REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY
ENBANC
SPS. HORDON H. EVONO and C.T.A. EB NO. 705
MARIBEL C. EVONO, (C.T.A. CASE NO. 7573)
Petitioners,
Present:
ACOSTA, Presiding Justice,
CASTANEDA, JR.,
-versusDEPARTMENT OF FINANCE,
COMMISSIONER OF INTERNAL
REVENUE and THE REPUBLIC OF
THE PHILIPPINES, ET AL.,
Respondents.
BAUTISTA,
UY,
CASANOVA,
PALANCA-ENRIQUEZ,
F ABON-VICTORINO,
MINDARO-GRULLA, and
COTANGCO-MANALASTAS, JJ.
X ------------------------------------------------------------------------------------ X
DECISION
PALANCA-ENRIQUEZ, J.:
THE CASE
This is a Petition for Review filed by sps. Hordon H. Evono andMaribel C. Evono (hereafter
"petitioners")
(An Act Expanding the Jurisdiction of the Court of Tax Appeals), in relation to Rule 43 of the
1997 Revised Rules of Civil Procedure, as amended, which seeks to set aside the Decision dated
June 3, 2010 and Resolution dated November 11, 2010, rendered by the Special First Division of
this Court in C.T.A. Case No. 7573 , the respective dispositive portions of which read, as follows:
WHEREFORE, premises considered, the "Appeal and Petition for Review" is
hereby DENIED for petitioner's failure to comply with the statutory period
provided under Section 228 of the National Internal Revenue Code of 1997. SO
ORDERED."
 "WHEREFORE, finding no cogent reason to disturb, reverse or modify the
Decision dated June 3, 2010, petitioner's Motion for Reconsideration is hereby
DENIED for lack of merit.
SO ORDERED."

THE FACTS
The facts, as found by the Special First Division, are as follows: "On March 12, 2001 , petitioner
MARIBEL C. EVONO acting in her own capacity and in behalf of her minor children, Mariangeli,
Hordon Herberto II and Hordon Herberto III, all surnamed Evono, and a certain Vicenta F.
Diores, married to Luis V. Diores (SPS. DIORES) executed a "Deed of Conditional Sale" involving
a parcel of land located in Barrio Gon-ob, Lapu-lapu City covered by TCT No. 3085 for a
consideration ofPhP4,117,500.00.

On February 19, 2003 , petitioner-MARIBEL C. EVONO and Spouses Olympio Credo and Clara
Credo (SPS. CREDO) executed a "Deed of Absolute Sale" wherein the latter sold to the former
two parcels of lands with areas of328 square and 350 square meters, respectively, covered by
TCT No. 18185 and TCT No. 3085, for a consideration ofP1 ,356,000.00.

On April 16, 2004, MARJBEL C. EVONO and SPS. DIORES executed a "Deed of Absolute Sale." In
said Deed, SPS. DIORES sold, ceded, transferred and conveyed to MARJBEL C. EVONO the same
parcel of land located in Barrio Gun-ob, Lapu-Lapu City covered by TCT No. 3085 for a
consideration of PhP4,117,500.00.

On May 27, 2004 and July 12, 2004, then Revenue Officer Ramer D. Narvaez of BIR, RR No. 13,
RDO 80-
Mandaue City issued Certificates of Authority to Register (CARs) Nos. 00234066 and 00234306,
in the name of MARJBEL C. EVONO.

On September 11, 2004, Ms. CLARA CREDO executed an "Amendment to Deed of Absolute Sale
(to coincide the same with the Deed of Conditional Sale)" wherein she acknowledged having
received the amount ofPhP1,356,000.00 as full payment after she sold parcels of land covered
by TCT Nos. 3085 and
18185.
On September 14, 2004, SPS. DIORES executed an "Amendment to Deed of Absolute Sale (to
co[in]cide the same with the Deed of Conditional Sale)" wherein they acknowledged having
received the amount of P4, 117,500.00 as full payment after they sold parcels of land covered
by TCT Nos. 3085 and 18185 to MARIBEL C. EVONO, in behalf of her minor legitimate children,
namely: Mariangeli C. Evono, Hordon Herberto C. Evono II, and Hordon Herberto C. Evono III.

On September 15, 2004, MARJBEL C. EVONO wrote Revenue District Officer Ramer D. Narvaez
of BIR Cebu, requesting that the names of her children be added in the CARs so that their
names be affixed in the titles of the property they bought

On September 24, 2004, MARIBEL C. EVONO wrote the BIR Cebu a "Letter of Ratification"
stating that she was submitting a certified true copy of the original Conditional Deed of Sale so
that "the properties be Titled in the names of Maribel C. Evono; Mariangeli C. Evono, Hordon H.
Evono II, and Hordon H. Evono III."

