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TAXATION
Commissioner vs. Algue 158 SCRA 9

Facts:

The Philippine Sugar Estate Development Company (PSEDC). Appointed Algue Inc. as its agent. Algue received a commission of 125,000.00 and it was from their commission that it paid organizers of VOICP 75,000.00 in proportional fees. He received an assessment from the CIR. He filed a letter of protest or reconsideration. The CIR contends that the claimed deduction was properly disallowed because it was not an ordinary, reasonable or necessary expense.

Issue: Is the CIR correct?

Ruling:

No. taxes are the lifeblood of the government and should be collected without unnecessary hindrance. Every person who is able to pay must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power.

On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.

Sison vs. Ancheta

GR L- 59431 June 25, 1984

Facts:

BP 135 was enacted. Sison, as a taxpayer alleged that Sison is thereof unduly discriminated against him by the imposition of higher rate upon his income as a professional, that it amounts to class legislation, and that it transgresses against the equal protection and due process clauses of the 1987 Constitution as well as the rule requiring the uniformity in taxation.

Issue: is the contention meritorious?

Ruling:

No. it is manifest that the field of state activity has assumed a much wider scope. The reason was clearly set forth by justice Makalintal, thus: the areas which need to be left with private enterprise and initiative and which the government was called upon to enter optionally, and only because it was better equipped to administer for the public welfare than any individual or groups and individual continue to lose their well-defined boundaries and to be absorbed within the activities that the government must undertake in the sovereign capacity if it is to meet the increasing social challenges of the times. Hence, there is a need for more revenues. The power to tax, on inherent prerogative, has to be reconciled to assure the performance of vital state functions. It is the source of public funds. Taxes, being the lifeblood of the government, their prompt and certain availability is of the essence.

Marcos II vs. CA

273 SCRA 47 1997

Facts:

Ferdinand Marcos II assailed the decision of the CA declaring the deficiency income tax assessments upon the estate and the properties of his late father final despite the pendency of the probate proceedings of the will of the late president. On the other hand, the BIR argued that the state authority to collect taxes is paramount.

Issue: is the approval of the court mandatory requirement in the collection of taxes?

Ruling:

No. the enforcement of tax laws and collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interest of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

(Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of the probate proceedings of the will of the late President. On the other hand, the BIR argued that the States authority to collect internal revenue taxes is paramount.

Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the

decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate.

Issue: Is the contention of Marcos correct?

Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds estate, is not a mandatory requirement in the collection of estate taxes.

There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected.

The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the existence of government itself.

It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.)

Lorenzo vs. Posadas

64 Phil 353

Facts:

Thomas Hanley died in Zamboanga, leaving a will which provided among others that the property given to Matthew Henley will belong to him only after 10 years after Thomas death. Consequently, the CIR assessed inheritance tax against the estate. Lorenzo, the trustee of the estate paid the assessments on protest. He contended that the inheritance tax should have been after 10 years.

Issue: is the contention meritorious?

Ruling:

No. the only benefit on which the taxpayer is entitled is that derived from the enjoyment of the privileges of living in an organized society established and safeguarded by the devotion of taxes to the public purpose. The government promised nothing to the person taxed beyond what maybe anticipated from administration of the laws for the general good.

Taxes are essential for the existence of the government. The obligation to pay taxes rest not upon the privileges enjoyed by or the protection afforded to the citizen by the government, but upon the necessity of money fort the support of the estate. For this reason, no one is allowed to object or resist payment of taxes solely because no personal benefit to him can be pointed out as arising from the tax.

Philex Mining vs. CIR

GR 125704, August 28, 1998

Facts:

Philex Mining Corporation assails the decision of the court of appeals which affirmed the decision of the court of tax appeals ordering philex to pay its excise tax liability philex refused to pay and contended it has pending claims for vat input credit or refund against the government which should be made compensate or set-off its tax

liability.

Issue: can tax be subject for set-off?

Ruling:

No. tax cannot be the subject for compensation for simple reason that the government and the tax payer are not mutual creditors and debtors of each other. Debts are due in the government in its corporate capacity while taxes are due to the government in its sovereign capacity. A tax payer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government that the collection of the tax is contingent on the result of the law suit it filed against the government.

Francia vs. IAC

162 SCRA 753

FACTS:

Francia was the registered owner of a house and lot in Pasay City. A portion of said property was expropriated by the republic. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. He contended that his tax delinquency had been extinguished by legal compensation since the government owed him 4,116 when a portion of his land was expropriated.

ISSUE: can there be off-setting of debts and taxes?

RULING:

No. there can be no off-setting of taxes original the claims against the claims that the taxpayer may have against the government. Taxes cannot be the subject of compensation. The government and the taxpayer are not mutually creditor and debtors of each other and a claim for each other and a claim for taxes is not such a debt demand, contract or judgement as is allowed to be set-off. Furthermore, the tax was due to the city government. While the expropriation effected by the national government. In fact, the expropriation payment was already deposited with the PNB long before the sale at public auction of his property was conducted.

Domingo vs. Garlitos

8 SCRA 443

FACTS:

In Domingo vs. Moscoso, the Supreme Court declared at final and executor the order of the court of first instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to 40, 058.55 by the estate of the late Walter Scott Pine. He petition for execution filed by the fiscal, however, was denied by the lower court the court held that the execution is unjustified as the government itself is indebted to the estate for 262,200; and ordered the amount of inheritance taxes be deducted from the governments indebtedness to the estate.

Issues: Can there be legal compensation?

Ruling:

Yes. The fact that the court having jurisdiction of the estate had found that the claim of the estate against the government has been appropriated for the purpose by a corresponding law ( RA 2700) shows that both the claim of the government for inheritance taxes and the claim of the intestate for services regarded have already become overdue and demandable as well as fully liquidated. Compensation, therefore, take place by operation of law, in accordance with the provisions of article 1279 and 1290 of the civil code, and both debts are extinguished to the amount.

PAL vs. Edu

164 SCRA 320

Facts:

The Philippine airlines is engaged in the air transportation business under a legislative franchise, Act 4271, wherein it is exempt from the payment of taxes. On the strength of an opinion of the secretary of justice, PAL was

determined not to have been paying motor vehicle registration fees since 1956. The Land Transportation Commissioner required all tax exempt entities, including PAL, to pay motor vehicle registration fees, PAL protested.

Issue: Are motor vehicle registration fees taxes?

Ruling:

It is possible for an exaction to be both a tax and a regulation. License fees and charges, looked to as a source of revenue as well as a means of regulation. The money collected under the motor vehicle law is not intended for the expenditures of the motor vehicle office but accrue to the funds for the construction and maintenance of the public roads, streets, and bridges. As the fees are not collected for regulatory purpose as an incident to the enforcement of regulational governing operation of motor vehicles on public highways, but to provide revenue with which the government is to construct and maintain public highways for everyones use, they are taxes, not merely fees.

Lutz vs. Araneta

G.R. L 7859 12/22/55

Facts:

Walter Lutz, as juridical administrator of the intestate estate of Antonio Ledesma, sought to recover the sum of 14,666.40 paid by the estate as taxes from the commissioner under section V of the commonwealth act 567 the sugar adjustment act. He alleged that such tax is unconstitutional as it is levied for the aid and support of the sugar industry exclusively, which is in his opinion, not a public purpose.

Issue: Is the taxes valid?

Ruling:

Yes. The tax is levied with regulatory purpose; is to provide means for the rehabilitation and stabilization

of the sugar industry. The act is a primarily an exercise of police power, and not a pure exercise of taxing power. As sugar production is one of the great industries of the Philippines, and that its promotion, protection and advancement redounds greatly to the general welfare. The legislature found that the general welfare demands that the industry should be stabilized, and provided that the distribution of benefits therefrom be readjusted among its component to enable it to resist the added strain of the increase in tax that it had to sustain.

Roxas et al vs CTA

GR L 25043 April 26, 1968

Facts:

The Roxas brothers owned agricultural lands with a total area of 19,000 hectares. At the end of the second world war, the tenant express their desire to purchase from the brothers the parcels where they actually occupy. For its part, the government, in consonance with the constitutional mandate to acquire big landed estate and apportion them among landless tenants, persuaded the brothers to part with their landholdings. However, the government did not have the funds to cover the purchase price, so Roxas allowed the farmers to buy the land for the same price but by instalment. Subsequently, the CIR demanded that the brothers to pay real estate dealers tax for the sale of the said land.

Issue: Are petitioners liable?

Ruling:

No. the contention of the CIR Roxas y Cia should be considered a real estate dealer because it engaged in the selling of real estate as without merit. The sale of the farm was not only in consonance with but in obedience to the request and pursuant to the policy of the government to allocate lands to the landless. It is the duty of the government to pay the agreed compensation after it persuaded Roxas y Cia to sell the hacienda, and to subsequently subdivide them among the farmers at very reasonable terms and prices.

Pascual vs. Secretary of Public Works

110 SCRA 331

Facts:

Petitioner seeks to declare RA 920 as unconstitutional as as declaring the donation by Sen. Zulueta as invalid. RA 920 contained an item appropriating 85,000 which the petitioner alleged that it was for the construction of roads improving the private property of Zulueta. He alleges that the said law was not for a public purpose.

Issue: Is R.A. 920 unconstitutional?

Ruling:

Yes. R.A. 920 is an invalid imposition, since it results in promotion of a private enterprise as it benefit the property of a private individual. The provision that the land thereafter be donated to the government has not cure the defect. The rule is that if the public advantage or benefit is merely incidental in promotion of a particular enterprise, such defect shall render the law invalid. On the other hand, if what is incidental is the promotion of a private enterprise the tax law shall be deemed for a public purpose.

Osmea vs. Orbos

220 SCRA 703

Facts:

Petitioner seeks to have Sec.8, paragraph 1 C of PD 1956, as amended by EO 137 declared unconstitutional for being undue and invalid delegation of legislative power to the Energy regulatory Board. Under the assailed law, the ERB is given the authority to impose additional amounts on petroleum products and to impose additional amounts to augment the resources of the fund. He argue that the money collected pursuant to PD 1956 must be treated as a special fund, not as a trust account or a trust fund, and that if a special tax is collected for a special purpose it shall be treated as a special fund to be used only for the purpose indicated.

Issue: is there undue delegation of legislative power?

Ruling:

No. for a valid delegation of power, it is essential that the law delegating the power must be 1. Complete in itself, that it must set forth the policy to be executed by the delegate 2. It must fix the standard limits of which are sufficiently determinate or determined to which the delegate must conform. While the funds may be referred to as taxes, they are enacted in the exercise of the police power of the state. The fund remains subject to the review and accounting of the COA. These measures comply with the constitutional description of a special fund.

Basco vs. PAGCOR

GR 91649 May 14,1991

Facts:

PAGCOR was created by virtue of PD 1067 A dated January 1, 1977 and granted a franchise under PD 1067 B. subsequently. On July 11, 1983, it was created under PD 1869 to enable the government to regulate and centralize all games of chance authorize by existing franchise or permitted by law. Petitioners contend that the exemption clause in PD 1869 is violative of the principle of local autonomy.

Issue: is the contention meritorious?

Ruling:

No. LGUs has no power to tax instrumentalities of the national government. PAGCOR is a GOCC with an original charter. All of its stocks are owned by the national government. In addition to its corporate power it also exercises regulatory powers. It should be exempt from local taxes otherwise its operation might be burdened, impeded or subjected to control by any local government. Local Government are not sovereign within the state or an imperium in imperio.

MCIAA vs. Marcos

GR 120082, September 11, 1996

Facts:

MCIAA was created by virtue of RA 6958. Since the time of its creator, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with sec. 14 of its charter. On October 11, 1994 however The treasurer of Cebu city demanded payments for realty taxes on several parcels of lands belonging to the petitioners. MCIAA objected to such demand for payment as baseless and unjustified, claiming in its favour Sec. 14 of R.A. 6958 which exempt it from payment of realty taxes. Respondent refuse to cancel MCIAAs tax account, insisting that it is the GOCCs whose tax exemption privilege has been withdrawn by virtue of Sec 193 and 234 of the LGC.

Issue: is the contention meritorious?

Ruling:

No. Sec 193 LGC prescribe the general rule that they are withdrawn upon the effectivity of the code except those granted to local water districts, cooperative duly registered under R.A. 6938, non-stock, non-profit hospitals and educational institutions, and unless otherwise provided in the LGC the latter provision called only refer to Sec 234 which enumerate the properties exempt from real property tax but the last paragraph of sec 234 further qualifies the retention of the exemption. Only to those enumerated therein. Thus, for petitioner to be exempt must show that the parcels of land in question any of those enumerated in 234.

MIAA vs. City of Paraaque

GR 155650 July 20, 2006

Facts:

MIAA operates the NAIA complex in paraaque under EO 903. On June 28, 2001 MIAA received final notices of real estate tax delinquency from the city for the taxable year 1992-2001. Consequently, the city issue notice for levy on the airport land and buildings. MIAA opposed the levy and contended that SEC. 21 of EO 903 specifically exempts it from the payment of real estate tax. MIAA invokes the principle that the government cannot

tax itself.

Issue: Is the MIAA liable for real estate taxes?

Ruling:

No. MIAA is not a GOCC but a government instrumentality vested with corporate powers to perform efficiently government functions. A government instrumentality falls under sec 133(o) of the LGC which limits the taxing powers of LGUs. The LGC recognize that the LGUs cannot tax the national government, which delegated the power to tax. Moreover, the airport lands and buildings of MIAA are owned by the republic is not taxable pursuant to Sec 234 (a) of the LGC.

Taada vs. Angara

GR 118295, May 2, 1992

Facts:

The suit was filed to nullify the concurrence of the Philippine senate to the presidents notification of the WTO argument. It was contended that the argument places nationals and products of member countries on the same footing as Filipinos and local products in contravention of the Filipino first policy. Petitioners maintain that the Philippines because it meant that congress could not pass legislation that would be good for national interest and general welfare if each legislation would not conform to the WTO agreement.

Issue: as the contention meritorious?

Ruling:

No. while sovereignty has traditional been deemed absolute and all-encompassing in the domestic level. It is however subject to restrictions and limitations voluntarily agreed to by the Philippines expressly or impliedly, as a member of the family nations. Unquestionably, the constitution did not envision hermit-type solution of the country from the rest of the world.

By the inherent nature, Treaties limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits granted by a derived from a convention or pact.

Commissioner vs BOAC

149 SCRA 395

Facts:

British overseas airways corp. (BOAC) a wholly owned British Corporation, is engaged in international airlines business. From 1959to 1972, it has no loading rights for traffic purposes in the Philippines but maintained a general sales agent in the Philippines which was responsible for selling, BOAC tickets covering passengers and cargoes the CIR assessed deficiency income taxes against.

Issue: Is BOAC liable to pay taxes?

Ruling:

Yes. The source of income is the property, activity of service that produces the income. For the source of income to be considered coming from the Philippines, it is sufficient that the income is derived from the activity coming from the Philippines. The tax code provides that for revenue to be taxable, it must constitute income from Philippine sources. In this case, the sale of tickets is the source of income. The situs of the source of payments is the Philippines.

Tan vs. Del Rosario

237 SCRA 324

Facts:

Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT)

under Arts (26) and (28) and III (1). The SNIT contained changes in the tax schedules and different treatment in the professionals which petitioners assail as unconstitutional for being isolative of the equal protection clause in the constitution.

Issue: is the contention meritorious?

Ruling:

No. uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend classification as long as it rest on substantial distinctions, it is germane to the purpose of the law. It is not limited to existing only and must apply equally to all members of the same class.

The legislative intent is to increasingly shift the income tax system towards the scheduled approach in taxation of individual taxpayers and maintain the present global treatment on taxable corporations. This classification is neither arbitrary nor inappropriate.

Abra Valley College v. Aquino

[GR L-39086, 15 June 1988]

Facts: Petitioner Abra Valley College is an educational corporation and institution of higher learning duly incorporated with the SEC in 1948. On 6 July 1972, the Municipal and Provincial treasurers (Gaspar Bosque and Armin Cariaga, respectively) and issued a Notice of Seizure upon the petitioner for the college lot and building (OCT Q-83) for the satisfaction of said taxes thereon. The treasurers served upon the petitioner a Notice of Sale on 8 July 1972, the sale being held on the same day. Dr. Paterno Millare, then municipal mayor of Bangued, Abra, offered the highest bid of P 6,000 on public auction involving the sale of the college lot and building. The certificate of sale was correspondingly issued to him.

The petitioner filed a complaint on 10 July 1972 in the court a quo to annul and declare void the Notice of Seizure and the Notice of Sale of its lot and building located at Bangued, Abra, for non-payment of

real estate taxes and penalties amounting to P5,140.31. On 12 April 1973, the parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The trial court ruled for the government, holding that the second floor of the building is being used by the director for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said petition on 17 August 1974.

The Supreme Court affirmed the decision of the CFI Abra (Branch I) subject to the modification that half of the assessed tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).

Issue: Should there be tax exemption?

Interpretation of the phrase used exclusively for educational purposes Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes. This constitution is relative to Section 54, paragraph c, Commonwealth Act 470 as amended by RA 409 (Assessment Law). An institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation; notwithstanding that it keeps a lodging and a boarding house and maintains a restaurant for its members (YMCA case). A lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions (Bishop of Nueva Segovia case).

Exemption in favour of property used exclusively for charitable or educational purposes is not

limited to property actually indispensable therefor but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes (Herrera v. Quezon City Board of Assessment Appeals). While the Court allows a more liberal and non-restrictive interpretation of the phrase exclusively used for educational purposes, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education.

American Bible Society v. City of Manila

[GR L-9637, 30 April 1957]

Facts: Plaintiff-appellant, American Bible Society, is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines through its Philippine agency established in Manila in November 1898. The defendant-appellee, City of Manila, is a municipal corporation with powers that are to be exercised in conformity with the provisions of RA 409, (Revised Charter of the City of Manila). In the course of its ministry, plaintiffs Philippine agency has been distributing and selling bibles and/or gospel portions thereof (except during the Japanese occupation) throughout the Philippines and translating the same into several Philippine dialects.

On 29 May 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the business of general merchandise since November 1945, without providing itself with the necessary Mayors permit and municipal license, in violation of Ordinance 3000, as amended, and Ordinances 2529, 3028 and 3364, and required plaintiff to secure, within 3 days, the corresponding permit and license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45. On 24 October 1953, plaintiff paid to the defendant under protest the said permit and license fees, giving at the same time notice to the City Treasurer that

suit would be taken in court to question the legality of the ordinances under which the said fees were being collected, which was done on the same date by filing the complaint that gave rise to this action. After hearing, the lower court dismissed the complaint for lack of merit. Plaintiff appealed to the CA,, which in turn certified the case to the Supreme Court for the reason that the errors assigned involved only questions of law.

The Supreme Court reversed the decision appealed and ordering the defendant to return to plaintiff the sum of P5,891.45 unduly collected from it; without pronouncement as to costs.

Issue: Is the American Bible Society Liable?

Ruling:

A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit, missionary organization at a minimal profit constitutes a curtailment of religious freedom and worship which is guaranteed by the constitution. However, the income of such organization from any activity for profit or from any of their property, real or personal, regardless of the disposition made of such income is taxable.

Tolentino vs. Secretary of Finance

GR 115455 Oct. 30 1995

Facts:

The VAT is levied on the sale, barter, or exchanged of the goods and properties as well as on the sale of services. RA7116 seeks to wider the tax base of the existing VAT system and enhance it administration on by amending the NIRC. CRTBA asserts that R.A. 7116 is unconstitutional as it violate the rule that taxes should be uniform and equitable.

Issue: is it meritorious?

Ruling:

No. Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. To satisfy this requirement, it is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed in a similar situation.

Herrera vs. Quezon City Board of Assessment Appeals

G.R. L-15270

Facts:

In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester Ochangco Herrera to establish and operate the St. Catherines Hospital. In 1953, the Herreras sent a letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the hospital, stating that the same was established for charitable and humanitarian purposes and not for commercial gain. The exemption was granted effective years 1953 to 1955. In 1955, however, the Assessor reclassified the properties from exempt to taxable effective 1956, as it was ascertained that out 32 beds in the hospital, 12 of which are for pay-patients. A school of midwifery is also operated within the premises of the hospital.

Issue: Whether St. Catherines Hospital is exempt from reallty tax.

Ruling:

The admission of pay-patients does not detract from the charitable character of a hospital, if all its funds are devoted exclusively to the maintenance of the institution as a public charity. The exemption in favour of property used exclusively for charitable or educational purpose is not limited to property actually indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purpose, such as in the case of hospitals a school for training nurses; a nurses home; property used to provide housing facilities for interns, resident doctors, superintendents and other members of the hospital staff; and recreational facilities for

student nurses, interns and residents. Within the purview of the Constitution, St. Catherines Hospital is a charitable institution exempt from taxation.

SongDiary
Taxation Philam Asset vs CTA

G.R.156637 / 62004Dec. 14, 2005

Facts:

Petitioner acts as invesment manager of PFI &PBFI. It provides management &technical services and thus respectively paid for its services. PFI & PBFI withhold the amount of equivalent to 5% creditable tax regulation. On April 3, 1998, filed itrwith a net loss thus incurred with holding tax. Petitioner filed for refund from BIR but was unanswered . CTA denied the petition for review. CA held that to request for either a refund or credit of income taxpaid, a corporation must signify its intention by marking the corresponding box on its annual corporate adjustment return.

Issue:

Whether or not petitioner is entitled to a refund of its creditible taxes.

Ruling:

Any tax income that is paid in excess of its amount due to the government may be refunded, provided that a taxpayer properly applies for the refund. One can not get a tax refund and a tax credit at the same time for the same excess to income taxes paid. Failure to signify ones intention in Final Assessment Return (FAR) does not mean outright barring of a valid request for a refund

Requiring that the ITR on the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. The Tax Code likewise allows the refund of taxes to taxpayer that claims it in writing within 2 years after payment of the taxes. Technicalities and legalism should not be misused by the government to keep money not belonging to it, and thereby enriched itself at the expense of its law-abiding citizens.

Samahan vs. Sec. of Labor and Filsystems , Inc GRN.: 128067 June 5,1998 Puno J.:

Facts: Samahan (union petitioner) , a registered union filed a petition for certification election. Private responded questioned the status of petitioner as LLO on the ground of lack of proof that its contract of affiliation with NAFLUKMU has been submitted to BLR. Samahan averred that as an independent and duly registered union, it has all the rights and privileges to act as a representative of its members for the purpose of collecting bargaining with employers. Med-arbiter dismissed the petition. Meanwhile FWU was allowed to conduct certification election, and eventually negotiated a CBA Private respondent filed a motion to dismiss.

Issue: Whether or not legal personality of the union (Samahan) having been established could be subject to collateral attack.

Ruling:

Petitioner is an independently registered labor union thus its right to file petition for certification election on its own is beyond question. Its failure to prove its affiliation with NAFLU-KMU cannot affect its right to file petition as an independent union.

Petitioner seasonably appealed, thus it stopped the holding of any certification election. Accordingly, there was an unresolved representation case at the time the CBA was entered by FWU and private respondent. There should be no obstacle to the right of the employees of petitioner for a certification election at the proper time, that is within 60 days prior to the expiration of the life of a certified CBA not even by a collective agreement submitted during the pendency of the representation case (ALU-TUCP vs Trajano)

CAIN VS IAC

GRN 72706

OCTOBER 27, 1987

PARAS, J.:

FACTS:

Constantitno filed for probate of the will of his decased brother Nemesio. The spouse and adopted child of the decedent opposed the probate of will because of preterition. RTC dismissed the petition of the wife. CA reversed and the probate thus was dismissed

ISSUE:

Whether or not there was preterition of compulsory heirs in the direct line thus their omission shall not annul the institution of heirs.

RULING:

Preterition consists in the omission of the forced heirs because they are not mentioned there in, or trough mentioned they are neither instituted as heirs nor are expressly disinherited. As for the widow there is no preterit ion because she is not in the direct line. However, the same cannot be said for the adopted child whose legal adoption has not been questioned by the petitioner. Adoption gives to the adopted person the same rights and duties as if he where a legitimate child of the adopter and makes the adopted person a legal heir hence, this is a clear case of preterition.

The universal institution of petitioner together with his brothers and sisters to the entire inheritance of the testator results in totally abrogating the will because the nullification of such institution of universal heirs without any other testamentary disposition in the will amounts to a declaration that nothing was written. No legacies and devisees having been provided in the will, the whole property of the deceased has been left by universal title to petitioner and his brothers and sisters.

PASCUAL & DRAGONVS CIR AND CTA

GRN 78133October 18, 1988

Gancayco, J.:

FACTS:

Petitioners bought two parcels of land and another 3 parcels the following year.The 2 parcels were sold in 1968 while the other 3 were sold in 1970.Realizing profits from the sale, petitioners filed capital gains tax.However, they were assessed with deficiency tax for corporate income taxes.

ISSUE:

Whether or not petitioners formed an unregistered partnership thereby assessed with corporate income tax.

RULING:

By the contract of partnership, two or more persons bind themselves to contribute money, industry or property to a common fund with the intention of dividing profits among themselves.There is no evidence though, that petitioners entered into an agreement to contribute MPI to a common fund and that they intend to divide profits among themselves.The petitioners purchased parcels of land and became co-owners thereof.Their transactions of selling the lots were isolated cases.The character of habituality peculiar to the business transactions for the purpose of gain was not present.

The sharing of returns foes not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property.There must be a clear intent to form partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

SARDANE VS ACOJEDO

GRN L-47045November 22, 1988

Regalado, J.:

FACTS:

Sardane executed promissory notes in the amount of PhP5, 217.25.Because of failure to pay, Acojedo brought an

action for collection of sum of money.Sardane alleged that a partnership existed.MTC granted the petition but RTC reversed upholding reason that there existed partnership between the 2 which could then vary the meaning of the promissory notes.RTC concluded that PN involved were merely receipts for the contributions to said partnership and upheld the claim that there was ambiguity in the PN hence, parol evidence was allowable to contradict the terms of the represented loan contract.

ISSUE:

Whether or not partnership existed when petitioner received profits.

RULING:

Even if evidence other than PN may be admitted to alter the meaning conveyed thereby, still the evidence is insufficient to prove that partnership existed between the private parties.The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of Acojeda.Article 1769 NCC explicitly provides that the receipt of a person of a share of the profits of the business is prima facie evidence that he is a partner in the business; no such inference shall be drawn if such profits were received in payment as wages of an employee.

ALTERNATIVE CENTER FOR ORGANIZATION REFORMS VS ZAMORA GRN 144256 June 8, 2005 Carpio-Morales, J.:

FACTS: In the year 2000, the GAA appropriated PhP 111,778,000,000.00 of IRA as programmed fund. It appropriated a separate amount of P10B of IRA under the classification of unprogrammed fund, the latter amount to be released only upon th occurrence of the conditions stated in the GAA.

ISSUE: Whether or not the questioned provision violate the constitutional injunction that the just share of local governments

in the national taxes of the IRA shall be automatically released.

RULING: Article X Section 6 of the Constitution provides: LGUs shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. While automatice release implies that the just share should be released to them as a matter of course, withholding its release pending an event contravened the constitutional mandate.

===========================

AMERICAN BIBLE SOCIETY VS MANILA GRN 9637 April 30, 1957 Felix, J.:

FACTS: Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation and in the course of its ministry, it has been selling bible and or gospel portions throughout the country and translating the same into several Philippine dialects. The City of Manila considered appellant as conducting the business of general merchandize and required it to secure the necessary permit and license fees.

ISSUE: Whether or not appellant if engaged in business as a religious corporation and thus be made to pay fees or taxes.

RULING: It may be true that the price of bibles and pamphlets was a bit higher than the actual cost of the same, but this could not mean that appellant is engaged in business for profit. For this reason, we believe that the ordinance requiring them to pay fees or taxes would impair its free exercise of its religious freedom thru distribution of pamphlets.

================================== CIR VS. BRITISH OVERSEAS AIRWAYS GRN L-65773-74 April 30, 1987 En Banc, Melecio-Herrera, J.:

FACTS: British Overseas Airways is a 100% British Government-owned corporation engaged in international airline business and is a member of the Interline Air Transport Association and thus it operates air transportation service and sells transportation tickets over the routes of the other airline members. From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines but maintained a general sales agent in the country. Warner Barnes was responsible for selling BOAC tickets covering passengers of and cargos. The CIR assessed deficiency income taxes against BOAC.

ISSUE: Whether or not the revenue derived by BOAC from ticket sales in the Philippines for its transportation constitute income from Philippine sources and accordingly taxable.

RULING: The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. Herein, the sale of tickets is the activity that produced the income. The tickets exchanged hands here and payment for fares were also made here in the Philippine currency. The situs or the source of the payment is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in relation to PD1355, ensures that international airlines are taxed on their income from Philippine sources. The 2.5% tax on gross billings is an income tax. If it had been intended as an excise tax, it would have been placed under Title V of the Tax Code covering taxes on business.

SARKIES TOURS vs. COURT OF APPEALS / FORTADES G.R. No. 108897 October 2, 1997 ROMERO, J.:

FACTS: Private respondent Fortades boarded a Sarkies bus with 3 luggage containing important documents and personal things. All were kept in the baggage compartment of the bus but dring the stop over, passenger noticed her lost luggage. Passengers suggested to the driver to trace the route of the bust but were ignored. After nine months of trying to recover the luggage, Fortades filed a case to recover the value of her lost things including moral and exemplary damages against petitioner. Lower court decided favorably while CA concurred but deleted the award for

moral and exemplary damages

ISSUE: Whether or not private respondent was entitled to moral and exemplary damages.

RULING:

The Court agrees with the Court of Appeals in awarding P30,000.00 for the lost items and P30,000.00 for the transportation expenses, but disagrees with the deletion of the award of moral and exemplary damages which, in view of the foregoing proven facts, with negligence and bad faith on the fault of petitioner having been duly established, should be granted to respondents in the amount of P20,000.00 and P5,000.00, respectively.

================

SARKIES TOURS PHILIPPINES vs IAC / DIzon MELENCIO-HERRERA, J :

FACTS: Petitioner Sarkies advertised for a Corregidor tour for Independence Day 1971. Dizon family availed of the promo and were brought to Corregidor, together with other excursionists, through a motorized boat owned by Mendoza. A daughter of the Dizons died when the boat accidentally capsized on its way back to Manila. A case was filed against Sarkies and Dizon, and the CA found them both liable for the reason that the relationship between Sarkies and the excursionists was a single operation which in effect guaranteed them safe passage all through out. Exemplary damages in the amount of 50,000 was likewise awarded.

ISSUE: Whether or not the award for exemplary damages was with legal basis.

RULING: The award of exemplary damages should be eliminated. In Munsayac vs. De Lara, 23 SCRA 1086, 1089 (1968), it was said:

"It is not enough to say that an example should be made, or corrective measures be employed, for the public good

especially in accident cases where public carriers are involved. The causative negligence in such cases is personal to the employees actually in charge of the vehicles, and it is they who should be made to pay this kind of damages by way of example or correction, unless by the demonstrative tolerance or approval of the owners they themselves can be held at fault and their fault is of the character described in article 2232 of the Civil Code."

In the case at bar, there is no showing that SARKIES acted "in a wanton . . . or malevolent manner" (Art. 2232, Civil Code).

CITY ASSESSOR OF CEBU VS. ASSOCIATION OF BENEVOLA DE CEBU G.R 152904 June 28, 2007 Velasco, Jr. J.: FACTS: Benevola de Cebu is a non-stock non-profit organization which in 1990, a medical arts building was constructed and in 1998 was issued with a certification classifying the building as commercial. City assessor of Cebu assessed the building with a market value of Php 28,060,520 and on assessed value of Php 9,821,180 at the assessment level of 35% and not 10% which is currently imposed on private respondent herein. Petitioner claimed that the building is used as commercial clinic/spaces for renting out to physicians and thus classified as commercial. Benevola de Cebu contended that the building is used actually, directly and exclusively part of hospital and should have an assessment level of 10%

ISSUE: Whether or not the new building is liable to pay the 35% assessment level? RULING: We hold that the new building is an integral part of the hospital and should not be assessed as commercial. Being a tertiary hospital, it is mandated to fully departmentalized and be equipped with the service capabilities needed to support certified medical specialist and other licensed physicians. The fact that they are holding office is a separate building does not take away the essence and nature of their services vis-a-vis the overall operation of the hospital and to its patients. Under the Local Government Code, Sec. 26: All lands, buildings and other improvements thereon actually, directly and exclusively used for hospitals, cultural or scientific purposes and those owned and used by local water districts shall be classified as special.

=======================================

Associaiton of Customs Brokers vs Manila GRN L-4376 May 22, 1953 En Banc FACTS: The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax that is within the power of the City under its revised charter. The ordinance was passed by the Municipal Board under the authority conferred by section 18 of RA 409

ISSUE: Whether or not the ordinance infringes on the uniformity of taxes as ordained by the Constitution. RULING: The Ordinance exacts the tax upon all motor vehicles operating within Manila and does not distinguish between a motor vehicle registered in the City and one registered in another place nor does it distinguish private of vehicle for hire. The distinction is important if we note that the ordinance intends to burden with the tax only those registered in Manila. There is no pretense that the Ordinance equally applies to vehicles who come to Manila for a temporary purpose.

BENGZON VS. DRILON G.R. 103524 April 15, 1992 208 SCRA 133 Gutierrez, J.:

FACTS: Petitioners are retired justices of the Supreme Court and Court of Appeals who are currently receiving pensions under RA 910 as amended by RA 1797. President Marcos issued a decree repealing section 3-A of RA 1797 which authorized the adjustment of the pension of retired justices and officers and enlisted members of the AFP. PD 1638 was eventually issued by Marcos which provided for the automatic readjustment of the pension of officers and enlisted men was restored, while that of the retired justices was not. RA 1797 was restored through HB 16297 in 1990. When her advisers gave the wrong information that the questioned provisions in 1992 GAA were an attempt to overcome her earlier veto in 1990, President Aquino issued the veto now challenged in this petition. It turns out that PD 644 which repealed RA 1797 never became a valid law absent its publication, thus there was no law. It follows that RA 1797 was still in effect and HB 16297 was superfluous because it tried to restore benefits which were never taken away validly. The veto of HB 16297 did not also produce any effect. ISSUE:

Whether or not the veto of the President of certain provisions in the GAA of FY 1992 relating to the payment of the adjusted pensions of retired Justices is constitutional or valid. RULING: The veto of these specific provisions in the GAA is tantamount to dictating to the Judiciary ot its funds should be utilized, which is clearly repugnant to fiscal autonomy. Pursuant to constitutional mandate, the Judiciary must enjoy freedom in the disposition of the funds allocated to it in the appropriations law. Any argument which seeks to remove special privileges given by law to former Justices on the ground that there should be no grant of distinct privileges or preferential treatment to retired Justices ignores these provisions of the Constitution and in effect asks that these Constitutional provisions on special protections for the Judiciary be repealed. The petition is granted and the questioned veto is illegal and the provisions of 1992 GAA are declared valid and subsisting.

REYES VS. ALMANZOR GR 43839-46 April 26, 1991 196 SCRA 322 Paras, J.: FACTS: Petitioner are owners of parcels of land leased to tenants. RA 6359 was enacted prohibiting for one year an increase in monthly rentals of dwelling units and said Act also disallowed ejectment of lessees upon the expiration of the usual period of lease. City assessor of Manila assessed the value of petitioners property based on the schedule of market values duly reviewed by the Secretary of Finance. The revision entailed an increase to the tax rates and petitioners averred that the reassessment imposed upon them greatly exceeded the annual income derived from their properties. ISSUE: Whether or not income approach is the method to be used in the tax assessment and not the comparable sales approach. RULING: By no stretch of the imagination can the market value of properties covered by PD 20 be equated with the market value of properties not so covered. In the case at bar, not even factors determinant of the assessed value of subject properties under the comparable sales approach were presented by respondent namely: 1. That the sale must represent a bonafide arms length transaction between a willing seller and a willing buyer 2. The property must be comparable property. As a general rule, there were no takers so that there can be no reasonable basis for the conclusion that these

properties are comparable. Taxes are lifeblood of government, however, such collection should be made in accordance with the law and therefore necessary to reconcile conflicting interests of the authorities so that the real purpose of taxation, promotion of the welfare of common good can be achieved.

