and Art. 2242(3), they would come within
the ambit of the category of ordinary preferred credits under Art. 2244.
Art. 110 of the Labour Code applies only in case of bankruptcy or judicial liquidation of an employers
business, his workers shall enjoy first preference as regards wages due them for services rendered during
the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shall be paid in full before other creditors may establish any claims to a share in the assets
of the employer.
been transferred to innocent purchasers prior to demand. In order that a lien may follow the property into
the hands of a third party; it is further essential that the latter should have notice, either actual or
constructive.
B. JUDICIAL REMEDIES
SEC. 205
The taxpayers defenses are similar to those of the Republic in a case for the enforcement of a judgement
by judicial action under Sec. 6 of Rule 39 of Rules of Court. No inquiry can be made therein as to the
merits of the original case or the justness of the judgement relied upon, other than by evidence of want of
jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to
the proceedings. The taxpayer may raise only the question whether or not the Collector of Internal
Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of
that act.
A judicial action for the collection of a tax begins by the filing of a complaint with the proper court of first
instance or where the assessment is appealed to the CTA, by filing an answer to the taxpayers petition for
review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the
right to appeal the tax assessment to the CTA, the said Court is vested with the authority to pronounce
judgment as to the taxpayers liability to the exclusion of any other court.
The capital investment method is not a method of depletion, but the Tax Code provision, prior to its
amendment by Sec. 1 of RA 3698, expressly provided that when the allowances shall equal the capital
invested no further allowances shall be made; in other words, the capital investment was but the
limitation of the amount of depletion that could be claimed. The outright deduction by the taxpayer of 1/5
of the cost of the mines, as if it were a straight line rate of depreciation is not authorized by the Tax
Code.
In the case of PRC v. CA, the SC ruled that even if an assessment was later reduced by the courts, a
delinquency interest should still be imposed from the time demand was made by the CIR. As correctly
pointed out by the Solicitor General, the deficiency tax assessment, which was the subject of the demand
letter of the Commissioner, should have been paid within 30 days from receipt thereof. By reason of PRC's
default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11,
1989. The fact that PRC appealed the assessment to the CTA and that the same was modified does not
relieve PRC of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of
the original assessment of P1,892,584.00.
The legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the
surcharge and interest at the stated rate upon any sum/s due and unpaid after the dates prescribed in
subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is
mandatory in case of delinquency. This is justified because the intention of the law is precisely to
discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest
charged are not penal but compensatory in nature they are compensation to the State for the delay in
payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have
paid them to the State.
In Ross v. U.S., When the U.S. SC ruled that it was only equitable for the government to collect interest
from a taxpayer who, by the government's error, received a refund which was not due him. Even though
the taxpayer did not request the refund made to him, and the situation is entirely due to an error on the
part of the government, taxpayer and not the government has had the use of the money during the period
involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of
money.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are
imposed for the taxpayers' use of the funds at the time when the State should have control of said funds.
Collecting such charges is mandatory. Therefore, the Decision of the CA imposing a 20% delinquency
interest over the assessment reduced by the CTA was justified and in accordance with Sec. 249(c)(3) of
NIRC.
PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIR
Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions
or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing
penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its
multifarious activities will be adversely affected. The intention of the law is to discourage delay in the
payment of taxes due the Government and, the penalty and interest are not penal but compensatory for
the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them
to the Government. Unquestionably, PRC chose to turn a deaf ear to these injunctions.
The 50% surcharge or fraud penalty provided in Sec. 72 of the NIRC is imposed on a delinquent taxpayer
who willfully neglects to file the required tax return within the period prescribed by the law, or who
willfully files a false or fraudulent tax return. On the other hand, if the failure to file the required tax
return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the
taxpayer.
The SC is not convinced that Air India can be considered to have willfully neglected to file the required tax
return thereby warranting the imposition of the 50% fraud penalty provided in Sec. 72. At the most, there
is the barren claim that such failure was fraudulent in character, without any evidence or justification for
the same. The willful neglect to file the required tax return or the fraudulent intent to evade the payment
of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.
In the case of Aznar v. CA. The lower court's conclusion regarding the existence of fraudulent intent to
evade payment of taxes was based merely on a presumption and not on evidence establishing a willful
filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud
contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to give up some legal right or
to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object
of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent,
and if both Aznar and the CIR committed mistakes in making entries in the returns and in the
assessment, respectively, under the inventory method of determining tax liability, it would be unfair to
treat the mistakes of Aznar as tainted with fraud and those of the CIR as made in good faith.
There being no cogent basis to find willful neglect to file the required tax return on the part of Air India,
the 50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects Air
India to a 25% penalty pursuant to Section 72 of NIRC. P74,203.90 constitutes the tax deficiency of Air
India. 25% of this amount is P37,101.95.
Documentary Stamp Tax (DST) is essentially an excise tax; it is not an imposition on the document itself
but on the privilege to enter into a taxable transaction of pledge. Sec. 195 of NIRC imposes a DST on every
pledge regardless of whether the same is a conventional pledge governed by the Civil Code or one that is
governed by the provision of PD 114. All pledges are subject to DST, unless there is a law exempting them
in clear and categorical language. This explains why the Legislature did not see the need to explicitly
impose a DST on pledges entered into by pawnshops. These pledges are already covered by Sec. 195 and to
create a separate provision especially for them would be superfluous.
It is the exercise of the privilege to enter into an accessory contract of pledge, as distinguished from
contract of loan, which give rise to the obligation to pay DST. If the DST under Sec. 195 is levied on the
loan or the exercise of the
privilege to contract a loan, then there would be no use for Sec. 179 of the NIRC, to separately impose
stamp tax on all debt instruments, like a simple loan agreement. It is for this reason why the definition of
pawnshop ticket, as not an evidence of indebtedness, is inconsequential to and has no bearing on the
taxability of contracts of pledge entered into by pawnshops. For purposes of Sec. 195, pawnshop tickets
need not be an evidence of indebtedness nor a debt instrument because it taxes the same as a pledge
instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it from the
imposition f DST. It was correctly defined as such because the ticket itself is not the security but the pawn
or the personal property pledge to the pawnbroker.
The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was
based merely on a presumption and not on evidence establishing a wilful filing of false and fraudulent
returns as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception wilfully and deliberately done or
resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is
not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to
intentional wrong-doing with the sole object of avoiding the tax.
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most,
create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of
tax evasion.
In the case at bar, there was no actual and intentional fraud through wilful and deliberate misleading of
the government agency concerned, the BIR, headed by CIR. The government was not induced to give up
some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud.
The CIRs zealousness to collect taxes from the unearned windfall to Javier is highly commendable.
Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts.
B. CRIMES, OFFENSES, PENALTIES, FORFEITURES
SEC. 220-221, 224-226 OF NIRC
SEC. 253-281 OF NIRC
RMC 101-90
Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and
proceedings instituted in behalf of the Government under the authority of this Code or other law enforced
by the BIR shall be brought in the name of the Government of the Philippines and shall be conducted by
the provincial or city fiscal, or the Solicitor General, or by the legal officers of the BIR deputized by the
Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any
fine, penalty or forfeiture under this Code shall begun without the approval of the Commissioner.
To implement this provision RAO 5-83 of the BIR provides in pertinent portions:
The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels
assigned in the
xxx
xxx
xxx
1. Complaints for collection on cases falling within the jurisdiction of the Region. . . .
In all the above mentioned cases, the Regional Director is authorized to sign all pleadings filed in
connection therewith which, otherwise, requires the signature of the Commissioner.
xxx
xxx
xxx
RAO 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of RDO to
institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was
signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was,
therefore, compliance with the law.
However, the lower court refused to recognize RAO 10-95 and, by implication, RAO 5-83. It held:
Memoranda, circulars and orders emanating from bureaus and agencies whether in the purely public or
quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not
laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such
memoranda and circulars are not the official acts of the legislative, executive and judicial departments of
the Philippines. ...
This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect
the provisions of the law, they are valid and have the force of law. The governing statutory provision in
this case is Sec. 4(d) of the NIRC which provides:
Specific provisions to be contained in regulations. The regulations of the BIR shall, among other things,
contain provisions specifying, prescribing, or defining:
(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the
institution and conduct of legal actions and proceedings.
RAO 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes
the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to
any subordinate official with the rank equivalent to a division chief or higher, except the following:
a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;
c) The power to compromise or abate under Sec. 204 (A) and (B) of this Code, any tax deficiency:
Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five
hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by
rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the
Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation
board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director,
heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having
jurisdiction over the taxpayer, as members; and
d) The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax
None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.