On June 3, 2005, MARIBEL C. EVONO received a

Computation of Donor's Tax, which reads:
I. Property purchased from Clara C. Credo & Olympia Credo:
Date of Donation: February 19, 2003 (date of execution of absolute sale)
Kind Area (sq.m.) Location OCT/TCT
Land 350 Gun-ob, Lapu-lapu City 3085
Land 328 Gun-ob, Lapu-lapu City 18185
VALUE of the Donation (3/4 of the value of the property)
Value of Donation/spouse
Donor's Tax
Add : 25% Surcharge (Sec. 248 (A) NIRC)
20% Interest (3/19/03 to 06/19/05) -
Sec. 249 (B) NIRC
Compromise Penalty (RMO 1-90)
TOTAL AMOUNT DUE & PAYABLE
II. Property purchased from Atty. Diores & Vicenta Diores:
Tax Dec. No.
03999
04664
Husband
P508,500.00
14,510.00
3,627.50
6,529.50
3,000.00
13,157.00
27,667.00

Date of Donation: April 23, 2004 (date of execution of absolute sale)

Kind Area (sq.m.) Location OCT/TCT Tax Dec. No.
Land 7,885 Gun-ob, Lapu-lapu City 3085 03999
Land 103 Gun-ob, Lapu-lapu City 18185 04664
VALUE of the Donation (3/4 of the value of the property) Husband
Value of Donation/spouse 1,544,062.50
Donor's Tax 87,525.00
MarketValue
280,000.00
262,400.00
P542,400.00
Wife
P508,500.00
14,510.00
3,627.50
6,529.50
3,000.00
13,157.00
27,667.00
Market Value
4,533,875.00
59,225.00
P4,593,1 00.00
Wife
1,544,062.50
87,525.00
Selling Price
P1 ,356,000.00
P1 ,017,000.00
1,017,000.00
P55,334.00
Selling Price
P4, 117,500.00
P3,088, 125.00
3,088,125.00

Add: 25% Surcharge (Sec. 248 (A) NIRC)

20% Interest (5/23/04 to 06/19/05) -
Sec. 249 (B) NIRC
Compromise Penalty (RMO 1-90)
TOTAL AMOUNT DUE & PAYABLE
21 ,881 .25
18,963.75
12,000.00
52,845.00
140,370.00
GRAND TOTAL (Three Hundred Thirty Six Thousand Seventy Four Pesos)
21 ,881.25
18,963.75
12,000.00
52,845.00
140,370.00
On June 20, 2005, petitioners-SPS. HORDON H.
EVONO and MARIBEL C. EVONO (SPS. EVONO) paid the
Donor's Tax in the amount ofPhP55,334.00 and PhP280,740.00 under protest, and surrendered
the original CAR Nos. 00234252 and 00234306 for cancellation.
On July 18, 2005, Revenue District Officer Ramer D. Narvaez of the BIR, Revenue District No.
81 , Cebu City-North, informed the SPS. EVONO that CAR Nos. 00234252 and 00234306 have
been amended by including the names of the latter's three minor children. Further, the Office
of the Revenue District Officer has considered the transactions completed, closed and
terminated since the CARs had been issued.

On August 9, 2005, SPS. EVONO wrote respondent Commissioner of Internal Revenue (CIR) to
rescind the assessment for Donor's Tax. As a follow up, petitioner HORDON H. EVONO wrote
respondent a letter dated December 12, 2006, regarding their previous request and informed
the latter that petitioners intend to file an action in the appropriate court if the request
remained unacted upon."
280,740.00
P336,074.00
Alleging inaction, on February 13, 2007, petitioners filed a Petition
for Review with this Court, docketed as C.T.A. Case No. 7573.

In her Answer, respondent CIR alleged by way of special and affirmative defenses that the
amount of P336,074.00 being claimed by petitioner as alleged erroneously paid donor's tax was
not properly documented; that the original Deeds of Absolute Sale were executed by the sellers
only in favor of Maribel C. Evono, married to Hordon Evono; that on September 15, 2004,
petitioners requested for the amendment of the Certificate Authorizing Registration (CAR) to
include the names of all her three (3) minor children as transferees of the lots and alleged that
the funds used to purchase the properties are not exclusively hers, but included those of her
minor children; that the said allegations of petitioner Maribel C. Evono are mere afterthoughts
and that the intent of the parties to the transaction is that petitioner is the buyer of the
properties, thus, the request for adding the minor children in the CAR as transferees is in effect
a donation equivalent to % of the property; that the admission by petitioners that the funds
used to purchase the properties came from the allowances given by them to their children is
the best proof that the monies used were donated by the parents to their children; that
excessive allowances from parents which enable them to save substantial amount to purchase
properties are deemed donations within the realms of taxation law; that the inclusion of
petitioner's minor children in the CAR is subject to donor's tax; and claims for refund are
construed strictly against the claimant.