LLADOC V CIR & CTA GR 19201 June 16, 1965 14 SCRA 293 Paredes, J.:

FACTS: MB Estate of Bacolod City donated Php 10,000 in cash to Fr. Ruiz, then the Parish Priest of Victorias, who was the predecessor of petitioner. MB Estate filed their donors gift tax but petitioner is on protest regarding donees tax claiming that assessment of gift tax against the Catholic Church is against the law; that when the donation was made. He was not yet the parish priest. ISSUE: Whether or not petitioner should be liable for assessed donees gift tax dontated.

RULING: A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of Constitution exempt from taxation as employed in the Constitution should not be interpreted to mean exemption from all kinds of taxes. And there being no clear, positive or express grant of such privilege by law, in favor of petitioner, the exemption herein must be denied.

LUNG CENTER VS. QUEZON CITY GR 144104 June29, 2004 En Banc, Callejo J: Facts: The lung center is a charitable institution within the context of 1973 and 1987 constitutions. The elements considered in determining a charitable institution are: the statue creating the enterprise; its corporate purposes; constitution and by-laws, methods of administration, nature of actual work performed, character of the services rendered, indefiniteness of the beneficiaries, and the use occupation of properties. As a gen. principle, a charitable

institution doe not lose its character as such and its exemption form taxes simply because it derives income from paying patients, or receives subsidies from government; and no money insures to the private benefit of the persons managing or operating the institution. Issue: Whether or not the real properties of the lung center are exempt from real property taxes. Ruling. Partly No. Those portions of its real property that are leased to private entities are not exempt from actually, direct and exclusively used for charitable purpose. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. The property tax exemption under Sec. 28(3), Art. Vi of the property taxes only. This provision was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung center must be able to prove that: it is a charitable institution and; its real properties are actually, directly and exclusively used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt from real property taxes while those leased to private entities are not exempt from such taxes.

LUTZ VS. ARANETA

GR L-7859 December 22, 1955 Reyes, J.: FACTS: Walter Lutz, Judicial Administrator of the intestate estate of Ledesma, sought to recover the sum of Php14, 666.40 paid by the estate as taxes, alleging that such tax is unconstitutional as it levied for the aid and support of the sugar industry exclusively which is in his opinion not a public purpose. ISSUE: Whether or not tax is valid in supporting the sugar industry? RULING: The court ruled that the tax is valid as it served public purpose. The tax provided for in CA 567 is primarily an exercise of police power since sugar is a great source of income for the country and employs thousands of laborers. Hence, it was competent for the legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the lawmaking body could provide that the distribution of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in taxes that it had to sustain.

COMMISSIONER OF IR VS CENTRAL LUZON DRUG CORP GR 148512 June 26, 2006 Azcuna, J.: FACTS: This is a petition for review under Rule 45 of Rules of Court seeking the nullification of CA decision granting respondents claim for tax equal to the amount of the 20% that it extended to senior citizens on the latters purchases pursuant to Senior Citizens Act. Respondent deducted the total amount of Php219,778 from its gross income for the taxable year 1995 whereby respondent did not pay tax for that year reporting a net loss of Php20,963 in its corporate income tax. In 1996, claiming that the Php219,778 should be applied as a tax credit, respondent claimed for refund in the amount of Php150, 193. ISSUE: Whether or not the 20% discount granted by the respondent to qualified senior citizens may be claimed as tax credit or as deduction from gross sales? RULING: Tax credit is explicitly provided for in Sec4 of RA 7432. The discount given to Senior citizens is a tax credit, not a deduction from the gross sales of the establishment concerned. The tax credit that is contemplated under this Act is a form of just compensation, not a remedy for taxes that were erroneously or illegally assessed and collected. In the same vein, prior payment of any tax liability is a pre-condition before a taxable entity can benefit from tax credit. The credit may be availed of upon payment, if any. Where there is no tax liability or where a private establishment reports a net loss for the period, the tax credit can be availed of and carried over to the next taxable year.

APOSTOLIC PREFECT VS CITY TREASURER OF BAGUIO CITY GR 4752 April 18, 1941 Imperial, J.: FACTS: The Apostolic Prefect is a corporation , of religious character, organized under the Philippine laws, and with residence in Baguio. The City imposed a special assessment against properties within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Prefect contends that its properties should be free of tax being of religious in character. ISSUE: Whether or not Apostolic Prefect, as a religious entity is exempt from the payment of the special assessment. RULING: A special assessment is not a tax; and neither the decree nor the Constitution exempt petitioner from payment of said

special assessment. Although it its broad meaning, tax includes both general taxes and special assessment, yet there is a recognized distinction: Assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with special benefits to the property assessed. Petitioner likewise, has proven that the property in question is used exclusively for religious purposes; but that it appears the same is being used to other non-religious purposes. Thus, petitioner is required to pay the special assessment.

PAL VS EDU HR L-41383 August 15, 1988 Gutierrez, J.: FACTS: PAL is engaged in air transportation business under a legislative franchise wherein it is exempt from tax payment. PAL has not been paying motor vehicle registration since 1956. The Land Registration Commissioner required all tax exempt entities including PAL to pay motor vehicle registration fees. ISSUE: Whether or not registration fees as to motor vehicles are taxes to which PAL is exempted. RULING: Taxes are for revenue whereas fees are exactions for purposes of regulation and inspection, and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money collected under Motor Vehicle Law is not intended for the expenditures of the MV Office but accrues to the funds for the construction and maintenance of public roads, streets and bridges. As fees are not collected for regulatory purposes as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways but to provide revenue with which the Government is to construct and maintain public highways for everyones use, they are veritable taxes, not merely fees. PAL is thus exempt from paying such fees, except for the period between June 27, 1968 to April 9, 1979 where its tax exemption in the franchise was repealed.

CALTEX PHILIPPINES VS CA G.R. 925585 MAY 8, 1992 Davide, J.: FACTS: In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance.

Petitioner requested COA for the early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs. COA denied the same. ISSUE: Whether of not petitioner can avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement. RULING: It is a settled rule that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually debtors and creditors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be setoff. The oil companies merely acted as agents for the government in the latters collection since taxes are passed unto the end-users, the consuming public.

DOMINGO VS GARLITOS G.R. NO. 18993 June 29, 1963 Labrador, J.: FACTS: In Domingo vs. Moscoso, the Supreme Court declared as final and executor the order of the lower court for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by the estate of the of the late Walter Price. The petitioner for execution filed by the fiscal was denied by the lower court. The court held that the execution is unjustified as the Government is indebted to the estate for Php262,200 and ordered the amount of inheritance taxes can be deducted from the Governments indebtedness to the estate. ISSUE: Whether of not a tax and a debt may be compensated. RULING: The court having jurisdiction of the Estate had found that the claim of the Estate against the government has been recognized and the amount has already been appropriated by a corresponding law. Both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation takes place by operation of law and both debts are extinguished to the concurrent amount. Therefore the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Price.

GARCIA VS. EXECUTIVE SECRETARY

211 SCRA 219 July 3, 1992 Feliciano, J.:

FACTS: The President issued an EO which imposed, across the board, including crude oil and other oil products, additional duty ad valorem. The Tariff Commission held public hearings on said EO and submitted a report to the President for consideration and appropriate action. The President, on the other hand issued an EO which levied a special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products. ISSUE: Whether of not the President may issue an EO which is tantamount to enacting a bill in the nature of revenuegenerating measures. RULING: The Court said that although the enactment of appropriation, revenue and tariff bills is within the province of the Legislative, it does not follow that EO in question, assuming they may be characterized as revenue measure are prohibited to the President, that they must be enacted instead by Congress. Section 28 of Article VI of the 1987 Constitution provides: The Congress may, by law authorize the President to fix tariff rates and other duties or imposts The relevant Congressional statute is the Tariff and Customs Code of the Philippines and Sections 104 and 401, the pertinent provisions thereof. 2006 Bar Operations Commission Team Research Head: Sheila Panganiban

Political Law: Lei Almero, Flaj Gregorio, Kat Dilao Criminal Law: Bing Torrecampo Labor Law: Selch Sancho, Mhe Sangalang, Shei Panganiban Legal Ethics: Gerlie Admana Mercantile Law: Bunny Santayana, Shei Panganiban, Selch Sancho Remedial Law: Mhe Sangalang, Shei Panganiban Taxation Law: Gerlie Admana Civil Law: Shie Labro, Bing Torrecampo, Bernice Catherine Santayana, Shei Panganiban, Gerlie Admana Posted by UNC Bar Operations Commission 2007 at 3:35 AM 37 comments 2006 Taxation Case Digests

PERIOD TO ASSESS AND COLLECT TAX DEFICIENCY

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNAL REVENUE GR. No. 155541. January 27, 2004

Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedents tax liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedents deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIRs claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedents death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable.

Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate. (2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable.

Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment. (2) The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust

had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondents claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the fiveyear prescriptive period set by law.

TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES OF ELECTRIC COOPERATIVES BY THE LOCAL GOVERNMENT CODE

PHILIPPINE RURAL ELECTRIC COOPERATIVES ASSOCIATION, INC., et al. vs. THE SECRETARY OF DEPARTMENT OF INTERIOR AND LOCAL GOVERNMENT GR. No. 143076. June 10, 2003

Facts: On May 23, 2003, a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under PD 269 which are members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA). The other petitioners, electric cooperatives of Agusan del Norte (ANECO), Iloilo 1 (ILECO 1) and Isabela 1 (ISELCO 1) are non-stock, non-profit electric cooperatives organized and existing under PD 269, as amended, and registered with the National Electrification Administration (NEA). Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party. From 1971to 1978, in order to finance the electrification projects envisioned by PD 269, as amended, the Philippine Government, acting through the National Economic council (now National Economic Development Authority) and the NEA, entered into six loan agreements with the government of the United States of America, through the United States Agency for International Development (USAID) with electric cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan and any property or commodity acquired through the proceeds of the loan. Petitioners allege that with the passage of the Local Government Code their tax exemptions have been validly withdrawn. Particularly, petitioners assail the validity of Sec. 193 and 234 of the said code. Sec. 193 provides for the withdrawal of tax exemption privileges granted to all persons, whether natural or juridical, except cooperatives duly registered under RA 6938, while Sec. 234 exempts the same cooperatives from payment of real property tax.

Issue: (1) Does the Local Government Code (under Sec. 193 and 234) violate the equal protection clause since the

provisions unduly discriminate against petitioners who are duly registered cooperatives under PD 269, as amended, and no under RA 6938 or the Cooperatives Code of the Philippines? (2) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the US Governments?

Held: (1) No. The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification, to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the existing conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by PD 269 and electric cooperatives under RA 6938. First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, the government is the one that funds those so-called electric cooperatives, while in the latter, the members make equitable contribution as source of funds. a. Capital Contributions by Members Nowhere in PD 269 doe sit require cooperatives to make equitable contributions to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer interested in getting electric service from the cooperative or will transfer to another place outside the area covered by the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least 25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00. b. Extent of Government Control over Cooperatives The extent of government control over electric cooperatives covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives. It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric cooperatives o ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under RA 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or regulation. Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of the power by the local governments is beyond the regulation of Congress. Sec. 193 of the LGC is indicative of the legislative intent to vet broad taxing powers upon the local government units and to limit

exemptions from local taxation to entities specifically provided therein. Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existing conditions and apply equally to all members of the same class.

(2) No. It is ingrained in jurisprudence that the constitutional prohibition on the impairment of the obligations of contracts does not prohibit every change in existing laws. To fall within the prohibition, the change must not only impair the obligation of the existing contract, but the impairment must be substantial. Moreover, to constitute impairment, the law must affect a change in the rights of the parties with reference to each other and not with respect to non-parties. The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is granted therein.

TARIFF AND CUSTOMS LAWS; PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES

Chief State Prosecutor JOVENCITO R. ZUO, ATTY. CLEMENTE P. HERALDO, Chief of the Internal Inquiry and Prosecution Division-customs Intelligence and Investigation Service (IIPD-CIIS), and LEONITO A. SANTIAGO, Special Investigator of the IIPD-CIIS vs. JUDGE ARNULFO G. CABREDO, Regional Trial Court, Branch 15, Tabaco City, Albay AM. No. RTJ-03-1779, April 30, 2003

Facts: Atty. Winston Florin, the Deputy Collector of Customs of the Sub-Port of Tabaco, Albay, issued on September 3, 2001 Warrant of Seizure and Detention (WSD) No. 06-2001against a shipment of 35, 000 bags of rice aboard the vessel M/V Criston for violation of Sec. 2530 of the Tariff and Customs Code of the Philippines (TCCP). A few days, after the issuance of the warrant of seizure and detention, Antonio Chua, Jr. and Carlos Carillo, claiming to be consignees of the subject goods, filed before the Regional Trial Court of Tabaco City, Albay a Petition with Prayer for the Issuance of Preliminary Injunction and Temporary Restraining Order (TRO). The said petition sought to enjoin the Bureau of Customs and its officials from detaining the subject shipment. By virtue of said TRO, the 35,000 bags of rice were released from customs to Antonio Chua, Jr. and Carlos Carillo. In his complaint, Chief State Prosecutor Zuo alleged that respondent Judge violated Administrative Circular No. 7-

99, which cautions trial court judges in their issuance of TROs and writs of preliminary injunctions. Said circular reminds judges of the principle, enunciated in Mison vs. Natividad, that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle or put it to naught.

Issue: Whether or not the issuance of the TRO was illegal and beyond the jurisdiction of the RTC.

Held: The collection of duties and taxes due on the seized goods is not the only reason why trial courts are enjoined from issuing orders releasing imported articles under seizure and forfeiture proceedings by the Bureau of Customs. Administrative Circular No. 7-99 takes into account the fact that the issuance of TROs and the granting of writs of preliminary injunction in seizure and forfeiture proceedings before the Bureau of Customs may arouse suspicion that the issuance or grant was fro considerations other than the strict merits of the case. Furthermore, respondent Judges actuation goes against settled jurisprudence that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings, and regular courts cannot interfere with his exercise thereof or stifle and put it to naught. Respondent Judge cannot claim that he issued the questioned TRO because he honestly believed tat the Bureau of Customs was effectively divested of its jurisdiction over the seized shipment. Even if it be assumed that in the exercise of the Collector of Customs of its exclusive jurisdiction over seizure and forfeiture cases, a taint of illegality is correctly imputed, the most that can be said is that under these circumstance, grave abuse of discretion may oust it of its jurisdiction. This does mean, however, that the trial court is vested with competence to acquire jurisdiction over these seizure and forfeiture cases. The proceedings before the Collector of Customs are not final. An appeal lies to the Commissioner of Customs and, thereafter, to the Court of Tax Appeals. It may even reach this Court through an appropriate petition for review. Certainly, the RTC is not included therein. Hence, it is devoid of jurisdiction. Clearly, therefore, respondent Judge had no jurisdiction to take cognizance of the petition and issue the questioned TRO. It is a basic principle that the Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings of dutiable goods. A studious and conscientious judge can easily be conversant with such an elementary rule.

NATURE OF FRANCHISE TAX; TAX EXEMPTION; WITHDRAWAL OF TAX PRIVILEGES BY THE LOCAL GOVERNMENT CODE

NATIONAL POWER CORPORATION vs. CITY OF CABANATUAN GR. No. 149110, April 9, 2003

Facts: NAPOCOR, the petitioner, is a government-owed and controlled corporation created under Commonwealth Act 120. It is tasked to undertake the development of hydroelectric generations of power and the production of electricity from nuclear, geothermal, and other sources, as well as, the transmission of electric power on a nationwide basis. For many years now, NAPOCOR sells electric power to the resident Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance No. 165-92, the respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of 1% of the formers gross receipts for the preceding year. Petitioner, whose capital stock was subscribed and wholly paid by the Philippine Government, refused to pay the tax assessment. It argued that the respondent has no authority to impose tax on government entities. Petitioner also contend that as a non-profit organization, it is exempted from the payment of all forms of taxes, charges, duties or fees in accordance with Sec. 13 of RA 6395, as amended. The respondent filed a collection suit in the RTC of Cabanatuan City, demanding that petitioner pay the assessed tax, plus surcharge equivalent to 25% of the amount of tax and 2% monthly interest. Respondent alleged that petitioners exemption from local taxes has been repealed by Sec. 193 of RA 7160 (Local Government Code). The trial court issued an order dismissing the case. On appeal, the Court of Appeals reversed the decision of the RTC and ordered the petitioner to pay the city government the tax assessment.

Issues: (1) Is the NAPOCOR excluded from the coverage of the franchise tax simply because its stocks are wholly owned by the National Government and its charter characterized is as a non-profit organization? (2) Is the NAPOCORs exemption from all forms of taxes repealed by the provisions of the Local Government Code (LGC)?

Held: (1) NO. To stress, a franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a separate and distinct entity from the National Government. It can sue and be sued under its own name, and can exercise all the powers of a corporation under the Corporation Code. To be sure, the ownership by the National Government of its entire capital stock does not necessarily imply that petitioner is no engage din business. (2) YES. One of the most significant provisions of the LGC is the removal of the blanket exclusion of instrumentalities and agencies of the National Government from the coverage of local taxation. Although as a

general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e. when specific provisions of the LGC authorize the LGUs to impose taxes, fees, or charges on the aforementioned entities. The legislative purpose to withdraw tax privileges enjoyed under existing laws or charter is clearly manifested by the language used on Sec. 137 and 193 categorically withdrawing such exemption subject only to the exceptions enumerated. Since it would be tedious and impractical to attempt to enumerate all the existing statutes providing for special tax exemptions or privileges, the LGC provided for an express, albeit general, withdrawal of such exemptions or privileges. No more unequivocal language could have been used.

TAX EXEMPTIONS vs. TAX EXCLUSION; IN LIEU OF ALL TAXES PROVISION

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, INC. (PLDT) vs. CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as City Treasurer of Davao GR. No. 143867, March 25, 2003

Facts: PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid in lieu of all taxes on this franchise or earnings thereof pursuant to RA 7082. The exemption from all taxes on this franchise or earnings thereof was subsequently withdrawn by RA 7160 (LGC), which at the same time gave local government units the power to tax businesses enjoying a franchise on the basis of income received or earned by them within their territorial jurisdiction. The LGC took effect on January 1, 1992. The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstanding any exemption granted by law or other special laws, there is hereby imposed a tax on businesses enjoying a franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the income receipts realized within the territorial jurisdiction of Davao City. Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and Smart Information Technologies, Inc. (Smart) franchises which contained in leiu of all taxes provisos. In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which provides that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises. The law took effect on March 16, 1995. In January 1999, when PLDT applied for a mayors permit to operate its Davao Metro exchange, it was required to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the city government to collect the local franchise tax and demanded a refund of what had been paid as a local franchise tax

for the year 1997 and for the first to the third quarters of 1998.

Issue: Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local franchise tax in view of the grant of tax exemption to Globe and Smart.

Held: Petitioner contends that because their existing franchises contain in lieu of all taxes clauses, the same grant of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law expressed in a language too plain to be mistaken and assuming for the nonce that the charters of Globe and of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, clear and unequivocal way of communicating the legislative intent. Nor does the term exemption in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance, RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs. Another exemption granted by the law in line with its policy of deregulation is the exemption from the requirement of securing permits from the NTC every time a telecommunications company imports equipment. Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too plain to be mistaken.

REMEDIES OF A TAXPAYER UNDER THE NIRC; POWER OF THE CTA TO REVIEW RULINGS OR OPINIONS OF COMMISSIONER

COMMISSIONER OF INTERNAL REVENUE vs. LEAL GR. No. 113459, November 18, 2002

Facts: Pursuant to Sec. 116 of the Tax Code which imposes percentage tax on dealers in securities and lending investors, the Commissioner of Internal Revenue issued Memorandum Order (RMO) No. 15-91 dated March 11, 1991, imposing five percent (5%) lending investors tax on pawnshops based on their gross income and requiring all investigating units of the Bureau to investigate and assess the lending investors tax due from them. The issuance of RMO No. 15-91 was an offshoot of petitioners evaluation that the nature of pawnshop business is akin to that of lending investors. Subsequently, petitioner issued Revenue Memorandum Circular No. 43-91 dated May 27, 1992, subjecting the pawn

ticket to the documentary stamp tax as prescribed in Title VII of the Tax Code. Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of Josefina Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and RMC No. 43-91 but the same was denied with finality by petitioner in October 30, 1991. Consequently, on March 18, 1992, respondent filed with the RTC a petition for prohibition seeking to prohibit petitioner from implementing the revenue orders. Petitioner, through the Office of the Solicitor-General, filed a motion to dismiss the petition on the ground that the RTC has no jurisdiction to review the questioned revenue orders and to enjoin their implementation. Petitioner contends that the subject revenue orders were issued pursuant to his power to make rulings or opinions in connection with the Implementation of the provisions of internal revenue laws. Thus, the case falls within the exclusive appellate jurisdiction of the Court of Tax Appeals, citing Sec. 7(1) of RA 1125. The RTC issued an order denying the motion to dismiss holding that the revenue orders are not assessments to implement a Tax Code provision, but are in effect new taxes (against pawnshops) which are not provided for under the Code, and which only Congress is empowered to impose. The Court of Appeals affirmed the order issued by the RTC.

Issue: Whether or not the Court of Tax Appeals has jurisdiction to review rulings of the Commissioner implementing the Tax Code.

Held: The jurisdiction to review rulings of the Commissioner pertains to the Court of Tax Appeals and NOT to the RTC. The questioned RMO and RMC are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of the Pawnshops. Under RA 1125, An Act Creating the Court of Tax Appeals, such rulings of the Commissioner of Internal Revenue are appealable to that court: Sec. 7 Jurisdiction The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided-1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue. xxxxxx

tax remedies; section 220; who should institute appeal in tax cases

COMMISSIONER OF INTERNAL REVENUE vs. LA SUERTE CIGAR AND CIGARETTE FACTORY GR. No. 144942, July 4, 2002

Facts: In its resolution, dated 15 November 2000, the Supreme Court denied the Petition for Review on Certiorari submitted by the Commissioner of Internal Revenue for non-compliance with the procedural requirement of verification explicit in Sec. 4, Rule 7 of the 1997 Rules of Civil Procedure and, furthermore, because the appeal was not pursued by the Solicitor-General. When the motion for reconsideration filed by the petitioner was likewise denied, petitioner filed the instant motion seeking an elucidation on the supposed discrepancy between the pronouncement of this Court, on the one hand that would require the participation of the Office of the SolicitorGeneral and pertinent provisions of the Tax Code, on the other hand, that allow legal officers of the Bureau of Internal Revenue (BIR) to institute and conduct judicial action in behalf of the Government under Sec, 220 of the Tax Reform Act of 1997.

Issue: Are the legal officer of the BIR authorized to institute appeal proceedings (as distinguished from commencement of proceeding) without the participation of the Solicitor-General?

Held: NO. The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which shall be conducted y legal officers of the Bureau of Internal Revenue is not in dispute. An appeal from such court, however, is not a matter of right. Sec. 220 of the Tax Reform Act must not be understood as overturning the long-established procedure before this Court in requiring the Solicitor-General to represent the interest of the Republic. This court continues to maintain that it is the Solicitor-General who has the primary responsibility to appear for the government in appellate proceedings. This pronouncement finds justification in the various laws defining the Office of the Solicitor-General, beginning with Act No. 135, which took effect on 16 June 1901, up to the present Administrative Code of 1987. Sec. 35, Chapter 12, Title III, Book IV of the said code outlines the powers and functions of the Office of the Solicitor General which includes, but not limited to, its duty to-1. Represent the Government in the Supreme Court and the Court of Appeals in all criminal proceedings; represent the Government and its officers in the Supreme Court, the Court of Appeals, and all other courts or tribunals in all civil actions and special proceedings in which the Government or any officer thereof in his official capacity is a party. 2. Appear in any court in any action involving the validity of any treaty, law, executive order, or proclamation, rule or regulation when in his judgment his intervention is necessary or when requested by the Court.

TAX EXEMPTIONS; EXECUTIVE LEGISLATION

COCONUT OIL REFINERS ASSOCIATION, INC. et al vs. RUBEN TORRES, as Executive Secretary, et al G.R. No. 132527. July 29, 2005

Facts: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in general. The law contains provisions on tax exemptions for importations of raw materials, capital and equipment. After which the President issued several Executive Orders as mandated by the law for the implementation of RA 7227. Herein petitioners contend the validity of the tax exemption provided for in the law.

Issue: Whether or not the Executive Orders issued by President for the implementation of the tax exemptions constitutes executive legislation.

Held: To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the free flow of goods or capital within, into, and out of the zones is insured. The phrase tax and duty-free importations of raw materials, capital and equipment was merely cited as an example of incentives that may be given to entities operating within the zone. Public respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners impliedly rely to support their restrictive interpretation, does not apply when words are mentioned by way of example. It is obvious from the wording of RA No. 7227, particularly the use of the phrase such as, that the enumeration only meant to illustrate incentives that the SSEZ is authorized to grant, in line with its being a free port zone. The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of RA No. 7227 that . . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of RA No. 7227. Said Section clearly provides that exportation or removal of goods from the territory of the Subic Special Economic

Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.

TAX EXEMPTIONS; NULLITY OF TAX DECLARATIONS AND TAX ASSESSMENTS

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), vs. PROVINCIAL ASSESOR OF SOUTH COTABATO, et al. G.R. No. 144486. April 13, 2005

Facts: RCPI was granted a franchise under RA 2036, the law provides tax exemption for several properties of the company. Section 14 of RA 2036 reads: In consideration of the franchise and rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, co partnerships, private, public or quasi-public associations, corporations or joint stock companies, on real estate, buildings and other personal property except radio equipment, machinery and spare parts needed in connection with the business of the grantee, which shall be exempt from customs duties, tariffs and other taxes, as well as those properties declared exempt in this section. In consideration of the franchise, a tax equal to one and one-half per centum of all gross receipts from the business transacted under this franchise by the grantee shall be paid to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act. Said tax shall be in lieu of any and all taxes of any kind, nature or description levied, established or collected by any authority whatsoever, municipal, provincial or national, from which taxes the grantee is hereby expressly exempted. Thereafter, the municipal treasurer of Tupi, South Cotabato assessed RCPI real property taxes from 1981 to 1985. The municipal treasurer demanded that RCPI pay P166,810 as real property tax on its radio station building in Barangay Kablon, as well as on its machinery shed, radio relay station tower and its accessories, and generating sets. The Local Board of Assessment Appeals affirmed the assessment of the municipal treasurer. When the case reach the C A, it ruled that, petitioner is exempt from paying the real property taxes assessed upon its machinery and radio equipment mounted as accessories to its relay tower. However, the decision assessing taxes upon petitioners radio station building, machinery shed, and relay station tower is valid.

Issue: (1) Whether or not appellate court erred when it excluded RCPIs tower, relay station building and machinery shed from tax exemption. (2) Whether or not appellate court erred when it did not resolve the issue of nullity of the tax declarations and assessments due to non-inclusion of depreciation allowance.

Held: (1) RCPIs radio relay station tower, radio station building, and machinery shed are real properties and are thus subject to the real property tax. Section 14 of RA 2036, as amended by RA 4054, states that in consideration of the franchise and rights hereby granted and any provision of law to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from other individuals, co partnerships, private, public or quasi-public associations, corporations or joint stock companies, on real estate, buildings and other personal property. The clear language of Section 14 states that RCPI shall pay the real estate tax. (2) The court held the assessment valid. The court ruled that, records of the case shows that RCPI raised before the LBAA and the CBAA the nullity of the assessments due to the non-inclusion of depreciation allowance. Therefore, RCPI did not raise this issue for the first time. However, even if we consider this issue, under the Real Property Tax Code depreciation allowance applies only to machinery and not to real property.

SECRETARY OF FINANCE CANNOT PROMULGATE REGULATIONS FIXING A RATE OF PENALTY ON DELINQUENT TAXES

The Honorable Secretary of Finance vs. THE HONORABLE RICARDO M. ILARDE, Presiding Judge, Regional Trial Court, 6th Judicial Region, Branch 26, Iloilo City, and CIPRIANO P. CABALUNA, JR G.R. No. 121782. May 9, 2005

Facts: Cabaluna with his wife owns several real property located in Iloilo City. Cabaluana is the Regional Director of Regional Office No. VI of the Department of Finance in Iloilo City. After his retirement, there are tax delinquencies on his properties; he paid the amount under protest contending that the penalties imposed to him are in excess than that provided by law. After exhausting all administrative remedies, he filed a suit before the RTC which found that Section 4(c) of Joint Assessment Regulation No. 1-85 and Local Treasury Regulation No. 2-85 issued on August 1, 1985 by respondent Secretary (formerly Minister) of Finance is null and void; (2) declaring that the penalty that should be imposed for delinquency in the payment of real property taxes should be two per centum on the amount of the delinquent tax for each month of delinquency or fraction thereof, until the delinquent tax is fully paid but in no case shall the total penalty exceed twenty-four per centum of the delinquent tax as provided for in Section 66 of P.D. 464 otherwise known as the Real Property Tax Code.

Issue: Whether or not the then Ministry of Finance could legally promulgate Regulations prescribing a rate of penalty on delinquent taxes other than that provided for under Presidential Decree (P.D.) No. 464, also known as the Real Property Tax Code.

Held: The Ministry of Finance now Secretary of Finance cannot promulgate regulations prescribing a rate of penalty on delinquent taxes. The Court ruled that despite the promulgation of E.O. No. 73, P.D. No. 464 in general and Section 66 in particular, remained to be good law. To accept the Secretarys premise that E.O. No. 73 had accorded the Ministry of Finance the authority to alter, increase, or modify the tax structure would be tantamount to saying that E.O. No. 73 has repealed or amended P.D. No. 464. Repeal of laws should be made clear and expressed. Repeals by implication are not favored as laws are presumed to be passed with deliberation and full knowledge of all laws existing on the subject. Such repeals are not favored for a law cannot be deemed repealed unless it is clearly manifest that the legislature so intended it. Assuming argumenti that E.O. No. 73 has authorized the petitioner to issue the objected Regulations, such conferment of powers is void for being repugnant to the well-encrusted doctrine in political law that the power of taxation is generally vested with the legislature. Thus, for purposes of computation of the real property taxes due from private respondent for the years 1986 to 1991, including the penalties and interests, is still Section 66 of the Real Property Tax Code of 1974 or P.D. No. 464. The penalty that ought to be imposed for delinquency in the payment of real property taxes should, therefore, be that provided for in Section 66 of P.D. No. 464, i.e., two per centum on the amount of the delinquent tax for each month of delinquency or fraction thereof but in no case shall the total penalty exceed twenty-four per centum of the delinquent tax.

EVIDENCE IN TAX ASSESSMENTS; MACHINE COPIES OF RECORDS/ DOCUMENTS HAVE NO PROBATIVE VALUE

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 Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a subpoena to present its books of account which it failed to do. The bureau cannot find any original copies of the products Hentex imported since the originals were eaten by termites. Thus, the Bureau relied on the certified copies of the respondents Profit and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case was submitted to the CTA which ruled that

Hentex have tax deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the income and sales tax deficiency assessments issued by the petitioner were unlawful and baseless since the copies of the import entries relied upon in computing the deficiency tax of the respondent were not duly authenticated by the public officer charged with their custody, nor verified under oath by the EIIB and the BIR investigators.

Issue: Whether or not the final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law.

Held: Central to the second issue is Section 16 of the NIRC of 1977, as amended which provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and enforcement. Among such powers are those provided in paragraph (b), which provides that Failure to submit required returns, statements, reports and other documents. When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayers failure to file one, or to amend a return already filed in the BIR. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer.

Companies exempt from zero-rate tax

COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R.No. 152609. June 29, 2005

Facts: American Express international is a foreign corporation operating in the Philippines, it is a registered taxpayer. On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of its 1997 excess input taxes in the amount of P3,751,067.04, which amount was arrived at after deducting from its total input VAT paid of P3,763,060.43 its applied output VAT liabilities only for the third and fourth quarters of 1997 amounting to P5,193.66 and P6,799.43, respectively. The CTA ruled in favor of the herein respondent holding that its services are subject to zero-rate pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2) of Revenue Regulations 5-96. The CA affirmed the decision of the CTA.

Issue: Whether or not the company is subject to zero-rate tax pursuant to the Tax Reform Act of 1997.

Held: Services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. Respondent is a VATregistered person that facilitates the collection and payment of receivables belonging to its non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines is not in the same category as processing, manufacturing or repacking of goods and should, therefore, be zero-rated. In reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent earned from its parent companys regional operating centers (ROCs) was automatically zero-rated effective January 1, 1988. Service has been defined as the art of doing something useful for a person or company for a fee or useful labor or work rendered or to be rendered by one person to another. For facilitating in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in duly accounted acceptable foreign currency, respondent renders service falling under the category of zero rating. Pursuant to the Tax Code, a VAT of zero percent should, therefore, be levied upon the supply of that service. As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed. VAT rate for services that are performed in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Thus, for the supply of service to be zero-rated as an exception, the law merely requires that first, the service be performed in the Philippines;

second, the service fall under any of the However, the law clearly provides for an exception to the destination principle; that is, for a zero percent categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rules and regulations. Indeed, these three requirements for exemption from the destination principle are met by respondent. Its facilitation service is performed in the Philippines. It falls under the second category found in Section 102(b) of the Tax Code, because it is a service other than processing, manufacturing or repacking of goods as mentioned in the provision. Undisputed is the fact that such service meets the statutory condition that it be paid in acceptable foreign currency duly accounted for in accordance with BSP rules. Thus, it should be zero-rated. Posted by UNC Bar Operations Commission 2007 at 3:29 AM 1 comments 2006 Remedial Law Case Digests

CRIMINAL PROCEDURE

PRELIMINARY INVESTIGATION SPO4 EDUARDO ALONZO VS. JUDGE CRISANTO C. CONCEPCION, Presiding Judge, Regional Trial Court of Malolos City, Branch 12, Province of Bulacan A.M. No. RTJ-04-1879. January 17, 2005

Facts: In a wedding party, SPO4 Eduardo Alonzo, Jun Rances, Zoilo Salamat and Rey Santos were drinking together at the same table. While waiting to be seated, Pedrito Alonzo was introduced by SPO4 Alonzo to Rances as his nephew and as the son of ex-Captain Alonzo. SPO4 Alonzo then introduced him to Salamat. Pedrito and his companions took their seats and started drinking at the table across SPO4 Alonzos table. After some time, Pedrito stood up to urinate at the back of the house. Santos passed a bag to Salamat, and they followed Pedrito. Rances likewise followed them. A shot rang out. Salamat was seen placing a gun inside the bag as he hurriedly left. The wedding guests ran after Salamat. They saw him and Rances board a vehicle being driven by Santos. Pedritos uncle, Jose Alonzo, sought the help of SPO4 Alonzo to chase the culprits. He refused and even disavowed any knowledge as to their identity. Jose Alonzo filed a complaint for murder against Salamat, Rances, Santos, SPO4 Alonzo and a certain Isidro Atienza. A preliminary investigation1 was conducted by the Assistant Provincial Prosecutor where Jose Alonzo and his four witnesses testified. Upon review of the records of the case by the 3rd Assistant Provincial Prosecutor, it was recommended that Salamat be charged with murder as principal, and Santos and Rances as accessories. With regard to SPO4 Alonzo and Isidro Atienza, the prosecutor found that no sufficient evidence was adduced to establish their conspiracy with Salamat. Judge Concepcion of the RTC issued an Order directing the Office of the Provincial

Prosecutor to amend the information, so as to include all the aforenamed persons as accused in this case, all as principals.

