CIR VS.

PASCOR REALTY
GR NO.178697, June 29, 1999

FACTS:

It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong
authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to
examine the books of accounts and other accounting records of Pascor Realty and Development
Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted
in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and
P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the
Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia
S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents
PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax
assessment and tax liability.
ISSUE:

(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.
(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be
instituted.
HELD:
1. No. Petitioner argues that the filing of the criminal complaint with the Department of
Justice cannot in any way be construed as a formal assessment of private respondents tax
liabilities. This position is based on Section 205 of the National Internal Revenue
Code[10 (NIRC), which provides that remedies for the collection of deficient taxes may
be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same
Code, which states that in case of failure to file a return, the tax may be assessed or a
proceeding in court may be begun without assessment.
2. No. Section 222 of the NIRC specifically states that in cases where a false or fraudulent
return is submitted or in cases of failure to file a return such as this case, proceedings in
court may be commenced without an assessment. Furthermore, Section 205 of the same
Code clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously.

Said Section 222 states that an assessment is not necessary before a criminal
charge can be filed. This is the general rule. Private respondents failed to show that they
are entitled to an exception. Moreover, 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.
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC
G.R. No. 136975. March 31, 2005
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 CounterIntelligence 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.
Companies exempt from zero-rate tax

[G.R. No. 117254. January 21, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT

OF APPEALS, COURT OF TAX APPEALS, and BANK OF THE
PHILIPPINE ISLANDS as LIQUIDATOR OF PARAMOUNT
ACCEPTANCE CORPORATION, respondents.
DECISION
MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated September 19, 1994, of the
Court of Appeals affirming the decision of the Court of Tax Appeals which ordered petitioner to
refund P65,259.00 as overpaid income tax.
The facts are stated in the following portion of the decision of the CTA which the Court of
Appeals quoted with approval:

Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust
corporation duly organized and existing under Philippine laws. It acts as the
liquidator of Paramount Acceptance Corporation after its dissolution on March 31,
1986.
On April 2, 1986, Paramount Acceptance Corporation (Paramount for brevity) filed its
Corporate Annual Income Tax Return, for calendar year ending December 31, 1985,
declaring a Net Income of P3,324,802.00 (Exh. A). The income tax due thereon
is P1,153,681.00. However, Paramount paid the BIR its quarterly income tax, to wit:
Qtr.

CR/ROR

1st
2nd
3rd

6817293
5613316
77204711

Date
5-30-85
8-29-85
1-29-85
TOTAL

Bank

Amount

Exh.

DBP
DBP
DBP

P308,779.00
626,000.00
284,161.00
P1,218,940.00

C
C-1
C-2

After deducting Paramounts total quarterly income tax payments of P1,218,940.00

from its income tax of P1,153,681.00, the return showed a refundable amount
of P65,259.00. The appropriate box in the return was marked with a cross (x)
indicating To be refunded the amount of P65,259.00.
n April 14, 1988, petitioner BPI, as liquidator of Paramount, through counsel filed a
letter dated April 12, 1988 reiterating its claim for refund of P65,259.00 as overpaid

income tax for the calendar year 1985. The following day or on April 15, 1988, BPI
filed the instant petition with this Court in order to toll the running of the prescriptive
period for filing a claim for refund of overpaid income taxes.
The question is whether the two-year period of prescription for filing a claim for refund, as
provided in 230 of the National Internal Revenue Code, is to be counted from April 2, 1986
when the corporate income tax return was actually filed or from April 15, 1986 when, according
to 70(b) of the NIRC, the final adjustment return could still be filed without incurring any
penalty. The aforesaid 230 of the NIRC[1] provides that such period must be counted from the
date of payment of the tax. But, given the facts as stated above, when was the corporate income
tax paid in this case?
The Court of Tax Appeals rendered a decision considering the two-year period of
prescription to have commenced to run from April 15, 1986, the last day for filing the corporate
income tax return, and, since the claim for refund was filed on April 14, 1988 and the action was
brought on April 15, 1988, it held that prescription had not set in. Accordingly, the CTA ordered
as follows:

WHEREFORE, the respondent [petitioner herein] is hereby ordered to REFUND in

favor of petitioner, the sum of P65,259.00, representing overpaid income tax of
Paramount Acceptance Corporation for the calendar year 1985.
No pronouncement as to costs.
SO ORDERED.[2]
On appeal, its decision was affirmed by the Court of Appeals. Said the appellate court:[3]

We agree with the respondent courts ruling that the date of payment of the tax as
prescribed under the Tax Code is the date when the corporate income tax return is
required to be filed. . . .
The Supreme Court has laid down the rule regarding the computation of the
prescriptive period that the two-year period should be computed from the time of
filing of the Adjustment Returns or Annual Income Tax Return and final payment of
income tax; it is only when the Adjustment Return covering the whole year is filed
that the taxpayer would know whether a tax is still due or a refund can be claimed
based on the adjusted and audited figures (Commissioner of Internal Revenue vs.
TMX Sales Inc., 205 SCRA 184). The two-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 (Commissioner of Internal Revenue vs. Asia Australia
Express Ltd., G.R. No. 85956). The date of payment from which to reckon the twoyear period, in the case of a corporation whose taxable year is on a calendar basis, is
the 15 day of the fourth month (April 15th) following the close of the fiscal year, and
th

the filing of the final adjustment return on April 15 , following the close of the
preceding taxable year, is such date of payment (ACCRA Investments Corp. vs.
Court of Appeals, 204 SCRA 957).
th

In this case, BPI filed its final adjustment return on April 2, 1986. No taxes were paid
then because the returns showed that the quarterly taxes already paid exceeded the
income tax due by P65,259.00. As correctly put by BPI, it is only on April 15 that the
previous years income tax becomes due and payable and the taxpayer is still free to
make amendments or adjustments on its return, without penalty, until April 15, 1986
(See Section 80, N.I.R.C.). Thus the final payment of income tax should be deemed
to be on April 15, 1986, when the previous years income tax became due and payable
and when the quarterly corporate income taxes may be considered paid. Accordingly
the administrative claim and court proceeding for tax refund were timely filed.
Petitioner disagrees with the foregoing decision of the Court of Appeals. He contends that
the two-year prescriptive period should be computed from April 2, 1984, when the final
adjustment return was actually filed, because that is the time of payment of the tax within the
meaning of 230 of the NIRC.
We agree.
The conclusions reached by the appellate court are contrary to the very rulings cited by
it. In Commissioner of Internal Revenue v. TMX Sales, Inc., [4] this Court, in rejecting the
contention that the period of prescription should be counted from the date of payment of the
quarterly tax, held:

. . . [T]he filing of a quarterly income tax return required in Section 85 [now Section
68] and implemented per BIR Form 1702-Q and payment of quarterly income tax
should only be considered mere installments 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 Section 87 [now Section 69] which
provides for the filing of adjustment returns and final payment of income
tax. Consequently, the two-year prescriptive period provided in Section 292 [now
Section 230 of the Tax Code] should be computed from the time of filing the
Adjustment Return or Annual Income Tax Return and final payment of income tax.
On the other hand, in ACCRA Investments Corporation v. Court of Appeals, [5] where the
question was whether the two-year period of prescription should be reckoned from the end of the
taxable year (in that case December 31, 1981), we explained why the period should be counted
from the filing of the final adjustment return, thus:[6]

Clearly, there is the need to file a return first before a claim for refund can prosper
inasmuch as the respondent 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 Bureau of Internal Revenue. The petitioner
corporation filed its final adjustment return for its 1981 taxable year on April 15,
1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal
Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-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, the petitioner
corporation had until April 15, 1984 within which to file its claim for refund.
....
It bears emphasis at this point that the rationale in computing the two-year
prescriptive period with respect to the petitioner corporations claim for refund from
the time it filed its final adjustment return is the fact that it was only then that
ACCRAIN could ascertain whether it made profits or incurred losses in its business
operations. The date of payment, therefore, in ACCRAINs case was when its tax
liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.
[7]

Finally, in Commissioner of Internal Revenue v. Philippine American Life Insurance Co.,

we held:

Clearly, the prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case, this date is April 16, 1984, and
two years from this date would be April 16, 1986. The record shows that the claim for
refund was filed on December 10, 1985 and the petition for review was brought
before the CTA on January 2, 1986. Both dates are within the two-year reglementary
period. Private respondent being a corporation, Section 292 [now Section 230] cannot
serve as the sole basis for determining the two-year prescriptive period for
refunds. As we have earlier stated in the TMX Sales case, Sections 68, 69, and 70 on
Quarterly Corporate Income Tax Payment and Section 321 should be construed in
conjunction with it.
Sec. 49(a) of the NIRC provides that

49. Payment and assessment of income tax for individuals and corporations.
(a) Payment of tax (1) In general. The total amount of tax imposed by this Title
shall be paid by the person subject thereto at the time the return is filed. . . .