QUIRICO UNGAB v. HON. VICENTE CUSI, CIR COMMISSIONER, & JESUS ACEBES
What is involved is not the collection of taxes where the assessment of the CIR Commissioner may be
reviewed by CTA, but a criminal prosecution for violations of NIRC which is within the recognizance of
CFI. While there can be no civil action to enforce collection before the assessment procedures provided in
the Code have been followed, there is no requirement for the precise computation and assessment of the
tax before there can be a criminal prosecution under the Code.
It has been ruled that a petition for reconsideration of an assessment ay affect the suspension of the
prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for
violation of law. The protest of Ungab against the assessment of the District Revenue Officer cannot stop
his prosecution for violation of NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the
motion to quash filed by Ungab.
CIR v. CA, FORTUNE TOBACCO CORP., & LUCIO TAN
In every step in the production of cigarettes was closely monitored and supervised by the BIR personnel
specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations
on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR, and
since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that such
registered wholesale price is the same as, or approximates the price, excluding the VAT, at which the
goods are sold at wholesale in the place of production, otherwise, the BIR would not have approved the
registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and
in the absence of contrary evidence, it was precipitate and premature to conclude that Fortune made
fraudulent returns or wilfully attempted to evade payment of taxes due.
If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune through the
manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or
cooperation of certain BIR officials and employees who supervised and monitored Fortunes production
activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence of BIR
personnels malfeasance. There is the presumption that the BIR personnel performed their duties in the
regular course in ensuing that the correct taxes were paid by Fortune.
The SC share the same view of both the trial court and CA that before the tax liabilities of Fortune are first
finally determined, it cannot be correctly asserted that Fortune have wilfully attempted to evade or defeat
the taxes sought to be collected from Fortune. Before one is prosecuted for wilful attempt to evade or
defeat any tax under Sec. 253 and Sec. 255 of the Tax Code, the fact that a tax is due must first be proved.
The pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointed
and deliberately qualified by the Court. The crime is complete when the violator has knowingly and
wilfully filed a fraudulent return with the intent to evade and defeat a part or all of the tax. For criminal
prosecution to proceed before assessment there must be a prima facie showing of a wilful attempt to
evade taxes. There was a wilful attempt to evade taxes because of the taxpayers failure to declare in his
ITR his income derived from banana saplings. In the mind of the trial court and CA, Fortunes situation is
quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed
to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final
determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the
crucible f criminal prosecution. Herein lies a WHALE of difference between Ungab and Fortune.
Pascor maintain that the filing of a criminal complaint must be preceded by an assessment. This is
incorrect, because Sec. 222 of NIRC specifically states that in cases where false or fraudulent return is
submitted or in case of failure to file a return such as in this case, proceedings in court may be
commenced without an assessment. Sec. 205 clearly mandates that the civil and criminal aspects of the
case may be pursued simultaneously. In Ungab v. Cusi, Ungab sought the dismissal of the criminal
complaints for being premature since his protest to the CTA had not yet been resolved. The Court held
that such protests could not stop or suspend the criminal action which was independent of the resolution
of the protest in the CTA. This was because the CIR Commissioner had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.
Pascor insist that Sec. 222 should be read in relation to Sec. 255 of NIRC, which penalizes failure to file a
return. Pascor add that a tax assessment should precede a criminal indictment. The SC disagrees. Sec. 222
states that an assessment is not necessary before a criminal charge can be filed. This is the general rule.
Pascor failed to show that they are entitled to an exception. The criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be proven by an
assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment
is issued, there is a PAN sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the Commissioner is unsatisfied,
an assessment signed by him is then sent to the taxpayer informing the latter specifically and clearly that
an assessment has been made against him. In contrast, the criminal charge need not go through all these.
The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the
Commissioner has issued an assessment. It must be stressed that a criminal complaint is institute not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
2) COMPROMISE PENALTY
RMO 19-07
Sec. 11 of Regulations No. 85 applies, as the CTA points out, to a forest concessionaire who is the holder
of an ordinary license;but there are separate provisions on invoicing and payment of forest charges in
the case of owners or operators of sawmills who are forest concessionaire, like Lianga. For purposes of
said regulations, sawmills are classified into Class A, B, C and D. The Tax Courts finding on the basis of
the evidence is that Lianga is a Class C sawmill. The record does indeed establish its character as such: in
accordance with said regulation, forest officers have been permanently assigned to its concession for the
purpose of scaling all logs felled and it has posted a bond to guarantee the payment of the forest charges
that may be due from it. It is not therefore required by the regulation to accomplish and submit auxiliary
invoices required only of Class A sawmills, i.e., holders of ordinary timber licenses. What is required in
lieu thereof, pursuant to said regulation, are monthly scale reports (BIR Form 14.15) as well as the Daily
Trimmer Tally (BIR Form 14.11), and monthly Abstract of Sawmill invoice (BIR Form 14.14). It is
noteworthy that the CIR does not claim and has made no effort whatever to prove that these forms were
not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga has complied with the
requirements regarding the keeping and use of the records and documents required of Class C sawmills,
among which are the Daily Trimmer Tally and commercial invoices. In fact, it appears that the forest
officers reports and computations were the basis for the payment of forest charges by Lianga, and the
basis, as well of the Commissioners computation of the alleged 25% surcharge. Sec. 267 imposing a
surcharge of 25% of the regular forest charges if forest products are removed from the forest concession
without invoice does not specify the nature of the invoice contemplated. The term is not limited to
auxiliary invoices. It may refer as well to official or commercial invoices such as those prepared by
Class C sawmills. This is the interpretation placed on the term by said regulation themselves, which
declare that the 25% surcharge is imposable on Forest products transported without official invoice or
commercial invoice, as the case requires. And since sawmill or commercial invoices were in fact prepared
by Lianga, no violation of the rule may be imputed to it at all.
Since taxpayers civil liability is not included in the criminal action, his acquittal in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay
taxes cannot be affected by his attempt to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that
could be wiped out by the judicial declaration of non- existence of the criminal acts charged.
With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal
case could not operate to discharge Castro from the duty to pay the tax, since that duty is imposed by
statute prior to and independently of any attempts on the part of the taxpayer to evade payment. The
obligation to pay the tax is not a mere consequence of the felonious acts charged in the information, nor is
it a mere civil liability derived from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.
As to the 50% surcharge, in Coffey v. U.S., the U.S. SC states that additions of this kind to the main tax are
not penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the
state revenue and to reimburse the government for the heavy expense of investigation and the loss
resulting from the taxpayer's fraud. This is made plain by the fact that such surcharges are enforceable,
like the primary tax itself, by distraint or civil suit, and that they are provided in a section of Sec. 5 and
Sec. 7, RA 55 that is separate and distinct from that providing for criminal prosecution. The SC concludes
that the defense of jeopardy and estoppel by reason of Castros acquittal is untenable and without merit.
Whether or not there was fraud committed by the taxpayer justifying the imposition of the surcharge is an
issue of fact to be inferred from the evidence and surrounding circumstances; and the finding of its
existence by the Tax Court is conclusive upon the SC.
5) PRESCRIPTION OF VIOLATION OF NIRC
EMILIO S. LIM, SR. & ANTONIA SUN LIM v. CA & PEOPLE OF THE PHILIPPINES
Relative to Criminal Cases Nos. 1788 and 1789 which involved Lims refusal to pay deficiency income
taxes due, again both parties are in accord that by their nature, the violations as charged could only be
committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Lim
maintains that the 5-year period of limitation under Sec. 354 should be reckoned from April 7, 1965, the
date of the original assessment while the Government insist that it should be counted from July 3, 1968
when final notice and demand was served on Lims daughter-in-law. The SC holds for the Government.
Sec. 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax After the return is
filed, the BIR Commissioner shall examine it and assess the correct amount of the tax. The tax or
deficiency in tax so discovered shall be paid upon notice and demand from the BIR Commissioner.
Inasmuch as the final notice and demand for payment of the deficiency taxes was served on Lim on July 3,
1968, it was only then that the cause of action on the part o the BIR accrued. This is so because prior to
the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense
was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the
allotted period. The two criminal information, having been filed on June 23, 1970, are well within the 5-
year prescriptive period and are not time-barred.
VI. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENT
Tax refunds are based on the principle of quasi-contract or solutio indebeti and the pertinent laws
governing this principle are found in Art. 2142 and Art. 2154 of the NCC. When money is paid to another
under the influence of a mistake of fact, on the mistaken supposition of the existence of a specific fact,
where it would not have been known that the fact was otherwise, it may be recovered. The ground upon
which the right of recovery rests is that money paid through misapprehension of facts belongs in equity
and in good conscience to the person who paid it.