Issue: Whether or not the court has authority to review and reverse the resolution of the Office of the Provincial Prosecutor or to find probable cause against a respondent for the purpose of amending the Information.

Held: The function of a preliminary investigation is to determine whether there is sufficient ground to engender a well-founded belief that a crime has been committed and the respondent is probably guilty thereof, and should be held for trial. It is through the conduct of a preliminary investigation that the prosecutor determines the existence of a prima facie case that would warrant the prosecution of a case. As a rule, courts cannot interfere with the prosecutor's discretion and control of the criminal prosecution. The reason for placing the criminal prosecution under the direction and control of the fiscal is to prevent malicious or unfounded prosecution by private persons. However, while prosecuting officers have the authority to prosecute persons shown to be guilty of a crime they have equally the legal duty not to prosecute when after an investigation, the evidence adduced is not sufficient to establish a prima facie case. In a clash of views between the judge who did not investigate and the prosecutor who did, or between the fiscal and the offended party or the accused, that of the prosecutor's should normally prevail.

MELBA QUINTO VS. DANTE ANDRES and RANDYVER PACHECO G.R. No. 155791. March 16, 2005

Facts: An Information was filed with the Regional Trial Court that the accused Dante Andres and Randyver Pacheco, conspiring, confederating, and helping one another, did then and there willfully, unlawfully, and feloniously attack, assault, and maul Wilson Quinto inside a culvert where the three were fishing, causing Wilson Quinto to drown and die. The respondents filed a demurer to evidence which the trial court granted on the ground of insufficiency of evidence. It also held that it could not hold the respondents liable for damages because of the absence of preponderant evidence to prove their liability for Wilsons death. The petitioner appealed the order to the Court of Appeals insofar as the civil aspect of the case was concerned. The CA ruled that the acquittal in this case is not merely based on reasonable doubt but rather on a finding that the accused-appellees did not commit the criminal acts complained of. Thus, pursuant to the above rule and settled jurisprudence, any civil action ex delicto cannot prosper. Acquittal in a criminal action bars the civil action arising therefrom where the judgment of acquittal holds that the accused did not commit the criminal acts imputed to them.

Issue: Whether or not the extinction of respondents criminal liability carries with it the extinction of their civil liability.

Held: When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action. The prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, to reform and rehabilitate him or, in general, to maintain social order. The sole purpose of the civil action is the restitution, reparation or indemnification of the private offended party for the damage or injury he sustained by reason of the delictual or felonious act of the accused. The extinction of the penal action does not carry with it the extinction of the civil action. However, the civil action based on delict shall be deemed extinguished if there is a finding in a final judgment in the criminal action that the act or omission from where the civil liability may arise does not exist. In this case, the petitioner failed to adduce proof of any ill-motive on the part of either respondent to kill the deceased and as held by the the trial court and the CA, the prosecution failed to adduce preponderant evidence to prove the facts on which the civil liability of the respondents rest, i.e., that the petitioner has a cause of action against the respondents for damages.

SEARCH WARRANT; PROBABLE CAUSE; WAIVER OF RIGHT TO QUESTION LEGALITY OF SEARCH; EVIDENCE IN ILLEGAL SEARCH

PEOPLE VS. BENHUR MAMARIL G.R. No. 147607. January 22, 2004

Facts: SPO2 Chito Esmenda applied before the RTC for a search warrant authorizing the search for marijuana at the family residence of appellant Benhur. During the search operation, the searching team confiscated sachets of suspected marijuana leaves. Police officers took pictures of the confiscated items and prepared a receipt of the property seized and certified that the house was properly searched which was signed by the appellant and the barangay officials who witnessed the search. After the search, the police officers brought appellant and the confiscated articles to the PNP station. After weighing the specimens and testing the same, the PNP Crime Laboratory issued a report finding the specimens to be positive to the test for the presence of marijuana. Moreover, the person who conducted the examination on the urine sample of appellant affirmed that it was positive for the same. Appellant denied that he was residing at his parents house since he has been residing at a rented house and declared

that it was his brother and the latters family who were residing with his mother, but on said search operation, his brother and family were out. He testified that he was at his parents house because he visited his mother, that he saw the Receipt of Property Seized for the first time during the trial and admitted that the signature on the certification that the house was properly search was his.

Issues: 1) Whether or not the trial court erred in issuing a search warrant.

2) Whether or not the accused-appellant waived his right to question the legality of the search.

3) Whether or not evidence seized pursuant to an illegal search be used as evidence against the accused.

Held: 1) The issuance of a search warrant is justified only upon a finding of probable cause. Probable cause for a search has been defined as such facts and circumstances which would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched. In determining the existence of probable cause, it is required that: 1) The judge must examine the complaint and his witnesses personally; 2) the examination must be under oath; 3) the examination must be reduced in writing in the form of searching questions and answers. The prosecution failed to prove that the judge who issued the warrant put into writing his examination of the applicant and his witnesses on the form of searching questions and answers before issuance of the search warrant. Mere affidavits of the complainant and his witnesses are not sufficient. Such written examination is necessary in order that the judge may be able to properly determine the existence and non-existence of probable cause. Therefore, the search warrant is tainted with illegality by failure of the judge to conform with the essential requisites of taking the examination in writing and attaching to the record, rendering the search warrant invalid. 2) At that time the police officers presented the search warrant, appellant could not determine if the search warrant was issued in accordance with law. It was only during the trial that appellant, through his counsel, had reason to believe that the search warrant was illegally issued. Moreover, appellant seasonably objected on constitutional grounds to the admissibility of the evidence seized pursuant to said warrant during the trial, after the prosecution formally offered its evidence. Under the circumstances, no intent to waive his rights can reasonably be inferred from his conduct before or during the trial. 3) No matter how incriminating the articles taken from the appellant may be, their seizure cannot validate an invalid warrant. The requirement mandated by the law that the examination of the complaint and his witnesses must be under oath and reduced to writing in the form of searching questions and answers was not complied with, rendering the search warrant invalid. Consequently, the evidence seized pursuant to illegal search warrant cannot be used in

evidence against appellant in accordance with Section 3 (2) Article III of the Constitution.

JURISDICTION OVER THE PERSON; MOTION TO QUASH; ARREST WITHOUT WARRANT

PEOPLE VS. CRISPIN BILLABER G.R. No. 114967-68. January 26, 2004

Facts: Private complainant Elizabeth Genteroy was introduced to accused Crispin Billaber by her friends. The accused told Genteroy that he could help her acquire the necessary papers and find her a job abroad. Genteroy introduced the accused to Raul Durano. The accused offered Durano a job as his personal driver in the U.S. Durano and Genteroy paid the accused and asked for receipt, but the accused said that it was not necessary since they will leave together. Meanwhile, Genteroy introduced the accused to Tersina Onza and offered a job abroad. Thereafter, the accused instructed the three private complainants, Genteroy, Durano and Onza to meet him at the airport on the agreed date, however, the accused failed to show up. Durano chanced upon the accused at the canteen. A commotion ensued when Durano tried to stop the accused from leaving. A police officer brought both Durano and the accused to the PNP station. The prosecution offered in evidence a certificate from the POEA stating that the accused was not licensed or authorized to recruit workers for employment abroad. The accused denied receiving money from private complainants and interposed a defense of frame-up and extortion against Durano.

Issues: 1) Whether or not the trial court erred in not considering that the accused arrested without warrant.

2) Whether or not the court acquired jurisdiction over the person of the accused.

Held: 1) It appears that accused-appellant was brought to the police station, together with the complainant Durano, not because of the present charges but because of the commotion that ensued between the two at the canteen. At the police station, Durano and the other complainants then executed statements charging appellant with illegal recruitment and estafa. As to whether there was an actual arrest or whether, in the commotion, the appellant committed, was actually committing, or was attempting to commit an offense, have been rendered moot. 2) Appellant did not allege any irregularity in a motion to quash before entering his plea, and is therefore deemed to have waived any question of the trial courts jurisdiction over his person.

UNREASONABLE SEARCHES AND SEIZURES

PEOPLE VS. NOEL TUDTUD AND DINDO BOLONG G.R. No. 144037, Sept.ember 26, 2003

Facts: Solier informed the police that Tudtud would come back with new stocks of marijuana. Policemen saw two men alighted from the bus, helping each other carry a carton/ box, one of them fitted the description of Tudtud. They approached the two and Tudtud denied that he carried any drugs. The latter opened the box, beneath dried fish where two bundles, one wrapped in a plastic bag and another in newspapers. Policemen asked Tudtud to unwrap the packages and contained what seemed to the police as marijuana leaves. The two did not resist the arrest. Charged with illegal possession of prohibited drugs, they pleaded not guilty and interposed the defense that they were framed up. The trial court convicted them with the crime charged and sentenced them to suffer the penalty of reclusion perpetua.

Issue: Whether or not searches and seizures without warrant may be validly obtained.

Held: The rule is that a search and seizure must be carried out through or with a judicial warrant; otherwise such search and seizure becomes reasonable within the meaning of the constitutional provision, and any evidence secured thereby will be inadmissible in evidence for any purpose in any proceeding. Except with the following instances even in the absence of a warrant: 1) Warrantless search incidental to a lawful arrest, 2) Search in evidence in plain view, 3) Search of a moving vehicle, 4) Consented warrantless search, 5) Customs search, 6) Stop and frisk and 7) Exigent and emergency circumstances. The long standing rule in this jurisdiction, applied with a degree of consistency, is that, a reliable information alone is not sufficient to justify a warrantless arrest. Hence, the items seized were held inadmissible, having been obtained in violation of the accuseds constitutional rights against unreasonable searches and seizures.

CIVIL ACTION ARISING FROM DELICT; EFFECT OF ACQUITTAL ON THE CIVIL ASPECT; EFFECT OF GRANT OF DEMURRER ON THE CIVIL ASPECT OF THE CASE

ANAMER SALAZAR VS. PEOPLE AND J.Y. BROTHERS MARKETING CORP. G.R. No. 151931, September 23, 2003

Facts: Petitioner Anamer Salazar purchased 300 cavans of rice from J.Y. Brothers Marketing. As payment for these, she gave a check drawn against the Prudential Bank by one Nena Timario. J.Y. accepted the check upon the petitioners assurance that it was good check. Upon presentment, the check was dishonored because it was drawn under a closed account. Upon being informed of such dishonor, petitioner replaced the check drawn against the Solid Bank, which, however, was returned with the word DAUD (Drawn against uncollected deposit). After the prosecution rested its case, the petitioner filed a Demurrer to Evidence with Leave of Court. The trial court rendered judgment acquitting the petitioner of the crime charged but ordering her to pay, as payment of her purchase. The petitioner filed a motion for reconsideration on the civil aspect of the decision with a plea that she be allowed to present evidence pursuant to Rule 33 of the Rules of Court, but the court denied the motion.

Issues: 1) Does the acquittal of the accused in the criminal offense prevent a judgment against her on the civil aspect of the case? 2) Was the denial of the motion for reconsideration proper?

Held: 1) The rule on the Criminal Procedure provides that the extension of the penal action does not carry with it the extension of the civil action. Hence, the acquittal of the accused does not prevent a judgment against him on the civil aspect of the case where a) the acquittal is based on reasonable doubt as only preponderance of evidence is required; b) where the court declared that the liability of the accused is only civil; c) where the civil liability of the accused does not arise from or is not based upon the crime of which the accused was acquitted. 2) No, because after an acquittal or grant of the demurrer, the trial shall proceed for the presentation of evidence on the civil aspect of the case. This is so because when the accused files a demurrer to evidence, the accused has not yet adduced evidence both on the criminal and civil aspect of the case. The only evidence on record is the evidence for the prosecution. What the trial court should do is to set the case for continuation of the trail for the petitioner to adduce evidence on the civil aspect and for the private offended party adduce evidence by way of rebuttal as provided for in Sec.11, Rule 119 of the Revised Rules on Criminal Procedure. Otherwise, it would be a nullity for the reason that the constitutional right of the accused to due process is thereby violated.

AMENDED RULES ON DEATH PENALTY CASES REVIEW PEOPLE OF THE PHILIPPINES VS. MATEO G.R. No. 147678-87, July 7, 2004

Facts: Appellant Efren Mateo was charged with ten counts of rape by his step-daughter Imelda Mateo. During the trial, Imeldas testimonies regarding the rape incident were inconsistent. She said in one occasion that incident of

rape happened inside her bedroom, but other times, she told the court that it happened in their sala. She also told the court that the appellant would cover her mouth but when asked again, she said that he did not. Despite the irreconcilable testimony of the victim, the trial court found the accused guilty of the crime of rape and sentenced him the penalty of reclusion perpetua. The Solicitor General assails the factual findings of the trial and recommends an acquittal of the appellant. Issue: Whether or not this case is directly appeallable to the Supreme Court. Held: While the Fundamental Law requires a mandatory review by the Supreme Court of cases where the penalty imposed is reclusion perpetua, life imprisonment, or death, nowhere, however, has it proscribed an intermediate review. If only to ensure utmost circumspection before the penalty of death, reclusion perpetua or life imprisonment is imposed, the Court now deems it wise and compelling to provide in these cases a review by the Court of Appeals before the case is elevated to the Supreme Court. Where life and liberty are at stake, all possible avenues to determine his guilt or innocence must be accorded an accused, and no case in the evaluation of the facts can ever be overdone. A prior determination by the Court of Appeals on, particularly, the factual issues, would minimize the possibility of an error of judgment. If the Court of Appeals should affirm the penalty of death, reclusion perpetua or life imprisonment, it could then render judgment imposing the corresponding penalty as the circumstances so warrant, refrain from entering judgment and elevate the entire records of the case to the Supreme Court for its final disposition. Under the Constitution, the power to amend rules of procedure is constitutionally vested in the Supreme Court Article VIII, Section 5. The Supreme Court shall have the following powers: (5) Promulgate rules concerning the protection and enforcement of constitutional rights, pleading, practice, and procedure in all courts. Procedural matters, first and foremost, fall more squarely within the rule-making prerogative of the Supreme Court than the law-making power of Congress. The rule here announced additionally allowing an intermediate review by the Court of Appeals, a subordinate appellate court, before the case is elevated to the Supreme Court on automatic review is such a procedural matter. Pertinent provisions of the Revised Rules on Criminal Procedure, more particularly Section 3 and Section 10 of Rule 122, Section 13 of Rule 124, Section of Rule 125, and any other rule insofar as they provide for direct appeals from the Regional Trial Courts to the Supreme Court in cases where the penalty imposed is death reclusion perpetua or life imprisonment, as well as the resolution of the Supreme Court en banc, dated 19 September 1995, in Internal Rules of the Supreme Court in cases similarly involving the death penalty, are to be deemed modified accordingly. A.M. No. 00-5-03-SC

RE: AMENDMENTS TO THE

REVISED RULES OF CRIMINAL PROCEDURE TO GOVERN DEATH PENALTY CASES

RESOLUTION Acting on the recommendation of the Committee on Revision of the Rules of Court submitting for this Courts consideration and approval the Proposed Amendments to the Revised Rules of Criminal Procedure to Govern Death Penalty Cases, the Court Resolved to APPROVE the same. The amendment shall take effect on October 15, 2004 following its publication in a newspaper of general circulation not later than September 30, 2004 September 28, 2004 _____________________________________ AMENDED RULES TO GOVERN REVIEW OF DEATH PENALTY CASES Rule 122, Sections 3 and 10, and Rule 124, Sections 12 and 13, of the Revised Rules of Criminal Procedure, are amended as follows: RULE 122 Sec. 3. How appeal taken (a) The appeal to the Regional Trial Court, or to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its original jurisdiction, shall be by notice of appeal filed with the court which rendered the judgment or final order appealed from and by serving a copy thereof upon the adverse party. (b) The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its appellate jurisdiction shall be by petition for review under Rule 42. (c) The appeal in cases whereby the penalty imposed by the Regional Trial Court is reclusion perpetua, life imprisonment or where a lesser penalty is imposed for offenses committed on the same occasion on the or which arose out of the same occurrence that gave rise to the more serious offense for which the penalty of death, reclusion perpetua, or life imprisonment is imposed, shall be by notice of appeal to the Court of Appeals in accordance with paragraph (a) of this Rule. (d) No notice of appeal is necessary in cases where the Regional Trial Court imposed the death penalty. The Court of Appeals shall automatically review the judgment as provided in Section 10 of this Rule. (3a) xxx RULE 124 Sec. 12. Power to receive evidence. The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform all acts necessary to resolve the factual issues raised in cases falling within its original

and appellate jurisdiction, including the power to grant and conduct new trials or further proceedings. Trials or hearing in the Court of Appeals must be continuous and must be completed within three months, unless extended by the Chief Justice. (12a) Sec. 13. Certification or appeal of case to the Supreme Court. (a) Whenever the Court of Appeals finds that the penalty of death should be imposed, the court shall render judgment but refrain from making an entry of judgment and forthwith certify the case and elevate its entire record to the Supreme Court for review. (b) Where the judgment also imposes a lesser penalty for offenses committed on the same occasion or which arose out of the same occurrence that gave rise to the more severe offense for which the penalty is imposed, and the accused appeals, the appeal shall be included in the case certified for review to the Supreme Court. (c) In cases where the Court of Appeals imposes reclusion perpetua, life imprisonment or a lesser penalty, it shall render and enter judgment imposing such penalty. The judgment may be appealed to the Supreme Court by notice of appeal file with the Court of Appeals. (13a)

EVIDENCE

INOCELIA S. AUTENCIO VS. CITY ADMINISTRATOR, RODEL M. MAARA ET AL. G.R. No. 152752. January 19, 2005

Facts: City Administrator Rodel M. Maara lodged a complaint against petitioner Inocelia S. Autencio with the Office of the City Mayor for dishonesty and misconduct in office. The complaint alleged that Riza Bravo, an employee of the City Assessors Office charged with the preparation of the payroll of casual employees, changed the September 1996 payroll prepared by her upon the order of petitioner. After hearing, the Office for Legal Services issued a resolution/decision, declaring the petitioner guilty of misconduct in office for allowing irregularities to happen which led to illegal payment of salaries to casuals. However, as regards to the charge of dishonesty, the same was found wanting due to insufficiency of evidence. A penalty of forced resignation with forfeiture of retirement benefits except for earned leave accumulated before the filing of the complaint was imposed. In return, petitioner alleged that she had waived her right to present her evidence at a formal hearing and agreed to submit the case for resolution, only because of the manifestation of the complainant and the hearing officer that she could be held liable only for the lesser offense of simple negligence.

Issue: Was the petitioner deprived of substantial due process?

Held: Petitioner was afforded due process. On the formal charge against her, she had received sufficient information which, in fact, enabled her to prepare her defense. She filed her Answer controverting the charges against her and submitted Affidavits of personnel in the Assessors Office to support her claim of innocence. A pre-hearing conference was conducted by the legal officer, during which she -- assisted by her counsel -- had participated. Finally, she was able to appeal the ruling of City Mayor Badoy to the CSC, and then to the CA. Finally, settled is the rule in our jurisdiction that the findings of fact of an administrative agency must be respected, so long as they are supported by substantial evidence. It is not the task of this Court to weigh once more the evidence submitted before the administrative body and to substitute its own judgment for that of the latter in respect of the sufficiency of evidence. In any event, the Decisions of the CSC and the Court of Appeals finding petitioner guilty of the administrative charge prepared against her are supported by substantial evidence.

TURADIO C. DOMINGO VS. JOSE C. DOMINGO ET AL. G.R. No. 150897. April 11, 2005

Facts: Petitioner Turadio Domingo is the oldest of the five children of the late Bruno B. Domingo, formerly the registered owner of the properties subject of this dispute. Private respondents Leonora Domingo-Castro, Nuncia Domingo-Balabis, Abella Domingo, and Jose Domingo are petitioners siblings. A family quarrel arose over the validity of the purported sale of the house and lot by their father to private respondents. Sometime in 1981 petitioner, who by then was residing on the disputed property, received a notice, declaring him a squatter. Petitioner learned of the existence of the assailed Deed of Absolute Sale when an ejectment suit was filed against him. Subsequently, he had the then Philippine Constabulary-Integrated National Police (PC-INP, now Philippine National Police or PNP) Crime Laboratory compare the signature of Bruno on the said deed against specimen signatures of his father. As a result, the police issued him Questioned Document Report to the effect that the questioned signature and the standard signatures were written by two different persons Thus; petitioner filed a complaint for forgery, falsification by notary public, and falsification by private individuals against his siblings. But after it conducted an examination of the questioned documents, the National Bureau of Investigation (NBI) came up with the conclusion that the questioned signature and the specimen signatures were written by one and the same person, Bruno B. Domingo. Consequently, petitioner instituted a case for the declaration of the nullity of the Deed of Sale, reconveyance of the disputed property, and cancellation of TCT.

Issue: Whether or not the court errs when it held that the trial court correctly applied the rules of evidence in disregarding the conflicting PC-INP and NBI questioned document reports.

Held: Petitioner has shown no reason why the ruling made by the trial court on the credibility of the respondents witnesses below should be disturbed. Findings by the trial court as to the credibility of witnesses are accorded the greatest respect, and even finality by appellate courts, since the former is in a better position to observe their demeanor as well as their deportment and manner of testifying during the trial. Finally, the questioned Deed of Absolute Sale in the present case is a notarized document. Being a public document, it is prima facie evidence of the facts therein expressed. It has the presumption of regularity in its favor and to contradict all these, evidence must be clear, convincing, and more than merely preponderant. Petitioner has failed to show that such contradictory evidence exists in this case. Posted by UNC Bar Operations Commission 2007 at 3:23 AM 0 comments 2006 Criminal Law Case Digests EVANGELINE LADONGA VS. PEOPLE OF THE PHILIPPINES G.R. No. 141066. February 17, 2005

Facts: In 1989, spouses Adronico and Evangeline Ladonga became Alfredo Oculams regular customers in his pawnshop business. Sometime in May 1990, the Ladonga spouses obtained a P9,075.55 loan from him, guaranteed by United Coconut Planters Bank (UCPB) Check No. 284743, post dated to July 7, 1990 issued by Adronico; sometime in the last week of April 1990 and during the first week of May 1990, the Ladonga spouses obtained an additional loan of P12,730.00, guaranteed by UCPB Check No. 284744, post dated to July 26, 1990 issued by Adronico; between May and June 1990, the Ladonga spouses obtained a third loan in the amount of P8,496.55, guaranteed by UCPB Check No. 106136, post dated to July 22, 1990 issued by Adronico; the three checks bounced upon presentment for the reason CLOSED ACCOUNT; when the Ladonga spouses failed to redeem the check, despite repeated demands, he filed a criminal complaint against them. While admitting that the checks issued by Adronico bounced because there was no sufficient deposit or the account was closed, the Ladonga spouses claimed that the checks were issued only to guarantee the obligation, with an agreement that Oculam should not encash the checks when they mature; and, that petitioner is not a signatory of the checks and had no participation in the issuance thereof. The RTC rendered a joint decision finding the Ladonga spouses guilty beyond reasonable doubt of violating B.P. Blg. 22. Petitioner brought the case to the Court of Appeals. The Court of Appeals affirmed the conviction of petitioner.

Issue: Whether or not the petitioner who was not the drawer or issuer of the three checks that bounced but her coaccused husband under the latters account could be held liable for violations of Batas Pambansa Bilang 22 as conspirator.

Held: The conviction must be set aside. Article 8 of the RPC provides that a conspiracy exists when two or more persons come to an agreement concerning the commission of a felony and decide to commit it. To be held guilty as a co-principal by reason of conspiracy, the accused must be shown to have performed an overt act in pursuance or furtherance of the complicity. The overt act or acts of the accused may consist of active participation in the actual commission of the crime itself or may consist of moral assistance to his co-conspirators by moving them to execute or implement the criminal plan. In the present case, the prosecution failed to prove that petitioner performed any overt act in furtherance of the alleged conspiracy. Apparently, the only semblance of overt act that may be attributed to petitioner is that she was present when the first check was issued. However, this inference cannot be stretched to mean concurrence with the criminal design. Conspiracy must be established, not by conjectures, but by positive and conclusive evidence. Conspiracy transcends mere companionship and mere presence at the scene of the crime does not in itself amount to conspiracy. Even knowledge, acquiescence in or agreement to cooperate, is not enough to constitute one as a party to a conspiracy, absent any active participation in the commission of the crime with a view to the furtherance of the common design and purpose

PEOPLE OF THE PHILIPPINES VS. ANTONIO MENDOZA Y BUTONES G.R. No. 152589 & 152758. January 31, 2005

Facts: Before us is the Motion for Reconsideration filed by herein accused-appellant of our Decision dated 24 October 2003 in G.R. No. 152589 and No. 152758. In said decision, we modified the ruling of the Regional Trial Court (RTC), Branch 61, Gumaca, Quezon, in Crim. Case No. 6636-G finding accused-appellant guilty of rape under Articles 266-A and 266-B of the Revised Penal Code and instead, we adjudged him guilty only of attempted rape. We, however, upheld the ruling of the court a quo with regard to Crim. Case No. 6637-G finding accusedappellant guilty of incestuous rape of a minor under Art. 266-B of the Revised Penal Code as amended by Republic Act No. 8353 and for this, we sentenced accused-appellant to suffer the ultimate penalty of death.

Issue: Whether or not the accused committed attempted rape or acts of lasciviousness.

Held: After a thorough review and evaluation of the records of this case, we find no sufficient basis to modify our earlier decision convicting accused-appellant of attempted rape in Crim. Case No. 6636-G.There is an attempt to commit rape when the offender commences its commission directly by overt acts but does not perform all the acts of execution which should produce the felony by reason of some cause or accident other than his own spontaneous desistance. Upon the other hand, Article 366 of the Revised Penal Code states: (a)ny person who shall commit any

act of lasciviousness upon the other person of either sex, under any of the circumstances mentioned in the preceding article, shall be punished by prision correccional. As explained by an eminent author of criminal law, rape and acts of lasciviousness have the same nature. There is, however, a fundamental difference between the two. In rape, there is the intent to lie with a woman whereas this element is absent in acts of lasciviousness. In this case, the series of appalling events which took place on the night of 18 March 1998 inside the humble home of private complainant and of accused-appellant, establish beyond doubt that the latter intended to ravish his very own flesh and blood. As vividly narrated by private complainant before the trial court, accused-appellant, taking advantage of the cover of darkness and of the absence of his wife, removed her (private complainants) clothing and thereafter placed himself on top of her. Accused-appellant, who was similarly naked as private complainant, then proceeded to kiss the latter and he likewise touched her breasts until finally, he rendered private complainant unconscious by boxing her in the stomach. These dastardly acts of accused-appellant constitute the first or some subsequent step in a direct movement towards the commission of the offense after the preparations are made. Far from being mere obscenity or lewdness, they are indisputably overt acts executed in order to consummate the crime of rape against the person of private complainant.

SALVADOR D. FLOR VS. PEOPLE OF THE PHILIPPINES G.R. No. 139987. March 31, 2005

Facts: Information for libel was filed before the RTC, Branch 20, Naga City, against the petitioner and Ramos who were then the managing editor and correspondent, respectively, of the Bicol Forum, a local weekly newspaper circulated in the Bicol Region. It states: On or about the 18th day up to the 24th day of August, 1986, in the Bicol Region comprised by the Provinces of Albay, Catanduanes, Sorsogon, Masbate, Camarines Sur, and Camarines Norte, and the Cities of Iriga and Naga, Philippines, and within the jurisdiction of this Honorable Court under R.A. No. 4363, and B.P. Blg. 129, the above-named accused who are the news correspondent and the managing editor, respectively, of the local weekly newspaper Bicol Forum, did then and there willfully, unlawfully and feloniously, without justifiable motive and with malicious intent of impeaching, discrediting and destroying the honor, integrity, good name and reputation of the complainant as Minister of the Presidential Commission on Government Reorganization and concurrently Governor of the Province of Camarines Sur, and to expose him to public hatred, ridicule and contempt, write, edit, publish and circulate an issue of the local weekly newspaper BICOL FORUM throughout the Bicol Region, with banner headline and front page news item read by the public throughout the Bicol Region VILLAFUERTES DENIAL CONVINCES NO ONE. The trial court found the petitioner guilty. The Court of Appeals likewise upheld the decision of the trial court.

Issue: Whether or not the questioned news item is libelous.

Held: No. Libel is defined as a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act, omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural person or juridical person, or to blacken the memory of one who is dead. The law recognizes two kinds of privileged matters. First are those which are classified as absolutely privileged which enjoy immunity from libel suits regardless of the existence of malice in fact. The other kind of privileged matters are the qualifiedly or conditionally privileged communications which, unlike the first classification, may be susceptible to a finding of libel provided the prosecution establishes the presence of malice in fact. The exceptions provided for in Article 354 of the Revised Penal Code fall into this category. The interest of society and the maintenance of good government demand a full discussion of public affairs. Complete liberty to comment on the conduct of public men is a scalpel in the case of free speech. The sharp incision of its probe relieves the abscesses of officialdom. Men in public life may suffer under a hostile and an unjust accusation; the wound can be assuaged with the balm of a clear conscience. Rising superior to any official, or set of officials, to the Chief Executive, to the Legislature, to the Judiciary to any or all the agencies of Government public opinion should be the constant source of liberty and democracy.

NORMA A. ABDULLA versus PEOPLE OF THE PHILIPPINES G.R. NO. 150129 April 6, 2005

Facts: Convicted by the Sandiganbayan in its Crim. Case No. 23261 of the crime of illegal use of public funds defined and penalized under Article 220 of the Revised Penal Code, or more commonly known as technical malversation, appellant Norma A. Abdulla is now before this Court on petition for review under Rule 45. Along with Nenita Aguil and Mahmud Darkis, appellant was charged under an Information which pertinently reads: That on or about November, 1989 or sometime prior or subsequent thereto, in Jolo, Sulu, Philippines and within the jurisdiction of this Honorable Court, the above-named accused: NORMA A. ABDULLA and NENITA P. AGUIL, both public officers, being then the President and cashier, respectively, of the Sulu State College, and as such by reason of their positions and duties are accountable for public funds under their administration, while in the performance of their functions, conspiring and confederating with MAHMUD I. DARKIS, also a public officer, being then the Administrative Officer V of the said school, did then and there willfully, unlawfully and feloniously, without lawful authority, apply for the payment of wages of casuals, the amount of FORTY THOUSAND PESOS (P40,000.00), Philippine Currency, which amount was appropriated for the payment of the salary differentials of secondary school teachers of the said school, to the damage and prejudice of public service .Appellants co-accused,

Nenita Aguil and Mahmud Darkis, were both acquitted. Only appellant was found guilty and sentenced by the Sandiganbayan in its decision. Upon motion for reconsideration, the Sandiganbayan amended appellants sentence by deleting the temporary special disqualification imposed upon her. Still dissatisfied, appellant, now before this Court, persistently pleas innocence of the crime charged. Issue: 1) Whether or not there was unlawful intent on the appellants part.

2) Whether or not the essential elements of the crime of technical malversation is present.

Held: The Court must have to part ways with the Sandiganbayan in its reliance on Section 5 (b) of Rule 131 as basis for its imputation of criminal intent upon appellant. The presumption of criminal intent will not automatically apply to all charges of technical malversation because disbursement of public funds for public use is per se not an unlawful act. Here, appellant cannot be said to have committed an unlawful act when she paid the obligation of the Sulu State College to its employees in the form of terminal leave benefits such employees were entitled to under existing civil service laws. There is no dispute that the money was spent for a public purpose payment of the wages of laborers working on various projects in the municipality. It is pertinent to note the high priority which laborers wages enjoy as claims against the employers funds and resources. Settled is the rule that conviction should rest on the strength of evidence of the prosecution and not on the weakness of the defense. Absent this required quantum of evidence would mean exoneration for accused-appellant. The Sandiganbayans improper reliance on Sec. 5(b) of Rule 131 does not save the day for the prosecutions deficiency in proving the existence of criminal intent nor could it ever tilt the scale from the constitutional presumption of innocence to that of guilt. In the absence of criminal intent, this Court has no basis to affirm appellants conviction. 2. The Court notes that there is no particular appropriation for salary differentials of secondary school teachers of the Sulu State College in RA 6688. The third element of the crime of technical malversation which requires that the public fund used should have been appropriated by law, is therefore absent. The authorization given by the Department of Budget and Management for the use of the forty thousand pesos (P40,000.00) allotment for payment of salary differentials of 34 secondary school teachers is not an ordinance or law contemplated in Article 220 of the Revised Penal Code. Appellant herein, who used the remainder of the forty thousand pesos (P40,000.00) released by the DBM for salary differentials, for the payment of the terminal leave benefits of other school teachers of the Sulu State College, cannot be held guilty of technical malversation in the absence, as here, of any provision in RA 6688 specifically appropriating said amount for payment of salary differentials only. In fine, the third and fourth elements of the crime defined in Article 220 of the Revised Penal Code are lacking in this case. Acquittal is thus in order.

ENRIQUE TOTOY RIVERA Y DE GUZMAN VS. PEOPLE OF THE PHILIPPINES

G.R. No. 138553. June 30, 2005

Facts: On May 6, 1993, in the Regional Trial Court at La Trinidad, Benguet an information for direct assault was filed against petitioner, allegedly committed, as follows: That on or about the 20th day of March, 1993, at Tomay, Shilan, Municipality of La Trinidad, Province of Benguet, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, did then and there willfully, unlawfully and feloniously attack, employ force and seriously resist one Lt. EDWARD M. LEYGO, knowing him to be a policeman, by then and there challenging the latter to a fistfight and thereafter grappling and hitting the said policeman on his face, thus injuring him in the process while the latter was actually engaged in the performance of his official duties. The trial court convicted petitioner of the crime of direct assault. The Court of Appeals affirmed the decision of the trial court. Issue: Whether or not the Court of Appeals erred in affirming the judgment of conviction rendered by the trial court.

Held: Direct assault, a crime against public order, may be committed in two ways: first, by any person or persons who, without a public uprising, shall employ force or intimidation for the attainment of any of the purposes enumerated in defining the crimes of rebellion and sedition; and second, by any person or persons who, without a public uprising, shall attack, employ force, or seriously intimidate or resist any person in authority or any of his agents, while engaged in the performance of official duties, or on occasion of such performance. Unquestionably, petitioners case falls under the second mode, which is the more common form of assault and is aggravated when: (a) the assault is committed with a weapon; or (b) when the offender is a public officer or employee; or (c) when the offender lays hand upon a person in authority. In any event, this Court has said time and again that the assessment of the credibility of witnesses and their testimonies is best undertaken by the trial court, what with reality that it has the opportunity to observe the witnesses first-hand and to note their demeanor, conduct, and attitude while testifying. Its findings on such matters, absent, as here, of any arbitrariness or oversight of facts or circumstances of weight and substance, are final and conclusive upon this Court and will not to be disturbed on appeal.

FRUSTRATED HOMICIDE- ESSENTIAL REQUISITES FOR COMPLETE SELF-DEFENSE

CONRADO CASITAS VS. PEOPLE OF THE PHILIPPINES G.R. No.152358, February 5, 2004

Facts: Early in the morning of August 25, 1994, Romeo C. Boringot was awakened by his wife Aida, the latter having heard somebody shouting invectives at her husband, viz: You ought to be killed, you devil. So Romeo stood up and peeped to see who was outside. When he did not see anybody, he proceeded towards the road.