On the other hand, 70(b) of the same Code provides that

70 (b) Time of filing the income return The corporate quarterly declaration shall be
filed within sixty (60) days following the close of each of the first three quarters of the
taxable year. The final adjustment return shall be filed on or before the 15th day of
the 4th month following the close of the fiscal year, as the case may be.
Thus, it can be deduced from the foregoing that, in the context of 230, which provides for a
two-year period of prescription counted from the date of payment of the tax for actions for
refund of corporate income tax, the two-year period should be computed from the time of actual
filing of the Adjustment Return or Annual Income Tax Return. This is so because at that point, it
can already be determined whether there has been an overpayment by the taxpayer. Moreover,
under 49(a) of the NIRC, payment is made at the time the return is filed.
In the case at bar, Paramount filed its corporate annual income tax return on April 2,
1986. However, private respondent BPI, as liquidator of Paramount, filed a written claim for
refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and
action for refund were thus barred by prescription.
The foregoing conclusion makes it unnecessary for us to pass on the other issues raised in
this case by petitioner.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the petition for
refund filed by private respondent is DISMISSED on the ground that it is barred by prescription.
SO ORDERED.
Republic v. dela Rama (Actual v. Constructive receipt)
FACTS: The BIR assessed deficiency income tax against the
estate of the late Esteban dela Rama for the cash dividends it
allegedly received but failed to include in its income tax return.
The cash dividends were declared by the Dela Rama
Steamship Co in favor of the decedent and were applied as
payment of the latters account with the former.
ISSUE: Whether crediting of accounts in the books of the
company constituted a constructive receipt by the estate or the
heirs of Esteban de la Rama of the dividends, and this dividend
was an income of the estate and was, therefore, taxable? NO
HELD: If the debts to which the dividends were applied really
existed and legally demandable and chargeable against the
deceased, there was constructive receipt of the dividends. If
there were no such debts, then there was no constructive
receipt. The existence and validity of the first debt was in
dispute and no proof was adduced to show the existence and
validity of the debt. As to the second debt, the alleged debtor
Hijos dela Rama, Inc. was an entity separate and distinct from
the deceased. Hence, its debts could not be charged against
the estate.
Appellant cites the case of Herbert v. Commissioner of Internal
Revenue, 81 F. (2d) 912 as authority that the crediting of
dividends against accounts constitutes payment and
constructive receipt of the dividends. The citation of authority
misses the point in issue. In that case the existence of the
indebtedness of Leon S. Herbert to the corporation that
declared the dividends and against which indebtedness the

dividends were applied, was never put in issue, and was

admitted. In the instant case, the existence of the obligations
has been disputed and, as the trial court found, has not been
proved. It having been shown in the instant case that there was
no basis for the assessment of the income tax, the assessment
itself and the sending of notices regarding the assessment
would neither have basis, and so that assessment and the
notices produced no legal effect that would warrant the
collection of the tax.

Atlas Consolidated vs CIR

CIR assessed Atlas deficiency income tax for 1957 to 1958 which amounted to more than
P700K. CIR asserted that in 1957, Atlas was still not entitled to exemption from the income
tax under RA 909 because the same covers only gold mines and Atlas is not engaged in that.
Atlas protested before the Sec of Finance and Sec ruled that exemption provided in RA 909
embraces all new mines and old mines, whether gold or other minerals. Hence, Sec
recomputed and eliminated P500K+ in 1957 and reduced P215K to P39K in 1958. Atlas
appealed to this assessments assailing the disallowance of the following items: transfer
agents fees, stockholders relation service fee, US stock listing expenses, suit expenses,
provision for contingency. CTA disallowed the items except the stockholders relation service
fee and suit expenses. Also CTA ruled that the exemption from payment of the corporate
income tax of Atlas was good only up to the first quarter of 1958, hence it computed for its
net taxable income for the remaining of the year.
Atlas appealed asserting that the annual public relations expense is a deductible expense
from gross income because it is an ordinary and necessary business expense.
Issue: WON this fee paid for the services rendered by a public relations firm in the US
labeled as stockholders relation service fee is an allowable deduction.
Held: No. it is a capital expenditure and not an ordinary expense.
The principle is recognized that when a taxpayer claims a deduction, he must point to some
specific provision of the statute in which that deduction is authorized and must be able to
prove that he is entitled to the deduction which the law allows. As previously adverted to,
the law allowing expenses as deduction from gross income for purposes of the income tax is
Section 30 (a) (1) of the National Internal Revenue which allows a deduction of "all the
ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business." An item of expenditure, in order to be deductible under this section of
the statute, must fall squarely within its language.
We come, then, to the statutory test of deductibility where it is axiomatic that to be
deductible as a business expense, three conditions are imposed, namely: (1) the expense
must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and
(3) it must be paid or incurred in carrying in a trade or business. In addition, not only must
the taxpayer meet the business test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will be disallowed. The mere
allegation of the taxpayer that an item of expense is ordinary and necessary does not justify
its deduction.

Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer's
business, the answer to the question as to whether the expenditure is an allowable
deduction as a business expense must be determined from the nature of the expenditure
itself, which in turn depends on the extent and permanency of the work accomplished by the
expenditure.
The expenditure of P25,523.14 paid to P.K. Macker & Co. as compensation for services
carrying on the selling campaign in an effort to sell Atlas' additional capital stock of
P3,325,000 is not an ordinary expense in line with the decision of U.S. Board of Tax Appeals
in the case of Harrisburg Hospital Inc. vs. Commissioner of Internal Revenue. Accordingly, as
found by the Court of Tax Appeals, the said expense is not deductible from Atlas gross
income in 1958 because expenses relating to 1) recapitalization and reorganization of the
corporation, 2) the cost of obtaining stock subscription 3)promotion expenses and 4)
commission or fees paid for the sale of stock reorganization are capital expenditures.
The burden of proof that the expenses incurred are ordinary and necessary is on the
taxpayer.
In the other case (L-26924) where CIR filed a petition for review for the deductions of the
other fees as above mentioned, the CIR assigned the following errors: (Ultimately, the issue
is WON expenses deducted by Atlas from gross income are really sanctioned by the NIRC.)
a) Deduction of the listing expenses
Held:
We find the Chesapeake decision controlling with the facts and circumstances of the instant
case. In Dome Mines, Ltd case the stock listing fee was disallowed as a deduction not only
because the expenditure did not meet the statutory test but also because the same was
paid only once, and the benefit acquired thereby continued indefinitely, whereas, in the
Chesapeake Corporation case, fee paid to the stock exchange was annual and recurring. In
the instant case, we deal with the stock listing fee paid annually to a stock exchange for the
privilege of having its stock listed. It must be noted that the Court of Tax Appeal rejected the
Dome Mines case because it involves a payment made only once, hence, it was held therein
that the single payment made to the stock exchange was a capital expenditure, as
distinguished from the instant case, where payments were made annually. For this reason,
we hold that said listing fee is an ordinary and necessary business expense
b) Addition to Gross Income amount of P60K for provision for contingencies
Held:
On this issue, this Court has consistently ruled in several cases adverted to earlier, that in
the absence of grave abuse of discretion or error on the part of the tax court its findings of
facts may not be disturbed by the Supreme Court. It is not within the province of this Court
to resolve whether or not the P60,000 representing "provision for contingencies" was in fact
added to or deducted from the taxable income. As ruled by the Court of Tax Appeals, the
said amount was in effect added to Atlas taxable income. The same being factual in nature
and supported by substantial evidence, such findings should not be disturbed in this appeal.

c) CIR contended that CTA erred in disallowing only the amount of 6K and not 17K (3/4
of the 23K cost of litigation) as suit expenses
Held:
There is no question that, as held by the Court of Tax Appeals, the litigation expenses under
consideration were incurred in defense of Atlas title to its mining properties. In line with the
decision of the U.S. Tax Court in the case of Safety Tube Corp. vs. Commissioner of Internal
Revenue, it is well settled that litigation expenses incurred in defense or protection of title
are capital in nature and not deductible. Likewise, it was ruled by the U.S. Tax Court that
expenditures in defense of title of property constitute a part of the cost of the property, and
are not deductible as expense.
The court affirmed the decision of the CTA with modification that the amount of 17K should
be disallowed as deduction and this amount should be part of the net income subject to
income tax.

CIR v. Estate of Benigno Toda (Tax evasion)

Facts:CIC authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its issued and outstanding capital stock,
to sell the Cibeles Building and the two parcels of land on
which the building stands for an amount of not less than P90
million.
30 August 1989, Toda purportedly sold the property for P100
million to Altonaga, who, in turn, sold the same property on the
same day to Royal Match Inc. (RMI) for P200 million. These
two transactions were evidenced by Deeds of Absolute Sale
notarized on the same day by the same notary public.
For the sale of the property to RMI, Altonaga paid capital gains
tax in the amount of P10 million.
On 16 April 1990, CIC filed its corporate annual income tax
return for the year 1989, declaring, among other things, its gain
from the sale of real property in the amount of P75,728.021.
After crediting withholding taxes of P254,497.00, it paid
P26,341,207 for its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC
to Le Hun T. Choa for P12.5 million, as evidenced by a Deed
of Sale of Shares of Stocks.
Issue: WON this is a case of tax evasion or tax avoidance.
Held/Ratio: Tax avoidance and tax evasion are the two most
common ways used by taxpayers in escaping from taxation.
Tax avoidance is the tax saving device within the means
sanctioned by law. It should be used by the taxpayer in good
faith and at arms length. Tax evasion is a scheme used
outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal
liabilities.
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";
(3) a course of action or failure of action which is unlawful.
All these factors are present in the instant case.
That Altonaga was a mere conduit finds support in the
admission of respondent .Estate that the sale to him was part
of the tax planning scheme of CIC.

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. It is tainted with fraud.
Here, it is obvious that the objective of the sale to
Altonaga was to reduce the amount of tax to be paid. The
transfer from him to RMI would result to 5% individual capital
gains tax, instead of 35% corporate income tax. Altonagas
sole purpose of acquiring and transferring title of the properties
on the same day was to create a tax shelter. Altonaga never
controlled the property and did not enjoy the normal benefits
and burdens of ownership. 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.
In a nutshell, the intermediary transaction, i.e., the
sale of Altonaga, which was prompted more on the mitigation
of tax liabilities than for legitimate business purposes
constitutes tax evasion.