The government comes within the scope of solution indebeti principle, where that: enshrined in the basic
legal principles is the time honoured doctrine that no person shall unjustly enrich himself at the expense
of another. It goes without saying that the Government is not exempt from the application of this
doctrine.
The SC believes that the BIR should not be allowed to defeat an otherwise valid claim for refund by raising
the question of alleged incapacity. CIR does not pretend that P&G-Phil., should it succeed in the claim for
refund instead of transmitting such refund, is likely to run away with the refund instead of transmitting
such refund or tax credit to its parent or sole stockholder. It is commonplace that in the absence of explicit
statutory provisions to the contrary, the government must follow the same rules of procedure which bind
private parties. It is, for instance, clear that the government is held to compliance with the provisions of
Circular No. 1-88 of the SC in exactly the same way that private litigants are held to such compliance, save
only in respect of the matter of filing fees from which the Republic is exempt by the Rules of Court.
A taxpayer is any person subject to tax imposed by the Tax Code. Under Sec. 53(c), the withholding
agent who is required to deduct and withhold any tax is made personally liable for such tax and is
indemnified against any claims and demands which the stockholder might wish to make in questioning
the amount of payments effected by the withholding agent in accordance with the provisions of NIRC. The
withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that
should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and
liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be
finally found to be less than the amount that should have been withheld under the law. A person liable
for tax has been held to be a person subject to tax and subject to tax both connote legal obligation or
duty to pay a tax. By any reasonable standard, such a person should be regarded as a party-in-interest or
as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally
collected from him.
The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of a
Philippine corporation, goes down to 15% if the country of domicile of the foreign stockholder corporation
shall allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable
against the tax payable to the domiciliary country by the foreign stockholder corporation.
In the instant case, the reduced 15% dividend tax rate is applicable if the USA shall allow to P&G-USA a
tax credit for taxes deemed paid in the Philippines applicable against the US taxes of P&G-USA. The
NIRC specifies that such tax credit for taxes deemed paid in the Philippines must, as a minimum, reach
an amount equivalent to 20% points which represents the difference between the regular 35% dividend
tax rate and the preferred 15% dividend tax rate. However, Sec. 24(b)(1), does not require that the US
must give a deemed paid tax credit for the dividend tax (20% points) waived by the Philippines in
making applicable the preferred dividend tax rate of 15%. In other words, NIRC does not require that the
US tax law deemed the parent-corporation to have paid the 20% points of dividend tax waived by the
Philippines. The NIRC only requires that the US shall allow P&G-USA a deemed paid tax credit in an
amount equivalent to the 20% points waived by the Philippines.
AJG, signing as attorney-in-fact, acknowledged for the Gibbs receipt of the deficient income tax
assessment; formally protested the same in writing, paid the assessment and likewise formally demanded
in writing its refund. Besides, in one of his letters to the Commissioner, he stated that if his demand for
refund for the Gibbs was not effected, he would collect from CIR certain charges including attorneys fees.
The forgoing circumstances show that AJG acted not merely an agent or attorney-in-fact of the Gibbs but
as their legal counsel. The receipt, therefore by AJG of the Commissioners decision denying the claim for
refund was receipt of the same by the Gibbs, and the 30-day prescriptive period for filing of a petition for
review should be computed from the date of such receipt.
A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really
deposit an amount to the BIR Commissioner, but, to perform or extinguish his tax obligation for the year
concerned. He is paying his tax liabilities for that year. Consequently, a taxpayer whose income is
withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of
the tax year. It is from this latter date then, or when the tax liability falls due, that the 2-year prescriptive
period under Sec. 306 of the Revenue Code starts to run with respect to payments effected through the
withholding tax system. It is of no consequence whatever that a claim for refund or credit against the
amount withheld at the source may have been presented and may have remained unresolved since the
delay of the Collector is rendering the decision does not extend the peremptory period fixed by the
statute.
It is the duty of the taxpayer to urge the Collector for his decision and wake him up from his lethargy or
file his action within the time prescribed by law. Koppel not having filed his claim within the time fixed by
law, his cause of action has prescribed, and the court should not give a premium to a litigant who sleeps
on his rights.
Having failed to file his action for refund on time of Koppel may not now invoke estoppels when he
himself is guilty of laches. The government is never stopped by error or mistake on the part of its agents.
Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose
appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes, already paid
under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a
denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the
legality of an assessment which had become conclusive and binding on the taxpayer, so is Sec. 360 of the
Tax Code not available to revive the right to contest the validity of an assessment which had become final
for failure to appeal the same on time.
Sec. 306 and 309 of NIRC were intended to govern all kinds of refunds of internal revenue taxes those
taxes imposed and collected pursuant to the NIRC. Thus, this Court stated that "this provision" referring
to Sec. 306, "which is mandatory, is not subject to qualification, and hence, it applies regardless of the
conditions under which payment has been made." And to hold that the instant claim for refund of a
specific tax, an internal revenue tax imposed in Sec. 142 of NIRC, is beyond the scope of Sec. 306 and 309
as to thwart the aforesaid intention and spirit underlying said provisions.
xxx xxx xxx
. . . The intention is clear that refunds of internal revenue taxes are generally governed by Sec. 306 and
309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running
of the 2-year prescriptive period provided for in Sec. 306 should commence, not from the date the tax was
paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And
the claim for refund should be filed with the CIR, and the subsequent appeal to the CTA must be
instituted, within the said 2-year period.
In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription
starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period
commences to run from the date of occurrence of the supervening cause which gave rise to the right of
refund. The ruling in Muller & Phipps is accordingly modified.
It is not disputed that the oils and fuels involved in this case were used during the period from June 1952
to December 1955; that the claim for refund was filed on December 1957; and that the appeal to the Court
CTA was instituted only on February 1962. The taxpayer's claim for refund with the BIR of December 1957
is within 2 years from December 1955 the last month of the period during which the fuels and oils were
used. The appeal to the CTA however, was instituted more than 6 years. The SC has repeatedly held that
the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year
period. "If, however, the Collector takes time in deciding the claim, and the period of 2 years is about to
end, the suit or proceeding must be started in the CTA before the end of the 2- year period without
awaiting the decision of the Collector." In the light of the above quoted ruling, the SC finds that the right
of Victorias Milling to claim refund of P2,817.08 has prescribed.
The CTA erred in denying CIRs supplemental motion for reconsideration alleging and bringing to said
courts attention the existence of the deficiency income and business tax assessment against Citytrust. The
fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of
Citytrust Bank to claim for a tax refund for the same year. To award such refund despite the existence of
that deficiency assessment is an absurdity and a polarity in conceptual effects. Citytrust cannot be entitled
to refund and at the same time be liable for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid, the facts stated therein are
true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitute a
challenge against the truth and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.
To grant the refund without determination of the proper assessment and the tax due would inevitably
result in multiplicity of proceedings or suits. If the deficiency assessment should be subsequently be
upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of 10-years after discovery of
the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and
entail additional efforts and expenses on the part of the Government impose a burden on and a drain of
government funds, and impedes or delays the collection of much- needed revenue for government
operations.
The estate received a PAN indicating a deficiency estate tax of P538,509.50. Within the 10-day period
given in the PAN, CIR received a letter from San Agustin expressing the latter's readiness to pay the basic
deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that
sum from the estate but requesting that the surcharge, interests and penalties be waived. However, San
Agustin received from the CIR notice insisting payment of the tax due on or before the lapse of 30 days
from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until December 1991.
The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of
assessment justifies the imposition of a 25% surcharge in consonance with Sec. 248A(3) of NIRC. The
basic deficiency tax in this case being P538,509.50, the 25% thereof comes to P134,627.37. Sec. 249 of
NIRC states that any deficiency in the tax due would be subject to interest at the rate of 20% per annum,
which interest shall be assessed and collected from the date prescribed for its payment until full payment
is made. The computation of interest by the CTA -
P538,509.50
Interest Rate
Terms
11/2 mo./12 mos
(11/04/91 to 12/19/91)
= P13,462.74
conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until
it is paid.
The CTA correctly held that the compromise penalty of P20,000.00 could not be imposed on San Agustin,
a compromise being, by its nature, mutual in essence. The payment made under protest by San Agustin
could only signify that there was no agreement that had effectively been reached between the parties.
Regrettably for San Agustin, the need for an authority from the probate court in the payment of the
deficiency estate tax, over which CIR has hardly any control, is not one that can negate the application of
the Tax Code provisions. Taxes, the lifeblood of the government, are meant to be paid without delay and
often oblivious to contingencies or conditions.