Upon passing by a coconut tree, he was suddenly hacked at the back with bolo which was more that 1 foot long. He looked back at his assailant and he recognized him to be appellant Conrado whom he knew since the 1970s and whose face he clearly saw as light from the moon illuminated the place. Appellant went on hacking him, hitting him in different parts of the body, including ears and the head. While hitting him, appellant was shouting invectives at him. Appellant also hit him with a guitar causing Romeo to sustain an injury on his forehead. All in all, he sustained 11 wounds. Petitioner invoked self-defense. The trial court rejected petitioners plea of self-defense and convicted him of frustrated homicide.

Issue: Whether or not petitioner acted in self-defense.

Held: The petitioner was burdened to prove, with clear and convincing evidence, the confluence of the three essential requisites for complete self-defense: (a) unlawful aggression on the part of the victim; (b) reasonable means used by the person defending himself to repel or prevent the unlawful to repel or prevent the unlawful aggression; (c) lack of sufficient provocation on the part of the person defending himself. By invoking self-defense, the petitioner thereby submitted having deliberately caused the victims injuries. The burden of proof is shifted to him to prove with clear and convincing all the requisites of his affirmative defense. He must rely on the strength of his own evidence and not the weakness of that of the disbelieved after the petitioner admitted inflicting the mortal injuries on the victim. In this case, the petitioner failed to prove his affirmative defense. The number, nature and location of the victims wounds belie the petitioners claim that the said wounds or the victim were inflicted as they duel with each other. Witness for the petitioner testified that the wounds sustained by petitioner could not have been caused by bolo. Petitioner never surrendered voluntarily to the police and admitted that he had injured the victim. This would have bolstered his claim that he hacked the victim to defend himself. The petitioner did not do so.

BIGAMY; ELEMENTS, EFFECT OF DECLARATION OF NULLITY OFSECOND MARRIAGE ON THE GROUND OF PSYCHOLOGICAL INCAPACITY; PENALTY

VERONICO TENEBRO VS. THE HONORABLE COURT OF APPEALS G.R. No. 150758, February 18, 2004

Facts: Veronico Tenebro contracted marriage with Leticia Ancajas on April 10, 1990. The two were wed by a judge at Lapu-Lapu City. The two lived together continuously and without interruption until the later part of 1991, when

Tenebro informed Ancajas that he had been previously married to a certain Hilda Villareyes on Nov. 10, 1986. Tenebro showed Ancajas a photocopy of a marriage contract between him and Villareyes. Invoking this previous marriage, petitioner thereafter left the conjugal dwelling which he shared with Ancajas, stating that he was going to cohabit with Villareyes. On January 25, 1993, petitioner contracted yet another marriage, this one with a certain Nilda Villegas. When Ancajas learned of this third marriage, she verified from Villareyes whether the latter was indeed married to the petitioner. Villareyes confirmed in handwritten letter that indeed Tenebro was her husband. Ancajas thereafter filed a complaint for bigamy against petitioner. During trial, Tenebro admitted having married to Villareyes and produced two children. However, he denied that he and Villareyes were validly married to each other, claiming that no marriage ceremony took place. He alleged that he signed a marriage contract merely to enable her to get the allotment from his office in connection with his work as a seaman. The trial court found him guilty of bigamy.

Issues: (1) Whether or not the petitioner is guilty of the crime of bigamy. (2) What is the effect of declaration of nullity of the second marriage of the petitioner on the ground of psychological incapacity?

Held: (1) Yes, petitioner is guilty of the crime of bigamy. Under Article 349 of the Revised Penal Code, the elements of the crime of bigamy are: (1) that the offender has been legally married; (2) that the first marriage has not been legally dissolved or, in case his or her spouse is absent, the absent spouse could not yet be presumed dead according to the Civil Code; (3) that he contracts a second or subsequent marriage; and (4) that the second or subsequent marriage has all the essential requisites for validity. The prosecution sufficient evidence, both documentary and oral, proved the existence of the marriage between petitioner and Villareyes. (2) A second or subsequent marriage contracted during subsistence of petitioners valid marriage to Villareyes, petitioners marriage to Ancajas would be null and void ab initio completely regardless of petitioners psychological capacity or incapacity. Since a marriage contracted during the subsistence of a valid marriage is automatically void, the nullity of this second marriage is not per se an argument for the avoidance of criminal liability for bigamy. Pertinently, Article 349 of the RPC criminalizes any person who shall contract a second or subsequent marriage before the former marriage has been legally dissolved, or before the absent spouse has been declared presumptively dead by means of a judgment rendered in the proper proceedings. A plain reading of the law, therefore, would indicate that the provision penalizes the mere act of contracting a second or subsequent marriage during the subsistence of a valid marriage.

KIDNAPPING FOR RANSOM

PEOPLE OF THE PHILIPPINES VS. ABDILA SILONGAN, ET. AL. G.R. No. 137182, Apirl 24, 2003

Facts: On March 16, 1996, businessman Alexander Saldaa went to Sultan Kudarat with three other men to meet a certain Macapagal Silongan alias Commander Lambada. They arrived in the morning and were able to talk to Macapagal concerning the gold nuggets that purportedly being sold by the latter. The business transaction was postponed and continued in the afternoon due to the death of Macapagals relative and that he has to pick his brother in Cotabato City. Then at around 8:30 PM, as they headed to the highway, Macapagal ordered the driver to stop. Suddenly, 15 armed men appeared. Alexander and his three companions were ordered to go out of the vehicle, they were tied up, and blindfolded. Macapagal and Teddy were also tied and blindfolded, but nothing more was done to them. Alexander identified all the abductors including the brothers of Macapagal. The four victims were taken to the mountain hideout in Maguindanao. The kidnappers demanded P15, 000,000 from Alexanders wife for his release, but the amount was reduced to twelve million. The victims were then transferred from one place to another. They made Alexander write a letter to his wife for his ransom. But on several occasions, a person named Mayangkang himself would write to Alexanders wife. The two other victims managed to escape but Alexander was released after payment of ransom. The trial court convicted Macapagal and his companions of the crime of Kidnapping for Ransom with Serious Illegal Detention.

Issue: Whether it is necessary that there is actual payment of ransom in the crime of Kidnapping.

Held: No, it is necessary that there is actual payment of ransom in the crime of Kidnapping. For the crime to be committed, at least one overt act of demanding ransom must be made. It is not necessary that there be actual payment of ransom because what the law requires is merely the existence of the purpose of demanding ransom. In this case, the records are replete with instances when the kidnappers demanded ransom from the victim. At the mountain hideout where Alexander was first taken, he was made a letter to his wife asking her to pay ransom of twelve million. Also Mayangkang himself wrote more letters to his family threatened the family to kill Alexander if the ransom was not paid.

ESTAFA; TRUST RECEIPTS LAW

EDWARD ONG VS. COURT OF APPEALS G.R. No. 119858, April 29, 2003

Facts: Petitioner Edward Ong, representing ARMAGRI International Corporation (ARMAGRI), executed two trust receipts acknowledging receipt from the Solid Bank Corp. of goods valued at P 2,532,500 and P 2, 050,000. In addition, he bounded himself to any increase or decrease of interest rate in case Central Bank floated rates and to pay any additional penalty until the trust receipts are fully paid. When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank despite several demand letters. The trial court convicted Ong of two counts of estafa for violation of the Trust Receipts Law.

Issue: Whether the appellant is guilty of two counts estafa for violation of the Trust Receipts Law.

Held: Yes, he is guilty for failure by the entrustee to account for the goods received in trust constitutes estafa. The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of goods, or (2) return the goods covered by the trust receipts if the good are not sold. The mere failure to account or return gives rise to the crime which is malum prohibitum. There is no requirement to prove intent to defraud. The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan transactions of ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least a return of the goods. ARMAGRI failed tom pay or return the goods despite repeated demands by the Bank. It is well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to account, upon demand, for funds or property held in trust is evidence of conversion or misappropriation. Under the law, mere failure by the entrustee to account for the goods received in trust constitutes estafa. The Trust Receipts Law punishes dishonesty and abuse of confidence in the handling of money or goods to prejudice the public order. The mere failure to deliver proceeds of the sale or the goods if not sold constitutes a criminal offense that causes prejudice not only to the creditor, but also to the public interest. Evidently, the Bank suffered prejudice for neither money nor the goods were turned over the Bank.

PARRICIDE; ELEMENTS

PEOPLE OF THE PHILIPPINES VS. PO3 ARMANDO DALAG G.R. No. 129895, April 30, 2003

Facts: Armando Dalag, a member of the Philippine National Police, was lawfully married to Leah Nolido Dalag. They had three children. Their marriage was far from idyllic. Their covertures were marred by violent quarrels, with Leah always at the losing end. Each time the couple had a quarrel, she sustained contusions, bruises and lumps on different parts of her body. On August 15, 1996, Armando was drinking when Leah admonished him not to do so. Leah was then banged on the wall by Armando. Then he pushed and kicked Leah on the left side of her body which caused her to fall on the ground. Even as Leah was already lying prostrate, Armando continued to beat her up, punching her on the different parts of her body. Leah then fled to the house of Felia Horilla but Armando ran after her and herded her back to their house. Leah fell again to the ground and lost her consciousness. The trial court convicted Armando of parricide.

Issue: Whether the trial court correctly convicted the accused.

Held: Yes, the trial court correctly concluded that the injuries sustained by Leah that caused her death were the consequence of the appellants deliberate and intentional acts. The crime of parricide is defined by Article 246 of the Revised Penal Code thus: Any person who shall kill his father, mother, or child, whether legitimate or illegitimate, or any of his ascendants, or descendants, or his spouse, shall be guilty of parricide and shall be punished by the penalty of reclusion perpetua to death. The prosecution is mandated to prove the following essential elements: (1) a person is killed; (2) the deceased is killed by the accused; and (3) the deceased is the father, mother or child, whether legitimate or illegitimate, or a legitimate other ascendant or other descendant, or the legitimate spouse of the accused. The prescribed penalty for the crime is reclusion perpetua to death. The key element in parricide of a spouse, the best proof of the relationship between the accused and the deceased would be the marriage certificate.

STATUTORY RAPE; INFORMATION; TIME NOT AN ESSENTIAL ELEMENT

PEOPLE OF THE PHILIPPINES VS. BENJAMIN HILET G.R. No. 146685-86, April 30, 2003

Facts: Sometime in 1998, ten-year old Richelle Cosada was told by appellant Benjamin Hilet, the common law husband of her mother not to go to school and watch the house. At about 10 AM, while her mother was out selling fish, Richelle saw appellant sharpening his bolo. Moments later, appellant dragged her towards the room and raped her. She kept the afternoon of March 17, 1999. Richelle finally confided to her mother. The latter asked their neighbor to report the incident to the police. The trial court convicted the appellant guilty of two counts of statutory

rape.

Issue: Whether time is an essential element of statutory rape.

Held: No, time is not an essential element of statutory rape. An information is valid as long as it distinctly states the elements of the offense and the acts or omission constitutive thereof. The exact date of the commission of a crime is not an essential element of rape. Thus, in a prosecution of rape, the material fact or circumstance to be considered is the occurrence of rape, not the time of its commission. It is not necessary to state the precise time when the offense was committed except when time is a material ingredient of the offense. In statutory rape, time is not an essential element. What is important is the information alleges that the victim is a minor under twelve years of age and the accused had carnal knowledge of her, even if no force or intimidation was used or she was not otherwise deprived of reason.

STATUTORY RAPE; INFORMATION; TIME IS NOT AN ESSENTIAL ELEMENT

PEOPLE OF THE PHILIPPINES VS. LOZADA

Facts: Reynaldo Diaz, a tricycle driver, went to a coffee shop to meet Ronnie Sanchez and this Sanchez disclosed to Diaz his plan to rob Rosita Sy. Thereafter Belleza Lozada arrived. They planned to wait Rosita Sy as she would normally leave her drugstore between 10:30 and 11 PM. They have also planned to kill Rosita Sy, upon realizing that Sy would be killed, Diaz excused himself on the pretext that he would get a weapon but he delayed himself and the plan was not implemented that night because of the delay. They have agreed to pursue it the next day. Diaz deliberately stayed away from their meeting place the next day. The following day, he learned over the radio that a lifeless body of Rosita was found in a remote area.

Issue: Whether or not all elements of a Robbery with Homicide are present to constitute a penalty of death.

Held: The SC ruled that all the elements were present. The taking with animo lurid or personal property belonging to another person by means of violence against or intimidation of person or using force upon thing constitutes robbery, and the complex crime of robbery with homicide arises when by reason or on the occasion of robbery, someone is killed. All these elements have satisfactorily been shown by the prosecution.

BATTERED WOMAN SYNDROMEAS A VIABLE PLEA WITHIN THE CONCEPT OF SELF-DEFENSE

PEOPLE OF THE PHILIPPINES VS. MARIVIC GENOSA G.R. No. 135981. September 29, 2000

Facts: On or about the 15th day of November 1995, at Barangay Bilwang, Municipality of Isabel, province of Leyte, accused Marivic Genosa, with intent to kill, with treachery and evident premeditation, did then and there willfully, unlawfully and feloniously attack, assault, hit and wound BEN GENOSA, her legitimate husband, with the use of a hard deadly weapon, which the accused had provided herself for the purpose, inflicting several wounds which caused his death. The lower court found the accused, Marivic Genosa y Isidro, GUILTY beyond reasonable doubt of the crime of parricide and sentenced the accused with the penalty of DEATH. On appeal, the appellant alleged that despite the evidence on record of repeated and severe beatings she had suffered at the hands of her husband, the lower court failed to appreciate her self-defense theory. She claimed that under the surrounding circumstances, her act of killing her husband was equivalent to self-defense. Issue: Whether or not the battered woman syndrome as a viable plea within the concept of self-defense is applicable in this case. Held: No. The court, however, is not discounting the possibility of self-defense arising from the battered woman syndrome. We now sum up our main points. First, each of the phases of the cycle of violence must be proven to have characterized at least two battering episodes between the appellant and her intimate partner. Second, the final acute battering episode preceding the killing of the batterer must have produced in the battered persons mind an actual fear of an imminent harm, from her batterer and an honest belief that she needed to use force in order to save her life. Third, at the time of the killing, the batterer must have posed probablenot necessarily immediate and actualgrave harm to the accused, based on the history of violence perpetrated by the former against the latter. Taken altogether, these circumstances could satisfy the requisites of self-defense. Under the existing facts of the present case, however, not all of these elements were duly established.

RAPE; TOUCHING WHEN APPLIED TO RAPE CASES

PEOPLE OF TH PHILIPPINES vs. LEVI SUMARAGO G.R. No. 140873-77, February 6, 2004

Facts: The spouses Vivencio and Teodora Brigole had four children. Two of them were girls and named- Norelyn and Doneza. Teodora left Vivencio and kept custody of their fpur children. Then, Teodora and Levi started living

together as husband and wife. Sometime in 1995, Norelyn, who was barely ten years old, was gathering firewood with the appellant Levi in his farm. While they were nearing a guava tree, the appellant suddenly boxed her on the stomach. Norelyn lost consciousness. She had her clothes when she woke up. She had a terrible headache and felt pain in her vagina. She also had a bruise in the middle portion of her right leg. The appellant warned not to tell her mother about it, otherwise he would kill her. The sexual assaults were repeated several times so she decided to tell her sister and eventually her mother. The trial court found the accused guilty of the crime rape and sentenced him to death.

Issue: Whether or not the accused is guilty of the crime charged.

Held: Yes, the accused is guilty of the crime charged. For the accused to held guilty of consummated rape, the prosecution must prove beyond reasonable doubt that: 1) there had been carnal knowledge of the victim by the accused; 20 the accused achieves the act through force or intimidation upon the victim because the latter is deprived of reason or otherwise unconscious. Carnal knowledge of the victim by the accused may be proved either by direct evidence or by circumstantial evidence that rape had been committed and that the accused is the perpetrator thereof. A finding of guilt of the accused for rape may be based solely on the victims testimony if such testimony meets the test of credibility. Corroborating testimony frequently unavailable in rape cases is not indispensable to warrant a conviction of the accused for the crime. This Court has ruled that when a woman states that she has been raped, she says in effect all that would necessary to show rape did take place. However, the testimony of the victim must be scrutinized with extreme caution. The prosecution must stand or fall on its own merits. The credibility of Norelyn and the probative weight of her testimony cannot be assailed simply because her admission that it took the appellant only short time to insert his penis into her vagina and to satiate his lust. The mere entry of his penis into the labia of the pudendum, even if only for a short while, is enough insofar as the consummation of the crime of rape is concerned, the brevity of time that the appellant inserted penis into the victims vagina is of no particular importance. Posted by UNC Bar Operations Commission

TAXATION II

COMMISSIONER OF INTERNAL REVENUE vs. CEBU PORTLAND CEMENT COMPANY and COURT OF TAX APPEALS

G.R. No. L-29059 December 15, 1987

FACTS: By virtue of a decision of the Court of Tax Appeals rendered on June 21, 1961, as modified on appeal by the Supreme Court on February 27, 1965, the Commissioner of Internal Revenue was ordered to refund to the Cebu Portland Cement Company the amount of P359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it after October 1957.

On March 28, 1968, following denial of motions for reconsideration filed by both the petitioner and the private respondent, the latter moved for a writ of execution to enforce the said judgment.

The motion was opposed by the petitioner on the ground that the private respondent had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus 28% surcharge.

On April 22, 1968, the Court of Tax Appeals granted the motion, holding that the alleged sales tax liability of the private respondent was still being questioned and therefore could not be set-off against the refund.

ISSUE:

Whether or not the judgment debt can be enforced against private respondents sales tax liability, the latter still being questioned.

RULING:

The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed.

The Tax Code provides: Sec. 291. Injunction is not available to restrain collection of tax. - No court shall have

authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

It goes without saying that this injunction is available not only when the assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level. There is all the more reason to apply the rule here because it appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still due from the private respondent.

COMMISSIONER OF INTERNAL REVENUE vs. ALGUE and THE COURT OF TAX APPEALS

G.R. No. L-28896 February 17, 1988

FACTS: The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a commission of P126, 000.00, and it was from this commission that the P75, 000.00 promotional fees were paid to the a forenamed individuals.

The petitioner contends that the claimed deduction of P75, 000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees.

ISSUE:

Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns.

RULING:

The Supreme Court agrees with the respondent court that the amount of the promotional fees was not excessive. The

amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.

It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government.

C.N. HODGES vs. MUNICIPAL BOARD OF THE CITY OF ILOILO

G.R. No. L-18129 January 31, 1963

FACTS: On June 13, 1960, the Municipal Board of the City of Iloilo enacted Ordinance No. 33, series of 1960, pursuant to the provisions of Republic Act No. 2264, known as the Local Autonomy Act, requiring any person, firm, association or corporation to pay a sales tax of 1/2 of 1% of the selling price of any motor vehicle and prohibiting the registration of the sale of the motor vehicle in the Motor Vehicles Office of the City of Iloilo unless the tax has been paid.

C. N. Hodges, who was engaged in the business of buying and selling second-hand motor vehicles in the City of Iloilo, is one of those affected by the enactment of the ordinance, and believing that the same is invalid for having been passed in excess of the authority conferred by law upon the municipal board, he filed on June 27, 1960 a petition for declaratory judgment with the Court of First Instance of Iloilo praying that said ordinance be declared void ab initio.

The court a quo rendered decision on December 8, 1960 holding that that part of the ordinance which requires the owner of a used motor vehicle to pay a sales tax of 1/2 of 1% of the selling price is valid, but the portion thereof which requires the payment of the tax as a condition precedent for the registration of the sale in the Motor Vehicles Office is invalid for being repugnant to Section 2(h) of Republic Act 2264. Both parties have appealed.

ISSUE:

Whether or not the ordinance in question is valid even with regard to the portion which requires the payment of the

tax as a condition precedent for the registration of the sale in the Motor Vehicles Office of said city.

RULING:

The City of Iloilo has the authority and power to approve the ordinance in question for it merely imposes a percentage tax on the sale of a second-hand motor vehicle that may be carried out within the city by any person, firm, association or corporation owning or dealing with it who may come within the jurisdiction.

The requirement of the ordinance cannot be considered a tax in the light viewed by the court a quo for the same is merely a coercive measure to make the enforcement of the contemplated sales tax more effective. Well-settled is the principle that taxes are imposed for the support of the government in return for the general advantage and protection which the government affords to taxpayers and their property. Taxes are the lifeblood of the government.

ASSOCIATION OF CUSTOM BROKERS, INC. vs. MUNICIPAL BOARD

G.R. No. L-4376 May 22, 1953

FACTS: The Association of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor

vehicles in the City of Manila challenge the validity Ordinance No. 3379 on the ground that (1) while it levies a socalled property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.

The respondents contend on their part that the challenged ordinance imposes a property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it constitute double taxation.

ISSUE:

Whether or not the ordinance is null and void

RULING:

The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its streets and public highways. This is an inequality which we find in the ordinance, and which renders it offensive to the Constitution.

ESSO STANDARD EASTERN, INC v. COMMISSIONER OF INTERNAL REVENUE

G.R. Nos. L-28508-9, July 7, 1989

FACTS: In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions. This claim was disallowed by the Commissioner of Internal Revenue (CIR) on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. Esso then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340, 822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221, 033.00 only, disallowing the claimed deduction for the margin fees paid on the ground that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses.

Esso appealed to the Court of Tax Appeals (CTA) for the refund of the margin fees it had earlier paid contending that the margin fees were deductible from gross income either as a tax or as an ordinary and necessary business expense. However, Essos appeal was denied.

ISSUE:

(1) Whether or not the margin fees are taxes.

(2) Whether or not the margin fees are necessary and ordinary business expenses.

RULING:

(1) No. A tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation.

(2) No. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. Since the margin fees in question were incurred for the remittance of funds to Esso's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of Esso's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of Esso's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively.

PROGRESSIVE DEVELOPMENT CORPORATION v. QUEZON CITY

G.R. No. L-36081, April 24, 1989

FACTS: On December 24, 1969, the City Council of Quezon City adopted Ordinance No. 7997, otherwise known as the Market Code of Quezon City. Section 3 of said ordinance provides that privately owned and operated public markets shall submit monthly to the Treasurer's Office, a certified list of stallholders showing the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the gross receipts from stall rentals to the City, ... , as supervision fee.

On July 15, 1972, Progressive Development Corporation (Progressive), owner and operator of a public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition with Preliminary Injunction against Quezon City on the ground that the supervision fee or license tax imposed by the above-mentioned ordinance is in reality a tax on income which Quezon City may not impose, the same being expressly prohibited by

Republic Act No. 2264, as amended, otherwise known as the Local Autonomy Act.

In its Answer, Quezon City, through the City Fiscal, contended that it had authority to enact the questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on income.

The lower court ruled that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like Quezon City, are empowered to impose and collect.

ISSUE:

Whether the tax imposed by Quezon City on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax.

RULING:

No. The tax imposed in the controverted ordinance constitutes, not a tax on income, not a city income tax (as distinguished from the national income tax imposed by the National Internal Revenue Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the business in which Progressive is engaged. While it is true that the amount imposed by the questioned ordinances may be considered in determining whether the exaction is really one for revenue or prohibition, instead of one of regulation under the police power, it nevertheless will be presumed to be reasonable.

PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988

FACTS: The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation and Traffic Code,

requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied the request for refund. Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified the case to the Supreme Court.

ISSUE:

Whether or not motor vehicle registration fees are considered as taxes.

RULING:

Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor vehicle registration fees are actually taxes intended for additional revenues of the government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program.

VILLEGAS v. HIU CHIONG TSAI PAO HO

G.R. No. L-29646, November 10, 1978

FACTS: On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).

Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an

employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila filed a petition with the CFI of Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of the rule of the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present petition.

ISSUE:

Whether or not City Ordinance No. 6537 is a tax or revenue measure.

RULING:

Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its principal purpose is regulatory in nature has no merit. While it is true that the first part which requires that the alien shall secure an employment permit from the Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of applications for employment permits and therefore is regulatory in character the second part which requires the payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the ordinance is to raise money under the guise of regulation.

COMPAIA GENERAL DE TABACOS DE FILIPINAS vs.

CITY OF MANILA, ET AL

G.R. No. L-16619 June 29, 1963

FACTS: Petitioner filed an action in the CFI Manila to recover from City of Manila(City ) the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under Ordinances Nos. 3634, 3301, and 3816.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it should pay the license fees but not the municipal sales taxes; and since it already paid the license fees aforesaid, the sales taxes paid by it amounting to the sum of P15, 208.00 under the three ordinances is an overpayment made by mistake, and therefore refundable.

The City contends that for the permit issued to it Tabacalera is subject to pay the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by Ordinances Nos. 3634, 3301, and 3816.

ISSUE:

Whether or not the taxes imposed are valid

RULING:

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in the business of selling liquor or alcoholic beverages. On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of Manila by virtue of its power to tax dealers for the sale of such merchandise.

That Tabacalera is being subjected to double taxation is more apparent than real. As already stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor. On the other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation.

AMERICAN MAIL LINE, ET AL vs. CITY OF BASILAN, ET AL

G.R. No. L-12647 May 31, 1961

FACTS: Appellees are foreign shipping companies licensed to do business in the Philippines, with offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its territorial waters. As the city treasurer assessed and attempted to collect from them the anchorage fees prescribed in the aforesaid amendatory ordinance,

they filed the present action for Declaratory Relief to have the courts determine its validity. Upon their petition the lower court issued a writ of preliminary injunction restraining appellants from collecting or attempting to collect from them the fees prescribed therein.

Appellant contended that, through its city council, it had authority to enact the questioned ordinance in the exercise of either its revenue-raising power or of its police power. The question to be resolved is whether the City of Basilan has the authority to enact Ordinance 180 and to collect the anchorage fees prescribed therein.

ISSUE:

Is the ordinance valid exercise of taxing power of the City of Basilan.

RULING:

Under paragraph (a) sec. 14, R.A. 288, it is clear that the City of Basilan may only levy and collect taxes for general and special purposes in accordance with or as provided by law; in other words, the city of Basilan was not granted a blanket power of taxation. The use of the phrase "in accordance with law" which, in our opinion, means the same as "provided by law" clearly discloses the legislative intent to limit the taxing power of the City.

It has been held that the power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. Appellant city's own contention that the questioned ordinance was enacted in the exercise of its power of taxation makes it obvious that the fees imposed are not merely regulatory.

JOHN H. OSMEA vs. OSCAR ORBOS et al

G.R. No. 99886 March 31, 1993

FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum

products.

The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channelled to another government objective." Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created."

ISSUE:

Whether or not the funds collected under PD 1956 is an exercise of the power of taxation

RULING:

The levy is primarily in the exercise of the police power of the State. While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State.

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

REPUBLIC OF THE PHILIPPINES vs. BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and TALISAY-SILAY MILLING COMPANY

G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966

FACTS: Joint appeal by three sugar centrals, respondents herein. from a decision of the Court of First Instance of Manila finding them liable for special assessments under Section 15 of Republic Act No. 632.

The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized; a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government.

ISSUE:

Is the imposition of special assessment an exercise of the taxing power?

RULING:

The Court deemed it relevant to discuss its holding in Lutz v. Araneta. For in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment Act, all collections made thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the following purposes or to attain any or all of the following objectives, as may be provided by law." Analysis of the Act, and particularly Section 6, will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power.

On the authority of the above case, then, We hold that the special assessment at bar may be considered as similarly as the above, that is, that the levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist.

VICTORIAS MILLING CO., INC. vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL

G.R. No. L-21183 September 27, 1968

FACTS:

This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental.

The disputed ordinance imposed license taxes on operators of sugar centrals and sugar refineries. The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity.

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items.

Plaintiff filed suit below to ask for judgment declaring Ordinance No. 1, series of 1956, null and void. The plaintiff contends that the ordinance is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality.

The trial court rendered its judgment declaring that the ordinance in question refers to license taxes or fees. Both plaintiff and defendant directly appealed to the Supreme Court.

ISSUE:

Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure?

RULING:

The present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40, 000. 00 for sugar centrals, and P40, 000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.

WALTER LUTZ vs. J. ANTONIO ARANETA

G.R. No. L-7859 December 22, 1955

FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.

Plaintiff, Walter Lutz seeks to recover from the Collector of Internal Revenue the sum of P14, 666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case directly to the Supreme Court.

ISSUE:

Is the tax provided for in Commonwealth Act No. 567 a pure exercise of the taxing power?

RULING:

Analysis of the Act, and particularly of section 6 will show that the tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an exercise of the police power.

The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power.

REPUBLIC OF THE PHILIPPINES, represented by the PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT

(PCGG) vs. COCOFED, ET AL. and BALLARES, ET AL., EDUARDO M. COJUANGCO JR. and the

SANDIGANBAYAN (First Division)

G.R. No. 147062-64 December 14, 2001

FACTS: The PCGG issued and implemented numerous sequestrations, freeze orders and provisional takeovers of allegedly ill-gotten companies, assets and properties, real or personal.

Among the properties sequestered by the Commission were shares of stock in the United Coconut Planters Bank (UCPB) registered in the names of the alleged "one million coconut farmers," the so-called Coconut Industry Investment Fund companies (CIIF companies) and Private Respondent Eduardo Cojuangco Jr... On January 23, 1995, the trial court rendered its final Decision nullifying and setting aside the Resolution of the Sandiganbayan which lifted the sequestration of the subject UCPB shares.

ISSUE:

Are the Coconut Levy Funds raised through the States police and taxing powers?

RULING:

Indeed, coconut levy funds partake of the nature of taxes which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs.

Based on this definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government.

Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State.

WENCESLAO PASCUAL vs. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET

AL

G.R. No. L-10405 December 29, 1960

FACTS: On August 31, 1954, petitioner Wenceslao Pascual instituted this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" which projected feeder roads "do not connect any government property or any important premises to the main highway";

Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action".

ISSUE:

Should appropriation using public funds be made for public purposes only?

RULING:

The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.

OSMEA vs. ORBOS

G.R. No. 99886 March 31, 1993

FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products.

The petitioner argues inter alia that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channelled to another government objective." Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created."

ISSUE:

Do the powers granted to the ERB under P.D. 1956 partake of the nature of the taxation power of the State?

RULING:

NO. The OPSF was established "for the purpose of minimizing the frequent price changes brought about by exchange rate adjustment and/or changes in world market prices of crude oil and imported petroleum products. While the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State.

PEPSI-COLA BOTTLING COMPANY OF THE PHIILIPPINES, INC. vs. MUNICIPALITY OF TANAUAN

G.R. No. L-31156 February 27, 1976

FACTS: In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance Nos. 23 and 27

issued by the Municipality of Tanauan, Leyte as null and void.

Municipal Ordinance No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth (1/16) of a centavo for every bottle of soft drink corked. On the other hand, Municipal Ordinance No. 27 levies and collects on soft drinks produced or manufactured within the territorial jurisdiction of the municipality a tax of one centavo (P0.01) on each gallon of volume capacity. The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.

ISSUES:

1. Is Section 2 of R.A. 2264 an undue delegation of the power of taxation?

2. Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or specific taxes?

RULING:

1. NO. The power of taxation is purely legislative and cannot be delegated to the executive or judicial department of the government without infringing upon the theory of separation of powers. But as an exception, the theory does not apply to municipal corporations. Legislative powers may be delegated to local governments in respect of matters of local concern.

2. NO. The Municipality of Tanauan discovered that manufacturers could increase the volume contents of each bottle and still pay the same tax rate since tax is imposed on every bottle corked. To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was a repeal of Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the Municipal Treasurer was enforcing Municipal Ordinance No. 27 only. Hence, there was no case of double taxation.

SOCIAL SECURITY SYSTEM vs. CITY OF BACOLOD

G.R. No. L-35726 July 21, 1982

FACTS: Petitioner Social Security System, for operation purposes, maintains a five-storey building in Bacolod City occupying four parcels of land. Said lands and buildings were assessed for taxation. Petitioner failed to pay the

realty taxes for the years 1968, 1969 and 1970. Consequently, the City of Bacolod levied upon said lands and buildings and declared them forfeited in its favour. In protest, petitioner wrote the city mayor through the city treasurer seeking reconsideration of the forfeiture proceeding on the ground that it is a government-owned and controlled corporation and as such, should be exempt from payment of real estate taxes. No action was however taken. Thereafter, petitioner filed an action in court for the nullification of the court proceedings. The court ruled that the properties of petitioner are not exempt from the payment of real property tax because these are not one of the exemptions under Section 29 of the Charter of Bacolod City and there is no other law providing for its exemption.

ISSUE:

Should the subject properties maintained by petitioner SSS be exempt from payment of real property tax?

RULING:

YES. Whether a government owned and controlled corporation is performing governmental or proprietary function is immaterial. Section 29 of the Charter of Bacolod City does not contain any qualification whatsoever in providing for the exemption from real estate taxes of "lands and buildings owned by the Commonwealth or Republic of Philippines." Hence, when the legislature exempted lands and buildings owned by the government from payment of said taxes, what it intended was a broad and comprehensive application of such mandate, regardless of whether such property is devoted to governmental or proprietary purpose.

Further, P.D. 24 has amended the Social Security Act of 1954 expressly exempting the SSS from payment of any tax thereby removing all doubts as to its exemption.

SEA-LAND SERVICE, INC. vs. COURT OF APPEALS

G.R. No. 122605 April 30, 2001

FACTS: Petitioner Sea-Land Service Incorporated, an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base. Sea-Land paid its corresponding corporate income tax for the taxable year 1984 at the rate of 1.5% in

accordance with Section 25(a) (2) of the National Internal Revenue Code in relation to Article 9 of the RP-US Tax Treaty. Subsequently, Sea-Land filed a claim for refund alleging that the taxes it paid were made in mistake because under the RP-US Military Base Agreement, it is exempt from the payment of taxes.

ISSUE:

Does the income that petitioner derived from services in transporting the household goods and effects of U.S. military personnel fall within the tax exemption provided in the RP-US Military Bases Agreement?

RULING:

NO. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favour of the taxing power. The transport or shipment of household goods and effects of U.S. military personnel is not included in the term "construction, maintenance, operation and defense of the bases. Neither could the performance of this service to the U.S. government be interpreted as directly related to the defence and security of the Philippine territories

COMMISSIONER OF INTERNAL REVENUE vs. MITSUBISHI METAL CORPORATION

G.R. No. L-54908. January 22, 1990

FACTS: On April 17, 1970, Atlas Consolidated Mining and Development Corporation entered into a Loan and Sales Contract with Mitsubishi Metal Corporation for purposes of the projected expansion of the productive capacity of the former's mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of $20,000,000.00, United States currency. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates produced for a period of fifteen (15) years. Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan (Eximbank) for purposes of its obligation under said contract. Its loan application was approved on May 26, 1970 in the equivalent sum of $20,000,000.00 in United States currency at the then prevailing exchange rate.

Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the former to the latter totalling P13, 143,966.79 for the years 1974 and 1975. The corresponding 15% tax thereon in the amount of P1, 971,595.01 was withheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree No. 131, and duly remitted to the Government.

ISSUE:

Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29 of the tax code and, therefore, exempt from withholding tax.

RULING:

The court ruled in the negative. Eximbank had nothing to do with the sale of the copper concentrates since all that Mitsubishi stated in its loan application with the former was that the amount being procured would be used as a loan to and in consideration for importing copper concentrates from Atlas. Such an innocuous statement of purpose could not have been intended for, nor could it legally constitute, a contract of agency. The conclusion is indubitable; MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS, the former being the owner of the $20 million upon completion of its loan contract with EXIMBANK of Japan.

It is settled a rule in this jurisdiction that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favour of the taxing power. Taxation is the rule and exemption is the exception.

31st INFANTRY POST EXCHANGE vs. POSADAS

G.R. No. 33403. September 4, 1930

FACTS: The 31st Infantry Post Exchange is a post exchange constituted in accordance with Army regulations and the laws of the United States. in the course of its duly authorized business transactions, the Exchange made many purchases of various and diverse commodities, goods, wares and merchandise from various merchants in the Philippines. The Commissioner collected a sales tax of 1 1/2 % of the gross value of the commodities, etc. from the merchants who sold said commodities to the Exchange. A formal protest was lodged by the Exchange.