Philippine Journalists Inc. v CIR

G.R No. 162852
December 15, 2004
Facts:
The Revenue District Office of the BIR issued a letter of authority
for the examination of petitioner Philippine Journalists books of accounts.
From the examination, the petitioner was told that there were deficiency
taxes, inclusive of surcharges, interest and compromise penalty. Then,
petitioner, through its Comptroller, Lorenza Tolentino, executed a waiver of
statute of limitations pursuant to Sec.223 and Sec.224 and consented to the
assessment and collection of taxes which may be found due after the
examination at any time after the lapse of the period of limitations fixed by
said Sections 223 and 224 and other relevant provisions of the NIRC, until
the completion of the investigation.
Petitioner had a deficiency of P136,952,408.97. On October 5, 1998,
the Assessment Division of the BIR issued Pre-Assessment Notices which
informed petitioner of the results of the investigation. A Final Notice Before
Seizure was sent to the petitioner but the latter merely questioned the
amount of the deficiency and how the same was arrived.
A Warrant of Distraint/Levy was received by petitioner for the
deficiency.
Petitioner filed a Petition for Review with the CTA, contending that no
assessment was received by him; that the warrant of distraint/levy was
issued prematurely; and that the assessment was made beyond the 3-year
period. Regarding the assessment, the CTA ruled that the assessment was
sufficiently proven by the receipts of the Post Master. As to the premature
distraint/levy and the assessment made beyond the 3-year period, the CTA
ruled in favor of the petitioner. The waiver of statute of limitations by the

petitioner was invalid which resulted in the lapse of the 3 year period for
assessment. Consequently, the petition was granted, declaring the order for
payment of deficiency tax null and void.
The CIR filed a motion for reconsideration but the same was denied.
Undaunted, the CIR filed an appeal with the CA. The CA reversed the ruling of
the CTA, stating that the waiver of limitations was valid and that the
assessment notices was final and executory. Hence, this appeal.
Issue: Whether or not the waiver of limitations was invalid, making the
assessment beyond the 3 year period?
Held:
Yes, the court ruled that the waiver of limitation was invalid,
making the assessment beyond the allowable period of 3 years. The waiver
of the statute of limitations is not a waiver of the right to invoke the defense
of prescription as erroneously held by the Court of Appeals. 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 unequivocally particularly where the language of the document
is equivocal. For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment, our tax law provides
a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in
order to afford such protection. As a corollary, the exceptions to the law on
prescription should perforce be strictly construed.
As found by the CTA, the Waiver of Statute of Limitations, signed by
petitioners comptroller on September 22, 1997 is not valid and binding
because it does not conform with the provisions of RMO No. 20-90. It did not
specify a definite agreed date between the BIR and petitioner, within which
the former may assess and collect revenue taxes. Thus, petitioners waiver
became unlimited in time, violating Section 222(b) of the NIRC.
CIR v CA

January 15, 1982 and November 20, 1981: Carnation filed its Corporation Annual Income Tax Return and its
Manufacturers/Producers Percentage Tax Return respectively for the quarter ending September 30, 1981.
In 1987, Carnation, through its Senior Vice President, signed three separate "WAIVERS of the Statute of
Limitations Under the National Internal Revenue Code" wherein it waived the running of the prescriptive period
provided for in provisions of the NIRC and consents to the assessment and collection of the taxes which may be
found due after reinvestigation and reconsideration at anytime before or after the lapse of the period of
limitations fixed the provisions of the NIRC, but not after (13 April 1987 for the earlier-executed waiver, or June
14, 1987 for the later waiver, or July 30, 1987 for the subsequent waiver, as the case may be).
However, the taxpayer does not waive any prescription already accrued in its favor.
The waivers were not signed by the BIR Commissioner or any of his agents.
Carnation received BIR's letter of demand asking the said corporation to pay deficiency income tax, deficiency
sales tax and deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was
accompanied by 3 assessment Notices.
Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof.
CIR contends that the waivers signed by Carnation were valid although not signed by the BIR Commissioner
because:
o
(a) when the BIR agents/examiners extended the period to audit and investigate Carnation's tax returns,
the BIR gave its implied consent to such waivers;

(b) the signature of the Commissioner is a mere formality and the lack of it does not vitiate binding effect
of the waivers; and
o
(c) that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of
prescription and remains binding in accordance with the terms and conditions set forth in the waiver
CTA held that assessment Notices are NULL AND VOID for having been issued beyond the five-year prescriptive
period provided by law.
I: W/n the 3 waivers signed Carnation are valid and binding as to toll the running of the prescriptive period for
assessment and not bar the Government from issuing subject deficiency tax assessments?
R: NO, the waivers are NOT valid. The prescriptive period is NOT suspended.
Sec. 203 of the National Internal Revenue Code, the law then applicable provides that Except as provided in
the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed,
and no proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to
cases already investigated prior to the approval of this Code.
Carnations income 1981 with income and sales taxes could have been validly assessed only until January 14,
1987 and November 19, 1986, respectively. In other words the assessments by the CIR should be passed from:

January 15, 1982 up to January 12 1987 only

November 20, 1981 up to November 19, 1986 only

However, Carnations income and sales taxes were assessed only on July 29, 1987, beyond the five-year
prescriptive period.
ALSO, Section 319 of the Tax code is clear and explicit that the waiver of the five-year prescriptive period must be
in writing and signed by both the BIR Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do NOT bear the written consent of the BIR Commissioner as
required by law.
These "waivers" to be invalid and without any binding effect on petitioner (Carnation) for the reason that there
was no consent by the CIR.
Neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the
Tax Code is one which is unilateral nor can it be said that concurrence to such an agreements a mere formality
because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth
to such a valid agreement.
o

Republic of the Philippines vs Luis Ablaza 108 Phil 1705

On October 3, 1951 Collector assessed Income Taxes on the returns of Ablaza. October
16, 1951, Ablazas accountants requested for reinvestigation which was granted by letter
dated October 17, 1951. October 30, 1951 said accountants against sent another letter
to the Collector submitting copy of their own computation. October 23, 1952 Accountants
submitted supplemental memorandum. March 10, 1954 again sent a letter stating that it
be furnished with the detailed computation of the liabilities as soon as the
reinvestigation is completed. On Feb. 11, 1957 Collector issued final assessment. Upon
receipt by the accountants of ablaze sent a letter dated May 8, 1957 protesting the
assessments on the ground that the assessed tax are no longer collectible for the reason
that they already prescribed. Prescribed?

Held : No. If the letter dated March 10, 1954 be interpreted as request for further
investigation then the then the period continued to be suspended. But the letter did not
ask for another investigation as that contained in the first letter but only asked that it be
furnished a copy of the computation.. As the reinvestigation was allowed on October 1,
1951 and October 16, 1951, the taxpayer supposed or expected that at that time March
1954, the reinvestigation was about to be finished and he wanted a copy of the reassessment in order to be prepared to contest it. Thus the said letter may not be
interpreted to authorize or justify the continuance of suspension of the period of
limitation. The right of the government to collect the tax does not prescribe. However, in
fairness to the taxpayer, the Government should be estopped from collecting the tax
were it failed to make necessary investigation and assessment within 5 years after the
filing of return and where it failed to collect within 5 years from the date of assessment
thereof