After trial on the merits, on June 3, 2010, the Special First Division rendered a Decision denying
petitioners' claim on the ground of
prescription.

On July 27, 2010, petitioners filed a "Motion for Reconsideration" to which respondent filed her
"Opposition (Re: Motion for Reconsideration)" on August 12, 2010.

On November 11, 2010, the Special First Division denied petitioners' "Motion for
Reconsideration" for lack of merit. Not satisfied, on December 23, 2010, petitioners filed the
instant Petition for Review raising the following:

ISSUES
I
DID THE 1st DIVISION, COURT OF TAX APPEALS ERROR (SIC) IN ASSUMING THAT THERE WAS
PROPERTY GIVEN TO THE SPOUSES PETITIONERS MINOR CHILDREN WHERE IN FACT THE
TRANSFER OF PROPERTIES BY DEED OF CONDITIONAL SALE AND DEED OF ABSOLUTE SALE WAS
BY THE ORIGINAL OWNERS TO THE SPOUSES PETITIONER AND THEIR MINOR CHILDREN (LOTS
1427;5B).

II
DID THE 1sT DIVISION, COURT OF TAX APPEALS ERROR (SIC) IN QUESTIONING JURISDICTION
SOLELY BASING THEIR DECISION UNDER SECTION 228 OF THE NATIONAL INTERNAL REVENUE
CODE OF 1997 AND ERRONEOUSLY FAILED AND DISREGARDED THE APPLICATION OF SECTION
229 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997 WHICH IS ALSO THE GOVERNING
LAW OR RULES IN THE CASE AT HAND.
III
DID THE 1sT DIVISION, COURT OF TAX APPEALS MAKE AN ERROR IN QUESTIONING
JURISDICTION AND REVIEW SUCH WHEN IT HAD BEEN STIPULATED BY THE PARTIES THAT THE
COURT OF TAX APPEALS HAD JURISDICTION.
IV
DID THE 1sT DIVISION, COURT OF TAX APPEALS MAKE AN ERROR IN ITS REVIEW OF ISSUES
OTHER THAN THAT WHICH WAS PRESENTED IN THE JOINT STIPULATION OF FACTS AND ISSUES
FOR RESOLUTION, DATED 26 JULY 2007.
v
WAS THIS PETITION TO THE COURT OF TAX APPEALS FILED ON TIME (SIC).
VI
WAS THERE JURISDICTION OF THE COURT OF TAX APPEALS AT THE TIME OF FILING (SIC).

Principal Issues
The foregoing issues boil down to two (2) principal issues, to wit:

1) whether or not the Petition for Review in C.T.A. Case No.

7573 was timely filed; and
2) whether the inclusion of petitioners' children in the CAR and transfer certificate of titles
maybe deemed a donation from their parents, and maybe subject to donor's tax under
Section 98 of the NIRC of 1997, as amended.

On March 29, 2011, without necessarily giving due course to the petition, respondent was
ordered to file her comment, within ten (1 0) days from notice. In compliance thereto, on April
18, 2011, respondent filed her "Comment to Petition for Review (Re: Resolution dated 29
March 2011 )".
Thereafter, both parties were ordered to file their simultaneous memoranda, within thirty (30)
days from notice.

On June 13, 2011, respondent filed her "Manifestation" statingthat she is adopting her
"Comment to the Petition for Review" filed on April 18,2011. On the other hand, on July 6,
2011, petitioners filed a "Manifestation" stating that they are adopting a number of documents
as part of their memorandum. On July 10, 2011, petitioners filed their "Memorandu(m)
Addressing Disputed Issues Presented to Court of Tax Appeals En Bane".

On September 6, 2011, this case was deemed submitted fordecision.

THE COURT EN BANC'S RULING

The petition has no merit.

Petitioners argue that there was no transfer of property from petitioner spouses to their
children since they do not own the subject properties, hence, the inclusion of the names of the
children in theCertificate Authorizing Registration (CAR) is not subject to donor's tax; and that
the CT A has jurisdiction over their claim since they are appealing under Section 229 of the NIRC
of 1997, as amended, or within two-years from payment of the tax.

On the other hand, respondent counter-argues that the instant petition was filed beyond the
30-day period prescribed under Section 228 of the NIRC of 1997, as amended, hence, the CTA
has no jurisdictionover the case; the intent to donate was clearly established; the inclusion of
the children's name in the CAR is a mere afterthought since the original transaction shows that
petitioner is the sole buyer of the properties; the children have no income, and the alleged
monies given by the parents are considered donations since these monies are excessive
allowances, which enabled them to save substantial amounts to purchase real properties. After
a careful consideration of the arguments of both parties, and the applicable law and
jurisprudence, we rule for the respondents. Timeliness o{the Filing o{the Petition For Review in
C. T.A.