ISSUE:

Whether or not the petitioner is exempt from the sales tax imposed against its suppliers.

RULING:

The court ruled in the negative. Taxes have been collected from merchants who made sales to Army Post Exchanges since 1904 (Act 1189, Section 139). Similar taxes are paid by those who sell merchandise to the Philippine Government, and by those who do business with the US Army and Navy in the Philippines. Herein, the merchants who effected the sales to the Post Exchange are the ones who paid the tax; and it is the officers, soldiers, and civilian employees and their families who are benefited by the post exchange to whom the tax is ultimately shifted.

An Army Post Exchange, although an agency within the US Army, cannot secure exemption from taxation for merchants who make sales to the Post Exchange.

COMMISSIONER OF INTERNAL REVENUE vs. MARUBENI CORPORATION

G.R. No. 137377. December 18, 2001

FACTS: Respondent Marubeni Corporation is a foreign corporation and is duly registered to engage in business in the Philippines. Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the books of accounts of the Manila branch office of Respondent Corporation.

In the course of the examination, petitioner found respondent to have undeclared income from two (2) contracts in the Philippines. Petitioner's revenue examiners recommended an assessment for deficiency income, branch profit remittance, and contractors and commercial broker's taxes. Respondent questioned this assessment. Respondent then received a letter form petitioner assessing respondent several deficiency taxes. On September 26, 1986, respondent filed two (2) petitions for review with the Court of Tax Appeals.

Earlier, on August 2, 1986, Executive Order (E.O.) No. 41 declaring a one-time amnesty covering unpaid income taxes for the years 1981 to 1985 was issued. Under this E.O., a taxpayer who wished to avail of the income tax amnesty should comply with certain requirements. In accordance with the terms of E.O. No. 41, respondent filed its tax amnesty return dated October 30, 1986. On November 17, 1986, the scope and coverage of E.O. No. 41 was expanded by Executive Order (E.O.) No. 64.

ISSUE:

Whether or not herein respondent's deficiency tax liabilities were extinguished upon respondent's availment of tax

amnesty under Executive Orders Nos. 41 and 64.

RULING:

Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts from income tax amnesty those taxpayers "with income tax cases already filed in court as of the effectivity hereof." The point of reference is the date of effectivity of E.O. No. 41. The difficulty lies with respect to the contractor's tax assessment and respondent's availment of the amnesty under E.O. No. 64 including estate and donor's taxes and tax on business.

In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should be construed strictly against the taxpayer. The term "income tax cases" should be read as to refer to estate and donor's taxes and taxes on business while the word "hereof," to E.O. No. 64. Since Executive Order No. 64 took effect on November 17, 1986, consequently, insofar as the taxes in E.O. No. 64 are concerned, the date of effectivity referred to in Section 4 (b) of E.O. No. 41 should be November 17, 1986. There is nothing in E.O. No. 64 that provides that it should retroact to the date of effectivity of E.O. No. 41, the original issuance. Neither is it necessarily implied from E.O. No. 64 that it or any of its provisions should apply retroactively.

REAGAN vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-26379, 27. December 27, 1969

FACTS: William Reagan imported a tax-free 1960 Cadillac car with accessories valued at US $ 6,443.83, including freight, insurance and other charges. After acquiring a permit to sell the car from the base commander of Clark Air Base, Reagan sold the car to a certain Willie Johnson Jr. of the US Marine Corps stationed in Sangley Point, Cavite for US$ 6,600. Johnson sold the same, on the same day to Fred Meneses, a Filipino. As a result of the transaction, the Commissioner rendered Reagan liable for income tax in the sum of P2,970. Reagan claimed that he was exempt as the transaction occurred in Clark Air Base, which as he contends is a base outside the Philippines.

ISSUE:

Whether or not petitioner Reagan was covered by the tax exemption.

RULING:

The court ruled in the negative. The Philippines, as an independent and sovereign country, exercises its authority over its entire domain. Any state may, however, by its consent, express or implied, submit to a restriction of its sovereign rights. It may allow another power to participate in the exercise of jurisdictional right over certain portions of its territory. By doing so, it by no means follows that such areas become impressed with an alien character. The areas retain their status as native soil. Clark Air Base is within Philippine territorial jurisdiction to tax, and thus, Reagan was liable for the income tax arising from the sale of his automobile in Clark. The law does not look with favour on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Reagan has not done so, and cannot do so.

TIU vs. COURT OF APPEALS

GR. No. 127410 January 20, 1999

FACTS: Congress, with the approval of the President, passed into law RA 7227 entitled "An Act Accelerating the Conversion of Military Reservations Into Other Productive Uses, Creating the Bases Conversion and Development Authority for this Purpose, Providing Funds Therefor and for Other Purposes." Section 12 thereof created the Subic

Special Economic Zone and granted there to special privileges. President Ramos issued Executive Order No. 97, clarifying the application of the tax and duty incentives. The President issued Executive Order No. 97-A, specifying the area within which the tax-and-duty-free privilege was operative. The petitioners challenged before this Court the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. This Court referred the matter to the Court of Appeals. Proclamation No. 532 was issued by President Ramos. It delineated the exact metes and bounds of the Subic Special Economic and Free Port Zone, pursuant to Section 12 of RA 7227. Respondent Court held that "there is no substantial difference between the provisions of EO 97-A and Section 12 of RA 7227. In both, the 'Secured Area' is precise and well-defined as '. . . the lands occupied by the Subic Naval Base and its contiguous extensions as embraced, covered and defined by the 1947 Military Bases Agreement between the Philippines and the United States of America, as amended . . .'"

ISSUE:

Whether or not Executive Order No. 97-A violates the equal protection clause of the Constitution

RULING:

No. The Court found real and substantive distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification. The fundamental right of equal protection of the laws is not absolute, but is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class.

JOHN PEOPLES ALTERNATIVE COALITION vs. BCDA

GR. No. 119775 October 24, 2003

FACTS: Republic Act No. 7227 set out the policy of the government to accelerate the sound and balanced conversion into alternative productive uses of the former military bases. It created Bases Conversion and Development Authority. It also created the Subic Special Economic and Free Port Zone. It granted the Subic SEZ incentives. It expressly gave authority to the President to create through executive proclamation, subject to the concurrence of the local government units directly affected, other Special Economic Zones in the areas covered. BCDA entered into a Memorandum of Agreement and Escrow Agreement with Tuntex and Asiaworld. BCDA, Tuntex and Asiaworld executed a Joint Venture Agreement. The Sangguniang Panlungsod of Baguio City asked BCDA to exclude all the barangays partly or totally located within Camp John Hay from the reach or coverage of any plan or program for its development. The sanggunian adopted and submitted a 15-point concept for the development of Camp John Hay. BCDA, Tuntex and AsiaWorld agreed to some, but rejected or modified the other proposals. They stressed the need to declare Camp John Hay a SEZ as a condition precedent in accordance R.A. No. 7227. The sanggunian requested the Mayor to order the determination of realty taxes which may be collected from real properties of Camp John Hay. It was intended to intelligently guide the sanggunian in determining its position on whether Camp John Hay be declared a SEZ, it being of the view that such declaration would exempt the camps property and the economic activity therein from local or national taxation. The sanggunian passed a resolution seeking the issuance by President Ramos of a presidential proclamation declaring an area of 288.1 hectares of the camp as a SEZ. President Ramos issued Proclamation No. 420 which established a SEZ on a portion of Camp John Hay.

ISSUE:

Whether Proclamation No. 420 is constitutional

RULING:

While the grant of economic incentives may be essential to the creation and success of SEZs, free trade zones and the like, the grant thereof to the John Hay SEZ cannot be sustained. The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ, hence, the extension of the same to the John Hay SEZ finds no support therein. Neither does the same grant of privileges to the John Hay SEZ find support in the other laws specified under Section 3 of Proclamation No. 420, which laws were already extant before the issuance of the proclamation or the enactment of R.A. No. 7227. More importantly, the nature of most of the assailed privileges is one of tax exemption. It is the legislature, unless limited by a provision of the state constitution that has full power to exempt any person or corporation or class of property from taxation, its power to exempt being as broad as its power to tax. The challenged grant of tax exemption would circumvent the Constitutions imposition that a law granting any tax exemption must have the concurrence of a majority of all the members of Congress.

COCONUT OIL REFINERS ASSOCIATION INC. vs. BCDA

G.R. No. 132527 July 29, 2005

FACTS: Republic Act No. 7227 was enacted providing for the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special economic zones in order to promote the economic and social development of Central Luzon in particular and the country in general. President Ramos issued Executive Order No. 80 which declared that Clark shall have all the applicable incentives granted to the Subic Special Economic and Free Port Zone under Republic Act No. 7227. The CSEZ shall have all the applicable incentives in the Subic Special Economic and Free Port Zone under RA 7227. The CSEZ Main Zone covering the Clark Air Base proper shall have all the investment incentives, while the CSEZ Sub-Zone covering the rest of the CSEZ shall have limited incentives. The full incentives in the Clark SEZ Main Zone and the limited incentives in the Clark SEZ Sub-Zone shall be determined by the BCDA. BCDA passed Board Resolution No. 93-05-034 allowing the tax and duty-free sale at retail of consumer goods imported via Clark for consumption outside the CSEZ. The President issued EO No. 97, Clarifying the Tax and Duty Free Incentive Within the Subic Special Economic Zone Pursuant to R.A. No. 7227. EO 97-A was issued, Further Clarifying the Tax and DutyFree Privilege within the Subic Special Economic and Free Port Zone.

ISSUE:

Whether or not Executive Order No. 97-A, Section 5 of Executive Order No. 80, and Section 4 of BCDA Board

Resolution No. 93-05-034 are null and void

RULING:

The Court finds that the setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-free is still well within the policy enunciated in Section 12 of Republic Act No. 7227 that . . . the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment centre to generate employment opportunities in and around the zone and to attract and promote productive foreign investments. The Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null and void for being contrary to Section 12 of Republic Act No. 7227. Said Section clearly provides that exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.

PROVINCE OF ABRA vs. HERNANDO

G.R. No. L-49336 August 31, 1981

FACTS: On the face of this certiorari and mandamus petition, it clearly appears that the actuation of respondent Judge Hernando left much to be desired. There was a denial of a motion to dismiss an action for declaratory relief by Roman Catholic Bishop of Bangued desirous of being exempted from a real estate tax followed by a summary judgment granting such exemption, without even hearing the side of petitioner. It was the submission of counsel that an action for declaratory relief would be proper only before a breach or violation of any statute, executive order or regulation. Moreover, there being a tax assessment made by the Provincial Assessor on the properties of respondent, petitioner failed to exhaust the administrative remedies available under PD No. 464 before filing such court action. Respondent Judge alleged that there "is no question that the real properties sought to be taxed by the Province of Abra are properties of the respondent Roman Catholic Bishop of Bangued, Inc." The very next sentence assumed the

very point it asked when he categorically stated: "Likewise, there is no dispute that the properties including their procedure are actually, directly and exclusively used by the Roman Catholic Bishop of Bangued, Inc. for religious or charitable purposes." For him then: "The proper remedy of the petitioner is appeal and not this special civil action."

ISSUE:

Whether or not the properties of respondent Roman Catholic Bishop should be exempt from taxation

RULING:

Respondent Judge would not have erred so grievously had he merely compared the provisions of the present Constitution with that appearing in the 1935 Charter on the tax exemption of "lands, buildings, and improvements." There is a marked difference. Under the 1935 Constitution: "Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable, or educational purposes shall be exempt from taxation." The present Constitution added "charitable institutions, mosques, and non-profit cemeteries" and required that for the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also "actually and "directly" used for religious or charitable purposes. The Constitution is worded differently. The change should not be ignored. It must be duly taken into consideration.

TOLENTINO vs. SECRETARY OF FINANCE

G.R. No. 115455 October 30, 1995

FACTS: Motions were filed seeking reconsideration of the Supreme Court decision dismissing the petitions for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases.

ISSUES:

1. Whether or not R.A. No. 7716 did not "originate exclusively" in the House of Representatives as required by Art. VI Sec. 24 of the Constitution.

2. Whether or not R.A. No. 7716 is violative of press freedom and religious freedom under Art. III Secs. 4 and 5 of

the Constitution.

3. Whether or not there is violation of the rule on taxation under Art. VI Sec. 28 (1) of the Constitution.

4. Whether or not there is an impairment of obligation of contracts under Art. III Sec. 10 of the Constitution.

5. Whether or not there is violation of the due process clause under Art. III Sec. 1 of the Constitution.

RULING:

1. While Art. VI Sec. 24 provides that all appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills must "originate exclusively in the House of Representatives," it also adds, "but the Senate may propose or concur with amendments." In the exercise of this power, the Senate may propose an entirely new bill as a substitute measure.

2. Since the law granted the press a privilege, the law could take back the privilege anytime without offense to the Constitution. The VAT is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.

3. The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive.

What it simply provides is that Congress shall "evolve a progressive system of taxation."

4. Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority.

5. On the alleged violation of due process, hardship to taxpayers alone is not an adequate justification for adjudicating abstract issues. Otherwise, adjudication would be no different from the giving of advisory opinion that does not really settle legal issues. We are told that it is our duty under Art. VIII, Sec. 1 (2) to decide whenever a claim is made that "there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part

of any branch or instrumentality of the government." This duty can only arise if an actual case or controversy is before us.

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005

FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniformp ro v is o authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional.

ISSUES:

1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.

2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution.

3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the Constitution.

RULING:

1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.

2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is

constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward.

3. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness.

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs. DEPARTMENT OF FINANCE SECRETARY

G.R. No. 108524 November 10, 1994

FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under Sec. 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution.

Petitioner sought to nullify Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner organization as the classification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under Sec. 103(b) of the NIRC

ISSUE:

Whether there is violation of equal protection clause because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state.

RULING:

There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently.

COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS

G.R. No. 119761 August 29, 1996

FACTS:

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes. The Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. The initial position of the CIR was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury ' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category.

RA No. 7654, was enacted and became effective on 03 July 1993. It amended Section 142(c)(1) of the NIRC. About a month after the enactment and two (2) days before the effectively of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93") Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR. Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9, 598, 334. 00.

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. The CTA upheld the position of Fortune Tobacco and adjudged RMC No. 37-93 as defective.

ISSUE:

Whether or not there is a violation of the due process of law.

RULING:

A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.

In so doing, the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. The Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.

COMMISSIONER OF INTERNAL REVENUE vs. LINGAYEN GULF OF ELECTRIC POWER

G.R. No. L-23771 August 4, 1988

FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining municipalities of Lingayen and Binmaley, Pangasinan, pursuant to the municipal franchise granted it by their respective municipal councils, under Resolution Nos. 14 and 25 of June 29 and July 2, 1946, respectively. Section 10 of these franchises provides that said grantee shall pay 2% of their gross earnings obtained thru this privilege. On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent the total amount of P19,293.41 representing deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts from March 1, 1948 to December 31, 1954 as prescribed in Section 259 of the National Internal Revenue Code, instead of the lower rates as provided in the municipal franchises. Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan. Section 4 thereof provides that: In consideration of the

franchise and rights hereby granted, the grantee shall pay into the Internal Revenue office of each Municipality in which it is supplying electric current to the public under this franchise, a tax equal to two per centum of the gross receipts from electric current sold or supplied under this franchise. The petitioner submits that the said law is unconstitutional insofar as it provides for the payment by the private respondent of a franchise tax of 2% of its gross receipts, while other taxpayers similarly situated were subject to the 5% franchise tax imposed in Section 259 of the Tax Code, thereby discriminatory and violative of the rule on uniformity and equality of taxation.

ISSUE:

Whether or not Section 4 of R.A. No. 3843 is unconstitutional for being violative of the "uniformity and equality of taxation" clause of the Constitution.

RULING:

Uniformity means that all property belonging to the same class shall be taxed alike The Legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. Tax exemptions have never been deemed violative of the equal protection clause. Charters or special laws granted and enacted by the Legislature are in the nature of private contracts. They do not constitute a part of the machinery of the general government.

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN vs. TAN

G.R. No. 81311 June 30, 1988

FACTS: This petition seeks to nullify Executive Order No. 273 (EO 273, for short), issued by the President of the

Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution.

ISSUE:

Whether or not EO 273 was enacted by the president with grave abuse of discretion and whether or not such law is

unconstitutional.

RULING:

Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been extensively discussed by these framers and other government agencies involved in its implementation, even under the past administration. The petitioners have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value. To justify the nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication. The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business with an aggregate gross annual sales exceeding P200, 000.00. Small corners a r i- s a r i stores are consequently exempt from its application.

SISON vs. ANCHETA

G.R. No. L-59431 July 25, 1984

FACTS: Petitioner assailed the validity of Section 1 of Batas Pambansa Blg. 135 which further amends Section 21 of the

National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of individual partner in the net profits of taxable partnership, (f) adjusted gross income.

Petitioner as taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis -a- vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in character.

ISSUE:

Whether or not BP 135 Sec 1 is violative of due process and equal protection clause.

RULING:

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that petitioner here would condemn such a provision as void or its face, he has not made out a case. This is merely to adhere to the authoritative doctrine that were the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad standards, there is a need for of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity must prevail. Due process was not violated.

VILLEGAS vs. HUI CHIONG TSAI PAO

G.R. No. L-29646 November 10, 1978

FACTS:

On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).

Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate in any position or occupation or business enumerated therein, whether permanent, temporary or casual, without first securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of both the Philippine Government and any foreign government, and those working in their respective households, and members of religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila filed a petition with the CFI of Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of the rule of the uniformity in taxation. The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present petition.

ISSUE:

Whether or not the 50.00 employment permit fee imposed by virtue of Ordinance No. 6537 is a violation of the equal protection clause.

RULING:

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. Although the equal protection clause of the Constitution does not forbid classification, it is imperative that the classification should be based on real and substantial differences having a reasonable relation to the subject of the particular legislation. The same amount of P50.00 is being collected from every employed alien whether he is casual or permanent, part time or full time or whether he is a lowly employee or a highly paid executive.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to guide the mayor in the exercise of the power which has been granted to him by the ordinance.

VILLANUEVA v. CITY OF ILOILO

G.R. No. 26521 December 28, 1968

FACTS: The municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: 1) tenement house, P25.00anually; 2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart Aldequer, and P24.00 per apartment; 3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment.

The validity and constitutionality of this ordinance were challenged by the spouses Villanueva, owners of 4 tenement houses containing 34 apartments.

ISSUE:

Does Ordinance 11 violate the rules of uniformity of taxation?

RULING:

No. This court has ruled that tenement houses constitute a distinct class of property. It has likewise ruled that taxes are uniform and equal when imposed upon all properties of the same class or character within the taxing authority. The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition.

PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC. v. CITY OF BUTUAN

G.R. No. 22814 August 28, 1968

FACTS: The City of Butuan enacted Ordinance No. 110 which was subsequently amended by Ordinance No. 122. Ordinance No. 110 as amended, imposes a tax on any person, association, etc. of P0.10 per case of 24 bottles of Pepsi- Cola and the plaintiff Pepsi-Cola paid under protest. The plaintiff filed a complaint for the recovery of the amount paid under protest on the ground that Ordinance No. 110 is illegal, that the tax imposed is excessive and that it is unconstitutional. Plaintiff maintains that the ordinance is null and void because it is unjust and discriminatory.

ISSUE:

Whether or not the ordinance in question is violative of the uniformity required by the Constitution?

RULING:

Yes. Only sales by agents or consignees of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. The classification to be valid and reasonable must be: 1) based upon substantial distinctions; 2)germane to the purpose of the ordinance; 3) applicable, not only to present conditions, but also to future conditions substantially identical to those present; and 4) applicable equally to all those who belong to the same class. These conditions are not fully met by the ordinance in question.

ORMOC SUGAR COMPANY, INC. v. TREASURER OF ORMOC CITY

G.R. No. 23794 February 17, 1968

FACTS: The Municipal Board of Ormoc City passed Ordinance No. 4 imposing on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to USA and other foreign countries. Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte a complaint against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor alleging that the ordinance is unconstitutional for being violative of the equal protection clause and the rule of uniformity of taxation. The court rendered a decision that upheld the constitutionality of the ordinance. Hence, this appeal.

ISSUE:

Whether or not constitutional limits on the power of taxation, specifically the equal protection clause and rule of uniformity of taxation, were infringed?

RULING:

Yes. Equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is based upon substantial distinctions; 2) these are germane to the purpose of the law; 3) the classification applies not only to present conditions, but also to future conditions substantially identical to those present; and 4) the classification applies only to those who belong to the same class.

A perusal of the requisites shows that the questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central for the coverage of the tax.

LUTZ v. ARANETA

G.R. No. 7859 December 22, 1955

FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes imposed by Commonwealth Act No. 567 (Sugar Adjustment Act). Section 3 of the said law levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration, on lease

or otherwise a tax equivalent to the difference between the money value of the rental or consideration collected and the amount representing 12 per centum of the assessed value of such land. Plaintiff Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Ledesma, seeks to recover from the Collector of Internal Revenue the sum paid by him as taxes alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiffs opinion is not a public purpose for which a tax may be constitutionally levied. The action having been dismissed by the Court of First Instance, the plaintiffs appealed the case.

ISSUE:

Whether or not the law in question is constitutional?

A tax is uniform, within the constitutional requirement, when it operates with the same force and effect in every place where the subject of it is found. "Uniformity," as applied to the constitutional provision that all taxes shall be uniform, means that all property belonging to the same class shall be taxed alike. The statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board, etc., wherever found in the Philippine Islands. Or in other words, "the rule of taxation" upon such signs is uniform throughout the Islands. The Legislature selected signs and billboards as a subject for taxation and it must be presumed that it, in so doing, acted with a full knowledge of the situation.

MANILA ELECTRIC COMPANY v. PROVINCE OF LAGUNA and BENITO BALAZO in his capacity as Provincial Treasurer of Laguna

G.R. No. 131359. May 5, 1999.

FACTS:

Manila Electric Company (MERALCO) was granted a franchise from certain municipalities of Laguna. On September 13, 1991, Republic Act 7160, otherwise known as the Local Government Code of 1991 was enacted, enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to this Code,

respondent province enacted a Provincial Ordinance providing that a tax on business enjoying franchise, at a rate of 50% of 1% of the gross annual receipts... On the basis of such ordinance, the Provincial Treasurer sent a demand letter to MERALCO for the tax payment. MERALCO paid under protest. Thereafter, a formal claim for refund was sent by MERALCO to the Provincial Treasurer claiming that the franchise tax it had paid and continue to pay to the National Government already includes the franchise tax as provided under Presidential Decree 551.

The claim was denied. MERALCO filed an appeal with the trial court but was dismissed. Thus the petition.

ISSUE

Whether the imposition of a franchise tax under section 2.09 of the Laguna Provincial Ordinance No. 01-92 violates the non-impairment clause of the Constitution.

RULING

No. Although local governments do not have the inherent power to tax, such power may be delegated to them either by basic law or by statute. This is provided under Article X of the 1987 Constitution. The rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers.

The Local Government Code of 1991 repealed the Tax Code. It explicitly authorizes provincial governments, notwithstanding any exemption granted by any law, or other special laws, xxx (to) impose a tax on business enjoying a franchise.

The phrase, in lieu of all taxes has to give way to the peremptory language of the Local Government Code.

THE PROVINCE OF MISAMIS ORIENTAL represented by its PROVINCIAL TREASURER v. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY

G.R. No. L-45355. January 12, 1990

FACTS:

Cagayan Electric Power and Light Company, Inc. (CEPALCO) was granted a franchise on June 17, 1961 under Republic Act 3247. It was amended by Republic Act 3570 and Republic Act 6020. On June 28, 1973, the Local Tax Code was promulgated which provides that the province may impose a tax on businesses enjoying franchise. Pursuant thereto, the Province of Misamis enacted Provincial Revenue Ordinance No. 19. It demanded payment. CEPALCO refused to pay, alleging that it is exempt from all taxes except the franchise tax required by Republic Act 6020. The provincial fiscal upheld the ordinance. CEPALCO paid under protest. On appeal to the Secretary of Justice, ruled in favour of CEPALCO. The province filed a petition with the trial court but was dismissed. Thus, the petition.

ISSUE

Whether CEPALCO is exempt from paying the provincial franchise tax.

RULING

Yes. First off, there is no provision in PD No. 231 expressly or impliedly amending or repealing sec. 3 of RA 6020 which exempts CEPALCO. The rule is that a special and local statute applicable to a particular case is not repealed by a later statute which is general in its terms, provisions and application even if the terms of the general act are broad enough to include the cases in the special law unless there is manifest intent to repeal or alter the special law.

The franchise of CEPALCO expressly exempts it from payment of all taxes of whatever authority except 3% tax on its gross earnings. Such exemption is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee.

Local Tax Regulation No. 3-75 issued by the Secretary of Finance on June 26, 1976, has made it crystal clear that the franchise tax provided in the Local Tax Code (P.D. No. 231, Sec. 9) may only be imposed on companies with franchises that do not contain the exempting clause in-lieu-of-all-taxes.

CAGAYAN ELECTRIC POWER AND LIGHT CO., INC v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS

G.R. No. L-60126. September 25, 1985

FACTS: Petitioner Cagayan Electric Power and Light Co., Inc (CEPALCO) is the holder of a legislative franchise, Republic

Act 3247 under which, it is exempted from taxes, and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires transformers, and insulators.

On June 27, 1968, Republic Act 5431 amended Section 24 of the Tax Code, making the petitioner liable for income tax in addition to franchise tax. On August 4, 1969, Republic Act 6020 was enacted under which, the petitioner was again tax exempted.

The Commissioner of Internal Revenue (CIR) sent a demand letter on February 15, 1973, requiring petitioner to pay the deficiency for income taxes for 1968-1971. Upon petitioner's contention, the CIR cancelled the assessments for 1970 but insisted those for 1968 and 1969.

Petitioner filed a petition for review with the tax court which held petitioner responsible only for the period from January 1 to August 3, 1969, or before the passage of Republic Act 6420 which reiterated its tax exemption. Thus, the appeal.

ISSUE:

Whether petitioner's franchise is a contract which can be impaired by an implied appeal.

RULING:

Yes. Congress could impair petitioner's franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided in its franchise. The Constitution provides that a franchise is subject to amendment, alteration, or repeal by Congress when public interest so requires. Petitioner's franchise, under the Republic Act 3247 also provides it is subject to the Constitution.

Republic Act 5431 withdrew petitioner's exemption but was restored by subsequent enactment. Thus, it is only liable for the period of January 1 to August 3, 1969 when its tax exemption was modified.

LEALDA ELECTRIC CO., INC v. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX

APPEALS

G.R. No. L-16428. April 30, 1963

FACTS: On June 11, 1949, Alfredo, Mario and Benjamin Benito formed a partnership to operate an electric plant. Such electric plant was granted a franchise in the year 1915 to supply electric current to the municipalities of Albay. The franchise, the Certificate of public convenience and the electric plant was transferred to the said partnership. Under its franchise, the original grantee and successors-in-interest paid a franchise tax of 2% on the gross earnings, until October 1, 1946, when section 259 of the National Internal Revenue Code was amended by Republic Act 39, which increased the franchise tax to 5%.

On a date undisclosed, petitioner filed a petition for refund contending that on its charter, it was liable to pay a franchise tax of 2% and not 5% of its earnings and receipts.

As several petitions were not given definite action, thus petitioner filed with the Court of Tax Appeals (CTA) a petition, praying for refund from the period of January 20, 1947 to October 14, 1958. The CTA dismissed the petition.

Thus, the petition, on the ground that Act No.2475, as amended by Act 2620, granting its franchise constitute a private contract between the petitioner and the Government and such cannot be amended, altered or repealed by Section 259 of the Tax Code.

ISSUE

Whether petitioner should pay 5% of his gross earnings.

RULING

Yes. Petitioner's franchise does not specifically state that the rate of the franchise tax shall be 2% of his gross earnings or receipts. It simply provides that the grantee and successors-in-interest shall pay the same franchise tax imposed upon other grantees at the time Act No. 2475 was enacted. Franchise holders did pay the rate of 2% until the rate was increased to 5%.

Also, prior to its amendment, Section 259 of the Tax Code merely provided that grantees of franchises should pay on their gross earnings or receipts such taxes...as are specified in special charters upon whom franchises are conferred. This does not cover franchise holders whose charters did not specify the rate of franchise tax. It was covered under Section 10 of Act No. 3636. Consequently, section 259 of the Tax Code became the basic franchise tax to be paid by holders of all existing and future franchises. Such being the case, the act amending the section must be deemed applied to petitioner.

J. CASANOVAS vs. JNO. S. HORD

G.R. No. 3473 March 22, 1907

FACTS:

In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may 1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is now the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189 (Internal Revenue Act). The defendant Commissioner, JNO S. Hord, imposed upon these properties the tax mentioned in Section 134, which plaintiff Casanovas paid under protest.

ISSUE:

Whether or not Section 134 of Act 1189 is valid.

RULING:

The deed constituted a contract between the Spanish Government and Casanovas. The obligation in the contract was impaired by the enactment of Section 134 of the Internal Revenue Law, thereby infringing the provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with Section 60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of illegality in the procedure by which they were obtained, or for failure to comply with the conditions prescribed as requisites for their retention in the laws under which they were granted. There is no claim in this case that there was any illegality in the procedure by which these concessions were obtained, nor is there any claim that the plaintiff has not complied with the conditions

prescribed in the royal decree of 1867. As to the allegation that the section violates uniformity of taxation, the Court found it unnecessary to consider the claim in view of the result at which the Court has arrived.

AMERICAN BIBLE SOCIETY vs. CITY OF MANILA

G.R. No. L-9637 April 30, 1957

FACTS:

Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing business in the Philippines. The defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions of the Revised Charter of the City of Manila. In the course of its ministry, the Philippine agency of the American Bible Society has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialects. The acting City Treasurer of Manila required the society to secure the corresponding Mayors permit and municipal license fees, together with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The society paid such under protest, and filed suit questioning the legality of the ordinances under which the fees are being collected.

ISSUE:

Whether or not the municipal ordinances violate the freedom of religious profession and worship.

RULING:

A tax on the income of one who engages in religious activities is different from a tax on property used or employed in connection with those activities. It is one thing to impose a tax on the income or property of a preacher, and another to exact a tax for him for the privilege of delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. Even if religious groups and the press are not altogether free from the burdens of the government, the act of distributing and selling bibles is purely religious and does not fall under Section 27 (e) of the Tax Code (CA 466). The fact that the price of bibles, etc. is a little higher than actual cost of the same does not necessarily mean it is already engaged in business for profit. Ordinance 2529 and 3000 are not applicable to the Society for in doing so it would impair its free exercise and enjoyment of its religious profession

and worship as well as its rights of dissemination of religious beliefs.

ABRA VALLEY COLLEGE, INC vs. HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra

G.R. NO. 39086 June 15, 1988

FACTS:

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The trial court ruled for the government, holding that the second floor of the building is being used by the director for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said petition on 17 August 1974.

ISSUE:

Whether or not the lot and building are used exclusively for educational purposes.

RULING:

Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes. Reasonable emphasis has always been made that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the

Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be returned to the petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).

COMMISSIONER OF INTERNAL REVENUE, vs. BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE ISLANDS OF THE PROTESTANT EPISCOPAL

CHURCH IN THE U.S.A. and THE COURT OF TAX APPEALS

G.R. No. L-19445 August 31, 1965

FACTS:

Respondent Bishop of the Missionary District of the Philippines Islands of the Protestant, Episcopal Church in the U.S.A. is a corporation sole duly registered with the Securities and Exchange Commission. On the other hand, the Missionary District of the Philippine Islands of the Protestant Episcopal Church the U.S.A. (hereinafter referred to as Missionary District) is a duly incorporated and established religious society and owns and operates the St. Luke's Hospital in Quezon City, the Brent Hospital in Zamboanga City and the St. Stephen's High School in Manila.

In 1957 to 1959, the Missionary District received various shipments of materials, supplies, equipment and other articles intended for use in the construction and operation of the new St. Lukes Hospital. On these shipments, the Commissioner collected compensation tax. The Missionary District filed claims for refund, but which was denied by the Commissioner on the ground that St. Lukes Hospital was not a charitable institution and therefore was not exempt from taxes because it admits pay patients.

ISSUE: Whether or not the shipments for St. Lukes Hospital are tax-exempt.

RULING:

The following requisites must concur in order that a taxpayer may claim exemption under the law (1) the imported

articles must have been donated; (2) the donee must be a duly incorporated or established international civic organization, religious or charitable society, or institution for civic religious or charitable purposes; and (3) the articles so imported must have been donated for the use of the organization, society or institution or for free distribution and not for barter, sale or hire.

As the law does not distinguish or qualify the enjoyment or the exemption (as the Secretary of Finance did in Department Order 18, series of 1958), the admission of pay patients does not detract from the charitable character of a hospital, if its funds are devoted exclusively to the maintenance of the institution. Thus, the shipments are tax exempt.

LLADOC v. Commissioner of Internal Revenue

G.R. No. L-19201 June 16, 1965

FACTS: Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated P10, 000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias, Negros Occidental, and predecessor of herein petitioner, for the construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax return. Under date of April 29, 1960, the respondent Commissioner of Internal Revenue issued an assessment for donee's gift tax against the Catholic Parish of Victorias, Negros Occidental, of which petitioner was the priest.

Petitioner lodged a protest to the assessment and requested the withdrawal thereof. The protest and the motion for reconsideration presented to the Commissioner of Internal Revenue were denied. The petitioner appealed to the Court of Tax Appeals.

ISSUE:

Whether or not the assessment for donees gift tax was valid, considering the fact that the Constitution exempts petitioner from taxation

RULING:

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from taxation cemeteries, churches and parsonages or convents, appurtenant thereto, and allla n d s,b u ild in g s, and improvements used exclusively for religious purposes. The exemption is only from the payment of taxes assessed on such properties enumerated, as property taxes, as contra distinguished from excise taxes. In the present case, what the Collector assessed was a donees gift tax; the assessment was not on the properties themselves. It did not rest upon general ownership; it was an excise upon the use made of the properties, upon the exercise of the privilege of receiving the properties. Manifestly, gift tax is not within the exempting provisions of the section just mentioned. A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way of gift inter vivo, the imposition of which on property used exclusively for religious purposes, does not constitute an impairment of the Constitution.

HERRERA v. QUEZON CITY BOARD OF ASSESSMENT

GR.No.L-15270 September 30, 1961

FACTS: On July 24, 1952, the Director of the Bureau of Hospitals authorized the petitioners to establish and operate the "St. Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa Heights, Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about January 3, 1953, the petitioners sent a letter to the Quezon City Assessor requesting exemption from payment of real estate tax on the lot, building and other improvements comprising the hospital stating that the same was established for charitable and humanitarian purposes and not for commercial gain. After an inspection of the premises in question and after a careful study of the case, the exemption from real property taxes was granted effective the years 1953, 1954 and 1955.

Subsequently, however, the Quezon City Assessor notified the petitioners that the aforesaid properties were reclassified from exempt to "taxable" and thus assessed for real property taxes. The petitioners appealed the assessment to the Quezon City Board of Assessment Appeals, which affirmed the decision of the City Assessor. A motion for reconsideration thereof was denied. From this decision, the petitioners instituted the instant appeal. The building involved in this case is principally used as a hospital.

ISSUE:

Whether or not the lot, building and other improvements occupied by the St. Catherine Hospital are exempt from the real property tax.