Phil National Oil Co v CA

Tirso Savellano submitted a sworn statement to the BIR informing them that PNB failed to withold 15%
final tax on interest earnings and/or yields from the money placements of PNOC with the said bank, in violation
of PD1931, w/c withdrew all tax exemptions of government-owned and controlled corporations.
BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with
PNB and which PNB did not withhold.
PNOC proposed to BIR compromise its tax liability, by setting-off its tax liability against a claim for tax
refund/credit of the NAPOCOR. then pending with the BIR (P335k+). The amount of the claim for tax
refund/credit was supposedly a receivable account of PNOC from NAPOCOR.
On Oct 8, 1986, BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax
on the interest earnings and/or yields from PNOC's money placements with the bank. On the same date, the
BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB.
After several negotiations between BIR and PNOC, they agreed to a compromise regarding the tax liability
of PNOC.
Savellano was paid by the BIR a tax equal to15% of the amount in the compromise agreement.
I: W/n the right of BIR to assess and collect the income tax had already prescribed
R: No, BIR's right had NOT yet prescribed.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one another:
o
Section 268 requires that assessment be made within three years from the last day prescribed by
law for the filing of the return.
o
Section 269(c), on the other hand, provides that when an assessment is issued within the
prescribed period provided in Section 268, the BIR has three years, counted from the date of the
assessment, to collect the tax assessed either by distraint, levy or court action.
Therefore, when an assessment is timely issued in accordance with Section 268, the BIR is given
another three-year period, under Section 269(c), within which to collect the tax assessed,
reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on October 8, 1986, so that the BIR had
until October 7, 1989 to enforce it and to collect the tax assessed. The filing, however, by Savellano of
his Amended Petition for Review before the CTA on July 2, 1988 already constituted a judicial
action for collection of the tax assessed which stops the running of the three-year prescriptive
period for collection thereof. A judicial action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court; or where the assessment is appealed to the CTA, by filing an
answer to the taxpayer's petition for review wherein payment of the tax is prayed for.
The present case is unique, however, because the Petition for Review was filed by Savellano, the informer,
against the BIR, PNOC, and PNB. The BIR, the collecting government agency; PNOC, the taxpayer; and PNB,
the withholding agent, initially found themselves on the same side. Savellano, in his Amended Petition for
Review w/ the CTA prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2)
PNB and/or PNOC to pay the tax making the said CTA Case1 a collection case.
It is immaterial that the Amended Petition for Review was filed by the informer Savellano and NOT the
taxpayer; and that the prayer for the enforcement of the tax assessment and payment of the tax was also
made by the informer, not the BIR. This should not affect the nature of the case as a judicial action for
collection. What is controlling here is the fact that the BIR Commissioner cannot file a judicial action in any
other court for the collection of the tax because such a case would necessarily involve the same parties and
involve the same issues already being litigated before the CTA in the said case. The three-year prescriptive
period for collection of the tax shall commence to run only after the promulgation of the decision
of this Court in which the issues of the present case are resolved with finality.
In case the CTA grants the Petition and the prayer therein, as what has happened in the present case, the
ultimate result would be the collection of the tax assessed. Consequently, upon the filing of the Amended
Petition for Review by private respondent Savellano, judicial action for collection of the tax had been initiated
and the running of the prescriptive period for collection of the said tax was terminated.
Supposing that the said CTA Case is not a collection case which stops the running of the prescriptive period for
the collection of the tax, the said CTA case, at the very least, suspends the running of the said prescriptive
period. Under Section 271 of the NIRC of 1977, as amended, 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 or levy or instituting a proceeding in court, and for 60 days
thereafter.
The pendency of the present case before the CTA, the Court of Appeals and the SC legally prevents the BIR
Commissioner from instituting an action for collection of the same tax liabilities assessed against PNOC and
PNB in the CTA or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding
multiplicity of suits and the rule on lis pendens.
Whether the filing of the Amended Petition for Review by Savellano entirely stops or merely suspends the
running of the prescriptive period for collection of the tax, it had been premature for the BIR Commissioner to
issue a writ of garnishment against PNB and for the Central Bank of the Philippines to debit the account of PNB
pursuant to the said writ, because the case was by then, pending review by the Court of Appeals. However,
CTA Case No. 4249

since the SC found that the compromise agreement is without force and effect, it ordered the enforcement of
the assessment against PNB. Any issue or controversy arising from the premature garnishment of PNB's
account and collection of the tax by the BIR became moot and academic.

CIR v Phil Global Comm

Philippine Global Communication was assessed for deficiency taxes in April 1994. On May 1994, they filed 2 letters
of protest requesting for the cancellation of the tax assessment for lack of factual and legal basis. In 2002,
respondents received a decision from the CIR denying the protest. Respondents appealed the CTA and ruled that
the right to collect on the 1994 tax assessment has prescribed.

ISSUE: W/N the action to collect has prescribed. (YES)

RATIO:
Section 269(c) provides that any internal revenue tax which has been assessed within the period of limitation
above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent
did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. The earliest attempt of the BIR to collect
the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003.

Reason for Prescriptive Period:

Under the former law, the right of the Government to collect the tax does not prescribe. However, in fairness to the
taxpayer, the Government should be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and where it failed to collect the tax within
5 years from the date of assessment thereof. Just as the government is interested in the stability of its collections,
so also are the taxpayers entitled to an assurance that they will not be subjected to further investigation for tax
purposes after the expiration of a reasonable period of time.
Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit of both
the Government and the taxpayer; for the Government for the purpose of expediting the collection of taxes, so that
the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the
interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after
filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment
is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in
court.
Without such legal defense taxpayers would furthermore be under obligation to always keep their books and keep
them open for inspection subject to harassment by unscrupulous tax agents.

Suspension of Prescriptive Period:

Section 224 provides that the prescriptive period is suspended when the taxpayer requests for a reinvestigation.
This exception does not apply to this case since the respondent never requested for a reinvestigation. More
importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the
respondent refused to submit any new evidence.

Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the

basis of existing records without need of additional evidence. It may involve both a question
of fact or of law or both.
Request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis
of newly-discovered evidence or additional evidence that a taxpayer intends to present in
the investigation. It may also involve a question of fact or law or both. (RR 12-85)

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more
time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies
why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the
latter cannot. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests
for reconsideration. The CIRs allegation that there was a request for reinvestigation is inconceivable since
respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation
proceedings.
The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears
repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of
limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the
statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the
erroneous assessment would become final and unappealable.29 On the other hand, if the taxpayer does file the
protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the
tax thereon may be collected long after it was assessed.
The government also urges that partial payment is "acknowledgement of the tax obligation", hence a "waiver on
the defense of prescription." But partial payment would not prevent the government from suing the taxpayer.
Because, by such act of payment, the government is not thereby "persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or injustice is meant."

NOTE:
Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for reconsideration and a
request for reinvestigation, there have been cases wherein these two terms were used interchangeably. But upon
closer examination, these cases all involved a reinvestigation that was requested by the taxpayer and granted by
the BIR.

COMMISSIONER OF INTERNAL REVENUE vs. FIRST

EXPRESS PAWNSHOP COMPANY, INC. - Tax Assessment
Protest
FACTS:
CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on
deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did
not act on the protest during the 180-day period, respondent filed a petition before the CTA.

ISSUE:
Has Respondents right to dispute the assessment in the CTA prescribed?

HELD:
NO. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent
failed to submit relevant supporting documents that would render the assessment final because when respondent
submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR
cannot insist on the submission of proof of DST payment because such document does not exist as respondent
claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription.

The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a
tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents
and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the
mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer
is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise
started to run on that same date.

4. COMMISSIONER OF INTERNAL REVENUE V. ISABELA CULTURAL CORP. (515 SCRA 556)

Topic: The all-events test; when deductions from income taxes may be claimed
Facts:
When the Bureau of Internal Revenue disallowed Isabela Cultural Corporations claimed deductions for the years
1984-1986 in their 1986 taxes for expense deductions, to wit:
(1) Expenses for auditing services for the year ending 31 December 1985;
(2) Expenses for legal services for the years 1984 and 1985; and
(3) Expense for security services for the months of April and May 1986.
As such, the former charged the latter for deficiency income taxes. Isabela Cultural Corporation contests the
assessment.
Issues and Ruling:
1.

For a taxpayer using the accrual method, when do the facts present themselves in such a manner that the
taxpayer must recognize income or expense?

The accrual of income and expense is permitted when the all-events test has been met. This test requires: (1) fixing of
a right to income or liability to pay; and (2) the availability of the reasonable accurate determination of such income
or liability. The test does not demand that the amount of income or liability be known absolutely, only that a taxpayer
has at his disposal the information necessary to compute the amount with reasonable accuracy. The all-events test is
satisfied where computation remains uncertain, if its basis is unchangeable; the test is satisfied where a computation
may be unknown, but is not as much as unknowable, within the taxable year.
2.

W/N the deductions were properly claimed by Isabela Cultural Corporation.

The deductions for expenses for professional fees consisting of expenses for legal and auditing services are NOT
allowable. However, the deductions for expenses for security services were properly claimed by Isabela Cultural
Corporation. For the legal and auditing services, Isabela Cultural Corporation could have reasonably known the fees
of those firms that it hired, thus satisfying the all-events test. As such, per Revenue Audit Memorandum Order No.
1-2000, they cannot validly be deducted from its gross income for the said year and were therefore properly
disallowed by the BIR. As for the security services, because they were incurred in 1986, they could be properly
claimed as deductions for the said year.
Notes:
The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses
paid for legal and auditing services, are:
a.
b.
c.
d.

The expense must be ordinary and necessary;

It must have been paid or incurred during the taxable year;
It must have been paid or incurred in carrying on the trade or business of the taxpayer; and
It must be supported by receipts, records, or other pertinent papers.

Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses not
being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction

from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other
allowable deductions for the current year but failed to do so cannot deduct the same for the next year.
The propriety of an accrual must be judged by the facts that a taxpayer knew, or could reasonably be expected to have
known, at the closing of its books for the taxable year. Accrual method of accounting presents largely a question of
fact; such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction.
CIR v Ayala Securities Corp

Ayala Securities Corp filed its ITR w/ the CIR for the fiscal year w/c ended on Sept 30, 1955.
Attached to its ITR was the audited financial statements showing a surplus of P2M+.
Income tax due on the return was duly paid w/in the period prescribed by law.
CIR then advised Ayala for the assessment of P758k unpaid tax on its accumulated surplus.
Ayala protested ate assessment and sought reconsideration given that the accumulation was 1) for a bona
fide business purpose and not to avoid imposition of tax, and 2) assessment was issued beyond 5 yrs.
CTA and SC both held that the assessment was made beyond the 5-year period and thus had no binding
force and effect.
I: W/n the assessment was done beyond the prescriptive period
R: YES.
In this case, the applicable provision is NOT Sec 332a but Sec 331.
Sec 332 should apply when there is fraud / falsity on the return with intent to evade payment of tax.
There is no evidence presented by the CIR in this case as to any fraud/falsity on the return w/ intent to
avoid payment.
Fraud is a question of fact, circumstances must be proven and alleged.
In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961, was made
BEYOND the 5 year period prescribed under Sec331 (Ayala could file its income tax on or before Jan 1956
thus, assessment must be made NOT later than Jan 1961). Thus, it was no longer binding on Ayala Securities.