There is a need to file a return first before a claim for refund can prosper inasmuch as the Commissioner
by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must
show in its final adjustment return the income it received from all sources and the amount of withholding
taxes remitted by its withholding agents to the BIR. ACCRA filed its final adjustment return for its 1981
taxable year on April 15, 1982. The 2-year prescriptive period within which to claim a refund commences
to run at the earliest, on the date of the filing of the adjusted final tax return. Hence, ACCRA had until
April 15, 1984 within which to file its claim for refund.
In the instant case, TMX Sales, filed a suit for a refund on March 14, 1984. Since the 2-year prescriptive
period should
be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales is not yet barred by
prescription.
A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has 2
options:
To apply for the issuance of a tax credit certificate or to claim a cash refund.
If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable
period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by
marking the option box provided in the BIR Form) its intention either to carry over the excess credit or to
claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one
precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Sec. 76
of the Tax Code. The phrase such option shall be considered irrevocable for that taxable period means
that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked.
The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid:
As automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit
certificate has been issued and; As a tax credit either for which a tax credit certificate will be issued or
which will be claimed for cash refund.
SITHE PHILIPPINES HOLDINGS, INC. v. CIR
By the clear wording of Sec. 76, every taxpayer-corporation is required to file a final adjustment return
reflecting therein all the items of gross income and deductions as well as the total taxable income for the
taxable year. By the filing thereof, it enables a taxpayer to ascertain whether it has a tax still due or an
excess and overpaid income tax based on the adjusted and audited figures. If it is shown that the taxpayer
has a tax still due, then he must pay the balance thereof and on the other hand, if he has an excess or
overpaid income tax, then he could carry it over to the succeeding taxable year or he may credit or refund
the excess amount paid as the case may be.
Sec. 76, gives the taxpayer the privilege to carry over its excess credit or crediting/ claiming for the refund
of the excess amount paid, as the case may be. If Sithe believes that Sec. 76 is inapplicable to its case, then
why did they carry over to the succeeding taxable year its 1998 excess credit?
Sec. 204 and Sec. 229 of the 1997 Tax Code, if treated in isolation, vest no right. Sec. 204 merely provides
for the authority of the Commissioner to compromise, abate and refund/ credit taxes and the period of
time within which a taxpayer may claim a refund o tax credit. The same holds true with regard to Sec. 22,
which merely sets a period of limitation within which to recover an erroneously or illegally collected tax.
Thus, a taxpayers option to carry over the excess credit or to refund/ credit the excess amount paid is
actually provided for by Sec. 76. In order to give effect to its provisions, it is important that Sec. 76 should
be read together with Sec. 204 and Sec. 229 of the Tax Code.
In the case at bar, when Sithe opted to carry over its excess tax credit to the succeeding taxable year, it has
in effect availed of the privilege allowed only by Sec. 76. Thus, it is absurd for Sithe to exercise the option
to carry over the excess amount paid and on the same breath, invoke the inapplicability of Sec. 76 to his
case.
It should be stressed that the rationale of the rules of procedure is to secure a just determination of every
action. They are tools designed to facilitate the attainment of justice. But there can be no just
determination of the present action if we ignore, on the grounds of strict technicality, the Return
submitted before the CTA and even before this Court. The undisputed fact is that BPI suffered a net loss in
1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there
is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to BPI.
CIR argues that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris
against the claimant. Under the facts of the case, the SC holds that BPI has established its claim. BPI may
have filed to strictly comply with the rules of procedure; it may have even been negligent. These
circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that BPI
suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of BPI.
Technicalities, and legalism, however exalted, should not be misused by the Government to keep money
not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects
its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard
against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example
of honour, dignity and uprightness.
Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given
taxable year
The first option is relatively simple. Any tax on income that is paid in excess of the amount due the
government may be refunded, provided that a taxpayer properly applies for the refund. The second option
works by applying the refundable amount, as shown on the FAR of a given taxable year, against the
estimated quarterly income tax liabilities of the succeeding taxable year.
These 2 options are alternative in nature. The choice of one precludes the other. A corporation must
signify its intention whether to request a tax refund or claim a tax credit by marking the
corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form
provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get
a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify
ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still
choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax
refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a
choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment
and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus
demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of
preference and hence shows simple negligence or plain oversight.
In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997,
because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a
refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its
1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in
requesting a tax refund has no basis in law and jurisprudence.
The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within 2 years after
payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the
appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of
its choice to request a tax refund, instead of a tax credit. To assert that any future claim for refund will be
instantly hindered by a failure to signify ones intention in the FAR is to render nugatory the clear
provision that allows for a 2-year prescriptive period. In BPI-Family Savings Bank v. CA, the court
ordered the refund of a taxpayers excess creditable taxes, despite the express declaration in the FAR to
apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been
made, it should be respected. But when indubitable circumstances clearly show that another choice a
tax refund is in order, it should be granted. Technicalities and legalisms, however exalted, should not
be misused by the government to keep money not belonging to it and thereby enrich itself at the expense
of its law abiding citizens.
In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:
Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the
financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year
basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing
its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIRs
stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes
that FBTC is operating on a calendar year period based on the audited financial statements and the
opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be
concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30,
1985. It should also be emphasized that "where one corporation succeeds another both are separate
entities and the income earned by the predecessor corporation before organization of its successor is not
income to the successor."
Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time.
FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after
the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by
Sec. 78 of NIRC and under Sec. 244 of RR 2.
As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final
adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on
June 30, 1985, its taxable year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The
situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for
FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution.
Indeed, it would be absurd for FBTC to wait until the 15th day of April, or almost 10 months after it ceased
its operations, before filing its ITR.
Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its
business operations are continuing. In instances in which the corporation is contemplating dissolution,
Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a
particular enactment and also a general one which in its most comprehensive sense would include what is
embraced in the former, the particular enactment must be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within the provisions of the
particular enactment.
BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates
dissolution would lead to absurd results. It contends that it is not feasible for the certified public
accountants to complete their report and audited financial statements, which are required to be submitted
together with the plan of dissolution to the SEC, within the period contemplated by Sec. 78. It maintains
that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also
requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution.
As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47
of the NIRC.
BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for
filing the quarterly return. This argument begs the question. It assumes that a quarterly return was
required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a
quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in
1985.
Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June
30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for
dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following
Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000,
although its actual dissolution would take place only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The
corporation can ask for an extension of time to file a complete income tax return until December 31, 2000,
when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies
not covered by Sec. 78 of NIRC.
Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive
period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for
dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment
by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription
ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29,
1987, it is clear that the claim is barred by prescription.
Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the
latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the
right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A
special law (Tax Code) prevails over a general law (NCC).
Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it
is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount
correctly due.
A. POWER TO COMPROMISE
been transferred to innocent purchasers prior to demand. In order that a lien may follow the property into
the hands of a third party; it is further essential that the latter should have notice, either actual or
constructive.
B. JUDICIAL REMEDIES
SEC. 205
The taxpayers defenses are similar to those of the Republic in a case for the enforcement of a judgement
by judicial action under Sec. 6 of Rule 39 of Rules of Court. No inquiry can be made therein as to the
merits of the original case or the justness of the judgement relied upon, other than by evidence of want of
jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to
the proceedings. The taxpayer may raise only the question whether or not the Collector of Internal
Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of
that act.
A judicial action for the collection of a tax begins by the filing of a complaint with the proper court of first
instance or where the assessment is appealed to the CTA, by filing an answer to the taxpayers petition for
review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the
right to appeal the tax assessment to the CTA, the said Court is vested with the authority to pronounce
judgment as to the taxpayers liability to the exclusion of any other court.
The capital investment method is not a method of depletion, but the Tax Code provision, prior to its
amendment by Sec. 1 of RA 3698, expressly provided that when the allowances shall equal the capital
invested no further allowances shall be made; in other words, the capital investment was but the
limitation of the amount of depletion that could be claimed. The outright deduction by the taxpayer of 1/5
of the cost of the mines, as if it were a straight line rate of depreciation is not authorized by the Tax
Code.
In the case of PRC v. CA, the SC ruled that even if an assessment was later reduced by the courts, a
delinquency interest should still be imposed from the time demand was made by the CIR. As correctly
pointed out by the Solicitor General, the deficiency tax assessment, which was the subject of the demand
letter of the Commissioner, should have been paid within 30 days from receipt thereof. By reason of PRC's
default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11,
1989. The fact that PRC appealed the assessment to the CTA and that the same was modified does not
relieve PRC of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of
the original assessment of P1,892,584.00.
The legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the
surcharge and interest at the stated rate upon any sum/s due and unpaid after the dates prescribed in
subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is
mandatory in case of delinquency. This is justified because the intention of the law is precisely to
discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest
charged are not penal but compensatory in nature they are compensation to the State for the delay in
payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have
paid them to the State.
In Ross v. U.S., When the U.S. SC ruled that it was only equitable for the government to collect interest
from a taxpayer who, by the government's error, received a refund which was not due him. Even though
the taxpayer did not request the refund made to him, and the situation is entirely due to an error on the
part of the government, taxpayer and not the government has had the use of the money during the period
involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of
money.
Based on established doctrine, these charges incident to delinquency are compensatory in nature and are
imposed for the taxpayers' use of the funds at the time when the State should have control of said funds.
Collecting such charges is mandatory. Therefore, the Decision of the CA imposing a 20% delinquency
interest over the assessment reduced by the CTA was justified and in accordance with Sec. 249(c)(3) of
NIRC.
PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIR
Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions
or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing
penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its
multifarious activities will be adversely affected. The intention of the law is to discourage delay in the
payment of taxes due the Government and, the penalty and interest are not penal but compensatory for
the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them
to the Government. Unquestionably, PRC chose to turn a deaf ear to these injunctions.
The 50% surcharge or fraud penalty provided in Sec. 72 of the NIRC is imposed on a delinquent taxpayer
who willfully neglects to file the required tax return within the period prescribed by the law, or who
willfully files a false or fraudulent tax return. On the other hand, if the failure to file the required tax
return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the
taxpayer.
The SC is not convinced that Air India can be considered to have willfully neglected to file the required tax
return thereby warranting the imposition of the 50% fraud penalty provided in Sec. 72. At the most, there
is the barren claim that such failure was fraudulent in character, without any evidence or justification for
the same. The willful neglect to file the required tax return or the fraudulent intent to evade the payment
of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.
In the case of Aznar v. CA. The lower court's conclusion regarding the existence of fraudulent intent to
evade payment of taxes was based merely on a presumption and not on evidence establishing a willful
filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud
contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the fraud with intent to give up some legal right or
to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object
of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent,
and if both Aznar and the CIR committed mistakes in making entries in the returns and in the
assessment, respectively, under the inventory method of determining tax liability, it would be unfair to
treat the mistakes of Aznar as tainted with fraud and those of the CIR as made in good faith.
There being no cogent basis to find willful neglect to file the required tax return on the part of Air India,
the 50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects Air
India to a 25% penalty pursuant to Section 72 of NIRC. P74, 203.90 constitutes the tax deficiency of Air
India. 25% of this amount is P37, 101.95.
Documentary Stamp Tax (DST) is essentially an excise tax; it is not an imposition on the document itself
but on the privilege to enter into a taxable transaction of pledge. Sec. 195 of NIRC imposes a DST on every
pledge regardless of whether the same is a conventional pledge governed by the Civil Code or one that is
governed by the provision of PD 114. All pledges are subject to DST, unless there is a law exempting them
in clear and categorical language. This explains why the Legislature did not see the need to explicitly
impose a DST on pledges entered into by pawnshops. These pledges are already covered by Sec. 195 and to
create a separate provision especially for them would be superfluous.
It is the exercise of the privilege to enter into an accessory contract of pledge, as distinguished from
contract of loan, which give rise to the obligation to pay DST. If the DST under Sec. 195 is levied on the
loan or the exercise of the privilege to contract a loan, then there would be no use for Sec. 179 of the NIRC,
to separately impose stamp tax on all debt instruments, like a simple loan agreement. It is for this reason
why the definition of pawnshop ticket, as not an evidence of indebtedness, is inconsequential to and has
no bearing on the taxability of contracts of pledge entered into by pawnshops. For purposes of Sec. 195,
pawnshop tickets need not be an evidence of indebtedness nor a debt instrument because it taxes the
same as a pledge instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it
from the imposition f DST. It was correctly defined as such because the ticket itself is not the security but
the pawn or the personal property pledge to the pawnbroker.
Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most,
create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of
tax evasion.
In the case at bar, there was no actual and intentional fraud through wilful and deliberate misleading of
the government agency concerned, the BIR, headed by CIR. The government was not induced to give up
some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud.
The CIRs zealousness to collect taxes from the unearned windfall to Javier is highly commendable.
Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts.
Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and
proceedings instituted in behalf of the Government under the authority of this Code or other law enforced
by the BIR shall be brought in the name of the Government of the Philippines and shall be conducted by
the provincial or city fiscal, or the Solicitor General, or by the legal officers of the BIR deputized by the
Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any
fine, penalty or forfeiture under this Code shall begin without the approval of the Commissioner.
To implement this provision RAO 5-83 of the BIR provides in pertinent portions:
The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels
assigned in the
xxx
xxx
xxx
1. Complaints for collection on cases falling within the jurisdiction of the Region. . .
In all the above mentioned cases, the Regional Director is authorized to sign all pleadings filed in
connection therewith which, otherwise, requires the signature of the Commissioner.
xxx
xxx
xxx
RAO 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of RDO to
institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was
signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was,
therefore, compliance with the law.
However, the lower court refused to recognize RAO 10-95 and, by implication, RAO 5-83. It held:
Memoranda, circulars and orders emanating from bureaus and agencies whether in the purely public or
quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not
laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such
memoranda and circulars are not the official acts of the legislative, executive and judicial departments of
the Philippines. ...
This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect
the provisions of the law, they are valid and have the force of law. The governing statutory provision in
this case is Sec. 4(d) of the NIRC which provides:
Specific provisions to be contained in regulations. The regulations of the BIR shall, among other hings,
contain provisions specifying, prescribing, or defining:
(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respectingthe
institution and conduct of legal actions and proceedings.
RAO 5-83 and 10-95 are in harmony with this statutory mandate.
As amended by R.A. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes
the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to
any subordinate official with the rank equivalent to a division chief or higher, except the following:
a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the
Bureau;
c) The power to compromise or abate under Sec. 204 (A) and (B) of this Code, any tax deficiency:
Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five
hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by
rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the
Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation
board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director,
heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having
jurisdiction over the taxpayer, as members; and
d) The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax
are produced or kept.
None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.
QUIRICO UNGAB v. HON. VICENTE CUSI, CIR COMMISSIONER, & JESUS ACEBES
What is involved is not the collection of taxes where the assessment of the CIR Commissioner may be
reviewed by CTA, but a criminal prosecution for violations of NIRC which is within the recognizance of
CFI. While there can be no civil action to enforce collection before the assessment procedures provided in
the Code have been followed, there is no requirement for the precise computation and assessment of the
tax before there can be a criminal prosecution under the Code.
It has been ruled that a petition for reconsideration of an assessment ay affect the suspension of the
prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for
violation of law. The protest of Ungab against the assessment of the District Revenue Officer cannot stop
his prosecution for violation of NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the
motion to quash filed by Ungab.
In every step in the production of cigarettes was closely monitored and supervised by the BIR personnel
specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations
on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR, and
since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that such
registered wholesale price is the same as, or approximates the price, excluding the VAT, at which the
goods are sold at wholesale in the place of production, otherwise, the BIR would not have approved the
registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and
in the absence of contrary evidence, it was precipitate and premature to conclude that Fortune made
fraudulent returns or wilfully attempted to evade payment of taxes due.
If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune through the
manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or
cooperation of certain BIR officials and employees who supervised and monitored Fortunes production
activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence of BIR
personnels malfeasance. There is the presumption that the BIR personnel performed their duties in the
regular course in ensuing that the correct taxes were paid by Fortune.
The SC share the same view of both the trial court and CA that before the tax liabilities of Fortune are first
finally determined, it cannot be correctly asserted that Fortune have wilfully attempted to evade or defeat
the taxes sought to be collected from Fortune. Before one is prosecuted for wilful attempt to evade or
defeat any tax under Sec. 253 and Sec. 255 of the Tax Code, the fact that a tax is due must first be proved.
The pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointed
and deliberately qualified by the Court. The crime is complete when the violator has knowingly and
wilfully filed a fraudulent return with the intent to evade and defeat a part or all of the tax. For criminal
prosecution to proceed before assessment there must be a prima facie showing of a wilful attempt to
evade taxes. There was a wilful attempt to evade taxes because of the taxpayers failure to declare in his
ITR his income derived from banana saplings. In the mind of the trial court and CA, Fortunes situation is
quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed
to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final
determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the
crucible f criminal prosecution. Herein lies a WHALE of difference between Ungab and Fortune.