RULING:

It is well settled, that the admission of pay-patients does not detract from the charitable character of a hospital, if all its funds are devoted "exclusively to the maintenance of the institution" as a "public charity". In other words, where rendering charity is its primary object, and the funds derived from payments made by patients able to pay are devoted to the benevolent purposes of the institution, the mere fact that a profit has been made will not deprive the hospital of its benevolent character"

Moreover, the exemption in favour of property used exclusively for charitable or educational purposes is "not limited to property actually indispensable" therefor, but extends to facilities which are "incidental to and reasonably necessary for" the accomplishment of said purposes.

Within the purview of the Constitutional exemption from taxation, the St. Catherine's Hospital is, therefore, a charitable institution, and the fact that it admits pay-patients does not bar it from claiming that it is devoted exclusively to benevolent purposes, it being admitted that the income derived from pay-patients is devoted to the improvement of the charity wards, which represent almost two-thirds (2/3) of the bed capacity of the hospital, aside from "out-charity patients" who come only for consultation.

BISHOP OF NUEVA SEGOVIA v. PROVINCIAL BOARD OF ILOCOS NORTE

G.RNo.L-27588 December 31, 1927

FACTS: The plaintiff, the Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which face on public streets. On the south side is a part of the churchyard, the convent and an adjacent lot used for a vegetable garden, containing an area off 1,624 square meters, in which there is a stable and a well for the use of the convent. In the center is the remainder of the churchyard and the church. On the north is an old cemetery with two of its walls still standing, and a portion where formerly stood a tower, the base of which still be seen, containing a total area of 8,955 square meters.

As required by the defendants, on July 3, 1925 the plaintiff paid, under protest, the land tax on the lot adjoining the convent and the lot which formerly was the cemetery with the portion where the tower stood.

The plaintiff filed this action for the recovery of the sum paid by to the defendants by way of land tax, alleging that the collection of this tax is illegal. The lower court absolved the defendants from the complaint in regard to the lot adjoining convent and declared that the tax collected on the lot, which formerly was the cemetery and on the portion where the lower stood, was illegal. Both parties appealed from this judgment.

ISSUE

Whether or not the lots of petitioner are exempted from land tax

RULING

The exemption in favour of the convent in the payment of the land tax (sec. 344 [c] Administrative Code) refers to the home of the parties who presides over the church and who has to take care of himself in order to discharge his duties. In therefore must, in the sense, include not only the land actually occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man.

The judgment appealed from is reversed in all it parts and it is held that both lots are exempt from land tax and the defendants are ordered to refund to plaintiff whatever was paid as such tax, without any special pronouncement as to costs.

Commissioner of Internal Revenue v. Court of Appeals and YMCA

G.R.No.L-124043 October 14, 1998

FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.

In 1980, private respondent earned, among others, an income of P676, 829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages.

Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.

Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA) on

March 14, 1989. In due course, the CTA issued this ruling in favor of the YMCA:

ISSUE:

Whether or not the YMCA is exempted from rental income derived from the lease of its properties

RULING

Petitioner argues that while the income received by the organizations enumerated in Section 27 (now Section 26)

of the NIRC is, as a rule, exempted from the payment of tax "in respect to income received by them as such," the exemption does not apply to income derived "xxx from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income xxx" We agree with the commissioner.

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code.

LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and CONSTANTINO P. ROSAS

G.R. No. 144104 June 29, 2004

FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land where erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle,

while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center.

On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4, 554,860 by the City Assessor of Quezon City but the former filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution.

ISSUE:

Whether or not the petitioners real properties are exempted from realty tax exemptions.

RULING:

Even as we find that the petitioner is a charitable institution, those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized.

Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy any property tax exemption privileges for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been among the enumeration of tax exempt privileges under Section 2.

Procter and Gamble Philippines Manufacturing Corp. vs. Municipality of Jagna

G. R. No. L-24265

28 December 1979

FACTS: Petitioner Procter and Gamble Philippines Manufacturing Corp. is a consolidated corporation of Procter and

Gamble Trading Company engaged in the manufacture of soap, edible oil, margarine and other similar products. Petitioner maintains a bodega in the municipality of Jagna, where it stores copra purchased in the municipality and ships the same for its manufacturing and other operations. In 1954, the Municipal Council of Jagna enacted Ordinance 4, imposing storage fees of all exportable copra deposited in the bodega within the jurisdiction of the municipality of Jagna, Bohol. From 1958 to 1963, the company paid the municipality, allegedly under protest, storage fees. In 1964, it filed suit, wherein it prayed that the Ordinance be declared inapplicable to it, and if not, that it be declared ultra vires and void.

ISSUE:

Whether the Ordinance is void, as it amounts to double taxation.

RULING:

The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon municipalities by Commonwealth Act 472 (promulgated 1939), which was the prevailing law when the Ordinance is actually a municipal license tax or fee on persons, firms and corporations exercising the privilege of storing copra within the municipalitys territorial jurisdiction. Such fees imposed do not amount to double taxation. For double taxation to exist, the same property must be taxed twice, when it should be taxed but once. A tax on the companys products is different from the tax on the privilege of storing copra in a bodega situated within the territorial boundary of the municipality.

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC. vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL.

G.R. No. L-31156

February 27, 1976

FACTS: On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company commenced a complaint before the

Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264-the Local Autonomy

Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. M. O. No. 23, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." On the other hand, M. O. No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.' The CFI of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal. Hence this petition. The petitioner contends Ordinances Nos. 23 and 27 constitute double taxation because these two ordinances cover the same subject matter and impose practically the same tax rate and impose percentage or specific taxes.

ISSUES:

Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes?

RULING:

No, the Ordinances does not constitute double taxation. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior

Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect.

EUSEBIO VILLANUEVA, ET AL., vs. CITY OF ILOILO

G.R. No. L-26521 December 28, 1968

FACTS:

On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act

2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires (taxing tenement houses), enacted Ordinance 11, series of 1960 which taxes those involve in the business of renting apartment houses.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal.

ISSUE:

Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation?

RULING:

There is no double taxation. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax." It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the same taxing authority, are not of the same kind or character.

Delpher Trades Corporation vs. IAC

G.R. No. L-69259. January 26, 1988.

FACTS: Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila). The said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco. On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00.

On the ground that it was not given the first option to buy the property, respondent Hydro Pipes Philippines, Inc., a complaint for reconveyance of Lot. No. 1095 in its favour. The Court of First Instance of Bulacan ruled in favor of the plaintiff. The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.

ISSUE:

Whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale.

RULING:

We rule for the petitioners. In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription. "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed."

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes.

The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted."

Heng Tong Textiles Co., Inc. vs. CIR

G.R. No. L-19737. August 26, 1968.

FACTS: In 1952 the Collector of Internal Revenue assessed against the petitioner deficiency sales taxes and surcharges for the year 1949 and the first four months of 1950 in the aggregate sum of P89,123.58. The assessment was appealed to the Board of Tax Appeals, whence the case was transferred to the Court of Tax Appeals upon its organization in 1954, and there was affirmed in its decision dated February 28, 1952. The deficiency taxes in question were assessed on importations of textiles from abroad. The goods were withdrawn from Customs by PanAsiatic Commercial Co., Inc., which paid, in the name of the petitioner, the corresponding advance sales tax under section 183(b) of the Internal Revenue Code. The assessment for the deficiency was made against the petitioner, Heng Tong Textiles Co., Inc. on the ground that it was the real importer of the goods and did not pay the taxes due on the basis of the gross selling prices thereof.

ISSUE:

Whether or not petitioner was guilty of fraud so as to warrant the imposition of a penalty of 50% on the deficiency.

RULING:

Petitioner excepts to the conclusion of the Court of Tax Appeals and avers that the importation papers were placed in the name of the petitioner only for purposes of accommodation, that is, to introduce the petitioner to textile suppliers abroad; and that the petitioner was not in a financial position to make the importations in question. These circumstances show nothing but a private arrangement between the petitioner and Pan-Asiatic Commercial, which in no way affected the role of the petitioner as the importer.

The arrangement resorted to does not by itself alone justify the penalty imposed. Section 183(a), paragraph 3, of the Internal Revenue Code, as amended by Republic Act No. 253, speaks of willful neglect to file the return or wilful making of a false or fraudulent return. An attempt to minimize one's tax does not necessarily constitute fraud. It is a

settled principle that a taxpayer may diminish his liability by any means which the law permits.

Commissioner of Internal Revenues vs. Toda

G.R. No. 147188. September 14, 2004

FACTS: On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its outstanding capital stock, to sell the Cibeles Building. On 30 August 1989, Toda purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. Three and a half years later Toda died. On 29 March 1994, the BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the CIR for deficiency income tax for the year 1989. The Estate thereafter filed a letter of protest. The Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with the CTA. In its decision the CTA held that the Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Hence, the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a petition for review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA. Hence, this recourse to the SC.

ISSUE:

Whether or not this is a case of tax evasion or tax avoidance.

RULING:

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e . , the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or deliberate and not accidental; and (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. Altonagas sole purpose of acquiring and transferring title of the subject properties on

the same day was to create a tax shelter. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability.

Davao Gulf Lumber Corporation vs. CIR

G.R. No. 117359. July 23, 1998.

FACTS: From July 1, 1980 to January 31, 1982 petitioner purchased, from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels. Said oil companies paid the specific taxes imposed on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on to the petitioner in this case.

Petitioner filed before Respondent CIR a claim for refund in the amount of P120, 825.11, representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by petitioner in its operations as forest concessionaire.

On January 20, 1983, petitioner filed at the CTA a petition for review. The CTA rendered its decision finding petitioner entitled to a partial refund of specific taxes in the reduced amount of P2, 923.15. In regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by petitioner under the NIRC.

Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the Court of Appeals. The Court of Appeals affirmed the CTA Decision. Hence, this petition for review.

ISSUE:

Whether or not petitioner is entitled to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils.

RULING:

At the outset, it must be stressed that petitioner is entitled to a partial refund under Section 5 of RA 1435, which was enacted to provide means for increasing the Highway Special Fund.

A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, [a] claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Since the partial refund authorized under Section 5, RA 1435, is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it actually paid must expressly be granted in a statute stated in a language too clear to be mistaken.

PHILIPPINE ACETYLENE CO., INC. vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS

G.R. No. L-19707

August 17, 1967

FACTS: The petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. It made various sales of its products to the National Power Corporation and to the Voice of America an agency of the United States Government. The sales to the NPC amounted to P145, 866.70, while those to the VOA amounted to P1,683, on account of which the respondent Commission of Internal Revenue assessed against, and demanded from, the petitioner the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to the Sec.186 of the National Internal Revenue Code.

The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from taxation.

ISSUE:

Is the petitioner exempt from paying tax on sales it made to the 1) NPC and the 2) VOA because both entities are exempt from taxation?

RULING:

1) No. SC holds that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is permissible.

2) No. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under Article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to the quartermaster but for a different purpose, are not free from the payment of the tax.

Commissioner of Internal Revenue vs. Courts of Tax Appeal, et al

G.R. No. 115349 April 18, 1997

FACTS: Ateneo de Manila is an educational institution with auxiliary units and branches all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies.

On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor's tax the value of which was later on, upon private respondents request for reinvestigation, reduced to P46,516.41,

Unsatisfied, Private respondent filed in the Court of Tax Appeals a petition for review of the said letter-decision of the petitioner which rendered a decision in its favour and ordered the tax assessment cancelled.

ISSUE:

Is Ateneo de Manila University, through its auxiliary unit or branch the Institute of Philippine Culture performing the work of an independent contractor and, thus, subject to the three percent contractor's tax levied by then Section 205 of the National Internal Revenue Code?

RULING:

No, The Supreme Court held that Ateneo de Manila University is not subject to the contractors tax. It explained that to fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its services. The Court, however, found no evidence that Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university.

Moreover, the Court of Tax Appeals accurately and correctly declared that the funds received by the Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations which are tax-exempt" as shown by private respondent's compliance with the requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution.

Caltex Philippines, Inc. v. Commission on Audit

G.R. No. 92585 May 8, 1992

FACTS: Respondent Commission on Audit (COA) directed petitioner Caltex Philippines, Inc. (CPI) to remit to the Oil Price Stabilization Fund (OPSF) its collection of the additional tax on petroleum products pursuant to P.D. 1956, as well as unremitted collections of the above tax covering the years 1986, 1987 and 1988, with interests and surcharges, and advising it that all its claims for reimbursements from the OPSF shall be held in abeyance pending such remittance. COA further directed petitioner oil company to desist from further offsetting the taxes collected against outstanding claims for 1989 and subsequent periods.

Its motion for reconsideration of the eventual decision of the COA on the matter having been denied, CPI imputes that respondent commission erred in preventing the former from exercising the right to offset its remittances against the reimbursement vis--vis the OPSF.

ISSUE:

Whether or not the amounts due to the OPSF from petitioner may be offset against the latters outstanding claims from said fund?

RULING:

No. It is settled that a taxpayer may not offset taxes due from claims that he may have against the Government. Taxes cannot be the subject of compensation because the Government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set off.

The Court further ruled that taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the Government. Taxes may be levied for a regulatory purpose such as to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest, a concern which is within the police power of the State to address.

LUZON STEVEDORING CORPORATION vs. COURT OF TAX APPEALS and the HONORABLE COMMISSIONER OF INTERNAL REVENUE

G.R. No. No. L-30232 July 29, 1988

FACTS: Herein petitioner imported various engine parts and other equipment for which it paid, under protest, the assessed compensating tax. Unable to secure a tax refund from the Commissioner of Internal Revenue, it filed a Petition for Review with the Court of Tax Appeals in order to be granted a refund. Petitioner contends that tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. He argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part constitute a single vessel. Accordingly, it concludes that the engines, spare parts and equipment imported by it and used in the repair and maintenance of its tugboats are exempt from compensating tax. On the other hand, respondent contends that "tugboats" are not "Cargo vessel" because they are neither designed nor used for carrying and/or transporting persons or goods by themselves but are mainly employed for towing and pulling purposes.

ISSUE:

Whether or not tugboats are included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code.

RULING:

No. tugboats are not included in the term cargo vessels which are exempted from compensating tax under article 190 of the National Internal Revenue Code. The Supreme Court explained that under the definition of tugboat, a diesel or steam power vessel designed primarily for moving large ships to and from piers for towing barges and lighters in harbors, rivers and canals. Which clearly do not fall under the categories of passenger and/or cargo vessels. Thus, it is a cardinal principle of statutory construction that where a provision of law speaks categorically, the need for interpretation is obviated, no plausible pretence being entertained to justify non-compliance. All that has to be done is to apply it in every case that falls within its terms.

NATIONAL DEVELOPMENT COMPANY vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. No. L-53961 June 30, 1987

FACTS: National Development Company (NDC) is a domestic corporation with principal offices in Manila. It entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of twelve oceangoing vessels.

Initial payments were made in cash and through irrevocable letters of credit. Fourteen promissory notes were signed for the balance by the NDC and, as required by the shipbuilders, guaranteed by the Republic of the Philippines. Thereafter, remaining payments and the interests thereon were remitted in due time by the NDC to Tokyo. After the vessels were delivered, the NDC remitted to the shipbuilders in Tokyo the interest on the balance of the purchase price. No tax was withheld. The Commissioner of Internal Revenue held that the interest remitted to the Japanese shipbuilders on the unpaid balance of the purchase price of the vessels acquired by petitioner is subject to income tax under the Tax Code. The petitioner argues that the Japanese shipbuilders were not subject to tax under the Tax Code. Petitioner contends that the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC were government securities exempt from taxation under Section 29(b)[4] of the Tax Code.

ISSUE:

Whether petitioner should not be held liable due to the undertaking signed by the Secretary of Finance and because the interest payments were obligations of the Republic of the Philippines and that the promissory notes of the NDC

were government securities exempt from taxation under Section 29(b)[4] of the Tax Code as alleged by petitioner.

RULING: No. Petitioner should be held liable. There is nothing in Section 29(b)[4] of the Tax Code exempting the interests from taxes. Furthermore in the said undertaking, petitioner has not established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favour of the taxing power. It is not the NDC that is being taxed. It was the income of the Japanese shipbuilders and not the Republic of the Philippines that was subject to the tax the NDC did not withhold. In effect, therefore, the imposition of the deficiency taxes on the NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders.

MANILA ELECTRIC COMPANY vs. Commissioner of Internal Revenue

G.R. Nos. No. L-29987s and L-23847 October 22, 1975

FACTS: MERALCO is the holder of a franchise by the Municipal Board of the City of Manila to Mr Charles M. Swift and later assumed and taken over by petitioner to construct, maintain, and operate an electric light, heat, and power system in the City of Manila and its suburbs. In two separate occasions, MERALCO imported copper wires, transformers, and insulators for use in the operation of its business. The Collector of Customs, as Deputy of Commissioner of Internal Revenue, levied and collected a compensating tax for the said importation. MERALCO claims for a refund alleging that it was exempted from such compensating tax based on paragraph 9 of its franchise.

The court stated that MERALCO's claim for exemption from the payment of the compensating tax is not clear or expressed. Hence, this appeal.

ISSUE:

Whether or not petitioner is exempted to pay compensating tax for its purchase or receipt of commodities, goods, wares, or merchandise outside the Philippines.

RULING: No. One who claims to be exempt from the payment of a particular tax must do so under clear and unmistakable terms found in the statute. Tax exemptions are strictly construed against the taxpayer. In the case at bar, the Court is not aware whether or not the tax exemption provisions contained in Par. 9, Part Two of Act No. 484 of the Philippine Commission of 1902 was incorporated in the municipal franchise granted because no admissible

copy of Ordinance of the said Board was ever presented in evidence by the petitioner. Furthermore there is no "plain and unambiguous terms" declaring petitioner MERALCO exempt from paying a compensating tax on its imports of poles, wires, transformers, and insulators. The last clause of paragraph 9 merely reaffirms, what has been expressed in the first sentence that petitioner is exempted from payment of property tax. A compensating tax is not a property tax but an excise tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege.

ERNESTO M. MACEDA vs. HON. CATALINO MACARAIG, JR., et al

G.R. No. No. 88291 May 31, 1991 and G.R. No. No. 88291 June 8, 1993

FACTS:

Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of hydraulic power and the production of power from other sources. Several laws were enacted granting NPC tax and duty exemption privileges such as taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities and municipalities "directly or indirectly," on all petroleum products used by NPC in its operation. However P.D. No. 1931 withdrew all tax exemption privileges granted in favour of government-owned or controlled corporations including their subsidiaries but empowered the President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or totally, the exemption withdrawn. BIR ruled that the exemption privilege enjoyed by NPC under said section covers only taxes for which it is directly liable and not on taxes which are only shifted to it.

In 1986, BIR Commissioner Tan, Jr. states that all deliveries of petroleum products to NPC are tax exempt, regardless of the period of delivery. Thereafter, the FIRB issued several Resolutions in different occasions restoring the tax and duty exemption privileges of NPC indefinite period due to the restoration of the tax exemption privileges of NPC, NPC applied with the BIR for a "refund of Specific Taxes paid on petroleum products. On August 6, 1987, the Secretary of Justice, Opinion opined that "the power conferred upon Fiscal Incentives Review Board constitute undue delegation of legislative power and, therefore, unconstitutional. However, respondents Finance Secretary and the Executive Secretary declared that "NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Thereafter investigations were made for the refund of the tax payments of the NPC which includes Millions of pesos Tax refund. Petitioner, as member of the Philippine Senate introduced as Resolution Directing the Senate Blue

Ribbon Committee, In Aid of Legislation, to conduct a Formal and Extensive Inquiry into the Reported Massive Tax Manipulations and Evasions by Oil Companies, particularly Caltex (Phils.) Inc., Pilipinas Shell and Petrophil, Which Were Made Possible By Their Availing of the Non-Existing Exemption of National Power Corporation (NPC) from Indirect Taxes, Resulting Recently in Their Obtaining A Tax Refund Totalling P1.55 Billion From the Department of Finance.

ISSUE:

Whether or not respondent NPC is legally entitled to the questioned tax and duty refunds.

RULING:

Yes. In G.R. No. No. 88291 the Supreme Court ruled in favour of exempting NPC to the said taxes. Also in G.R. No. No. 88291 the Supreme Court ruled in favour of respondents. NPC under the provisions of its Revised Charter retains its exemption from duties and taxes imposed on the petroleum products purchased locally and used for the generation of electricity. Presidential Decree No. 938 amended the tax exemption of NPC by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." the NPC electric power rates did not carry the taxes and duties paid on the fuel oil it used. The point is that while these levies were in fact paid to the government, no part thereof was recovered from the sale of electricity produced. As a consequence, as of our most recent information, some P1.55 B in claims represent amounts for which the oil suppliers and NPC are "out-of-pocket. There would have to be specific order to the Bureaus concerned for the resumption of the processing of these claims.

COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX

APPEALS

G.R. No. No. L-31092 February 27, 1987

FACTS: The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. An agreement was entered into between the Republic of the Philippines and the said Organization

on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila. A bidding was held for the building construction. The WHO informed the bidders that the building to be constructed belonged to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies." Thereafter, the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. WHO. The WHO issued a certification that the bid of John Gotamco & Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building because such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not covered by the tax exemption agreement

ISSUE:

Whether or not the said 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO by the government.

RULING:

Yes. The 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO. Hence, petitioner cannot be held liable for such contractors tax. The Supreme Court explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that the contractor's tax is payable by the contractor, However in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO.

Commissioner of Internal Revenue vs. Court of Appeals and YMCA

G.R. No. 124043, October 14, 1998

FACTS: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.

The Commissioner of Internal Revenue issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the Commissioner denied the claims of YMCA.

YMCA filed a petition for review at the Court of Tax Appeals. The CTA ruled in favor of the YMCA. The Commissioner elevated the case to the Court of Appeals which initially decided in its favor by reinstating the assessment of deficiency fixed, contract of Appeals which initially decided in its favor by reinstating the assessment of deficiency fixed, contractors and income taxes. However, finding merit in YMCAs motion for reconsideration, the appellate court reversed itself and promulgated the first assessed resolution dated September 28, 1995 granting said motion of YMCA by affirming the CTAs decision in toto. On February 29, 1996, the Court of Appeals denied the Commissioners motion for reconsideration.

ISSUE:

Whether or not the rental income of YMCA on its real estate is subject to tax.

RULING:

The Court ruled that the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction.

Nitafan vs. Commissioner of Internal Revenue

G.R. No. L-78780, July 23, 1987

FACTS: The Chief Justice has previously issued a directive to the Fiscal Management and Budget Office to continue the deduction of withholding taxes from salaries of the Justices of the Supreme Court and other members of the judiciary. This was affirmed by the Supreme Court en banc on December 4, 1987.

Petitioners are the duly appointed and qualified Judges presiding over Branches 52, 19 and 53, respectively, of the RTC, National Capital Judicial Region, all with stations in Manila. They seek to prohibit and/or perpetually enjoin the Commissioner of Internal Revenue and the Financial Officer of the Supreme Court, from making any deduction of withholding taxes from their salaries. They contend that this constitutes diminution of salary contrary to Section 10, Article VIII of the 1987 Constitution, which provides that the salary of the members of the Supreme Court and judges of lower courts shall be fixed by law and that during their continuance in office, their salary shall not be decreased. With the filing of the petition, the Court deemed it best to settle the issue through judicial pronouncement, even if it had dealt with the matter administratively.

The Supreme Court dismissed the petition for prohibition.

ISSUE:

Whether or not the salaries of judges are subject to tax.

RULING:

The salaries of members of the Judiciary are subject to the general income tax applied to all taxpayers. Although such intent was somehow and inadvertently not clearly set forth in the final text of the 1987 Constitution, the deliberations of the 1986 Constitutional Commission negate the contention that the intent of the framers is to revert to the original concept of non-diminution of salaries of judicial officers. Hence, the doctrine in Perfecto v. Meer and Endencia vs. David do not apply anymore. Justices and judges are not only the citizens whose income has been reduced in accepting service in government and yet subject to income tax. Such is true also of Cabinet members and all other employees.

Province of Abra vs. Hernando

G.R. No. L-49336, August 31, 1981

FACTS: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax based on the provisions of Section 17, paragraph 3, Article VII of the 1973 Constitution. He filed an action for declaratory relief. Judge Hernando of the CFI Abra presided over the case. The petitioner province filed a motion to dismiss, based on lack of jurisdiction, which was denied. It was followed by a summary judgment granting the exemption without hearing the side of the petitioner.

The Supreme Court granted the petition, set aside the June 19, 1978 resolution, and ordered the respondent judge, or whoever is acting on his behalf, to hear the case on merit; without costs.

ISSUE:

Whether or not the properties of the Bishop of Bangued are tax-exempt.

RULING: The 1935 and the 1973 Constitutions differ in language as to the exemption of religious property from taxes as they should not only be exclusively but also actually and directly used for religious purposes. Herein, the judge accepted at its face the allegation of the Bishop instead of demonstrating that there is compliance with the constitutional provision that allows an exemption. There was an allegation of lack of jurisdiction and of lack of cause of action, which should have compelled the judge to accord a hearing to the province rather than deciding the case immediately in favor of the Bishop. Exemption from taxation is not favored and is never presumed, so that if granted, it must be strictly construed against the taxpayer. There must be proof of the actual and direct use of the lands, buildings, and improvements for religious (or charitable) purposes to be exempted from taxation.

The case was remanded to the lower court for a trial on merits.

Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation

G.R. No. 54908 and G.R. No. 80041, January 22, 1990

FACTS: Mitsubishi Metal Corporation, a Japanese corporation licensed to do business in the Philippines, entered

into a

Loan and Sale Contract with Atlas Consolidated Mining and Development Coporation whereby Mitsubishi lent $20,000,000 for the expansion of the latters mines, particularly the installation of a new concentrator for copper production. Atlas, in turn, undertook to sell to Mitsubishi all of the copper concentrates produced by said machine for 15 years.

For this purpose, Mitsubishi applied for and was granted a loan by the Export- Import Bank of Japan (Eximbank) and a consortium of Japanese banks. As agreed upon between Mitsubishi and Atlas, the latter gave interest payments for 1974 and 1975 amounting to P13,143,966.79, with the corresponding 15% tax thereon withheld and remitted to the Government as required by the Tax Code.

On March 5, 1976, Mitsubishi filed a claim for tax credit of the sum of P1,972,595.01 representing the tax withheld on the interest payment. That claim, not having been acted upon by the BIR, Mitsubishi then filed a petition contending that Mitsubishi was a mere agent of Eximbank, a Japanese Government financing institution which financed the loan. Such governmental status of Eximbank was the basis of Mitsubishis claim for exemption from paying tax on the interest payments pursuant to Section 29 (b) (8) (A) (now, Section 32 [B][7][a], 1997 NIRC). The CTA granted the tax credit in favor of Mitsubishi, which later executed a waiver in favour of Atlas.

ISSUE:

Whether or not the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross income taxation and thus exempt from withholding tax.

RULING:

It is settled that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favour of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus private respondents have failed to discharge.

The taxability of a party cannot be blandly glossed over on the basis of a supposed broad, pragmatic analysis alone without substantial supportive evidence, lest governmental operations suffer due to diminution of much

needed funds.

Commissioner of Internal Revenue vs. Gotamco and Sons, Inc

G.R. No. L-31092 February 27, 1987

FACTS: The World Health Organization (WHO) entered into a Host Agreement with the Republic of the Philippines which provides that "the Organization, its assets, income and other properties shall be exempt from all direct and indirect taxes. When the WHO decided to construct a building to house its own offices in Manila, it entered into a further agreement with the Government that it may import into the country materials and fixtures required for the construction free from all duties and taxes. After inviting bids, the contract was awarded to respondent John Gotamco & Sons, Inc. for the stipulated price of P370,000.00. Thereafter, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. Hence, petitioner brought the case to the Supreme Court.

Petitioner maintains the position that the contractor's tax is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it.

ISSUE:

Whether or not John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code.

RULING:

No, The Supreme Court held that Respondent John Gotamco and Sons, Inc. is not required to pay the 3% contractors tax under the National Internal Revenue Code. It explained that direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to

someone else. The contractor's tax is of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. It is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization. Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the Supreme Court affirmed the appealed decision.

31st Infantry Post Exchange vs. Posadas

G.R. No. 33403

September 4, 1930

FACTS: Petitioner Thirty-first Infantry Post Exchange is an agency within the United States Army, under the control of the officers of the Army. All of the goods sold to and purchased by the petitioner are intended for resale to and are in fact resold to the officers, soldiers and the civilian employees of the Army, and their families. Juan Posadas, Jr., Collector of Internal Revenue of the Philippine Islands, and his predecessors in that office, have collected from the merchants who made the sales of the commodities, goods, wares, and merchandise to the plaintiff Exchange, taxes at the rate of one and one-half per centum on the gross value in money of the commodities. The effect of the demand and collection of taxes was to increase the cost thereof to the plaintiff Exchange. Contending that the merchandises are exempted from taxes, petitioner brought the case before the Supreme Court.

ISSUE:

Whether or not merchandise is relieved from said tax when it is sold to the Army or Navy of the United States for resale to individuals by means or through the post exchanges or ship's stores

RULING:

No, The Supreme Court ruled that merchandise is not exempted from taxes when it is sold to the Army of the United States for resale. It explained that although The revenue laws at that time provided that "no specific tax shall be collected on any articles sold and delivered directly to the United States Army or Navy for actual use or issue by the

Army or Navy, and any taxes which have been paid on articles so sold and delivered for such use or issue shall be refunded upon such sale and delivery, the Court is not inclined to believe that goods sold to the soldiers and sailors of the Army and Navy, even though they be sold through said exchanges by the intervention of officers of the Army and Navy, are goods sold directly to the United States Army or Navy for actual use or issue by the Army or Navy.

PLDT vs. City of Davao

G.R. No. 143867 August 22, 2001

FACTS: Petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayor's Permit to operate its Davao Metro Exchange. However, Respondent City of Davao withheld action on the application pending payment by petitioner of the local franchise tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999. Petitioner protested the assessment of the local franchise tax and requested a refund of the franchise tax paid by it for the year 1997 and the first to the third quarters of 1998. Petitioner contended that it was exempted from the payment of franchise tax based on an opinion of the Bureau of Local Government Finance (BLGF) citing Section 23 of RA 7925 which provides equality of treatment in the telecommunication industry. Nevertheless, respondent Adelaida B. Barcelona, City Treasurer of Davao, denied the protest and claim for tax refund of petitioner.

ISSUE:

Whether or not PLDT is exempted to pay the local franchise tax.

RULING:

No, the Supreme Court held that Petitioner PLDT is not exempted from the local franchise tax because it does not appear that, in approving 23 of R.A. No. 7925, Congress intended it to operate as a blanket tax exemption to all telecommunications entities. It explained that the acceptance of petitioner's theory would result in absurd consequences. It is different if Congress enacts a law specifically granting uniform advantages, favour, privilege, exemption, or immunity to all telecommunications entities. Furthermore, the court emphasized that tax exemptions are highly disfavoured.

Sea-Land Services, Inc. vs. Court of Appeals

G.R. No. 122605

April 30, 2001

FACTS:

Petitioner Sea-Land Service Incorporated (SEA-LAND), an American international shipping company licensed by the Securities and Exchange Commission to do business in the Philippines entered into a contract with the United States Government to transport military household goods and effects of U.S. military personnel assigned to the Subic Naval Base. SEA-LAND filed with the Bureau of Internal Revenue (BIR) the corresponding corporate Income Tax Return (ITR) and paid the income tax due thereon of 1.5% as required in Section 25 (a) (2) of the National Internal Revenue Code (NIRC) in relation to Article 9 of the RP-US Tax Treaty, amounting to P870, 093.12.

Claiming that it paid the aforementioned income tax by mistake, a written claim for refund was filed with the BIR. However, before the said claim for refund could be acted upon by public respondent Commissioner of Internal Revenue, petitioner filed a petition for review with the Court of Tax Appeals (CTA) to judicially pursue its claim for refund and to stop the running of the two-year prescriptive period under the then Section 243 of the NIRC. The CTA rendered its decision denying SEA-LANDs claim for refund of the income tax it paid in 1984.

ISSUE:

Whether or not the income that petitioner derived from services in transporting the household goods and effects of U.S. military personnel falls within the tax exemption provided in Article XII, paragraph 4 of the RP-US Military Bases Agreement.

RULING:

No, The Supreme Court held that the petitioner is not included in the tax exemption provided in the RP-US Military Bases Agreement. It explained that although the Military Bases agreement provides that no US national shall be liable to pay income tax in the Philippines in respect of any profits derived under a contract made in the United States with the government of the United States in connection with the construction, maintenance, operation and defense of the bases it is obvious that the transport or shipment of household goods and effects of U.S. military

personnel is not included in the term "construction, maintenance, operation and defense of the bases." Neither could the performance of this service to the U.S. government be interpreted as directly related to the defence and security of the Philippine territories.

MANILA ELECTRIC COMPANY vs. PROVINCE OF LAGUNA

G.R. No. 131359. May 5, 1999

FACTS: Province of Laguna by virtue of existing laws then in effect, issued resolutions through their respective municipal councils granting franchise in favor of petitioner Manila Electric Company (MERALCO) for the supply of electric light, heat and power within their concerned areas. On 19 January 1983, MERALCO was likewise granted a franchise by the National Electrification Administration to operate an electric light and power service in the Municipality of Calamba, Laguna. On 12 September 1991, Local Government Code of 1991, was enacted enjoining (directing) local government units to create their own sources of revenue and to levy taxes, fees and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code, respondent province enacted Laguna Provincial Ordinance No. 01-92.

Respondent Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax payment. Petitioner MERALCO paid the tax, which then amounted to P19, 520,628.42, under protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to P.D. 551 already included the franchise tax imposed by the Provincial Tax Ordinance. MERALCO contended that the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1 of P.D. 551.

ISSUE:

Whether or not the tax exemption should be withdrawn to give way to the authoritative language of the Local Government Code specifically providing for the withdrawal of such exemption without violating the Constitution.

RULING:

Yes. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. These

contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common good so requires.

TIU vs. COURT OF APPEALS

G.R. NO. 127410. JANUARY 20, 1999

FACTS: Congress passed into law RA 7227. Section 12 thereof created the Subic Special Economic Zone and granted thereto special privileges. The President issued Executive Order No. 97-A (EO 97-A), specifying within which the tax-and-duty-free privilege was operative.

On October 26, 1994, the petitioners challenged before this Court the constitutionality of EO 97-A for allegedly being violative of their right to equal protection of the laws. In a Resolution dated June 27, 1995, this Court referred the matter to the Court of Appeals, pursuant to Revised Administrative Circular No. 1-95.

Petitioners contend that the SSEZ encompasses (1) the City of Olongapo, (2) the Municipality of Subic in Zambales, and (3) the area formerly occupied by the Subic Naval Base. However, EO 97-A, according to them, narrowed down the area within which the special privileges granted to the entire zone would apply to the present fenced-in former Subic Naval Base only. It has thereby excluded the residents of the first two components of the zone from enjoying the benefits granted by the law. It has effectively discriminated against them, without reasonable or valid standards, in contravention of the equal protection guarantee.

ISSUE:

Whether the provisions of Executive Order No. 97-A confining the application of R.A. 7227 granting tax and duty incentives only to businesses and residents within the secured area and excluding the residents of the zone outside of the secured area is discriminatory or not.

RULING:

No. We rule in favour of the constitutionality and validity of the assailed EO. Said Order is not violative of the equal protection clause; neither is it discriminatory. Rather, we find real and substantive distinctions between the circumstances obtaining inside and those outside the Subic Naval Base, thereby justifying a valid and reasonable classification.

There are substantial differences between the big investors who are being lured to establish and operate their industries in the so-called secured area and the present business operators outside the area. On the one hand, we are talking of billion-peso investments and thousands of new jobs. On the other hand, definitely none of such magnitude. In the first, the economic impact will be national; in the second, only local. Even more important, at this time the business activities outside the secured area are not likely to have any impact in achieving the purpose of the law, which is to turn the former military base top r o d u c t iv e use for the benefit of the Philippine economy. There is, then, hardly any reasonable basis to extend to them the benefits and incentives accorded in RA 7227.