CIR v. UNION SHIPPING

Facts: In a letter dated 27 December 1974, the Commissioner of Internal Revenue assessed against Yee
Fong
Hong, Ltd. and/or Union Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes
due
for the years 1971 and 1972. Said letter was received on 4 January 1975, and in a letter dated 10 January
1975, received by the Commissioner on 13 January 1975, the Company protested the assessment. The
Commissioenr, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on
the
Companys counsel, Clemente Celso, on 25 November 1976. In a letter dated 27 November 1976,
received by
the Commissioner on 29 November 1976, the Company reiterated its request for reinvestigation of the
assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy.
The
Commissioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant
of
Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of Manila
(Civil Case 120459) against the Company. Summons in the said collection case was issued to the
Company
on 28 December 1978.
On 10 January 1979, the Company filed with the Court of Tax Appeals its Petition for Review of the
Commissioners assessment of its deficiency income taxes in a letter dated 27 December 1974 (CTA Case
2989), wherein it prays that after hearing, judgment be rendered holding that it is not liable for the
payment of
the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd. The
Tax

Court, in a decision dated 9 December 1983, ruled in favor of the Company, reversing the decision of the
Commissioner which assessed against and demanded from the Company the payment of deficiency
income
tax, inclusive of 50% surcharge, interest and compromise penalties, in the amounts of P73,958.76 and
P583,155.22 for the years 1971 and 1972, respectively.
The Commissioner filed a Petition for Certiorari with the Supreme Court. The Supreme Court dismissed
the
petition and affirmed the assailed decision of the Court of Tax Appeals.
1. Final determination of disputed assessment must be indicated in clear
and unequivocal
language; Purpose
The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and
unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as
amended. On the basis of this statement indubitably showing that the Commissioners communicated
action is
his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse
to
the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine
when
his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and
opportunity
on the part of the taxpayer to continually delay the finality of the assessment - and, consequently, the
collection of the amount demanded as taxes - by repeated requests for recomputation and reconsideration.
On
the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of
every questioned assessment and render a correct and definite decision thereon in the first instance. This
would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as
to
which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct
would
meet a pressing need for fair play, regularity, and orderliness in administrative action.
2. Present case: Taxpayer left in the dark as to which is the appealable
decision
Herein, the Commissioner did not rule on the Companys motion for reconsideration but, left the
Company in the dark as to which action of the Commissioner is the decision appealable to the Court of
Tax
Appeals. Had he categorically stated that he denies the Companys motion for reconsideration and that his
action constitutes his final determination on the disputed assessment, the Company without needless
difficulty
would have been able to determine when his right to appeal accrues and the resulting confusion would
have
been avoided.
3. Reviewable decision contained in letter of Commissioner, not in
warrants of distraint
The reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its
Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court
of
Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v. Court of Appeals, 133
SCRA

769 [1984]). The procedure enunciated is demanded by the pressing need for fair play, regularity and
orderliness in administrative action.
4. Reckoning period of prescriptive period of appeal
Under the circumstances, the Commissioner of Internal Revenue, 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 the Company received the summons on the civil suit for collection of deficiency income on 28
December 1978 that the period to appeal commenced to run. The request for reinvestigation and
reconsideration was in effect considered denied by the Commissioner when the latter filed a civil suit for
collection of deficiency income. So that on 10 January 1979 when the Company filed the appeal with the
Court of Tax Appeals, it consumed a total of only 13 days well within the thirty day period to appeal
pursuant
to Section 11 of RA 1125.
5. Union Shipping is the husbanding agent of vessel Yee Fong Hong Ltd.
Union Shipping is actually and legally the husbanding agent of the vessel of Yee Fong Hong, Ltd. as
(1) it neither performed nor transacted any shipping business, for and in representation, of Yee Fong
Hong,
Ltd. or its vessels or otherwise negotiated or procured cargo to be loaded in the vessels of Yee Fong Hong,
Ltd.; (2) it never solicited or procured cargo or freight in the Philippines or elsewhere for loading in said
vessels of Yee Fong Hong, Ltd.; (3) it had not collected any freight income or receipts for the said Yee
Fong
Hong Ltd.; (4) it never had possession or control, actual or constructive, over the funds representing
payment
by Philippine shippers for cargo loaded on said vessels; it never remitted to Yee Fong Hong, Ltd. any sum
of
money representing freight incomes of Yee Fong Hong, Ltd.; and (5) that the freight payments made for
cargo
loaded in the Philippines for foreign destination were actually paid directly by the shippers to the said Yee
Fong Hong, Ltd. upon arrival of the goods in the foreign ports.
6. Husbanding agent not liable for income tax due from foreign
shipowners and withholding tax
The corporation being merely a husbanding agent is not liable for the payment of the income taxes
due from the foreign ship owners loading cargoes in the Philippines. Neither can the Company be liable
for
withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or
control of the funds received by and remitted to a non-resident taxpayer. If an individual or corporation,
like
Union Shipping herein, is not in the actual possession, custody, or control of the funds, it can neither be
physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by the
nonresident
taxpayer, herein Yee Fong Hong, Ltd.
7. Factual findings of the CTA binding upon the Supreme Court
The factual findings of the Court of Tax Appeals are binding on the Supreme Court. It is well-settled
that in passing upon petitions for review of the decisions of the Court of Tax Appeals, the Court is
generally
confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly
shown to
be unsupported by substantial evidence.

Oceanic Wireless Network vs. CIR

Facts:
On March 17, 1988 BIR sent a deficiency tax assessment for the year 1984 for the amount of
P8.645 Million. Petitioner filed a protest and requested reconsideration or cancellation of the
same. In reply the BIR Accounts Receivable and Billing Division, acting in behalf of the BIR
Comm., requested Oceanic to pay the amount within ten days from the receipt thereof
otherwise the case would be referred to the Collection Enforcement Division. Upon failure to
pay, the Assistant Comm. Issued a warrant of distrant and/or levy and garnishment served
to petitioner on Oct. 1999.
Nov. 1991 Oceanic filed a petition for Review with the CTA to contest the issuance of the
warrant. The CTA dismissed the case for lack of jurisdiction in the Sept. 1994 decision,
declaring that the said petition was filed beyond the 30 day period from the time the letter
from the BIR Accounts Receivables and Billing Division was received by the petitioner.
Further the issuance of the warrants was not barred by prescription. Due to the filing of the
protest which was given due course by the BIR the running of prescription was suspended.
Oceanic filed a motion for reconsideration arguing that the demand letter cannot be
considered as final because it was signed by a subordinate officer. The motion was denied
and the case as elevated to the CA.
Issue:
Whether or not the a demand letter for tax delinquency assessment issued and signed by a
subordinate officer acting in behalf of the CIR is deemed final and executory.
Held:
A demand letter for payment of the delinquent tax may be considered a decision on a
disputed assessment. The demand letter is deemed final basing on the tenor of the letter to
the taxpayer. The reiteration of the BIRs former position which is to pay the tax liability after
the request from the tax payer indicates that latters request was denied.
The powers of the CIR may be delegated subject to a few exemptions, which are:

Power to recommend the promulgation of rules and regulation by the Sec of Finance

Power to issue rulings of first impression or to reverse, revoke or modify any existing
rulings of the BIR

Power to compromise or abate

Power to assign or re-assign internal revenue officers to establishment where articles

subject to excise tax are produced or kept.

The act of the subordinate officer does not fall under the exemption. Thus the assessment
had become final and executory.
G.R. No. L-38540 April 30, 1987
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
THE COURT OF APPEALS, and NIELSON & COMPANY, INC., respondents.

The Solicitor General for petitioner.

Quasha, Aspillera, Zafra, Tayag and Ancheta for respondents.

PADILLA, J.:
This is a petition for review on certiorari of the decision of the respondent Court of Appeals 1 in CA G.R. No.
37417-R, dated 3 April 1974, reversing the decision of the then Court of First Instance of Manila which ordered
private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax,
occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952, and
costs of suit, and of the resolution of the respondent Court, dated 31 May 1974, denying petitioner's motion for
reconsideration of said decision of 3 April 1974.
In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal Revenue assessed private
respondent deficiency taxes for the years 1949 to 1952, totalling P14,449.00, computed as follows:
1-1/2% ad valorem tax on P448,000.00..........................P7,320.00
25% surcharge for late payment......................................1,830.00
Occupation fees for the years 1949
to 1952 at P1.00 per ha. per
year on 1, 230 hectares.....................................4,920.00
Additional residence tax on P79,000.00
at P1.00 per every P5,000.00
per year or P75.00 x 4 years................................303.20
25% surcharge for late payment.........................................75.00

TOTAL AMOUNT DUE............................ P14,449.00 2

Petitioner reiterated its demand upon private respondent for payment of said amount, per letters dated 24 April
1956 (Exhibit D), 19 September 1956 (Exhibit E) and 9 February 1960 (Exhibit F). Private respondent did not
contest the assessment in the Court of Tax Appeals. On the theory that the assessment had become final and
executory, petitioner filed a complaint for collection of the said amount against private respondent with the
Court of First Instance of Manila, where it was docketed as Civil Case No. 42911. However, for failure to serve
summons upon private respondent, the complaint was dismissed, without prejudice, in the Court's order dated
30 June 1961. On motion, the order of dismissal was set aside, at the same time giving petitioner sixty (60)
days within which to serve summons upon private respondent.
For failure anew to serve summons, the Court of First Instance of Manila issued an order dated 4 October 1962
dismissing Civil Case No. 42911 without prejudice. The order of dismissal became final on 5 November 1962.
On 15 November 1962, the complaint against private respondent for collection of the same tax was refiled, but
the same was erroneously docketed as Civil Case No. 42911, the same case previously dismissed without
prejudice. Without correcting this error, another complaint was filed on 26 November 1963, docketed as Civil
Case No. 55817, the subject matter of the present appeal.