Pascor maintain that the filing of a criminal complaint must be preceded by an assessment. This is
incorrect, because Sec. 222 of NIRC specifically states that in cases where false or fraudulent return is
submitted or in case of failure to file a return such as in this case, proceedings in court may be
commenced without an assessment. Sec. 205 clearly mandates that the civil and criminal aspects of the
case may be pursued simultaneously. In Ungab v. Cusi, Ungab sought the dismissal of the criminal
complaints for being premature since his protest to the CTA had not yet been resolved. The Court held
that such protests could not stop or suspend the criminal action which was independent of the resolution
of the protest in the CTA. This was because the CIR Commissioner had, in such tax evasion cases,
discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.
Pascor insist that Sec. 222 should be read in relation to Sec. 255 of NIRC, which penalizes failure to file a
return. Pascor add that a tax assessment should precede a criminal indictment. The SC disagrees. Sec. 222
states that an assessment is not necessary before a criminal charge can be filed. This is the general rule.
Pascor failed to show that they are entitled to an exception. The criminal charge need only be supported
by a prima facie showing of failure to file a required return. This fact need not be proven by an
assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment
is issued, there is a PAN sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the Commissioner is unsatisfied,
an assessment signed by him is then sent to the taxpayer informing the latter specifically and clearly that
an assessment has been made against him. In contrast, the criminal charge need not go through all these.
The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the
Commissioner has issued an assessment. It must be stressed that a criminal complaint is institute not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.
2) COMPROMISE PENALTY
RMO 19-07
Sec. 11 of Regulations No. 85 applies, as the CTA points out, to a forest concessionaire who is the holder
of an ordinary license;but there are separate provisions on invoicing and payment of forest charges in
the case of owners or operators of sawmills who are forest concessionaire, like Lianga. For purposes of
said regulations, sawmills are classified into Class A, B, C and D. The Tax Courts finding on the basis of
the evidence is that Lianga is a Class C sawmill. The record does indeed establish its character as such: in
accordance with said regulation, forest officers have been permanently assigned to its concession for the
purpose of scaling all logs felled and it has posted a bond to guarantee the payment of the forest charges
that may be due from it. It is not therefore required by the regulation to accomplish and submit auxiliary
invoices required only of Class A sawmills, i.e., holders of ordinary timber licenses. What is required in
lieu thereof, pursuant to said regulation, are monthly scale reports (BIR Form 14.15) as well as the Daily
Trimmer Tally (BIR Form 14.11), and monthly Abstract of Sawmill invoice (BIR Form 14.14). It is
noteworthy that the CIR does not claim and has made no effort whatever to prove that these forms were
not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga has complied with the
requirements regarding the keeping and use of the records and documents required of Class C sawmills,
among which are the Daily Trimmer Tally and commercial invoices. In fact, it appears that the forest
officers reports and computations were the basis for the payment of forest charges by Lianga, and the
basis, as well of the Commissioners computation of the alleged 25% surcharge. Sec. 267 imposing a
surcharge of 25% of the regular forest charges if forest products are removed from the forest concession
without invoice does not specify the nature of the invoice contemplated. The term is not limited to
auxiliary invoices. It may refer as well to official or commercial invoices such as those prepared by
Class C sawmills. This is the interpretation placed on the term by said regulation themselves, which
declare that the 25% surcharge is imposable on Forest products transported without official invoice or
commercial invoice, as the case requires. And since sawmill or commercial invoices were in fact prepared
by Lianga, no violation of the rule may be imputed to it at all.
Under the Penal Coe, the civil liability is incurred by reason of the offenders criminal act. The criminal
liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the
Penal Code, he cannot be civilly liable there under. The situation under the income tax law is the exact
opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in
business and not because of any criminal at committed by him. The criminal liability arises upon failure of
the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles
of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the
income tax law. Another reason, while Sec. 73 of NIRC has provided for the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it does
not provide the collection of said tax in criminal proceedings.
Since taxpayers civil liability is not included in the criminal action, his acquittal in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay
taxes cannot be affected by his attempt to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that
could be wiped out by the judicial declaration of non- existence of the criminal acts charged.
With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal
case could not operate to discharge Castro from the duty to pay the tax, since that duty is imposed by
statute prior to and independently of any attempts on the part of the taxpayer to evade payment. The
obligation to pay the tax is not a mere consequence of the felonious acts charged in the information, nor is
it a mere civil liability derived from crime that would be wiped out by the judicial declaration that the
criminal acts charged did not exist.
As to the 50% surcharge, in Coffey v. U.S., the U.S. SC states that additions of this kind to the main tax are
not penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the
state revenue and to reimburse the government for the heavy expense of investigation and the loss
resulting from the taxpayer's fraud. This is made plain by the fact that such surcharges are enforceable,
like the primary tax itself, by distraint or civil suit, and that they are provided in a section of Sec. 5 and
Sec. 7, RA 55 that is separate and distinct from that providing for criminal prosecution. The SC concludes
that the defense of jeopardy and estoppel by reason of Castros acquittal is untenable and without merit.
Whether or not there was fraud committed by the taxpayer justifying the imposition of the surcharge is an
issue of fact to be inferred from the evidence and surrounding circumstances; and the finding of its
existence by the Tax Court is conclusive upon the SC.
EMILIO S. LIM, SR. & ANTONIA SUN LIM v. CA & PEOPLE OF THE PHILIPPINES
Relative to Criminal Cases Nos. 1788 and 1789 which involved Lims refusal to pay deficiency income
taxes due, again both parties are in accord that by their nature, the violations as charged could only be
committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Lim
maintains that the 5-year period of limitation under Sec. 354 should be reckoned from April 7, 1965, the
date of the original assessment while the Government insist that it should be counted from July 3, 1968
when final notice and demand was served on Lims daughter-in-law. The SC holds for the Government.
Sec. 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax After the return is
filed, the BIR Commissioner shall examine it and assess the correct amount of the tax. The tax or
deficiency in tax so discovered shall be paid upon notice and demand from the BIR Commissioner.
Inasmuch as the final notice and demand for payment of the deficiency taxes was served on Lim on July 3,
1968, it was only then that the cause of action on the part o the BIR accrued. This is so because prior to
the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense
was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the
allotted period. The two criminal information, having been filed on June 23, 1970, are well within the 5-
year prescriptive period and are not time-barred.
VI. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENT
Tax refunds are based on the principle of quasi-contract or solutio indebeti and the pertinent laws
governing this principle are found in Art. 2142 and Art. 2154 of the NCC. When money is paid to another
under the influence of a mistake of fact, on the mistaken supposition of the existence of a specific fact,
where it would not have been known that the fact was otherwise, it may be recovered. The ground upon
which the right of recovery rests is that money paid through misapprehension of facts belongs in equity
and in good conscience to the person who paid it.
The government comes within the scope of solution indebeti principle, where that: enshrined in the basic
legal principles is the time honoured doctrine that no person shall unjustly enrich himself at the expense
of another. It goes without saying that the Government is not exempt from the application of this
doctrine.
A taxpayer is any person subject to tax imposed by the Tax Code. Under Sec. 53(c), the withholding
agent who is required to deduct and withhold any tax is made personally liable for such tax and is
indemnified against any claims and demands which the stockholder might wish to make in questioning
the amount of payments effected by the withholding agent in accordance with the provisions of NIRC. The
withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that
should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and
liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be
finally found to be less than the amount that should have been withheld under the law. A person liable
for tax has been held to be a person subject to tax and subject to tax both connote legal obligation or
duty to pay a tax. By any reasonable standard, such a person should be regarded as a party-in-interest or
as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally
collected from him.
The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of a
Philippine corporation, goes down to 15% if the country of domicile of the foreign stockholder corporation
shall allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable
against the tax payable to the domiciliary country by the foreign stockholder corporation.
In the instant case, the reduced 15% dividend tax rate is applicable if the USA shall allow to P&G-USA a
tax credit for taxes deemed paid in the Philippines applicable against the US taxes of P&G-USA. The
NIRC specifies that such tax credit for taxes deemed paid in the Philippines must, as a minimum, reach
an amount equivalent to 20% points which represents the difference between the regular 35% dividend
tax rate and the preferred 15% dividend tax rate. However, Sec. 24(b)(1), does not require that the US
must give a deemed paid tax credit for the dividend tax (20% points) waived by the Philippines in
making applicable the preferred dividend tax rate of 15%. In other words, NIRC does not require that the
US tax law deemed the parent-corporation to have paid the 20% points of dividend tax waived by the
Philippines. The NIRC only requires that the US shall allow P&G-USA a deemed paid tax credit in an
amount equivalent to the 20% points waived by the Philippines.