MACTAN CEBU INTERNATIONAL AIRPORT vs. MARCOS

G.R. No. 120082. September 11, 1996

FACTS: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, x x x and such other airports as may be established in the Province of Cebu x x x (Sec. 3, RA 6958).

Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner.

Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favour the aforecited Section 14 of RA 6958 which exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units.

ISSUE:

Can the City of Cebu demand payment of realty taxes on several parcels of land belonging to the petitioner?

RULING:

Yes. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a governmentowned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn.

COMMISSIONER OF INTERNAL REVENUE vs. FRANK ROBERTSON

G.R. Nos. 70116-19. August 12, 1986

FACTS: The question involving this case is the scope of the tax exemption provision in Article XII, Par. 2, of the RP-US Military Bases Agreement of 1947.

The private respondents are citizens of the United States; holders of American passports and admitted as Special Temporary Visitors under Section 9 (a) visa of the Philippine Immigration Act of 1940, as amended; civilian employees in the U.S. Military Base in the Philippines in connection with its construction, maintenance, operation, and defence; and incomes are solely derived from salaries from the U.S. government by reason of their employment in the U.S. Bases in the Philippines."

The Court a quo after due hearing, rendered its judgment in favour of respondents cancelling and setting aside the assessments for deficiency income taxes of respondents for the taxable years 1969-1972, inclusive of interests and penalties.

ISSUE:

Whether or not the public respondent erred in holding that private respondents are exempted from paying Philippine income tax.

RULING:

The law and the facts of the case are so clear that there is no room left for Us to doubt the validity of private respondents' defence. In order to avail oneself of the tax exemption under the RP-US Military Bases Agreement: he must be a national of the United States employed in connection with the construction, maintenance, operation or defence, of the bases, residing in the Philippines by reason of such employment, and the income derived is from the U.S. Government (Art. XII par. 2 of PI-US Military Bases Agreement of 1947). Said circumstances are all present in the case at bar. Likewise, We find no justifiable reason to disturb the findings and rulings of the lower court in its decision.

Basco vs. PAGCOR

G.R. No. 91649. May 14, 1991

FACTS: On July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law. To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified.

But petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local."

ISSUE:

Whether or not P.D. 1869 constitutes a waiver of the right of the city of Manila to impose taxes and legal fees to PAGCOR.

RULING:

The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax". The Charter of the City of Manila is subject to control by Congress.

Republic vs. IAC

G.R. No. L-69344. April 26, 1991

FACTS: On April 15, 1980, the Republic of the Philippines, through the Bureau of Internal Revenue, commenced an action to collect from the spouses Antonio Pastor and Clara Reyes-Pastor deficiency income taxes for the years 1955 to 1959. The Pastors filed a motion to dismiss the complaint, but the motion was denied. On August 2, 1975, they filed an answer admitting there was an assessment against them of P17,117.08 for income tax deficiency but denying liability therefor. They contended that they had availed of the tax amnesty under P.D.'s Nos. 23, 213 and 370 and had paid the corresponding amnesty taxes amounting to P10,400 or 10% of their reported untaxed income under P.D. 23, P2,951.20 or 20% of the reported untaxed income under P.D. 213, and a final payment on October 26, 1973 under P.D. 370 evidenced by the Government's Official Receipt No. 1052388. Consequently, the Government is in estoppel to demand and compel further payment of income taxes by them.

ISSUE:

Whether or not the payment of deficiency income tax under the tax amnesty and its acceptance by the Government operated to divest the Government of the right to further recover from the taxpayer, even if there was an existing assessment against the latter at the time he paid the amnesty tax.

RULING:

Even assuming that the deficiency tax assessment of P17,117.08 against the Pastor spouses were correct, since the latter have already paid almost the equivalent amount to the Government by way of amnesty taxes under P.D. No. 213, and were granted not merely an exemption, but an amnesty, for their past tax failings, the Government is estopped from collecting the difference between the deficiency tax assessment and the amount already paid by them as amnesty tax.

A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate.

Commissioner of Internal Revenue vs. CA

G.R. No. 108358. January 20, 1995

FACTS: On 22 August 1986, E.O. 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years 1981 to 1985.

Availing itself of the amnesty, respondent R.O.H. Auto Products Philippines, Inc., filed, in October 1986 and November 1986, its Tax Amnesty Return and Supplemental Tax Amnesty Return, respectively, and paid the corresponding amnesty taxes due. Prior to this availment, petitioner Commissioner of Internal Revenue, in a communication received by private respondent on 13 August 1986, assessed the latter deficiency income and business taxes for its fiscal years ended 30 September 1981 and 30 September 1982 in an aggregate amount of P1,410,157.71. The taxpayer wrote back to state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should forthwith be cancelled and withdrawn. The request was denied by the Commissioner, on the ground that Revenue Memorandum Order 4-87, implementing E.O. 41, had construed the amnesty coverage to include only assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order on 22 August 1986 and not to assessments theretofore made.

ISSUE:

Whether or not the position taken by the Commissioner coincides with the meaning and intent of E.O. 41.

RULING:

The period of the amnesty was later extended to 05 December 1986 from 31 October 1986 by E.O. 54, dated 04 November 1986, and, its coverage expanded, under E.O. 64, dated 17 November 1986, to include estate and honors

taxes and taxes on business.

If, as the Commissioner argues, E.O. 41 had not been intended to include 1981-1985 tax liabilities already assessed (administratively) prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it.

Hilado vs. Collector of Internal Revenue

GR L-9408. October 31, 1956

FACTS: Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City. He is claiming a deductible item of P12, 837.65 from his gross income under the General Circular V-123 issued by the Collector of Internal Revenue. Subsequently, the Secretary of Finance, through the Collector, issued General Circular V-139 which revoked and declared void Circular V-123. It provided that losses of property which occurred in World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. Thereafter, the deductions were disallowed.

ISSUE:

Whether or not Hilado can claim compensation for destruction of his property during the war under the laws in effect at that time.

RULING: Philippines Internal Revenue Laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. Such tax laws are deemed to be laws of the occupied territory and not of the occupying enemy. As of the end of 1945, there was no law which Hilado could claim for the destruction of his properties during the battle for the liberation of the Philippines. Under the Philippine Rehabilitation Act of 1948, the payment of claims by the War Damage Commission depended upon its discretions non-payment of which does not give rise to any enforceable right. Assuming that the loss (deductible item) represents a portion of the 75% of his war damage claim, the amount would be at most a proper deduction of his 1950 gross income (not on his 1951 gross income) as the last instalment and notice of discontinuation of payment by the War Damage Commission was made in 1950.

Misamis Oriental Association of Coco Traders, Inc. vs. Department of Finance Secretary

G.R. No. 108524. November 10, 1994

FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members, individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental. The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $ 103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Under Sec. 103(b) of the NIRC, the sale of agricultural food products in their original state is exempt from VAT at all stages of production or distribution. The reclassification had the effect of denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food product under 103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds.

ISSUE:

Whether RMC No. 47-91 is discriminatory and violative of the equal protection clause of the Constitution.

RULING:

The court ruled in the negative. Petitioner claims that RMC No. 47-91 is violative of the equal protection clause because while coconut farmers and copra producers are exempt, traders and dealers are not, although both sell copra in its original state. Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of traders and dealers. The argument has no merit. There is a material or substantial difference between coconut farmers and copra producers, on the one hand, and copra traders and dealers, on the other. The former produce and sell copra, the latter merely sell copra. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. It is not true that oil millers are exempt from VAT. Pursuant to 102 of the NIRC, they are subject to 10% VAT on the sale of services.

Commissioner of Internal Revenue vs. Court of Appeals and Alhambra Industries, Inc

G.R. No. 117982. February 6, 1997

FACTS:

Alhambra Industries, Inc. is a domestic corporation engaged in the manufacture and sale of cigar and cigarette products. On 7 May 1991 private respondent received a letter dated 26 April 1991 from the Commissioner of Internal Revenue assessing it deficiency Ad Valorem Tax (AVT) in the amount P 488,396.62. Private respondent filed a protest against the proposed assessment with a request that the same be withdrawn and cancelled. Petitioner denied such protest. The dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two incongruous BIR Rulings: (1) BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT from the tax base in computing the fifteen percent (15%) excise tax due; and, (2) BIR Ruling 017-91 dated 11 February 1991 which included back the VAT in computing the tax base for purposes of the fifteen percent (15%) ad valorem tax.

ISSUE:

Whether Sec. 142 (d) of the Tax Code, which provides for the inclusion of the VAT in the tax base for purposes of computing the 15% ad valorem tax, is the applicable law in the instant case as it specifically applies to the manufacturer's wholesale price of cigar and cigarette products and not Sec. 127 (b) of the Tax Code which applies in general to the wholesale of goods or domestic products.

RULING:

Sec. 142 being a specific provision applicable to cigar and cigarettes must prevail over Sec. 127 (b), a general provision of law insofar as the imposition of the ad valorem tax on cigar and cigarettes is concerned. Consequently, the application of Sec. 127 (b) to the wholesale price of cigar and cigarette products for purposes of computing the ad valorem tax is patently erroneous. Accordingly, BIR Ruling 473-88 is void ab initio as it contravenes the express provisions of Sec. 142 (d) of the Tax Code.

However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. The BIR is now ordered to refund private respondent of the collected taxes form the latter.

Commissioner of Internal Revenue vs. Lingayen Gulf Electric Power Co., Inc

G.R. No. L-23771. August 4, 1988

FACTS: The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc., operates an electric power plant serving the adjoining municipalities of Lingayen and Binmaley, both in the province of Pangasinan, pursuant to the municipal franchise granted it by their respective municipal councils.

On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed against and demanded from the private respondent the total amount of P19, 293.41 representing deficiency franchise taxes and surcharges for the years 1946 to 1954 applying the franchise tax rate of 5% on gross receipts. The private respondent requested for a reinvestigation of the case on the ground that instead of incurring a deficiency liability, it made an overpayment of the franchise tax. In its letters dated July 2, and August 9, 1958 to the petitioner Commissioner, the private respondent protested the said assessment and requested for a conference with a view to settling the liability amicably. In his letters dated July 25 and August 28, 1958, the Commissioner denied the request of the private respondent. Thus, the appeal to the respondent Court of Tax Appeals. Pending the hearing of the said cases, Republic Act (R.A.) No. 3843 was passed on June 22, 1 963, granting to the private respondent a legislative franchise for the operation of the electric light, heat, and power system in the same municipalities of Pangasinan and comes with it a tax equal to two per centum of the gross receipts from electric current sold or supplied under this franchise.

ISSUES:

(1) Whether or not the 5% franchise tax prescribed in Section 259 of the National Internal Revenue Code assessed against the private respondent on its gross receipts realized before the effectivity of R.A- No. 3843 is collectible.

(2) Whether or not the respondent taxpayer is liable for the fixed and deficiency percentage taxes in the amount of P3, 025.96 for the period before the approval of its municipal franchises.

RULING:

R.A. No. 3843 provided that the private respondent should pay only a 2% franchise tax on its gross receipts, "in lieu of any and all taxes and/or licenses of any kind, nature or description levied, established, or collected by any authority whatsoever, municipal, provincial, or national, now or in the future ... and effective further upon the date the original franchise was granted, no other tax and/or licenses other than the franchise tax of two per centum on the

gross receipts ... shall be collected, any provision of law to the contrary notwithstanding." Thus, by virtue of R.ANo. 3843, the private respondent was liable to pay only the 2% franchise tax, effective from the date the original municipal franchise was granted. As to the second issue, the legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax from the date the original franchise was granted. The exemption, therefore, did not cover the period before the franchise was granted, i.e. before February 24, 1948. However, as pointed out by the respondent court in its findings, during the period covered by the instant case, that is from January 1, 1946 to December 31, 1961, the private respondent paid the amount of P34,184.36, which was very much more than the amount rightfully due from it. Hence, the private respondent should no longer be made to pay for the deficiency tax in the amount of P3, 025.98 for the period from January 1, 1946 to February 29, 1948.

ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals

G.R. No. L-52306. October 12, 1981

FACTS: During the period pertinent to this case, Petitioner Corporation was engaged in the business of telecasting local as well as foreign films acquired from foreign corporations not engaged in trade or business within the Philippines for which petitioner paid rentals after withholding income tax of 30%of one-half of the film rentals. In implementing Section 4(b) of the Tax Code, the Commissioner issued General Circular V-334. Pursuant thereto, ABS-CBN Broadcasting Corp. dutifully withheld and turned over to the BIR 30% of of the film rentals paid by it to foreign corporations not engaged in trade or business in the Philippines. The last year that the company withheld taxes pursuant to the Circular was in 1968. On 27 June 1908, RA 5431 amended Section 24 (b) of the Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from such amount referring to rents, etc. to gross income. In 1971, the Commissioner issued a letter of assessment and demand for deficiency withholding income tax for years 1965 to 1968. The company requested for reconsideration; where the Commissioner did not act upon.

ISSUES:

Whether Revenue Memorandum Circular 4-71, revoking General Circular V-334, may be retroactively applied.

RULING:

Rulings or circulars promulgated by the Commissioner have no retroactive application where to so apply them

would be prejudicial to taxpayers. Herein, the prejudice the company of the retroactive application of Memorandum Circular 4-71 is beyond question. It was issued only in 1971, or three years after 1968, the last year that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to pay deficiency withholding income tax was also made three years after 1968 for a period of time commencing in 1965. The company was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and had no longer control over them when the new circular was issued. Insofar as the enumerated exceptions are concerned, the company does not fall under any of them.

Philippine Bank of Commerce (PBcom) v. Commissioner of Internal Revenue (CIR)

G.R. No. 112024. January 28, 1999

FACTS: Petitioner PBcom paid its quarterly income tax for the first and second quarters of 1985 totalling to P5, 016,954.00. Subsequently, PBcom suffered losses so that when it filed its Annual Income Tax for the year- ended December 31, 1986, it reported a net loss and declared no tax payable for the year. Petitioner also earned rental income for both 1985 and 1986 and the corresponding tax thereof was withheld and remitted by the lessees to the BIR.

On August 7, 1987 or after more than two years from payment of taxes, PBcom filed for a tax refund. Pending investigation of the BIR, petitioner filed a petition for review with the Court of Tax Appeals. The CTA denied the tax refund on the ground that application for refund must be made within two years from the payment of tax as provided by the National Internal Revenue Code. Petitioner contended that the two year period has been changed to ten years upon a memorandum issued by the Commissioner of Internal Revenue. The Court of Appeal affirmed in toto the ruling of the CTA.

ISSUE:

Did the CTA err in denying the plea for tax refund on the ground of prescription?

RULING:

No. The relaxation of revenue regulation by a memorandum issued by the BIR is not warranted as it disregards the two year period set by law. Section 230 of the National Internal Revenue Code of 1977 provides for the two year

period for filing a claim for refund or credit. When the Acting Commissioner of Internal Revenue issued a memorandum changing the prescriptive period of two years to ten years, such circular created a clear inconsistency with the provision of Section 230 of NIRC. In so doing, the BIR did not simply interpret the law, rather it legislated guidelines contrary to the statute passed by the congress.

Commissioner of Internal Revenue v. Tokyo Shipping Co. LTD

G.R. No. L-68252. May 26, 1995

FACTS: Private Respondent is a foreign corporation represented in the Philippines by Soriamont Steamship Agencies, Incorporated. It owns and operates tramper vessel M/V Gardenia. Nasutra chartered M/V Gardenia to load raw sugar in the Philippines. Soriamont Agency paid the required income and common carrier taxes for its transaction with Nasutra. However, upon arrival, the vessel found no sugar for loading. Private respondent, therefore, filed a claim for tax credit before the petitioner Commissioner of Internal Revenue for erroneous payment. Due to the failure of petitioner to act promptly on the matter, private respondent filed a petition for review before the Court of Tax Appeals (CTA) which favoured the tax credit.

Petitioner filed a motion for reconsideration, but it was denied by the CTA, hence this petition contending that private respondent has the burden of proof to support its claim of refund, that it failed to prove that it did not realize any receipt from its charter agreement and it suppressed evidence when it did not present its charter agreement.

ISSUE:

Whether or not private respondent failed to prove that it derived no receipt from its charter agreement, hence, not entitled to a refund.

RULING:

We find no merit in the petition.

The respondent Court of Tax Appeals held that sufficient evidence has been adduced by private respondent proving that it derived no receipt from its charter agreement with Nasutra. The Clearance Vessel to a Foreign Port issued by the District Collector of Customs support such finding. Moreover, the BIR examiner and its appellate division both

recommended the approval of private respondents claim of tax refund.

Reyes v. Almonzor

G.R. Nos. L-49839 46. April 26, 1991

FACTS: The National legislature enacted R.A. 6359 which prohibits an increase in monthly rentals of dwelling unit or land on which anothers dwelling is located, where the rental does not exceed Php300.00. The act also suspended article 1673 of the Civil Code thereby disallowing ejectment of lessees. These prohibitions were made absolute by the filing of Presidential Decree 20. Consequently, petitioners herein are precluded from increasing monthly rentals and in ejecting the lessees.The respondent city assessor of Manila reassessed the value of the petitioners properties based on the scheduled market value thereof. This entailed an increase in the tax rates prompting petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals averring that the reassessment was excessive, unwarranted, inequitable, confiscatory and unconstitutional considering that the tax imposed upon them is greater than the annual income derived from the property. They also argued that the income approach should have been used in determining the land values instead of the comparable sales approach. The Board of tax Assessment Appeals considered the assessment valid and the same was affirmed by the Central Board of Assessment appeals, hence this petition.

ISSUE:

Did the board err in adopting the comparable sales approach in fixing the assessed value of the properties?

RULING:

The petition is impressed with merit.

It is unquestionable that both the Comparable Sales Approach and the Income Approach are generally acceptable methods of appraisal for taxation purposes. However, it is conceded that the proprietary of one, as against the other would depend on several factors. Hence, as early as 1923, it has been stressed that the assessors , in finding the value of the property, have to consider all the circumstances and elements of value and must exercise a prudent discretion in reaching conclusions.

Commissioner of Internal Revenue v. Algue, Inc., and the Court of Tax Appeals

G.R. No. L 28896. February 17, 1988

FACTS: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it a delinquency income tax for the year 1958 and 1959. After four days from its receipt, Algue filed a letter of protest which was stamped and received by the petitioner. Despite the protest, private respondent received a warrant of distraint and levy. Algue refused to receive it on the ground of pending protest until it was finally informed that the BIR was not taking any action on the protest. It therefore filed a petition for review of the decision of the Commissioner of Internal Revenue (CIR) with the Court of Tax Appeals. The CTA ruled in favour of Algue holding that the Php75, 000.00 in dispute shall be considered as deductible from income it being in the form of promotional expense and contrary to petitioners contention that it was not an ordinary and reasonable business expense.

ISSUE:

Did the Collector of Internal Revenue correctly disallow the deduction claimed by private respondent Algue as legitimate business expense in its Income Tax Return?

RULING:

We agree with respondent court that the amount of promotional fee was not excessive and was reasonable, hence, allowing the deduction of the disputed amount in the Income Tax Return of private respondent. The finding of respondent court is in accordance with the provision of the Tax Code on deductions from gross income.

The solicitor general is correct in saying that the burden to prove the validity of claimed deduction is on the tax payer. The private respondent has proved this. The amount in dispute was necessary and reasonable in the light of the efforts of the respondent corporation to induce investors.

ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT

G.R. No. L-67649, June 28, 1988

FACTS: Engracio Francia is the registered owner of a residential lot and a two-story house located in Pasay City. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic for the sum of P4,116.00. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction pursuant the Real Property Tax Code in order to satisfy a tax delinquency of P2, 400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favour of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. The lower court rendered a decision against his favour. The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review.

ISSUE:

Whether or not the contention of Francia that his tax delinquency of P2,400.00 has been extinguished by legal compensation is correct claiming that the government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977.

RULING:

This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax is being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on.

COMMISSIONER OF INTERNAL REVENUE vs. ITOGON-SUYOC MINES, INC

G.R. No. L-25299, July 29, 1969

FACTS: Respondent Itogon-Suyoc Mines, Inc. filed on January 13, 1961, its income tax return for the fiscal year 1959- 1960. It declared a taxable income of P114,368.04 and a tax due thereon amounting to P26,310.41, for which it paid on the same day, the amount of P13,155.20 as the first installment of the income tax due. On May 17, 1961, petitioner filed an amended income tax return, reporting therein a net loss of P331, 707.33. It thus sought a refund from the Commissioner of Internal Revenue, now the petitioner. On February 14, 1962, respondent Itogon-Suyoc Mines, Inc. filed its income tax return for the fiscal year 1960-1961, setting forth its income tax liability to the tune of P97,345.00, but deducting the amount of P13,155.20 representing alleged tax credit for overpayment of the preceding fiscal year 1959- 1960. 0n December 18, 1962, petitioner Commissioner of Internal Revenue assessed against the respondent the amount of P1, 512.83 as 1% monthly interest on the aforesaid amount of P13,155.20 from January 16, 1962 to December 31, 1962. The basis for such an assessment was the absence of legal right to deduct said amount before the refund or tax credit thereof was approved by petitioner Commissioner of Internal Revenue. Such an assessment was contested by respondent before the Court of Tax Appeals which ruled in its favour. Hence this petition for review.

ISSUE:

Whether or not the Court of Tax Appeals erred when it absolved Respondent Corporation "from liability to pay the sum of P1, 512.83 as 1% monthly interest for delinquency in the payment of income tax for the fiscal year 19601961.

RULING:

It could not be error for the Court of Tax Appeals, considering the admitted fact of overpayment, entitling respondent to refund, to hold that petitioner should not repose an interest on the aforesaid sum of P13,155.20 "which after all was paid to and received by the government even before the incidence of the tax in question." It would be, according to the Court of Tax Appeals, "unfair and unjust" to do so. The National Internal Revenue Code provides that interest upon the amount determined as a deficiency shall be assessed and shall be paid upon notice and demand from the Commissioner of Internal Revenue at the specified. It is made clear, however, in an earlier provision found in the same section that if in any preceding year, the taxpayer was entitled to a refund of any amount due as tax, such amount, if not yet refunded, may be deducted from the tax to be paid. There is no question respondent was entitled to a refund. Instead of waiting for the sum involved to be delivered to it, it deducted the said amount from the tax

that it had to pay. That it had a right to do according to the law.

MELECIO R. DOMINGO vs. HON. LORENZO C. GARLITOS

G.R. No. L-18994, June 29, 1963

FACTS: This is a petition for certiorari and mandamus against respondent judge seeking to annul certain orders of the court and for an order in this Court to direct respondent to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable

ISSUE:

Whether or not the petitioner has the clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.

RULING:

The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. Another ground for denying the petition is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount. It

is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price.

REPUBLIC OF THE PHILIPPINES vs. MAMBULAO LUMBER COMPANY, ET AL

G.R. No. L-17725, February 28, 1962

FACTS: There are three causes of action in this case in which the defendants admitted all these three liabilities with an aggregate amount of P4, 802.37. Though such liabilities are admitted it interposed the defence though exhibits that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the National Internal Revenue Code, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the defendant that since the Republic of the Philippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the Republic of the Philippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the Republic of the Philippines for reforestation charges.

ISSUE:

Whether or not the sum of P9, 127.50 paid by defendant company to plaintiff as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from defendant to plaintiff.

RULING:

The court find defendants claim devoid of any merit. Note that there is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used; the same should be refunded to him. The general rule,

based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required.

The Anti-Graft League of the Philippines, Inc. vs. San Juan

G.R. No. 97787. August 1, 1996

FACTS: Acting upon an authority granted by the Office of the President, the Province was able to negotiate with respondent Ortigas & Co., Ltd. (Ortigas) for the acquisition of four parcels of land located in Ugong Norte, Pasig. Three deeds of absolute sale were executed on April 22 and May 9, 1975, whereby Ortigas transferred its ownership over a total of 192,177 square meters of land to the Province at P110.00 per square meter. The projected construction, however, never materialized because of the decimation of the Provinces resources brought about by the creation of the Metro Manila Commission (MMC) in 1976. The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for P700.00 per square meters. The said property was eventually sold to Valley View Realty Development Corporation (Valley View) for P700.00 per square meter or a total of P134,523,900.00, of which 30 million was given as down payment. On May 10, 1988, after learning about the sale, Ortigas filed before Branch 151 of the Regional Trial Court of Pasig an action for rescission of contract plus damages with preliminary injunction against the Province. Docketed as Civil No. 55904, the complaint alleged that the Province violated one of the terms of its contracts with Ortigas by selling the subject lots which were intended to be utilized solely as a site for the construction of the Rizal Technological Colleges and the Rizal Provincial Hospital.

ISSUE:

Is the present action a taxpayers suit?

RULING:

Petitioner and respondents agree that to constitute a taxpayers suit, two requisites must be met, namely, that public funds are disbursed by a political subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed, and that the petitioner is directly affected by the alleged ultra vires act. In the case at bar,

disbursement of public funds was only made in 1975 when the Province bought the lands from Ortigas at P110.00 per square meter in line with the objectives of P.D. 674.

Undeniably, as a taxpayer, petitioner would somehow be adversely affected by an illegal use of public money. When, however, no such unlawful spending has been shown, as in the case at bar, petitioner, even as a taxpayer cannot question the transaction validly executed by and between the Province and Ortigas for the simple reason that it is not privy to said contract. In other words, petitioner has absolutely no cause of action, and consequently no locus standi, in the instant case.

Joya, ET. al. vs. PCGG,

G.R. No. 96541 August 24, 1993

FACTS:

All thirty-five (35) petitioners in this Special Civil Action for Prohibition and Mandamus with Prayer for Preliminary Injunction and/or Restraining Order seek to enjoin the Presidential Commission on Good Government (PCGG) from proceeding with the auction sale scheduled on 11 January 1991 by Christie's of New York of the Old Masters Paintings and 18th and 19th century silverware seized from Malacaang and the Metropolitan Museum of Manila and placed in the custody of the Central Bank.

On 9 August 1990, Mateo A.T. Caparas, then Chairman of PCGG, wrote then President Corazon C. Aquino, requesting her for authority to sign the proposed Consignment Agreement between the Republic of the Philippines through PCGG and Christie, Manson and Woods International, Inc. concerning the scheduled sale on 11 January 1991 of eighty-two (82) Old Masters Paintings and antique silverware seized from Malacaang and the Metropolitan Museum of Manila alleged to be part of the ill-gotten wealth of the late President Marcos, his relatives and cronies.

On 14 August 1990, then President Aquino, through former Executive Secretary Catalino Macaraig, Jr., authorized Chairman Caparas to sign the Consignment Agreement allowing Christie's of New York to auction off the subject art pieces for and in behalf of the Republic of the Philippines. On 15 August 1990, PCGG, through Chairman Caparas, representing the Government of the Republic of the Philippines, signed the Consignment Agreement with Christie's of New York.

ISSUE:

Can petitioners as taxpayers challenge the validity of the acts of the PCGG?

RULING:

No. They lack basis in fact and in law. These paintings legally belongs to the foundation or corporation or the members thereof, although the public has been given the opportunity to view and appreciate these paintings when they were placed on exhibit. Similarly, as alleged in the petition, the pieces of antique silverware were given to the Marcos couple as gifts from friends and dignitaries from foreign countries on their silver wedding and anniversary, an occasion personal to them

Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government. A taxpayer's suit can prosper only if the governmental acts being questioned involve disbursement of public funds upon the theory that the expenditure of public funds by an officer of the state for the purpose of administering an unconstitutional act constitutes a misapplication of such funds, which may be enjoined at the request of a taxpayer.

Lozada vs. COMELEC

G.R. No. L-59068 January 27, 1983

FACTS:

This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative suit for and in behalf of those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special election to fill up existing vacancies numbering twelve (12) in the Interim Batasan Pambansa.

Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution.

The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that petitioners lack standing to file the instant petition for they are not the proper parties to institute the action

ISSUE:

As taxpayers, may the petitioners file the instant petition?

RULING:

As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed

http://www.scribd.com/doc/38458348/Taxation-for-Digest UNDER: ATTY. BOBBY LOCK

BY: MEL ANDREW YU REYES

TAXATION 02

PART I

REMEDIES UNDER THE NIRC

I. ASSESSMENT OF INTERNAL REVENUE TAXES

A. DEFINITION, NATURE, EFFECT AND BASIS

1) LOA, AUDIT NOTICE, TAX VERIFICATION NOTICE

RAMO 1-00

CIR v. SONY PHILIPPINES, INC.

MAY 17, 2007 CTA 90

The revenue examiner went beyond the authority conferred by LOA. A LOA authorizes or empowers a designated revenue officer to examine, verify and scrutinize a taxpayers books and records in relation to his internal revenue tax liability for a particular period. The LOA, the examiners were authorize to examine Sonys book of accounts and other accounting records for the period 1997 and unverified prior years. However, CIRs basis for deficiency vat for 1997 was 1998. They acted without authority in arriving at the deficiency vat assessment. It should be considered without force and effect a nullity.

A LOA should cover a taxable period not exceeding 1 year. The practice of issuing LOA covering audit of unverified prior years is prohibited.

2) TAX ASSESSMENT

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATION

JUNE 29, 1999 GR. 128315

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine the remedies thereon, due process requires that it must be served and received by the taxpayer. Accordingly, an affidavit which was executed by the revenue officer stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion cannot be deemed an assessment that can be questioned before the CTA. The fact that the complaint itself was specifically directed and sent to DOJ and not to Pascor shows that the intent of the CIR was to file a criminal complaint for tax evasion and not to issue an assessment.

B. PERIOD TO ASSESS DEFICIENCY TAX

1) PRESCRIPTION

a) RATIONALE, CONSTRUCTION, INTERPRETATION

REPUBLIC OF THE PHILIPPINES v. LUIS ABLAZA

The law prescribing a limitation of actions for collection of income tax is beneficial both to the government and to its citizens.

a) The Government because tax officers would be obliged to act promptly in making of assessment.

b) The Citizens because after the lapse of the period of prescription, citizens would have the feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest, peaceful law-abiding citizens. Without such legal defenses, taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bring about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commissioner which recommends the approval of the law.

b) COUNTING OF PERIODS

CIR v. PRIMETOWN PROPERTY GROUP

AUG. 28, 2007 GR. 162155

The 2-year prescriptive period is reckoned from the filing of the final adjusted return. Art. 13 NCC, provides that when the law speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of whether it is a regular year or a leap year.

c) RULE ON WRONG RETURNS OR AMENDED RETURNS

CIR v. AYALA SECURITIES CO

NOV. 21, 1980 GR. L-29485

The SC is persuaded by the fundamental principle invoked by CIR that limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible.

The SC, therefore, reconsiders its ruling in its decision under reconsideration that the right to assess and collect the assessment in question had prescribed after 5 years, and instead rules that there is no such time limit on the right of the CIR to assess the 25% tax on unreasonably accumulated surplus provided in Sec. 25 of NIRC, since there is no express statutory provision limiting such right or providing for its prescription. The underlying purpose of the additional tax in question on a corporation's improperly accumulated profits or surplus is as set forth in the text of Sec. 25 of NIRC itself to avoid the situation where a corporation unduly retains its surplus instead of declaring and paving dividends to its shareholders or members who would then have to pay the income tax due on such dividends received by them. The record amply shows that Ayala Securities is a mere holding company of its shareholders through its mother company, a registered co-partnership then set up by the individual shareholders belonging to the same family and that the prima facie evidence and presumption set up by the Tax Code, therefore applied without having been adequately rebutted by the Ayala Securities.

CIRs plausible alternative contention is that even if the 25% surtax were to be deemed subject to prescription, computed from the filing of the income tax return in 1955, the intent to evade payment of the surtax is an inherent quality of the violation and the return filed must necessarily partake of a false and/or fraudulent character which would make applicable the 10-year prescriptive period provided in Sec. 332(a) of the Tax Code and since the assessment was made in 1961 (the 6th year), the assessment was clearly within the 10-year prescriptive period. The Court sees no necessity, however, for ruling on this point in view of its adherence to the ruling in the earlier raise of United Equipment & Supply Co., supra, holding that the 25% surtax is not subject to any statutory prescriptive period.

BUTUAN SAWMILL INC. v. CTA

FEB. 28, 1966 GR. L-20601

FILING OF WRONG RETURN

Since no percentage tax return was actually filed by taxpayer to reflect the sales of its logs to Japan, the 10-year prescriptive period for cases where returns are not filed applies. Even if an ITR which happens to be the wrong return had been filed, and even considering that the income from said sales were all reflected therein, still, this would not take the place of the correct return which for purposes of tax in question should actually be the percentage tax return.

The percentage tax on sale has now been replaced by the 10% VAT.

WHEN THERE IS FRAUD

Mere understatement of gross earnings not of itself proves fraud. The allegation of fraud with intention to evade the franchise tax has not been proved satisfactorily. The 1st quarter of 1960, the gross receipts of Butuan Sawmill as a franchise grantee amounted to P1, 369,383.10. Only P16, 799.56 represented the alleged unrecorded and under reported receipts of Butuan Sawmill. However, a big portion of the unrecorded receipts of P16, 799.56 was not reflected in the book of accounts of the taxpayer because it represented the cost of the electric current used free of charge by its officer and employees. It cannot be charged that Butuan Sawmill intended to defraud the government of the franchise tax. Fraud, being absent, the right of the government to assess the franchise tax had already prescribed.

CIR vs. Phoenix Assurance Co

MAY 20, 1965 GR. L-19727

Where the amended return is substantially different from the original return, the right of the BIR to assess the tax counted from the filing of the amended return. If the assessment is counted from the filing of the original return, this would permit taxpayers to evade taxes by simply reporting in their original return, heavy losses and amending the same after the lapse of the prescriptive period when the Commissioner has already lost his authority to assess the tax. The objective of the Tax Code is to impose taxes, not to enhance tax avoidance to the prejudice of the government.

CIR. v. LILIA GONZALES

Where the return was made in the wrong form, the filing thereof did not start the running of the period of limitations, and where the return was very deficient; there was no return at all. If the taxpayer failed to observe the law, Sec. 332 of NIRC grants CIR a 10 year period within which to bring an action for tax collection, applies. Sec. 94 obligates him to make a return or amend one already filed based on his own knowledge and information obtained through testimony or otherwise, and subsequently to assess thereon the taxes due. The running of the period of limitations should be reckoned from the date the fraud was discovered.

2) SUSPENSION OF PRESCRIPTIVE PERIODS/ EXCEPTIONS

SEC. 203, 222, 223 OF NIRC RMO 20-90 ORDER 05-01

CIR v. CTA

MAR. 20, 1991 GR. 44007

Sec. 203 of NIRC states that internal revenue taxes shall be assessed within 5 years after the taxpayers return was filed. It is undisputed that Eastern failed to file any corporate ITR for a period of 20-years from 1952-1971. CIR argued that under Sec. 223(a), Easterns failure to file ITR authorizes him to assess income tax due from Eastern with 10 years, after the discovery of falsity, fraud or omission. The omission was discovered only in 1971. CIR has 10 years from 1971 or until 1981 within which to assess. The assessment of deficiency income tax was issued on 1973, which is well within the period prescribed by law. But while it is true that the assessment is within the prescribed period, it does not follow that it is a valid statement in its entirety. RA 808 is an operative act. Eastern is exempted from payment of all taxes, whether local, provincial or national, except franchise and real property taxes. It goes without saying that the assessment cannot be held valid against the income derived from Easterns operation authorized by the franchise. It can only stand valid insofar as the assessment is for income derived from services within the Philippines and which is beyond the scope of RA 808.