As herein earlier stated, the Court a quo rendered a decision against the private respondent. On appeal to the
respondent Court of Appeals, the decision was reversed. Petitioner, Republic of the Philippines, filed a motion
for reconsideration which was likewise denied by said Court in a resolution dated 31 May 1974. Hence, this
petition, with the following assignment of errors:
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF ASSESSMENT DATED JULY
16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE RESPONDENT IN THE ORDINARY COURSE OF THE
MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED RULES OF COURT.
II
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT FAILED TO REBUT
THE PRESUMPTION THAT THE LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY
DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE OF THE MAIL AND THAT OFFICIAL
DUTY HAS BEEN REGULARLY PERFORMED.
III
THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED JULY 16, 1955 (EXHIBIT "A")
CANNOT BE CONSIDERED AS AN ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN
RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
LETTER OF THE DEPUTY COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL REVENUE
DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN ASSESSMENT WHICH WAS DULY RECEIVED
BY PRIVATE RESPONDENT.
Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs m & v. Rule 131 of the Revised
Rules of Court, petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the
original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of
Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be
considered to have been received by the private respondent. 3 According to petitioner, if service is made by
ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the
expiration of five (5) days after mailing. 4 As the letter of demand dated 16 July 1955 was actually mailed to
private respondent, there arises the presumption that the letter was received by private respondent in the
absence of evidence to the contrary. 5 More so, where private respondent did not offer any evidence, except the
self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16
July 1955. 6
We do not agree with petitioner's above contentions. As correctly observed by the respondent court in its
appealed decision, while the contention of petitioner is correct that a mailed letter is deemed received by the
addressee in the ordinary course of mail, stilt this is merely a disputable presumption, subject to controversion,
and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove
that the mailed letter was indeed received by the addressee. Thus:

Appellee contends that per Exhibit A, the notice was released and mailed to the appellant
by the BIR on Aug. 4, 1955 under the signature of the Chief, Records Section, Office; that
since the original thereof was not returned to the appellee, the presumption is that the
appellant received the mailed notice. This is correct, but this being merely a mere
disputable presumption, the same is subject to controversion, and a direct denial of the
receipt thereof shifts the burden upon the party favored by the presumption to prove that
the mailed letter was received by the addressee. The appellee, however, argues that
since notice was rc-,Ieased and mailed and the fact of its release was admitted by the
appellant the admission is proof that he received the mailed notice of assessment. We do
not think so. It is true the Court a quo made such a finding of fact, but as pointed out by
the appehant in its brief, and as borne out by the records, no such admission was ever

made by the appellant in the answer or in any other pleading, or in any declaration, oral
or documentary before the trial court. We note that the appellee has not met this
challenge, and after a review of the records, we find appeflant's assertion well-taken. 7
Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July
1955, it can not be assumed that private respondent received said letter. Records, however, show that
petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the
payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is
considered a notice of assessment in itself which was duly received by private respondent in accordance with
its own admission. 8 The aforesaid letter reads:
Septem
ber 19,
1956
Nielson and Company, Inc.
Ayala Boulevard, Manila
Gentlemen:
In reply to you (sic) letter dated June 1, 1956 relative to your pending internal revenue tax
liability involving the amount of P15,649.00 as annual occupation fees, ad valorem and
additional residence taxes, surcharges and penalty, originally demanded of you on July 16,
1955, I have the honor to inform you that investigation conducted by an agent of this office
show that you and the Hixbar Gold Mining Co., Inc. entered into an agreement in 1938
whereby you were given full exclusive and irrevocable control of all the operations,
development, processing and marketing of mineral products from the latter's mines and that
au the assessments, taxes and fees of any nature in connection with the said operation,
development, proceeding and marketing of these products shall be paid by you. In view
thereof, and it appearing that the aforesaid tax liabilities accrued when your contract was in
fun force and effect, you are therefore, the party hable for the payment thereof,
notwithstanding the alleged contract subsequently entered into by you and the Hixbar Gold
Mining Co., Inc. on September 9, 1954.
It is therefore, again requested that payment of the aforesaid amount of P15,649.00 be made
to the City Treasurer, Manila within five (5) days from your receipt hereof so that this case may
be closed.
You are further requested to pay the sum of P150.00 as compromise suggested in our letter to
you dated February 24, 1955, it appearing that the same has not as yet been paid up to the
present.
Very respectfully yours,
JOSE
ARANA
S

Deputy Collector of
Internal Revenue 9
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within
thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar,
makes the assessment in question final, executory and demandable. Thus, private respondent is now barred

from disputing the correctness of the assessment or from invoking any defense that would reopen the question
of its liability on the merits. 10
In Mamburao Lumber Co. vs. Republic, 11 this Court further said:
In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become
final and executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made
therein as to the merits of the original case or the justness of the judgment relied upon. ...
ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a quo is hereby
reinstated. No costs.
SO ORDERED.

RCBC v CIR
G.R 168498
April 24, 2007
Facts:
Petitioner Rizal Commercial Banking Corporation received a
Formal Letter of Demand dated May 25, 2001 from the respondent
Commissioner of Internal Revenue for its tax liabilities particularly for Gross
Onshore Tax in the amount of P53,998,428.29 and Documentary Stamp Tax.
The petitioner filed a protest but the respondent failed to act upon the
same. So, the petitioner filed a Petition for Review with the CTA for the
cancellation of the above-mentioned assessments.
The respondent filed a motion to resolve first the issue of CTAs
jurisdiction, which was granted by the CTA. The petition for review was
dismissed because it was filed beyond the 30-day period following the lapse
of 180 days from petitioners submission of documents in support of its
protest, as pursuant to Section 228 of the NIRC and R.A. No. 1125. The same
became final and executory due to the negligence of the petitioners counsel.
Hence, this petition
Issue: Whether or not the petitioner was denied the opportunity to be
heard?
Whether or not the petitioner can still file the appeal despite the lapse of the
30-day period?
Held:
No, the Court held that he "essence of due process is a hearing
before conviction and before an impartial and disinterested tribunal" but due
process as a constitutional precept does not, always and in all situations,
require a trial-type proceeding. The essence of due process is to be found in
the reasonable opportunity to be heard and submit any evidence one may
have in support of ones defense. In this case, the petitioners counsel was
present on the scheduled hearing and in fact orally argued its petition and
that is sufficiently complies with the right to be heard.

In exceptional cases, when the mistake of counsel is so palpable that it

amounts to gross negligence, this Court affords a party a second opportunity
to vindicate his right. But this opportunity is unavailing in the case at bar,
especially since petitioner had squandered the various opportunities
available to it at the different stages of this case.
Regarding the 30-day period, the petitioner can no longer file an
appeal. 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. In this case, the failure to
comply with the 30-day statutory period bars the appeal and deprives the
Court of Tax Appeals of its jurisdiction to entertain and determine the
correctness of the assessment.
[Note: In Lascona Land Co., Inc. vs. Commissioner of Internal Revenue, CTA Case No.
5777,
January 4, 2000, also cited in the CTAs decision, the CTA had ruled that (I)t bears
stressing that
the wordings of Section 228 of the Tax Code clearly provide that it is only the
decision not appealed
by the taxpayer that becomes final, executory and demandable.]

CIR vs. Rosemarie Acosta

G.R. No. 154068
August 3, 2007
Quisombing, J.:
FACTS:
Acosta is an employee of Intel and was assigned in a foreign country. During that period Intel
withheld the taxes due and remitted them to BIR. Respondent claimed overpayment of taxes and filed
petition for review with CTA. CTA dismissed the petition for failure to file a written claim for refund with the
CIR a condition precedent to the filing of a petition for review with the CTA. CA reversed the decision
reasoning that Acostas filing of an amended return indicating an overpayment was sufficient compliance
with the requirement of a written claim.
ISSUE:
Whether or not CTA has jurisdiction to take cognizance of respondents petition for review.
RULING:
A party seeking an administrative rimedy must not merely initiate the prescribed administrative
procedure to obtain relie but also to pursue it to its appropriate conclusion before seeking judicial
intervention in order to give administrative agency an opportunity to decide the matter itself correctly and
prevent unnecessary and premature resort to court action. At the time respondent filed her amended
return, the 1997, NIRC was not yet in effect, hence respondent had no reason to think that the filing of an
amended return would constitute the written claim required by law.

CTA likewise stressed that even the date of filing of the Final Adjustment return was omitted,
inadvertently or otherwise, by respondent in her petition for review. This is fatal to respondents claim, for
it deprived the CTA of its jurisdiction over the subject matter of the case.
Finally, revenue statutes are substantive laws and in no sense must with that of remedial laws.
Revenue laws are not intended to be liberally constructed.