AJG, signing as attorney-in-fact, acknowledged for the Gibbs receipt of the deficient income tax
assessment; formally protested the same in writing, paid the assessment and likewise formally demanded
in writing its refund. Besides, in one of his letters to the Commissioner, he stated that if his demand for
refund for the Gibbs was not effected, he would collect from CIR certain charges including attorneys fees.
The forgoing circumstances show that AJG acted not merely an agent or attorney-in-fact of the Gibbs but
as their legal counsel. The receipt, therefore by AJG of the Commissioners decision denying the claim for
refund was receipt of the same by the Gibbs, and the 30-day prescriptive period for filing of a petition for
review should be computed from the date of such receipt.
A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really
deposit an amount to the BIR Commissioner, but, to perform or extinguish his tax obligation for the year
concerned. He is paying his tax liabilities for that year. Consequently, a taxpayer whose income is
withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of
the tax year. It is from this latter date then, or when the tax liability falls due, that the 2-year prescriptive
period under Sec. 306 of the Revenue Code starts to run with respect to payments effected through the
withholding tax system. It is of no consequence whatever that a claim for refund or credit against the
amount withheld at the source may have been presented and may have remained unresolved since the
delay of the Collector is rendering the decision does not extend the peremptory period fixed by the
statute.
It is the duty of the taxpayer to urge the Collector for his decision and wake him up from his lethargy or
file his action within the time prescribed by law. Koppel not having filed his claim within the time fixed by
law, his cause of action has prescribed, and the court should not give a premium to a litigant who sleeps
on his rights.
Having failed to file his action for refund on time of Koppel may not now invoke estoppels when he
himself is guilty of laches. The government is never stopped by error or mistake on the part of its agents.
Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose
appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes, already paid
under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a
denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the
legality of an assessment which had become conclusive and binding on the taxpayer, so is Sec. 360 of the
Tax Code not available to revive the right to contest the validity of an assessment which had become final
for failure to appeal the same on time.
Sec. 306 and 309 of NIRC were intended to govern all kinds of refunds of internal revenue taxes those
taxes imposed and collected pursuant to the NIRC. Thus, this Court stated that "this provision" referring
to Sec. 306, "which is mandatory, is not subject to qualification, and hence, it applies regardless of the
conditions under which payment has been made." And to hold that the instant claim for refund of a
specific tax, an internal revenue tax imposed in Sec. 142 of NIRC, is beyond the scope of Sec. 306 and 309
as to thwart the aforesaid intention and spirit underlying said provisions.
. . . The intention is clear that refunds of internal revenue taxes are generally governed by Sec. 306 and
309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running
of the 2-year prescriptive period provided for in Sec. 306 should commence, not from the date the tax was
paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And
the claim for refund should be filed with the CIR, and the subsequent appeal to the CTA must be
instituted, within the said 2-year period.
It is not disputed that the oils and fuels involved in this case were used during the period from June 1952
to December 1955; that the claim for refund was filed on December 1957; and that the appeal to the Court
CTA was instituted only on February 1962. The taxpayer's claim for refund with the BIR of December 1957
is within 2 years from December 1955 the last month of the period during which the fuels and oils were
used. The appeal to the CTA however, was instituted more than 6 years. The SC has repeatedly held that
the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year
period. "If, however, the Collector takes time in deciding the claim, and the period of 2 years is about to
end, the suit or proceeding must be started in the CTA before the end of the 2- year period without
awaiting the decision of the Collector." In the light of the above quoted ruling, the SC finds that the right
of Victorias Milling to claim refund of P2,817.08 has prescribed.
The CTA erred in denying CIRs supplemental motion for reconsideration alleging and bringing to said
courts attention the existence of the deficiency income and business tax assessment against Citytrust. The
fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of
Citytrust Bank to claim for a tax refund for the same year. To award such refund despite the existence of
that deficiency assessment is an absurdity and a polarity in conceptual effects. Citytrust cannot be entitled
to refund and at the same time be liable for a tax deficiency assessment for the same year.
The grant of a refund is founded on the assumption that the tax return is valid, the facts stated therein are
true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitute a
challenge against the truth and accuracy of the facts stated in said return which, by itself and without
unquestionable evidence, cannot be the basis for the grant of the refund.
To grant the refund without determination of the proper assessment and the tax due would inevitably
result in multiplicity of proceedings or suits. If the deficiency assessment should be subsequently be
upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of 10-years after discovery of
the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and
entail additional efforts and expenses on the part of the Government impose a burden on and a drain of
government funds, and impedes or delays the collection of much- needed revenue for government
operations.
The estate received a PAN indicating a deficiency estate tax of P538,509.50. Within the 10-day period
given in the PAN, CIR received a letter from San Agustin expressing the latter's readiness to pay the basic
deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that
sum from the estate but requesting that the surcharge, interests and penalties be waived. However, San
Agustin received from the CIR notice insisting payment of the tax due on or before the lapse of 30 days
from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until December 1991.
The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of
assessment justifies the imposition of a 25% surcharge in consonance with Sec. 248A(3) of NIRC. The
basic deficiency tax in this case being P538,509.50, the 25% thereof comes to P134,627.37. Sec. 249 of
NIRC states that any deficiency in the tax due would be subject to interest at the rate of 20% per annum,
which interest shall be assessed and collected from the date prescribed for its payment until full payment
is made. The computation of interest by the CTA -
P538,509.50
Interest Rate
Terms
11/2 mo./12 mos
(11/04/91 to 12/19/91)
= P13, 462.74 conforms to the law, i.e., computed on the deficiency tax from the date prescribed for its
payment until it is paid.
The CTA correctly held that the compromise penalty of P20,000.00 could not be imposed on San Agustin,
a compromise being, by its nature, mutual in essence. The payment made under protest by San Agustin
could only signify that there was no agreement that had effectively been reached between the parties.
Regrettably for San Agustin, the need for an authority from the probate court in the payment of the
deficiency estate tax, over which CIR has hardly any control, is not one that can negate the application of
the Tax Code provisions. Taxes, the lifeblood of the government, are meant to be paid without delay and
often oblivious to contingencies or conditions.
There is a need to file a return first before a claim for refund can prosper inasmuch as the Commissioner
by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must
show in its final adjustment return the income it received from all sources and the amount of withholding
taxes remitted by its withholding agents to the BIR. ACCRA filed its final adjustment return for its 1981
taxable year on April 15, 1982. The 2-year prescriptive period within which to claim a refund commences
to run at the earliest, on the date of the filing of the adjusted final tax return. Hence, ACCRA had until
April 15, 1984 within which to file its claim for refund.
The filing of quarterly ITRs required in Sec. 68 and implemented per BIR Form 1702-Q and payment of
quarterly income tax should only be considered mere instalments of the annual tax due. These quarterly
tax payments which are computed based on the cumulative figures of gross receipts and deductions in
order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax
due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Sec. 69 which provides
for the filing of adjustment returns and final payment of income tax. Consequently, the 2-year prescriptive
period provided in Sec. 230 of the Tax Code should be computed from the time of filing of the Adjustment
Return or Annual ITR and final payment of income tax.
In the instant case, TMX Sales, filed a suit for a refund on March 14, 1984. Since the 2-year prescriptive
period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales is not yet
barred by prescription.
SYSTRA PHILIPPINES, INC. v. CIR
A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has 2
options:
To apply for the issuance of a tax credit certificate or to claim a cash refund.
If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable
period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by
marking the option box provided in the BIR Form) its intention either to carry over the excess credit or to
claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one
precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Sec. 76
of the Tax Code. The phrase such option shall be considered irrevocable for that taxable period means
that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked.
The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid:
As automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit
certificate has been issued and;
As a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash
refund.
By the clear wording of Sec. 76, every taxpayer-corporation is required to file a final adjustment return
reflecting therein all the items of gross income and deductions as well as the total taxable income for the
taxable year. By the filing thereof, it enables a taxpayer to ascertain whether it has a tax still due or an
excess and overpaid income tax based on the adjusted and audited figures. If it is shown that the taxpayer
has a tax still due, then he must pay the balance thereof and on the other hand, if he has an excess or
overpaid income tax, then he could carry it over to the succeeding taxable year or he may credit or refund
the excess amount paid as the case may be.
Sec. 76, gives the taxpayer the privilege to carry over its excess credit or crediting/ claiming for the refund
of the excess amount paid, as the case may be. If Sithe believes that Sec. 76 is inapplicable to its case, then
why did they carry over to the succeeding taxable year its 1998 excess credit?