Case No. 7573

We deem it necessary to first resolve the procedural issue of whether the Petition for Review in
C.T.A. Case No. 7573 was filed within the prescribed 30-day period.
To resolve this issue, We must first determine the nature of petitioner's claim, whether it is a
claim for refund or a protest on the assessment. The period to appeal a disputed assessment
under Section 228 of the NIRC of 1997, as amended, is distinct from the period to file a claim
for refund under Section 229 of the same Code. In this case, a careful perusal of the records
shows that petitioners first disputed the assessment on January 11, 2005 prior to their payment
under protest on June 20, 2005. Thus, the present petition involves a disputed assessment
considering that from the time petitioners received the assessments for the payment of donor's
tax, they already protested and refused to pay the same, questioning the legality and
correctness of said assessments. Petitioner spouses concededly questioned the legality and
validity of the assessments on the ground that there was no intent to donate and the children
had their own savings used to purchase the property. Petitioners paid the disputed assessments
under protest in order not to delay the issuance of the Certificates Authorizing Registration and
the eventual registration of the titles in the name of petitioner Maribel Evono and her children.
In other words, the payment under protest of the donor's tax is only to expedite the transfer
of the title in the names of petitioner Maribel C. Evono and her children, and not to avoid any
penalty resulting from non-payment. Clearly, petitioners' claim for refund is necessarily
dependent upon and is a mere incident of the action contesting the assessment for donor's
tax. The main action to be resolved is the disputed assessment, regardless of whether it has
been paid under protest, since the resolution of the claim for refund is dependent on the
outcome of the resolution of petitioners' protest. Therefore, we agree with the Special First
Division that Section 228 of the NIRC of 1997, as amended, is the applicable law to
petitioners' present action. Petitioners cannot base their claim on Section 229 of the same
Code considering that they are still questioning the validity or legality of said assessments.

Having resolved that petitioners' action on the disputed donor's tax assessments falls under
Section 228 of the NIRC of 1997, as amended, we now proceed to determine the timeliness of
the filing of the Petition For Review in C.T.A. Case no. 7573. In this regard, Section 228 of the
NIRC of 1997, as amended, provides:

"SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of
his findings: provided, however, That a preassessment notice shall not be required in the
following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or
 d) When the excise tax due on exciseable articles has not been
; or
(e) When the article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital
equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons.

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.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his
duly authorized representative shall issue an assessment basedon his findings. Such assessment
may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the
assessment shall become final. If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse of one hundred eighty ( 180)-day
period; otherwise, the decision shall become final, executory and demandable."

Pursuant to the above provision, when the protest is not acted upon by the Commissioner after
the expiration of the 180-day period, the taxpayer adversely affected by the inaction may
appeal to the CT A within thirty (30) days from the lapse of the 180-day period; otherwise, the
assessment shall become final, executory and demandable. Thus, if there is no appeal within
thirty (30) days from the lapse of the 180-day period,the matter under protest and/or decision
shall become final, executory and demandable.

In this case, records show that petitioners filed their administrative protest with the CIR on
August 9, 2005. Counting 180-days from August 9, 2005, the Commissioner had until February
6, 2006 within which to act on petitioners' protest. Within thirty (30) days from the lapse of the
180-day period, or until March 8, 2006, petitioners should have appealed their claim for refund
to this Court. However, as aptly ruled by the Special First Division, petitioners filed their appeal
only on February 12,2007, or more than one year way beyond the 30-day prescribed period.
As to petitioners' contention that the CIR failed to render a decision until March 1, 2010, it
must be emphasized that in both Section 228 and RA 9282 (An Act Expanding the Jurisdiction of
the CTA), the jurisdiction of the CT A has been expanded to include not only decisions or
rulings, but inaction as well of the Commissioner of Internal Revenue. In fact, Section 228
specifically provides a period where "inaction" will arise, which may be subject to appeal and
the corresponding consequence of failure to elevate the matter to the CT A.
Thus, in the case of RCBC vs. CIR (491 SCRA 221), the Supreme
Court ruled:

"As provided in Section 228, the failure of a taxpayer to appeal from an assessment on time
rendered the assessment final, executory and demandable. Consequently, petitioner is
precluded from disputing the correctness of the assessment. In Ker & Company, Ltd. v. Court of
Tax Appeals, the Court held that while the right to appeal a decision of the Commissioner to the
Court of Tax Appeals 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 motion to
dismiss.
In fine, the failure to comply with the 30-day statutory period would bar the appeal and deprive
the Court of Tax Appeals of its jurisdiction to entertain and determine the
correctness of the assessment." (Emphasis ours)