Commissioner of Internal Revenue vs. Philippine American Life Insurance

Co. (GR 105208, 29 May
1995)
Third Division, Romero (J): 2 concur, 1 took no part.
Facts: On 30 May 1983, the Philippine American Life Insurance Co. (Philamlife) paid to the Bureau of
Internal Revenue (BIR) its first quarterly corporate income tax for Calendar Year (CY) 1983 amounting to
P3,246,141.00. On 29 August 1983, it paid P396,874.00 for the Second Quarter of 1983. For the Third
Quarter of 1983, it declared a net taxable income of P2,515,671.00 and a tax due of P708,464.00. After
crediting the amount of P3,899,525.00 it declared a refundable amount of P3,158,061.00. For its Fourth
and
Final quarter ending 31 December, Philamlife suffered a loss and thereby had no income tax liability. In
return
for that Quarter, it declared a refund of P3,991,841.00 as withholding taxes on rental income for 1983 and
P133,084.00 representing 1982 income tax refund applied as 1983 tax credit. In 1984, Philamlife again
suffered a loss and declared no income tax liability. However, it applied as tax credit for 1984, the amount
of
P3,991,841.00 representing its 1982 and 1983 overpaid income taxes and the amount of P250,867.00 as
withholding tax on rental income for 1984. On 26 September 1984, Philamlife filed a claim for its 1982
income tax refund of P133,084.00. On 22 November 1984, it filed a petition for review with the Court of
Tax
Appeals (CTA Case 3868) with respect to its 1982 claim for refund of P133,084.00. On 16 December
1985, it
filed another claim for refund with the Commissioners appellate division in the aggregate amount of
P4,109,624.00 for the period of 1982 to 1984 less the amount claimed in CTA Case 3868.
On 2 January 1986 Philamlife filed a petition for review with the CTA (CTA Case 4018 regarding its 1983
and 1984 claims for refund) Later, it amended its petition by limiting its claim for refund to only
P3,858,757.00. On 16 September 1991, the CTA rendered a decision, granting Philamlifes claim for
refund
for P3,246,141.00 and P396,874.00 representing excess corporated income tax payments for the first and
second quarters of 1983, respectively, or a total of P3,643,015.00. The Commissioner appealed.
The Court of Appeals affirmed the decision of the Court of Tax Appeals on 26 March 1992 (CA-GR
26598).
The Commissioner filed a petition for review on certiorari.
The Supreme Court dismissed the petition and affirmed the decision of the Court of Appeals in toto;
without
costs.
1. Section 230 NIRC; Recovery of tax erroneously or illegally collected
Section 230 of the National Internal Revenue Code (formerly Section 292) provides that No suit or
proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.

In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax,
where
on the face of the return upon which payment was made, such payment appears clearly to have been
erroneously paid.
2. Section 230 NIRC; Forfeiture of refund
Section 230 of the National Internal Revenue Code (formerly Section 292) further provides that .
A refund check or warrant issued in accordance with the pertinent provisions of this Code which shall
remain
unclaimed or uncashed within five (5) years from the date said warrant or check was mailed or delivered
shall
be forfeited in favor of the government and the amount thereof shall revert to the General Fund.
3. Pacific Procon Ltd. vs. Court of Tax Appeals overturned by CIR vs. TMX
Sales
Although it is true that in the Pacific Procon case, the Court held that the right to bring and action for
refund had prescribed, the tax having been found to have paid at the end of the first quarter when the
withholding tax corresponding thereto was remitted to the Bureau of Internal Revenue, not at the time of
filing of the Final Adjustment return in April of the following year; said case was overturned by the Court
in
Taxation Law II, 2005 ( 19 )
Haystacks (Berne Guerrero)

Commissioner of Internal Revenue v. TMX Sales Incorporated and the Court of Tax Appeals, where the
Court
held that it is necessary to consider not only Section 292 (now Section 230) of the National Internal
Revenue
Code but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated
as
Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate
Income
Tax Payment and Section 321 (now Section 232) on keeping of books of accounts; and that all these
provisions of the Tax Code should be harmonized with each other.
4. Section 292 (now Section 230) NIRC qualified by Sections 68 and 69 of
present Tax Code
Section 292 (now Section 230) stipulates that the two-year prescriptive period to claim refunds should
be counted from date of payment of the tax sought to be refunded. When applied to tax payers filing
income
tax returns on a quarterly basis, the date of payment mentioned in Section 292 (now Section 230) must be
deemed to be qualified by Sections 68 and 69 of the present Tax Code.
5. Section 68 NIRC; Declaration of Quarterly Income Tax
Section 68 of the Tax Code provides that Every corporation shall file in duplicate a quarterly
summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter
or
quarters upon which the income tax, as provided in Title II of this Code shall be levied, collected and
paid.
The Tax so computed shall be decreased by the amount of tax previously paid or assessed during the
preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three
(3)
quarters of the taxable year.
6. Section 69 NIRC; Final Adjustment Return
Section 69 of the Tax Code provides that Every corporation liable to tax under Section 24 shall file a

final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum
of
the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire
taxable net income of that year the corporation shall either: (a) Pay the excess still due; or (b) Be refunded
the
excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess
estimated
quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable
year.
7. Refund due is amount shown in final adjustment return and not on its
quarterly returns
The last paragraph of Section 69 of the Tax Code provides that the refundable amount, in case a
refund is due a corporation, is that amount which is shown on its final adjustment return and not on its
quarterly returns. This is in light of the fact that although quarterly taxes due on are required to be paid
within
sixty days from the close of each quarter, the fact that the amount shall be deducted from the tax due for
the
succeeding quarter shows that until a final adjustment return shall have been filed, the taxes paid in the
preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final
figure to quantify what is due the government nor what should be refunded to the corporation.
8. Reckoning date determined after a final adjustment return is
accomplished
The prescriptive period of two years should commence to run only from the time that the refund is
ascertained, which can only be determined after a final adjustment return is accomplished. In the present
case,
this date is 16 April 1984, and two years from this date would be 16 April 1986. The record shows that the
claim for refund was filed on 10 December 1985 and the petition for review as brought before the CTA on
2
January 1986. Both dates are within the two-year reglementary period. Philamlife being a corporation,
Section 292 (now Section 230) cannot serve as the sole basis for determining the two-year prescriptive
period
for refunds. As earlier said in the TMX Sales case, Sections 68, 69, and 70 on Quarterly Corporate
Income
Tax Payment and Section 321 should be considered in conjunction with it.
9. Two-year period not jurisdictional
Even if the two-year period had already lapsed, the same is not jurisdictional and may be suspended
Taxation Law II, 2005 ( 20 )
Haystacks (Berne Guerrero)

for reasons of equity and other special circumstances.

ACCRA Investments Corporation vs. Court of Appeals (GR 96322, 20

December 1991)
Third Division, Gutierrez Jr. (J): 4 concur
Facts: ACCRA Investment Corporation is a domestic corporation engaged in the business of real estate
investment and management consultancy. On 15 April 1982, the corporation filed with the Bureau of
Internal
Revenue (BIR) its annual corporate income tax return for the calendar year ending 31 December 1981
reporting a net loss of P2,957,142.00. In the said return, the corporation declared as creditable all taxes

withheld at source by various withholding agents (the Malayan Insurance Co., the Angara Concepcion
Regala
& Cruz Law Offices, MJ Development Corp. andPhilippine Global Communications Inc., totaling
P82,751.91. The withholding agents paid and remitted amounts representing taxes on rental, commission
and
consultancy income of the corporation to the BIR from February to December 1981. In a letter dated 29
December 1983 addressed to the Commissioner of Internal Revenue, the corporation filed a claim for
refund
inasmuch as it had no tax liability against which to credit the amounts withheld.
Pending action of the Commissioner on its claim for refund, the corporation, on 13 April 1984, filed a
petition
for review with the Court of Tax Appeals (CTA) asking for the refund of the amounts withheld as
overpaid
income taxes. On 27 January 1988, the CTA dismissed the petition for review after a finding that the
twoyear
period within which the corporations claim for refund should have been filed had already prescribed
pursuant to Section 292 of the National Internal Revenue Code (NIRC) of 1977, as amended. Acting on
the
corporations motion for reconsideration, the CTA in its resolution dated 27 September 1988 denied the
same
for having been filed out of time.
On 14 January 1989, the corporation filed with the Supreme Court its petition for review, which the Court
referred to the appellate court in the Courts resolution dated 15 February 1990 for proper determination
and
disposition. On 28 May 1990, the appellate court affirmed the decision of the CTA opining that the twoyear
prescriptive period in question commences from the date of payment of the tax as provided under
Section
292 of the Tax Code of 1977 (now Sec. 230 of the NIRC of 1986), i.e., from the end of the tax year when
a
taxpayer is deemed to have paid all taxes withheld at source, and not from the date of the filing of the
income tax return as posited by the corporation. Its motion for reconsideration with the appellate court
having been denied in a resolution dated 20 November 1990, the corporation elevated this case to the
Supreme Court.
The Supreme Court granted the petition, reversed and set aside the 28 May 1990 decision and 20
November
1990 resolution of the Court of Appeals, and directed the Commissioner of Internal Revenue to refund to
the
corporation the amount of P82,751.91.
1. Section 230 NIRC; Recovery of tax erroneously or illegally collected
Section 230 of the Tax Code provides that No suit or proceeding shall be maintained in any court
for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or
illegally
assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit
has
been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not
such
tax, penalty or sum has been paid under protest or duress. In any case, no such suit or proceeding shall
begin

after the expiration of two years from the date of payment of the tax or penalty regardless of any
supervening
cause that may arise after payment: Provided, however, that the Commissioner may, even without a
written
claim therefor, refund or credit any tax, where on the face of the return upon which payment was made,
such
payment appears to have been erroneously paid. (Emphasis Supplied).
Taxation Law II, 2005 ( 21 )
Haystacks (Berne Guerrero)