Sec. 204 and Sec. 229 of the 1997 Tax Code, if treated in isolation, vest no right. Sec. 204 merely provides
for the authority of the Commissioner to compromise, abate and refund/ credit taxes and the period of
time within which a taxpayer may claim a refund o tax credit. The same holds true with regard to Sec. 22,
which merely sets a period of limitation within which to recover an erroneously or illegally collected tax.
Thus, a taxpayers option to carry over the excess credit or to refund/ credit the excess amount paid is
actually provided for by Sec. 76. In order to give effect to its provisions, it is important that Sec. 76 should
be read together with Sec. 204 and Sec. 229 of the Tax Code.
In the case at bar, when Sithe opted to carry over its excess tax credit to the succeeding taxable year, it has
in effect availed of the privilege allowed only by Sec. 76. Thus, it is absurd for Sithe to exercise the option
to carry over the excess amount paid and on the same breath, invoke the inapplicability of Sec. 76 to his
case.
It should be stressed that the rationale of the rules of procedure is to secure a just determination of every
action. They are tools designed to facilitate the attainment of justice. But there can be no just
determination of the present action if we ignore, on the grounds of strict technicality, the Return
submitted before the CTA and even before this Court. The undisputed fact is that BPI suffered a net loss in
1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there
is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to BPI.
CIR argues that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris
against the claimant. Under the facts of the case, the SC holds that BPI has established its claim. BPI may
have filed to strictly comply with the rules of procedure; it may have even been negligent. These
circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that BPI
suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits.
Substantial justice, equity and fair play are on the side of BPI.
Technicalities, and legalism, however exalted, should not be misused by the Government to keep money
not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects
its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard
against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example
of honour, dignity and uprightness.
PHILAM ASSET MANAGEMENT, INC. v. CIR
Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given
taxable year exceed its total income tax due. These options are:
The first option is relatively simple. Any tax on income that is paid in excess of the amount due the
government may be refunded, provided that a taxpayer properly applies for the refund. The second option
works by applying the refundable amount, as shown on the FAR of a given taxable year, against the
estimated quarterly income tax liabilities of the succeeding taxable year.
These 2 options are alternative in nature. The choice of one precludes the other. A corporation must
signify its intention whether to request a tax refund or claim a tax credit by marking the
corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form
provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get
a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify
ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still
choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax
refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a
choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment
and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus
demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of
preference and hence shows simple negligence or plain oversight.
In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997,
because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a
refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its
1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in
requesting a tax refund has no basis in law and jurisprudence.
It is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been
audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only
when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax
is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has
ruled that at the earliest, the 2-year prescriptive period for claiming a refund commences to run on the
date of filing of the adjusted final tax return.
In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:
Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the
financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year
basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing
its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIRs
stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes
that FBTC is operating on a calendar year period based on the audited financial statements and the
opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be
concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30,
1985. It should also be emphasized that "where one corporation succeeds another both are separate
entities and the income earned by the predecessor corporation before organization of its successor is not
income to the successor."
Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time.
FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after
the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by
Sec. 78 of NIRC and under Sec. 244 of RR 2.
As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final
adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on
June 30, 1985, its taxable year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The
situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for
FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution.
Indeed, it would be absurd for FBTC to wait until the 15th day of April, or almost 10 months after it ceased
its operations, before filing its ITR.
Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its
business operations are continuing. In instances in which the corporation is contemplating dissolution,
Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a
particular enactment and also a general one which in its most comprehensive sense would include what is
embraced in the former, the particular enactment must be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within the provisions of the
particular enactment.
BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates
dissolution would lead to absurd results. It contends that it is not feasible for the certified public
accountants to complete their report and audited financial statements, which are required to be submitted
together with the plan of dissolution to the SEC, within the period contemplated by Sec. 78. It maintains
that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also
requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution.
As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47
of the NIRC.
BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for
filing the quarterly return. This argument begs the question. It assumes that a quarterly return was
required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a
quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in
1985.
Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June
30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for
dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following
Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000,
although its actual dissolution would take place only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The
corporation can ask for an extension of time to file a complete income tax return until December 31, 2000,
when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies
not covered by Sec. 78 of NIRC.
Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive
period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for
dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment
by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription
ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29,
1987, it is clear that the claim is barred by prescription.
Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the
latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the
right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A
special law (Tax Code) prevails over a general law (NCC).
Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it
is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount
correctly due.
VII.ABATEMENT OF TAX, TAX COMPROMISE
SEC. 7, SEC. 204 OF NIRC
RR 13-01
RR30-02
A. POWER TO COMPROMISE
Technicalities, and legalism, however exalted, should not be misused by the Government to keep money
not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects
its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard
against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example
of honour, dignity and uprightness.
Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given
taxable year exceed its total income tax due. These options are:
The first option is relatively simple. Any tax on income that is paid in excess of the amount due the
government may be refunded, provided that a taxpayer properly applies for the refund. The second option
works by applying the refundable amount, as shown on the FAR of a given taxable year, against the
estimated quarterly income tax liabilities of the succeeding taxable year.
These 2 options are alternative in nature. The choice of one precludes the other. A corporation must
signify its intention whether to request a tax refund or claim a tax credit by marking the
corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form
provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get
a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify
ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still
choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax
refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a
choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment
and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus
demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of
preference and hence shows simple negligence or plain oversight.
In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997,
because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a
refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its
1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in
requesting a tax refund has no basis in law and jurisprudence.
The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within 2 years after
payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the
appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of
its choice to request a tax refund, instead of a tax credit. To assert that any future claim for refund will be
instantly hindered by a failure to signify ones intention in the FAR is to render nugatory the clear
provision that allows for a 2-year prescriptive period. In BPI-Family Savings Bank v. CA, the court
ordered the refund of a taxpayers excess creditable taxes, despite the express declaration in the FAR to
apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been
made, it should be respected. But when indubitable circumstances clearly show that another choice a
tax refund is in order, it should be granted. Technicalities and legalisms, however exalted, should not
be misused by the government to keep money not belonging to it and thereby enrich itself at the expense
of its law abiding citizens.
It is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been
audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only
when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax
is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has
ruled that at the earliest, the 2-year prescriptive period for claiming a refund commences to run on the
date of filing of the adjusted final tax return.
In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:
Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the
financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year
basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing
its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIRs
stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes
that FBTC is operating on a calendar year period based on the audited financial statements and the
opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be
concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30,
1985. It should also be emphasized that "where one corporation succeeds another both are separate
entities and the income earned by the predecessor corporation before organization of its successor is not
income to the successor."
Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time.
FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after
the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by
Sec. 78 of NIRC and under Sec. 244 of RR 2.
As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final
adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on
June 30, 1985, its taxable year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The
situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for
FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution.
Indeed, it would be absurd for FBTC to wait until the 15th day of April, or almost 10 months after it ceased
its operations, before filing its ITR.
Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its
business operations are continuing. In instances in which the corporation is contemplating dissolution,
Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a
particular enactment and also a general one which in its most comprehensive sense would include what is
embraced in the former, the particular enactment must be operative, and the general enactment must be
taken to affect only such cases within its general language as are not within the provisions of the
particular enactment.
BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates
dissolution would lead to absurd results. It contends that it is not feasible for the certified public
accountants to complete their report and audited financial statements, which are required to be submitted
together with the plan of dissolution to the SEC, within the period contemplated by Sec. 78. It maintains
that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also
requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution.
As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47
of the NIRC.
BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for
filing the quarterly return. This argument begs the question. It assumes that a quarterly return was
required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a
quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in
1985.
Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June
30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for
dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following
Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000,
although its actual dissolution would take place only on December 31, 2000.
Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The
corporation can ask for an extension of time to file a complete income tax return until December 31, 2000,
when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies
not covered by Sec. 78 of NIRC.
Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive
period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for
dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment
by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription
ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29,
1987, it is clear that the claim is barred by prescription.
Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the
latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the
right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A
special law (Tax Code) prevails over a general law (NCC).
Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it
is patently
unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.
A. POWER TO COMPROMISE
ISSUE: Whether or not the lessor-Citibank is entitled to a refund on account of its loss in operations.
HELD: The petition is meritorious. Petitioner is entitled to refund under Section 230 of the NIRC. In the
present case, there is no question that the taxes were withheld legally by the tenants. However, the annual
income tax returns of Citibank for tax years 1979 and 1980 undisputedly reflected the net losses it
suffered. Taxes withheld do not remain legal and correct at the end of the taxable year if the taxpayer had
sustained a loss in its annual operation. (UB)