Furthermore, petitioners' receipt on June 28, 2010 of the Decision of the CIR dated March 1,
2010 denying their protest on the assessments for donor's tax, cannot be made as the
reckoning point of the 30-day period to appeal to the CTA, since petitioners had already availed
of the first option to file a Petition For Review with this Court on February 12, 2007, without
waiting for the decision of the CIR. Thus, in the resolution of the Motion for Reconsideration
filed in the RCBC case (522 SCRA 1 53), the Supreme Court categorically ruled:
"In case the Commissioner failed to act on the disputed assessment within the 180-day period
from date of submission of documents, a taxpayer can either:
1) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or
2) await the final decision of the Commissioner on the disputed assessments and appeal
such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of
such decision. However, these options are mutually exclusive, and resort to one bars the
application of the other.

In the instant case, the Commissioner failed to act on the

disputed assessment within 180 days from date of submission of documents. Thus, petitioner
opted to file a petition for review before the Court of Tax Appeals. Unfortunately, the petition
for review was filed out of time, i.e., it was filed morethan 30 days after the lapse of the 180-
day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing. Petitioner
did not file a motion for reconsideration or make an appeal; hence, the disputed assessment
became final, demandable and executory. Based on the foregoing, petitioner cannot now claim
that the disputed assessment is not yet final as it remained unacted upon by the Commissioner;
that it can still await the final decision of the Commissioner and thereafter appeal the same to
the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first
option, i.e., filing a petition for review which was however filed out of time, petitioner cannot
successfully resort to the second option, i.e., awaiting the final decision of the Commissioner
and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final
decision on the disputed assessment because of the Commissioner's inaction." (Emphasis Ours)

Clearly, the present petition was filed more than one (1) year way beyond the prescribed 30-
day period. Consequently, the donor's tax assessments had already become final, executory
and demandable.
Hence, we hold that the Special First Division correctly dismissed the Petition for Review for
having been filed way beyond the prescribed 30- day period. Validity o(Donor's
Tax Assessment Assuming, for the sake of argument that petitioners' judicial claim was filed
on time, still, the present petition must necessarily fail, as aptly ruled by the Special First
Division there is clearly an animus donandi on the part of petitioners.
Donation (donatio) is defined as "a gift; a transfer of the title to property to one who receives it
without paying for it; the act by which the owner of a thing voluntarily transfers the title and
possession of the same from himself to another person, without any consideration." (Black 's
Law Dictionary, 61 Edition, p.487)

In this regard, Section 98 of the NIRC of 1997, as amended,

provides:
"SEC. 98. Imposition of Tax.-
(A) There shall be levied, assessed, collected and paid upon the transfer by any person,
resident or nonresident, of the property by gift, a tax, computed as provided in Section
99.
(B)The tax shall apply whether the transfer is in trust or otherwise, whether the gift is
direct or indirect, and
(C)whether the property 1s real or personal, tangible or intangible."

Pursuant to the above provision, the transfer of property by gift is taxable, whether the same
is direct or indirect, real or personal, tangible or intangible.
In this case, to determine whether or not there is a donation, the true intention of the parties
must be ascertained. Records show that petitioners presented various contracts to prove that
their children were also buyers in the sale of the subject properties. However, in order to
determine the tax liability for any transaction, not only the legal documents will be considered,
but also some other external factors surrounding the transaction, such as the capacity of the
buyer in cases of transfer of properties. This is a preventive measure imposed to prevent
avoidance of the legal tax due.