2. Ruling in Gibbs v. Commissioner of Internal Revenue (155 SCRA 318

[1965])
Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the
delivery of money but also the performance, in any other manner, of an obligation (Id., Art 1231). A
taxpayer,
resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal
Revenue,
but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is
paying
his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at 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 two-year prescriptive period under Section 306 (now part of
Section
230) of the Revenue Code starts to run with respect to payments effected through the withholding tax
system.
3. Present case: Alternative reckoning dates and Nature of refund claim
The Gibbs ruling presents two alternative reckoning dates, i.e., (1) the end of the tax year; and (2)
when the tax liability falls due. Herein, the corporations withholding agents had paid the corresponding
taxes
withheld at source to the BIR from February to December 1981. In having applied the first alternative
date
the end of the tax year in order to determine whether the corporations claim for refund had been
seasonably
filed, the appellate court failed to appreciate properly the attending circumstances of the case. The
corporation
is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of
P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporations filing of
the
its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due.
The
distinction is essential in the resolution of this case for it spells the difference between being barred by
prescription and entitlement to a refund.
4. Section 49 of 1986 NIRC; Payment and assessment of income tax for
individuals and
corporations
Under Section 49 of the National Internal Revenue Code of 1986, as amended, it is explicitly
provided that (a) Payment of tax (1) In general. The total amount of tax imposed by this Title
shall be paid by the person subject thereto at the time the return is filed . . .
5. Section 70 (b) of 1986 NIRC; Time of filing the income return
Section 70, subparagraph (b) of the Tax Code states when the income tax return with respect to

taxpayers like the petitioner corporation must be filed. It provides that The corporate quarterly
declaration
shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable
year.
The final adjustment return shall be filed on or before the 15th day of the 4th month following the close
of the
fiscal year, as the case may be.
6. Present case: Corporation complied with filing of final adjustment
return
The corporations taxable year is on a calendar year basis, hence, with respect to the 1981 taxable
year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The corporation
duly
complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed
on 15
April 1982, it reported a net loss of P2,957,142.00. Consequently, as reflected thereon, the petitioner
corporation, after due computation, had no tax liability for the year 1981. Had there been any, payment
thereof would have been due at the time the return was filed pursuant to subparagraph (c) of Section 70 of
the
NIRC.
7. Section 70 (c) of 1986 NIRC; Time payment of the income tax
Section 70, subparagraph (c) of the Tax Code provides that The income tax due on the corporate
quarterly returns and the final income tax returns computed in accordance with Section 68 and 69 shall be
paid at the time the declaration or return is filed as prescribed by the Commissioner of Internal Revenue.
8. Section 8 of BIR Revenue Regulation 13-78; Claims for tax credit or
refund
Taxation Law II, 2005 ( 22 )
Haystacks (Berne Guerrero)

Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal
Revenue requires that Claims for tax credit or refund of income tax deducted and withheld on income
payments shall be given due course only when it is shown on the return that the income payment received
was
declared as part of the gross income and the fact of withholding is established by a copy of the statement
duly
issued by the payor to the payee (BIR Form No. 1 743-A) showing the amount paid and the amount of tax
withheld therefrom.
9. Section 69 of 1986 NIRC; Final Adjustment Return
The term return, in the case of domestic corporation like ACCRAIN, refers to the final adjustment
return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads Every
corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable
income
for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said
taxable
year is not equal to the total tax due on the entire taxable income of that year the corporation shall either:
(a)
Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be.
10. Need to file a return before a claim for refund
There is the 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 Bureau of Internal Revenue.

11. Reckoning date for two-year prescriptive period; CIR vs. Asia Australia
Express Ltd.
In the Supreme Court Resolution dated 10 April 1989 in the case of Commissioner of Internal
Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), the Supreme Court ruled that the two-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, the corporation had until April 15, 1984 within which to file its
claim
for refund.
12. Rationale in computing the 2-year prescriptive period
The rationale in computing the two-year prescriptive period with respect to the corporations claim
for refund from the time it filed its final adjustment return is the fact that it was only then that the
corporation
could ascertain whether it made profits or incurred losses in its business operations. The date of
payment,
therefore, was when its tax liability, if any, fell due upon its filing of its final adjustment return.
Commissioner of Internal Revenue vs. Victorias Milling Co. (GR L-24108, 3
January 1968)
En Banc, Bengzon JP (J): 10 concur
Facts: On 23 December 1957 Victorias Milling Co., Inc. filed a claim for the refund of the sum of
P12,464.53
representing 50% of the specific tax paid on the manufactured oils and fuels used in its agricultural
operation
for the period from 18 June 1952 to 18 June 1957. The Commissioner of Internal Revenue granted refund
in
the sum of P3,415.18 representing the tax paid for the period from 1 January 1956 to 18 June 1957 but
denied
the claim in the amount of P2,817.08 which corresponds to the tax paid during the period from 18 June
1952
to 31 December 1955 for the reason that the same was filed after the 2-year period provided for in Section
306 of the Tax Code had elapsed.
Victorias Milling Co., Inc. appealed to the Court of Tax Appeals contending that Section 306 does not
apply
to its claim. The Court of Tax Appeals took the taxpayers view and ordered the CIR to refund Victorias
Milling the amount of P2,817.08 representing the 50% of the specific tax paid on the oils used by it in
agriculture during the period from 18 June 1952 to 31 December 1955. From said judgment, the
Commissioner of Internal Revenue has appealed.
The Supreme Court reversed the decision appealed from, and dismissed the petition for refund on the
ground
of prescription; without costs.
1. Section 306 of the Tax Code
Section 306 (Recovery of tax erroneously or illegally collected) provides that No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without
authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a
claim
for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any

case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment
of
the tax or penalty.
2. Applicability of Section 306 for refund; CIR vs. Insular Lumber Co.
Sections 306 and 309 of the National Internal Revenue Code were intended to govern all kinds of
refunds of internal revenue taxes those taxes imposed and collected pursuant to the National Internal
Revenue Code. Thus, the Supreme Court stated that this provision referring to Section 306, which is
mandatory, is not subject to qualification, and, hence, it applies regardless of the conditions under which
payment has been made. A claim for refund of a specific tax, an internal revenue tax imposed in Section
142
of the National Internal Revenue Code, is beyond the scope of Sections 306 and 309 is to thwart the
aforesaid
intention and spirit underlying said provisions.
3. Prescription of claim of refund, Reckoning period; CIR vs. Insular
Lumber Co.
The intention is clear that refunds of internal revenue taxes are generally governed by Sections 306
and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the
running
of the two-year prescriptive period provided for in Section 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 Commissioner of Internal Revenue, and the subsequent
appeal to
the Court of Tax Appeals must be instituted, within the said two- year period.
Taxation Law II, 2005 ( 26 )
Haystacks (Berne Guerrero)

4. Ruling in Muller & Phipps modified; CIR vs. Insular Lumber Co.
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.
5. Right of Victorias Milling to claim refund has prescribed
The claim for refund with the Bureau of Internal Revenue and the subsequent appeal to the Court of
Tax Appeals must be filed within the two-year period. If, however, the Collector takes time in deciding
the
claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of
Tax
Appeals before the end of the two-year period without awaiting the decision of the Collector. In the light
of
the ruling in CIR vs. Insular Lumber Co., the right of Victorias Milling Co,, Inc. to claim refund of
P2,817.08
has prescribed.
FACTS:For the calendar year 1986, BLC paid the CIR a total
of P1,139,041.49 representing 4% "contractors percentage
tax" imposed by Section 205 of the NIRC based on its gross
rentals from equipment leasing for said year.
On November 10, 1986, CIR issued Revenue Regulation 1986. Section 6.2 thereof provided that finance and leasing

companies registered under RA 5980 shall be subject to gross

receipt tax of 5%-3%-1% on actual income earned. This
means that companies registered under Republic Act
5980, such as BLC, are not liable for "contractors
percentage tax" under Section 205 but are, instead, subject
to "gross receipts tax" under Section 260 (now Section 122)
of the NIRC.
Since BLC had earlier paid the "contractors percentage tax for
its 1986 lease rentals BLC filed a claim for a refund with the
CIR on April 1988 for the amount representing the difference
between what it had paid as "contractors percentage tax" and
what it should have paid for "gross receipts tax."
ISSUES:
1. WON Revenue Regulation 19-86 is legislative12 rather than
interpretative in character.
2. WON it should retroact to the date of effectivity of the law it
seeks to interpret.
RATIO:
1. NO. Section 1 of Revenue Regulation 19-86 plainly states
that it was promulgated pursuant to Section 277 of the NIRC.
Section 277 (now Section 244) is an express grant of authority
to the Secretary of Finance to promulgate all needful rules and
regulations for the effective enforcement of the provisions of
the NIRC.
2.NO. The principle is well entrenched that statutes, including
administrative rules and regulations, operate prospectively
only, unless the legislative intent to the contrary is manifest by
express terms or by necessary implication. In the present
case, there is no indication that the revenue regulation may
operate retroactively.
Furthermore, there is an express provision stating that it "shall
take effect on January 1, 1987," and that it "shall be
applicable to all leases written ON OR AFTER the said
date." Being clear on its prospective application, it must be
given its literal meaning and applied without further
interpretation. Thus, BLC is not in a position to invoke the
provisions of Revenue Regulation 19-86 for lease rentals it
received prior to January 1, 1987.
12 Administrative

issuances may be distinguished according to their nature and substance:

legislative and interpretative. A legislative rule is in the matter of subordinate legislation,
designed to implement a primary legislation by providing the details thereof. An interpretative
rule, on the other hand, is designed to provide guidelines to the law which the administrative
agency is in charge of enforcing.