In this case, petitioners admitted that their children are not earning income, but are financially
capable to purchase the subject properties from their own savings from allowances given by
their parents. True, children can save money from their allowances and would be able to
purchase properties from their savings, however, in this case, records show that petitioners'
children were only 11 , 10 and 5 years old at the time of the sale of the subject properties, the
consideration of which amounted to the total amount of P5,473,500.00 (P4,117,500.00 for the
purchase of Diores' property and P1,356,000.00 for the purchase of Credo's property). Logically,
at such young ages, the three minor children would not be able to save such substantial
amount, even if they were receiving enormous allowances from their parents. As a
consequence thereof, the inclusion of the children's names in the transfer of the
titles/properties shall be deemed a donation or gift from their parents. To own a real property
at an early age without a source of income, said property is deemed to be a donation, within
the meaning of the law. There is a clear animus donandi, as evidenced by petitioners' request
to include the names of their minor children in the CARs and certificates of title of the
properties. Thus, We agree with then Commissioner Joel Tan- Torres in his Final Decision dated
March 1, 2010, citing the ruling of Regional Director Jaime B. Santiago, CESO V, Revenue Region
No. 13, Cebu City, dated November 17, 2004, to wit:
"It is noteworthy that, "The gift tax was enacted mainly to prevent the loss of revenue due to
the practice of wealthy individuals of donating inter vivos or otherwise gratuitously disposing of
their properties during their lifetime for the purpose of reducing their estate and thus, avoid
payment of the estate tax upon their death. A gift tax is imposed to prevent avoidance of estate
tax." (BIR Ruling No. 261-87 dated September 2, 1987)
The admission of Maribel C. Evono that the funds used to purchase the properties were sourced
from the allowances given by the parents, established the fact that these minor children are not
earning income. Excessive allowances from parents that have enabled the children to save
substantial amounts to purchase properties is deemed a donation within themeaning of the
law. Otherwise, taxpayers can easily skirt transfer taxation in the guise of allowances by the
parents to their children.
Hence, in the absence of clear showing that these minor children are or have been earning
income of their own, the inclusion of their names in the title to the properties is tantamount to
gratuitous acquisitions falling within the purview of the definition of donation as provided in
the foregoing provision."

Therefore, without a source of income or acceptable form of acquisition of substantial amount

to purchase the subject properties, the inclusion of the names of petitioners' minor children in
the CARs is deemed a gratuitous transaction, which is subject to donor's tax. The inclusion of
the names of petitioners' minor children in the certificates of title of the subject properties shall
be deemed an implied donation within the purview of the law. Therefore, respondent's
imposition of donor's tax in the inclusion of the names of the children in the CARs and transfer
titles is in accordance with Section 98 of the NIRC of 1997, as amended.

Finding no reversible error, we affirm the assailed Decision dated June 3, 2010 and Resolution
dated November 11 , 2010 rendered by the Special First Division of this Court in C.T.A. Case No.
7573.
WHEREFORE, premises considered, the instant petition is hereby DENIED, and
accordingly, DISMISSED for lack of merit. SO ORDERED.

 No. 190506, June 13, 2016 (VAT)

CORAL BAY NICKEL CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

BERSAMIN, J.:

This appeal is brought by a taxpayer whose claim for the refund or credit pertaining to its
alleged unutilized input tax for the third and fourth quarters of the year 2002 amounting to
P50,124,086.75 had been denied by the Commissioner of Internal Revenue. The Court of Tax
Appeals (CTA) En Banc and in Division denied its appeal.

We sustain the denial of the appeal.

Antecedents

The petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt mixed
sulphide, is a VAT entity registered with the Bureau of Internal Revenue (BIR). It is also
registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export
Enterprise at the Rio Tuba Export Processing Zone under PEZA Certificate of Registration
dated December 27, 2002.1chanrobleslaw

On August 5, 2003,2 the petitioner filed its Amended VAT Return declaring unutilized input tax
from its domestic purchases of capital goods, other than capital goods and services, for its third
and fourth quarters of 2002 totalling P50,124,086.75. On June 14, 2004,3 it filed with Revenue
District Office No. 36 in Palawan its Application for Tax Credits/Refund (BIR Form 1914)
together with supporting documents.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA on
July 8, 2004 by petition for review, praying for the refund of the aforesaid input VAT (CTA Case
No. 7022).4chanrobleslaw

After trial on the merits, the CTA in Division promulgated its decision on March 10,
20085 denying the petitioner's claim for refund on the ground that the petitioner was not entitled
to the refund of alleged unutilized input VAT following Section 106(A)(2)(a)(5) of the National
Internal Revenue Code (NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus
Investment Code and conformably with the Cross Border Doctrine. In support of its ruling, the
CTA in Division cited Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils) Inc. (Toshiba)6 and Revenue Memorandum Circular ("RMC") No. 42-03.7chanrobleslaw

After the CTA in Division denied its Motion for Reconsideration8 on July 2, 2008,9 the petitioner
elevated the matter to the CTA En Banc (CTA EB Case No. 403), which also denied the petition
through the assailed decision promulgated on May 29, 2009.10chanrobleslaw

The CTA En Banc denied the petitioner's Motion for Reconsideration through the resolution
dated December 10, 2009.11chanrobleslaw

Hence, this appeal, whereby the petitioner contends that Toshiba is not applicable inasmuch
as the unutilized input VAT subject of its claim w(as incurred from May 1, 2002 to December 31,
2002 as a VAT-registered taxpayer, not as a PEZA-registered enterprise; that during the period
subject of its claim, it was not yet registered with PEZA because it was only on December 27,
2002 that its Certificate of Registration was issued;12 that until then, it could not have refused the
payment of VAT on its purchases because it could not present any valid proof of zero-rating to
its VAT-registered suppliers; and that it complied with all the procedural and substantive
requirements under the law and regulations for its entitlement to the refund.13chanrobleslaw
Issue

Was the petitioner, an entity located within an ECOZONE, entitled to the refund of its
unutilized input taxes incurred before it became a PEZA registered entity?
Ruling of the Court

The appeal is bereft of merit.

We first explain why we have given due course to the petition for review on certiorari despite the
petitioner's premature filing of its judiqial claim in the CTA.

The petitioner filed with the BIR on June 10, 2004 its application for tax refund or credit
representing the unutilized input tax for the third and fourth quarters of 2002. Barely 28
days later, it brought its appeal in the CTA contending that there was inaction on the part of the
petitioner despite its not having waited for the lapse of the 120-day period mandated by
Section 112 (D) of the 1997 NTRC. At the time of the petitioner's appeal, however, the
applicable rule was that provided under BIR Ruling No. DA-489-03,14 issued on December 10,
2003, to wit:ChanRoblesVirtualawlibrary
It appears, therefore, that it is not necessary for the Commissioner of Internal Revenue to first
act unfavorably on the claim for refund before the Court of Tax Appeals could validly take
cognizance of the case. This is so because of the positive mandate of Section 230 of the Tax
Code and also by virtue of the doctrine that the delay of the Commissioner in rendering his
decision does not extend the reglementary period prescribed by statute.

Incidentally, the taxpayer could not be faulted for taking advantage of the full two-year
period set by law for filing his claim for refund [with the Commissioner of Internal Revenue].
Indeed, no provision in the tax code requires that the claim for refund be fxled at the earliest
instance in order to give the Commissioner an opportunity to rule on it and the court to review
the ruling of the Commissioner of Internal Revenue on appeal. xxx
As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue,15 the exception
to the mandatory and jurisdictional compliance with the 120+30 day-period is when the claim for
the tax refund or credit was filed in the period between December 10, 2003 and October 5, 2010
during which BIR Ruling No. DA-489-03 was still in effect. Accordingly, the premature filing of
the judicial claim was allowed, giving to the CTA jurisdiction over the appeal.

As to the main issue, we sustain the assailed decision of the CTA En Banc.

The petitioner's insistence, that Toshiba is not applicable because Toshiba Information

Equipment (Phils) Inc., the taxpayer involved thereat, was a PEZA-registered entity during the
time subject of the claim for tax refund or credit, is unwarranted. The most significant difference
between Toshiba and this case is that Revenue Memorandum Circular No. 74-9916 was not yet
in effect at the time Toshiba Information Equipment (Phils) Inc. brought its claim for refund.
Regardless of the distinction, however, Toshiba actually discussed the VAT implication of
PEZA-registered enterprises and ECOZONE-located enterprises in its entirety, which
renders Toshiba applicable to the petitioner's case.

Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered enterprises was
based on their choice of fiscal incentives, namely: (1) if the PEZA-registered enterprise chose
the 5% preferential tax on its gross income in lieu of all taxes, as provided by Republic Act No.
7916, as amended, then it was VAT-exempt; and (2) if the PEZA-registered enterprise availed
itself of the income tax holiday under Executive Order No. 226, as amended, it was subject to
VAT at 10%17 (now, 12%). Based on this old rule, Toshiba allowed the claim for refund or credit
on the part of Toshiba Information Equipment (Phils) Inc.

This is not true with the petitioner. With the issuance of RMC 74-99, the distinction under the old
rule was disregarded and the new circular took into consideration the two important principles of
the Philippine VAT system: the Cross Border Doctrine and the Destination Principle.
Thus, Toshiba opined:ChanRoblesVirtualawlibrary
The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-
registered enterprise shall be considered an export sale and subject to zero percent (0%) VAT
was clearly established only on 15 October 1999, upon the issuance of RMC No. 74-99. Prior to
the said date, however, whether or not a PEZA-registered enterprise was VAT-exempt
depended on the type of fiscal incentives availed of by the said enterprise. This old rule on VAT-
exemption or liability of PEZA-registered enterprises, followed by the BIR, also recognized and
affirmed by the CTA, the Court of Appeals, and even this Court, cannot be lightly disregarded
considering the great number of PEZA-registered enterprises which did rely on it to determine
its tax liabilities, as well as, its privileges.

According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives the PEZA-
registered enterprise the option to choose between two sets of fiscal incentives: (a) The five
percent (5%) preferential tax rate on its gross income under Rep. Act No. 7916, as amended;
and (b) the income tax holiday provided under Executive Order No. 226, otherwise known as
the Omnibus Investment Code of 1987, as amended.

xxxx

This old rule clearly did not take into consideration the Cross Border Doctrine essential
to the VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on
the choice of fiscal incentives of the PEZA-registered enterprise. Again, for emphasis, the old
VAT rule for PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If
the PEZA-registered enterprise chose the five percent (5%) preferential tax on its gross income,
in lieu of all taxes, as provided by Rep. Act No. 7916, as amended, then it would be VAT-
exempt; (2) If the PEZA-registered enterprise availed of the income tax holiday under Exec.
Order No. 226, as amended, it shall be subject to VAT at ten percent (10%). Such distinction
was abolished by RMC No. 74-99, which categorically declared that all sales of goods,
properties, and services made by a VAT-registered supplier from the Customs Territory
to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless
of the tatter's type or class of PEZA registration; and, thus, affirming the nature of a
PEZA-registered or an ECOZONE enterprise as a VAT-exempt entity.18 (underscoring
and Emphasis supplied)
Furthermore, Section 8 of Republic Act No. 7916 mandates that PEZA shall manage and
operate the ECOZONE as a separate customs territory. The provision thereby establishes the
fiction that an ECOZONE is a foreign tenitory separate and distinct from the customs territory.
Accordingly, the sales made by suppliers from a customs territory to a purchaser located within
an ECOZONE will be considered as exportations. Following the Philippine VAT system's
adherence to the Cross Border Doctrine and Destination Principle, the VAT implications are that
"no VAT shall be imposed to form part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority"19 Thus, Toshiba has discussed
that:ChanRoblesVirtualawlibrary
This Court agrees, however, that PEZA-registered enterprises, which would necessarily be
located within ECQZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act
No. 7916, as amended, which imposes the five percent (5%) preferential tax rate on gross
income of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of
the same statute which establishes the fiction that ECOZONES are foreign territory.

It is important to note herein that respondent Toshiba is located within an ECOZONE. An

ECOZONE or a Special Economic Zone has been described as —

. . . [S]elected areas with highly developed or which have the potential to be developed into
agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial
centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An
ECOZONE may contain any or all of the following: industrial estates (IEs), export processing
zones (EPZs), free trade zones and tourist/recreational centers.

The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall
be referred to as the Customs Territory.

Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and
operate the ECOZONES as a separate customs territory; thus, creating the fiction that the
ECOZONE is a foreign territory. As a result, sales made by a supplier in the Customs
Territory to a purchaser in the ECOZONE shall be treated as an exportation from the
Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser
in the Customs Territory shall be considered as an importation into the Customs
Territory.20 (underscoring and emphasis are supplied)
The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan.21 Its
plant site was specifically located inside the Rio Tuba Export Processing Zone — a special
economic zone (ECOZONE) created by Proclamation No. 304, Series of 2002, in relation to
Republic Act No. 7916. As such, the purchases of goods and services by the petitioner that
were destined for consumption within the ECOZONE should be free of VAT; hence, no input
VAT should then be paid on such purchases, rendering the petitioner not entitled to claim a tax
refund or credit. Verily, if the petitioner had paid the input VAT, the CTA was correct in holding
that the petitioner's proper recourse was not against the Government but against the seller who
had shifted to it the output VAT following RMC No. 42-03,22 which
provides:ChanRoblesVirtualawlibrary
In case the supplier alleges that it reported such sale as a taxable sale, the substantiation of
remittance of the output taxes of the seller (input taxes of the exporter-buyer) can only be
established upon the thorough audit of the suppliers' VAT returns and corresponding books and
records. It is, therefore, imperative that the processing office recommends to the concerned BIR
Office the audit of the records of the seller.

In the meantime, the claim for input tax credit by the exporter-buyer should be denied without
prejudice to the claimant's right to seek reimbursement of the VAT paid, if any, from its supplier.
We should also take into consideration the nature of VAT as an indirect tax. Although the seller
is statutorily liable for the payment of VAT, the amount of the tax is allowed to be shifted or
passed on to the buyejr.23 However, reporting and remittance of the VAT paid to the BIR
remained to be the seller/supplier's obligation. Hence, the proper party to seek the tax refund or
credit should be the suppliers, not the petitioner.

In view of the foregoing considerations, the Court must uphold the rejection of the appeal of the
petitioner. This Court has repeatedly poirited out that a claim for tax refund or credit is similar to
a tax exemption and should be strictly construed against the taxpayer. The burden of proof to
show that he is ultimately entitled to the grant of such tax refund or credit rests on the
taxpayer.24 Sadly, the petitioner has not discharged its burden.

WHEREFORE, the Court AFFIRMS the decision promulgated on May 29, 2009 in CTA EB

Case No. 403; and ORDERS the petitioner to pay the costs of suit.

SO ORDERED.chanRoblesvirtualLawlibrary