REPUBLIC OF THE PHILIPPINES v. DAMIAN RET

MAR. 31, 1962 GR. L-13754

The cause of action has already prescribed. Sec. 332 of NIRC does not apply to income taxes if the collection of said taxes will be made by summary proceedings, but if the collection is to be effected by court action, Sec. 332 of NIRC will be the controlling provision. The BIR only made the assessment on 1951 and had up to 1956 to file the necessary action. It was only on 1957 that the action was filed in court for collection of alleged deficiency income tax far beyond the 5 year period.

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIR

OCT. 17, 2005 GR. 139736

PHILIPPINE JOURNALISTS, INC. v. CIR

DEC. 16, 2004 GR. 162852

A waiver of statute of limitations, to a certain extent, is a derogation of the taxpayers right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequally particular where the language of the document is equivocal. For the purpose of safeguarding taxpayers from an unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. The law of prescription being a remedial measure should be liberally construed in order to afford such protection. The exception to the law on prescription should perforce be strictly construed.

JOSE AZNAR v. CTA, & CIR

AUG. 23, 1974 GR. 20569

In three different cases of (1) false return, (2) fraudulent return with intent to evade tax, and (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may begin without assessment, at any time within 10 years after discovery of the falsity, fraud or omission.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of NIRC should be applicable to normal circumstances, but where the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false return, fraudulent returns intended to evade payment of tax or failure to file returns, the period of 10 years provided in Sec. 332(a) of NIRC, from time of discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.

REPUBLIC OF THE PHILIPPINES v. KER & CO., LTD

SEP. 29, 1966 GR. L-21609

Under Sec. 333 of the Tax Code, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint and levy or instituting a proceeding in court, and for 60 days thereafter. In the case at bar, the pendency of the taxpayers appeal in CTA and in SC had the effect of temporarily staying the hands of the Commissioner. If the taxpayers stand that the pendency of the appeal did not stop the running of the period because the CTA did not have jurisdiction over the case is upheld, taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. Under the circumstances, the running of the prescriptive period was suspended.

CIR v. SUYOC CONSOLIDATED MINING CO

NOV. 25, 1958 GR. L-11527

A mere request for re-examination or reinvestigation of assessment may not suspend the running of the period of limitation for in such a case there is a need of a written agreement to extend the period between the collector and the taxpayer. There are cases, however, where a taxpayer may be prevented from setting-up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts, the government has been for good reasons persuaded to postponed collection to make himself feel that the demand was

not unreasonable or that no harassment or injustice is meant by the government, and when such situation comes to pass there are authorities that hold, based on weighty reason, that such an attitude or behaviour should not be countenanced if only to protect the interest of the government.

He who prevents a thing from being done may not avail himself of the non-performance which he has himself occasioned, for the law says to him in effect this is your own act, and therefore you are damnified. The tax could have been collected, but the government withheld action at the specific request of plaintiff. The plaintiff is now stopped and should not be permitted to raise the defense of statute of limitations.

CIR v. PHILIPPINE GLOBAL COMMUNICATION, INC

OCT. 31, 2006 GR. 167146

The 3 year statute of limitations on the tax collection of an assessed tax provided under Sec. 269(c) of the Tax Code of 1977, a law enacted to protect the interests of taxpayers, must be given effect. In providing for exception, the law strictly limits the suspension of the running of the prescription period to, among other instances, protest wherein the taxpayer requests for a reinvestigation. In this case, the taxpayer merely filed 2 protest letters requesting for reconsideration, and where the BIR could not have conducted a reinvestigation because of new or additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject of the decision issued by CIR on October 08, 2002 affirming the formal assessment issued on April 14, 1994 can no longer be the subject of any proceeding for its collection. The right of the government to collect the alleged deficiency tax is barred by prescription.

C. REQUISITES OF A VALID ASSESSMENT

SEC. 3, RR 12-99

1) DUE PROCESS

CIR v. ALBERTO BENIPAYO

JAN. 31, 1962 GR. L-13656

To sustain the deficiency tax assessed against Benipayo would amount to a finding that he had, for a considerable period of time, cheated and defrauded the government by selling each adult patron 2 childrens tax-free tickets instead of 1 ticket subject to the amusement tax. Fraud is a serious charge and to sustained, must be supported by clear and convincing proof which, in this case, is lacking.

BONIFACIA SY PO v. CTA, & CIR

The law is specific and clear. The rule on The Best Evidence Obtainable applies when a tax report required by law for the purpose of assessment is not available or when tax report is incomplete or fraudulent.

The tax assessment by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of irregularities in the performance of duties, an assessment duly made by the BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in favour of the correctness of tax assessments. The fraudulent acts detailed in the decision under review had not been satisfactorily rebutted by Sy Po. There are indeed clear indications on the part of taxpayer to deprive the government of the tax due.

CIR v. AZUCENA REYES

JAN. 27, 2006 GR. 159694

The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 of informing the taxpayer of not only the law, but also of the facts on which an assessment would be made, otherwise, the assessment itself would be invalid.

A. BROWN CO., INC. v. CIR

JUN. 07, 2004 CTA 6357

The record shows that CIR failed to comply with the procedural due process requirement in order to sustain the validity and legality of an assessment.

First, the report of investigation sent prior to the issuance of PAN indicated that there is a finding of deficiency income tax of only P4, 511,035.67. If ever they should properly issue against ABC the same should have reflected the finding made on report. Instead, the PAN completely departed from the result by increasing the alleged tax liability of ABC.

Secondly, the law and rules and regulation is issued pursuant thereto clearly gives the taxpayer the right to reply to the PAN. The period given to taxpayer is 15 days from receipt of PAN. Here, the CIR withheld PAN to ABC. CIR through registered mail sent the PAN to ABCs former address. Further, merely 4 days after the PAN was received and without waiting for the lapse of the mandatory 15 day period to reply, CIR issued the assessment, even before it could be given a chance to be heard.

The sending of PAN and assessment notice to the wrong address may only be seen as an attempt to mislead or confuse ABC.

In the observance of procedural due process, the SC is always mindful that a taxpayer being made liable with his property be given an opportunity to be heard which is one of its essential elements. With the failure of CIR to strictly comply with the procedure prescribed by law, and failure of ABC to receive a copy of the alleged assessment, the latter was not afforded its right to be heard for it was denied the opportunity to protest or dispute the alleged assessment.

CIR v. METRO SUPERAMA, INC

SEP. 16, 2008 CTA 306

Assessment is a notice to the effect that the amount stated is due as a tax and a demand for the payment thereof. It fixes and determines the tax liability of a taxpayer. As soon as it served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Sec. 228 of NIRC does not only require that there must be an investigation and determination of taxpayers liability. The Commissioner or his duly authorized representative is required to send notice of assessment to the taxpayer in order to give the latter an opportunity to file a protest. An assessment is deemed made only when the same is actually received by the taxpayer.

The document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the CIR releases, mails or sends such notice to the taxpayer. Although, there is no specific requirement that the taxpayer should receive the notice within the prescriptive period, due process requires at the very least that such notice actually be received. If it appears that the person liable for payment did not receive the assessment, the assessment could not become final and executory.

CIR v. DOMINADOR MENGUITO

SEP. 17, 2008 GR. 167560

While the lack of PRN and PAN is a deviation from the requirements under Sec. 1 and 2 of RR 12-85, the same cannot detract from the fact that the FAN were issued to and actually received by Menguito in accordance with Sec. 228 of NIRC. The stringent requirement that an assessment notice is satisfactorily proven to have been issued and released or, if receipt thereof is denied that the said assessment notice have been served on taxpayer, applies only to FAN but not PRN or PAN. The issuance of valid FAN is a substantive pre-requisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signalling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies thereof. Due process requires that it must be served on and received by taxpayer.

A PRN and PAN do not bear the gravity of a FAN. The PRN and PAN merely hint at the initial findings of the BIR against a taxpayer and invited the latter to an Informal Conference or Clarificatory Meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on taxpayer for as long as the latter is properly served with FAN. In the case of Menguito, a FAN was received by him as acknowledge in his petition for review and joint stipulation, and on the basis thereof, he filed a protest with the BIR and eventually a petition for CA.

2) POWER OF CIR TO ISSUE ASSESSMENTS

MERALCO SECURITIES CORPORATION v. VICTORINO SAVELLANO

OCT. 23, 1982 GR. L-36748

Since the office of the CIR is charged with the administration of revenue laws, which is the primary responsibility of the executive branch of the government, mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive function.

Such absence of arbitrariness or grave abuse so as to go beyond the statutory authority is not subject to the contrary judgment or control of others. Discretion when applied to public functionaries, means a power or right conferred upon them by law of acting officially, under certain circumstances, uncontrollable by the judgment or conscience of others. A purely ministerial act or duty in contradiction to a discretional act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner in obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion or judgment.

ERNESTO MACEDA v. CATALINO MACARAIG

NPC availed of subsidy granted to GOCC that were made subject to tax payments. Sec. 23 of PD 1177, mandates that the Secretary of Finance and Commissioner of Budget had to establish the necessary procedures to accomplish the tax payment/ tax subsidy scheme of the government in effect, NPC did not put out any cash to pay any tax as it got from the general fund the amounts necessary to pay the different revenue collector for the taxes it had to pay.

The tax exemption withdrawn by Sec. 1 of PD 1931 was therefore the same NPC tax exemption privileges withdrawn by Sec. 23 of PD 1177. NPC could no longer obtain a subsidy for the taxes it had to pay. It could however, under PD 1931 ask for a total restoration of its tax exemption privileges, which it did, and the same were granted under FIRB Resolution 10-85 and 1-86 as approved by the Minister of Finance.

The oil companies which supply bunker fuel oil to NPC have to pay taxes imposed upon said bunker fuel oil sold to NPC. By indirect taxation, the economic burden is expected to be passed on through the channels of commerce to the user or consumer of the goods sold. The NPC has been exempted from both direct and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect taxation.

3) WHEN ASSESSMENT MADE

GONZALO NAVA v. CIR

JAN. 30, 1965 GR. L-19470

The presumption that a letter duly directed and mailed was received in the regular course of mail cannot apply where none of the required facts to raise this presumption, i.e., that the letter was properly addressed with postage prepaid and that it was mailed, have been shown.

Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax assessment to a taxpayer, made without the supporting evidence, cannot suffice to prove that such notice was sent and received; otherwise, the taxpayer would be at the mercy of the revenue officers, without adequate protection or defense.

BARCELON, ROXAS SECURITIES, INC. v. CIR

AUG. 07, 2006 GR. 157064

When a mail matter is sent by registered mail, there exists a presumption set forth under Sec. 3(v) Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are:

a) The letter was properly addressed with postage prepaid; and

b) That it was mailed.

While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favoured by the presumption to prove that the mailed letter was indeed received by the addressee.

Entries in official records made in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated. Where it has been held that an entrant must have personal knowledge of the facts

stated by him or such facts were acquired by him from reports made by persons under a legal duty to submit the same. There are 3 requisites for admissibility:

a) Entry was made by a public officer, or by another person specially enjoined by law to do so; b) It was made by public officer in the performance of his duties; and c) The public officer or other person had sufficient knowledge of facts by him.

In this case, the entries made by Versola were not based on her personal knowledge as she did not attest to the fact that she personally prepared and mailed the assessment notice, nor was it stated in the transcript of stenographic notes how and from whom she obtained the pertinent information.

II. PROTESTING AN ASSESSMENT/ REMEDY BEFORE PAYMENT

A. HOW TO PROTEST OR DISPUTE AN ASSESSMENT ADMINISTRATIVELY SEC. 228 OF NIRC SEC. 3.1.5, RR 12-99

1) REINVESTIGATION v. RECONSIDERATION

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIR

OCT. 17, 2005 GR. 139736

With the issuance of RR 12-85 providing for the distinction between a request for reconsideration and a request for reinvestigation. It bears to emphasize that under Sec. 224 of NIRC the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, and not a request for reconsideration.

a) Request for Reinvestigation

- Entails the reception and evaluation of additional evidences.

- Can suspend the running of the statute of limitations on collection of assessed tax.

b) Request for Reconsideration

- Is limited to the evidence already at hand.

- Does not suspend the running of the statute of limitations on collection of assessed tax.

The BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations. The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted in order to effect suspension.

2) EFFECTS OF FAILURE TO FILE PROTEST/ FAILURE TO SUBMIT RELEVANT DOCUMENTS

FERDINAND MARCOS II v. CA, & CIR

JUNE 05, 1997 GR. 120880

The objections to the assessment should have been raised, considering the ample remedies afforded the taxpayer by the Tax Code, with the BIR and the CTA, and cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action taken by Marcos II reflects his disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society. The subject tax assessments having become final, executory and enforceable, the same can no longer be contested by means of a disguise protest. Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government.

Where there was an opportunity to raise objections to government action, and such opportunity was disregarded, for no justifiable reason, the party claiming oppression then becomes the oppressor of the orderly functions of the government. He who comes to court must come with clean hands. Otherwise, he not only taints his name, but ridicules the very structure of established authority.

RIZAL COMMERCIAL BANKING CORP. (RCBC) v. CIR

JUNE 16, 2006 GR. 168498

As provided in Sec. 228, the failure of the taxpayer to appeal from an assessment on time rendered the assessment final, executory and demandable. RCBC is precluded from disputing the correctness of the assessment. While the right to appeal a decision of the Commissioner of CTA is merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised in a MTD.

REPUBLIC OF THE PHILIPPINES v. KER & CO., LTD.

SEP. 29, 1966 GR. L-21609

The assessment for deficiency income tax for 1947 has become final and executory, and therefore, Ker, may not anymore raise defenses which go into the merits of assessment, i.e. prescription of the Commissioners right to assess the tax. However, Ker raised the defense of prescription in the proceedings below, and the Republic, instead of questioning the right of Ker to raise such defense, litigated on it and submitted the issue for resolution of the court. By its actuation, the government should be considered to have waived its right to object to the setting up of such defenses.

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINES

SEP. 05, 1984

The commencement of the 5-year period should be counted from Aug. 29, 1958, the date of the letter of demand of the BIR Commissioner to Mambulao. It is this demand or assessment that is appealable to the CTA. The complaint for collection was filed in the CFI on Aug. 25, 1961, very much within the 5-year period prescribed by Sec. 332 (c) of the Tax Code. The right of the Commissioner to collect the forest charges and surcharges in the amount of P15, 443.55 has not prescribed.

It is also not disputed the Mambulao requested for a reinvestigation of its tax liability. In reply, Republic gave Mambulao 20-days from receipt thereto to submit the results of its verification of payments and failure to

comply would be an abandonment of the request for reinvestigation. Neither did it appeal to the CTA within 30-days from receipt of the letter, thus making the assessment final and executory.

PRULIFE OF UK INSURANCE CORPORATION v. CIR

SEP. 11, 207 CTA 6774

The effect of Prulifes lack of supporting documents submitted is that, it lost its chance to further contesting the premium tax assessment. The finality of the assessment simply means that where the taxpayer decides to forgo with the opportunity to present the documents in support of its claim within 60 days from the filing of its protest, it merely lost its chance to further contest the assessment.

Its non-compliance with the submission of the necessary documents would either mean that Prulife no longer wishes to further submit any document for the reason that its protest letter filed was more than enough to support its claim, or that Prulife failed to comply thus it can no longer give justification with regard to its objections as to the correctness of the assessment notices.

The necessity of the submission of the supporting documents lies on Prulife. It cannot be left to the discretion of the CIR for in doing so would leave Prulifes case at the mercy of the whims of the CIR. It is for Prulife to decide whether or not supporting documents are necessary to support its protest for it is the best position, being the affected party to the assessment to determine which documents are necessary and essential to garner a favourable decision from CIR.

The mere claim of Prulife that its cash collection did not comprise entirely of premiums collected cannot be given credence. Prulife should have presented supporting documents to prove such claim. Since Prulife failed to present a scintilla of evidence to that effect, CTA sustains CIRs basis of such collections. Assessments should not be based on presumption no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts.

ABN-AMRO SAVINGS BANK CORP. v. CIR

SEP. 10, 2008 CTA 7089

Where a taxpayer failed to submit relevant supporting documents within the 60-day period from filing of the protest, and in case of inaction by CIR and the taxpayer chooses to appeal to the CTA, the same must be made within 30-days from the lapse of the 180-day period, the 180-day period must be reckoned from the date the protest was filed. The 60-day period shall not be added to the computation of the 180-days because in case the taxpayer fails to submit relevant supporting documents, the assessment becomes final. The 180 day period, therefore, commenced to run from the date protest was filed. Failure on the part of ABN-AMRO to file a Petition for Review with the CTA within 30-days from the lapse of 180-day period reckoned from the date the protest was filed renders the assessment final, executory and demandable.

The case at bar, reveals that ABN-AMRO filed its letter of protest on January 28, 2004, it has 60-days until March 28, 2004 within which to submit the relevant supporting documents. Records of the case, is bereft of proof that ABN-AMRO had submitted the relevant documents on or before March 28, 2004. The 180-day period shall be reckoned from the filing of the protest on January 28, 2004 which ends on July 26, 2004.

CIR v. JOSE CONCEPCION

MAR. 15, 1968 GR. L-23912

Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which is Sec. 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time.

B. COMMISSIONER OF INTERNAL REVENUE RENDERS DECISION ON DISPUTED ASSESSMENT

1) PERIOD TO DECIDE

SEC. 228 OF NIRC

OCEANIC WIRELESS NETWORK, INC. v. CIR, CTA, & CA

DEC. 09, 2005 GR. 148380

The general rule is that the CIR Commissioner may delegate any power vested upon him by law to Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under Sec. 7 of NIRC.

Sec. 7 Authority of the Commissioner to Delegate Power The Commissioner may delegate the power vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner. Provided, however, that the following powers of the Commissioner shall not be delegated:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance; b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; c) The power to compromise or abate;

d) The power to assign or reassign internal revenue officers to establishment where articles subject to excise tax are produce and kept.

The authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter such as in the case.

C. REMEDY OF TAXPAYER

SEC.3.5.1,RR12-99 SEC.228 OF NIRC RA 9282, as amended by RA 9503 RR OF CTA, AM 05-11-07-CTA

1) CIR FAILS TO ACT ON PROTEST WITHIN 180 DAYS FROM SUBMISSION OF RELEVANT

DOCUMENTS

LASCONA LAND CO., INC. v. CIR, & NORBERTO ODULIO

JAN. 04, 2000 CTA 5777

Lascona argues that its failure to appeal to the CTA within 30 days from the lapse of the 180-day period did not make the assessment final and executory simply because CIR did not act upon the protest within the 180-day period. In such a situation, Lascona contends that it had the option to appeal to the CTA or to continue with the proceedings on its protest in the administrative level. Once a decision is rendered by the Commissioner on the protest, the 30-day period to appeal from receipt of the decision is mandatory.

In case of inaction, Sec. 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to the CTA within 30 days from the lapse of the 180-day period; or second, he may wait until the Commissioner decides on his protest before he elevates his case. The court believes that the taxpayer was given this option so that in case his protest is not acted upon within the 180-day period, he may be able to seek immediate relief and need not wait for an indefinite period of time for the Commissioner to decide. But if he chooses to wait for a positive action on the part of the Commissioner, then the same could not result in the assessment becoming final, executory and demandable.

RIZAL COMMERCIAL BANKING CORPORATION (RCBC) v. CIR

JUNE 16, 2006 GR. 168498

As provided in Sec. 228, the failure of a taxpayer to appeal from an assessment on time rendered the assessment final, executory and demandable. Consequently, RCBC is precluded from disputing the correctness of the assessment. While the right to appeal a decision o the Commissioner to the CTA is merely a statutory remedy, nevertheless the requirement that it must be brought within 30 days is jurisdictional. If a statutory remedy provides as a condition precedent that the action to enforce it must be commenced within a prescribed time, such requirement is jurisdictional and failure to comply therewith may be raised in a MTD.

2) APPEAL TO THE CTA EN BANC, SC

REPUBLIC OF THE PHILIPPINES v. LIM TIAN SONS & CO., INC.

MAR. 31, 1966 GR. L-21731

Nowhere in the Tax Code is the CIR required to rule first on a taxpayer's request for reinvestigation before he can go to court for the purpose of collecting the tax assessed. On the contrary, Sec. 305 withholds from all courts, except the CTA the authority to restrain the collection of any national internal-revenue tax, free of charge, thereby indicating the legislative policy to allow the CIR much latitude in the speedy and prompt collection of taxes.

Before the creation of the CTA the remedy of a taxpayer who desired to contest an assessment issued by the CIR was to pay the tax and bring an action in the ordinary courts for its recovery pursuant to Sec. 306 of the Tax Code. Collection or payment of the tax was not made to wait until after the CIR has resolved all issues raised by the taxpayer against an assessment. RA 1125 creating the CTA allows the taxpayer to dispute the correctness of legality of an assessment both in the purely administrative level and in said court, but it does not stop or prohibit the CIR from collecting the tax through any of the means provided in Sec. 316 of the Tax Code, except when enjoined by CTA.

ADVERTISING ASSOCIATES, INC. v. CA, & CIR

DEC. 26, 1984 GR. L-59758

Acting Commissioner Plana wrote a letter in an answer to the request of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint. He justified the assessments by stating that the rental income of Advertising Associates from the billboards and neon signs constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency taxes with 10-days from receipt of the demand; otherwise, the Bureau would enforce the warrants of distraint. In his demand letter, he states that:

This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the CTA within 30 days from receipt of this letter.

No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of Sec. 7 RA 1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. The directive is in consonance with this Court's dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitute his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity

and orderliness in administrative action.

CIR v. ALGUE, INC., & CTA

FEB. 17, 1988 GR. L-28896

The record shows that on January 14, 1965, Algue received a letter from CIR assessing it for delinquency income taxes for 1958 and 1959. Four days thereafter, Algue filed a letter of protest or request for reconsideration which letter was stamp-received on the same day in the office of the CIR. On March 12, 1965, a warrant of distraint and levy was presented to Algue who refused to receive it on the ground of the pending protest. A photocopy was given to the BIR agent, who deferred service of the warrant. On April 7, 1965, Algue was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy. 16 days later, Algue filed a petition for review on the decision of the CIR with the CTA.

The forgoing circumstances show that the petition was filed seasonably. RA 1125 states that the appeal may be made within 30 days after receipt of the decision or ruling challenged.

It is true that as a rule the warrant of distraint and levy is proof of the finality of the assessment and renders hopeless a request for reconsideration, being tantamount to an outright denial thereof and makes the said request deemed rejected. But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that 4 days after Algue received the notice of assessment; it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of CIR. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

ELPIDIO YABES & SEVERINO YABES v. HON. NAPOLEON FLOJO

JULY 20, 1982 GR. L-46954

There is no reason for the Court to disagree from or reverse the CTAs conclusion that under the circumstances of the case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the CFI. The summons of which was served on Yabes on January 20, 1971, and that therefore the

appeal with the CTA was filed on time.

The dismissal of the complaint is not sufficient. The ends of justice would best be served by considering the complaint filed in the Civil case not only as a final notice of assessment but also as a counterclaim in the CTA case, in order to avoid multiplicity of suits, as well as to expedite the settlement of the controversy between the parties. The 2 case involves the same parties, the same subject matter and the same issue, which is the liability of the heirs of Yabes for commercial brokers fixed and percentage taxes due from Yabes. Wherefore, the petition is granted and the writs prayed for are issued. The question orders are annulled and set aside and the complaint in the Civil case should be dismissed, the same to be transferred to the CTA to be considered therein as a counterclaim in the CTA case. The TRO is made permanent.

CIR v. UNION SHIPPING CORPORATION, & CTA

MAY 21, 1990 GR. 66160

There appears to be no dispute that CIR did not rule on Union Shippings motion for reconsideration but contrary to the ruling of the Court, left Union Shipping in the dark as to which action of the Commissioner is the decision appealable to CTA. Had he categorically stated that he denies Union Shippings motion for reconsideration and that his action constitutes his final determination of the disputed assessment, Union Shipping without needless difficulty would have been able to determine when his right to appeal accrues and the resulting confusion would have been avoided.

Under the circumstances, CIR, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when Union Shipping received the summons on the civil suit for collection of deficiency income on December 1978 that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by CIR when the latter filed a civil suit for collection of deficiency income. So that when Union Shipping filed an appeal with the CTA, it consumed a total of only 13 days, well within the 30 day period to appeal.

CIR v. ISABELA CULTURAL CORPORATION

JULY 11, 2001 GR. 135210

The Final Notice Before Seizure cannot but be considered as the Commissioners decision disposing of the request for reconsideration filed by Isabela, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIRs final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that Isabela was being given this Last Opportunity to pay; otherwise, its properties would be subjected to distraint and levy.

Sec. 228 of NIRC states that a delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof. In this case, the period of 180 days had already lapsed when Isabela filed its request for reconsideration on March 1990, without any action on the part of the CIR.

Jurisprudence dictates that a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.

D. NON-RETROACTIVITY OF RULINGS

SEC. 246 OF NIRC

1) REVIEW, APPEAL TO SECRETARY OF FINANCE

SEC. 4 OF NIRC

CIR v. PHILIPPINE HEALTH CARE PROVIDERS INC.

APR. 24, 2007 GR. 168129

Sec. 246 of the 1997 Tax Code, as amended provides that rulings, circulars, rules and regulations promulgated by the CIR Commissioner have no retroactive application if to apply them would prejudice the taxpayer. The exceptions to this rule are:

Where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR; Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based; Where the taxpayer acted in bad faith.

Philhealths failure to describe itself as a health maintenance organization which is subject to VAT, is not tantamount to bad faith. It is apparent that when VAT Ruling was issued in Philhealths favor, the term health maintenance organization was yet unknown or had no significance for taxation purposes.

Under Sec. 246, the CIR Commissioner is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency withholding income taxes was made, 3 years after a new BIR Circular reversed a previous one, upon which the taxpayer had relied upon; such an assessment was prejudicial to the taxpayer. The rule, otherwise, opined the Court, would be contrary to the tenets of good faith, equity and fair play. The rule is that the BIR rulings have no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer, as in this case.

PHILIPPINE BANK OF COMMUNICATIONS (PBCOM) v. CIR, CTA, & CA

JAN. 28, 1999 GR. 112024

The rule states that the taxpayer may file a claim for refund or credit with the BIR Commissioner, within 2 years after payment of tax, before any suit in CTA is commenced. The 2-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. When the Acting Commissioner issued RMC 7-85, changing the prescriptive period of 2 years to 10 years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of NIRC. The BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by the Congress.

The Revenue Memorandum circulars are considered administrative rulings which are issued from time to time by the BIR Commissioner. The interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Courts will not countenance administrative issuances that override, instead of

remaining consistent and in harmony with, the law they seek to apply and implement.

III. JURISDICTION OF CTA

RA 9282, as amended by RA 9503

RR OF CTA, AM 05-11-07-CTA

1) WHY WAS CTA CREATED?

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIR

MAY 08, 1996 GR. 118794

The contentions of PRC that nobody is in a better position to determine when an obligation becomes a bad debt that the creditor itself, and that its judgment should not be substituted by that of CTA as it is the PRC which has the facilities in ascertaining the collectability or un-collectability of these debts, are presumptuous and uncalled for. The CTA is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether or not the debt is deductible through the evidence presented before it. Because of this recognizable expertise, the finding of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. The findings of fact of the CTA are binding on the SC and in the absence of strong reason for the SC to delve into facts, only questions of law are open for determination.

IV. REMEDIES AVAILABLE TO GOVERNMENT

A.ADMINISTRATIVE REMEDIES, SUMMARY REMEDIES

1) TAX LIEN

SEC. 219 OF NIRC

REPUBLIC v. RAMON ENRIQUEZ

OCT. 21, 1988 GR. L- 78391

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax become due and payable.

CIR v. NLRC

NOV. 09, 1994 GR. 74965

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by CIR, through the Commissioner, long before the writ of execution was issued by the RTC. There is no question then that at the time the writ of execution was issued, the 2 barges were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to the properties unquestionably belonging to the judgment debtor.

Art. 110 of the Labour Code do not purport to create a lien in favour of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not fall at all time within the category of specially preferred claims established under Art. 2241 and Art. 2242 of the CC, except to the extent that such claims for unpaid wages are already covered by Art. 2241(6): claims for labourers wages, on the goods manufactured or the work done; or by Art. 2242(3): claims of labourers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works. To the extent that claims for unpaid wages fall outside the scope of Art. 2241(6) and Art. 2242(3), they would come within the ambit of the category of ordinary preferred credits under Art. 2244.

Art. 110 of the Labour Code applies only in case of bankruptcy or judicial liquidation of an employers business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a share in the assets of the employer.

THE HONGKONG & SHANGHAI BANKING CORP. (HSBC) v. JAMES REFFERTY

NOV. 15, 1918 GR. 13188

A lien in its modern acceptation is understood to denote a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation. The tax lien does not establish itself upon property which has UNDER: ATTY. BOBBY LOCK

BY: MEL ANDREW YU REYES

been transferred to innocent purchasers prior to demand. In order that a lien may follow the property into the hands of a third party; it is further essential that the latter should have notice, either actual or constructive.

B. JUDICIAL REMEDIES

SEC. 205

SEC. 220-221, OF NIRC

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINES

SEP. 05, 1984 GR. L-37061

The taxpayers defenses are similar to those of the Republic in a case for the enforcement of a judgement by judicial action under Sec. 6 of Rule 39 of Rules of Court. No inquiry can be made therein as to the merits of the original case or the justness of the judgement relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings. The taxpayer may raise only the question whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of that act.

FERNANDEZ HERMANOS, INC. v. CIR, & CTA

SEP. 30, 1969 GR. L-21551

A judicial action for the collection of a tax begins by the filing of a complaint with the proper court of first instance or where the assessment is appealed to the CTA, by filing an answer to the taxpayers petition for review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the CTA, the said Court is vested with the authority to pronounce judgment as to the taxpayers liability to the exclusion of any other court.

The capital investment method is not a method of depletion, but the Tax Code provision, prior to its amendment by Sec. 1 of RA 3698, expressly provided that when the allowances shall equal the capital invested no further allowances shall be made; in other words, the capital investment was but the limitation of the amount of depletion that could be claimed. The outright deduction by the taxpayer of 1/5 of the cost of the mines, as if it were a straight line rate of depreciation is not authorized by the Tax Code.

V. STATUTORY OFFENSES AND PENALTIES

A. CIVIL PENALTIES, SURCHARGES, INTEREST SEC. 247-251 OF NIRC RR 12-99

1) RULES ON INTERESTBANK OF THE PHILIPPINE ISLAND (BPI) v. CIR

JUL. 27, 2006 GR. 137002

In the case of PRC v. CA, the SC ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment, which was the subject of the demand letter of the Commissioner, should have been paid within 30 days from receipt thereof. By reason of PRC's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that PRC appealed the assessment to the CTA and that the same was modified does not relieve PRC of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

The legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum/s due and unpaid after the dates prescribed in subsections (b), (c), and

(d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.

In Ross v. U.S., When the U.S. SC ruled that it was only equitable for the government to collect interest from a taxpayer who, by the government's error, received a refund which was not due him. Even though the taxpayer did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.

Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges is mandatory. Therefore, the Decision of the CA imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Sec. 249(c)(3) of NIRC.

2) SURCHARGE: 25% OR 50%

SEC. 248 OF NIRC

a) MANDATORY IMPOSITION OF PENALTIES

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIR

MAY 08, 1996 GR. 118794

Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected. The intention of the law is to discourage delay in the payment of taxes due the Government and, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the

taxpayer beyond the date when he is supposed to have paid them to the Government. Unquestionably, PRC chose to turn a deaf ear to these injunctions.

CIR v. AIR INDIA, & CTA

JAN. 29, 1998 GR. 72443

The 50% surcharge or fraud penalty provided in Sec. 72 of the NIRC is imposed on a delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand, if the failure to file the required tax return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the taxpayer.

The SC is not convinced that Air India can be considered to have willfully neglected to file the required tax return thereby warranting the imposition of the 50% fraud penalty provided in Sec. 72. At the most, there is the barren claim that such failure was fraudulent in character, without any evidence or justification for the same. The willful neglect to file the required tax return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.

In the case of Aznar v. CA. The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to give up some legal right or to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both Aznar and the CIR committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of Aznar as tainted with fraud and those of the CIR as made in good faith.

There being no cogent basis to find willful neglect to file the required tax return on the part of Air India, the 50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects Air India to a 25% penalty pursuant to Section 72 of NIRC. P74,203.90 constitutes the tax deficiency of Air India. 25% of this amount is P37,101.95.

MICHEL J. LHUILLIER PAWNSHOP, INC. v. CIR

SEP. 11, 2006 GR. 166786

Documentary Stamp Tax (DST) is essentially an excise tax; it is not an imposition on the document itself but on the privilege to enter into a taxable transaction of pledge. Sec. 195 of NIRC imposes a DST on every pledge regardless of whether the same is a conventional pledge governed by the Civil Code or one that is governed by the provision of PD 114. All pledges are subject to DST, unless there is a law exempting them in clear and categorical language. This explains why the Legislature did not see the need to explicitly impose a DST on pledges entered into by pawnshops. These pledges are already covered by Sec. 195 and to create a separate provision especially for them would be superfluous.

It is the exercise of the privilege to enter into an accessory contract of pledge, as distinguished from contract of loan, which give rise to the obligation to pay DST. If the DST under Sec. 195 is levied on the loan or the exercise of the

privilege to contract a loan, then there would be no use for Sec. 179 of the NIRC, to separately impose stamp tax on all debt instruments, like a simple loan agreement. It is for this reason why the definition of pawnshop ticket, as not an evidence of indebtedness, is inconsequential to and has no bearing on the taxability of contracts of pledge entered into by pawnshops. For purposes of Sec. 195, pawnshop tickets need not be an evidence of indebtedness nor a debt instrument because it taxes the same as a pledge instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it from the imposition f DST. It was correctly defined as such because the ticket itself is not the security but the pawn or the personal property pledge to the pawnbroker.

b) RULE ON PRIMA FACIE FRAUD

SEC. 248(B) OF NIRC

JOSE AZNAR v. CTA, & CIR

AUG. 23, 1974 GR. L-20569

The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a wilful filing of false and fraudulent returns as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception wilfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax.

CIR v. MELCHOR JAVIER JR., & CTA

JULY 31, 1991 GR. 78953

Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

In the case at bar, there was no actual and intentional fraud through wilful and deliberate misleading of the government agency concerned, the BIR, headed by CIR. The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not fraud. The CIRs zealousness to collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts.

B. CRIMES, OFFENSES, PENALTIES, FORFEITURES SEC. 220-221, 224-226 OF NIRC SEC. 253-281 OF NIRC RMC 101-90

1) PRECONDITIONED BEFORE A CRIMINAL CASE MAY BE FILED

REPUBLIC OF THE PHILIPPINES v. SALUD HIZON

DEC. 31, 1999 GR. 130430

Sec. 221 of NIRC provides:

Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the BIR shall be brought in the name of the Government of the Philippines and shall be conducted by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the BIR deputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall begun without the approval of the Commissioner.

To implement this provision RAO 5-83 of the BIR provides in pertinent portions:

The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in the

Legal Branches of Revenues Regions:

xxx

xxx

xxx

II. Civil Cases

1. Complaints for collection on cases falling within the jurisdiction of the Region. . . .

In all the above mentioned cases, the Regional Director is authorized to sign all pleadings filed in connection therewith which, otherwise, requires the signature of the Commissioner.

xxx

xxx

xxx

RAO 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of RDO to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.

However, the lower court refused to recognize RAO 10-95 and, by implication, RAO 5-83. It held:

Memoranda, circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such memoranda and circulars are not the official acts of the legislative, executive and judicial departments of the Philippines. ...

This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they are valid and have the force of law. The governing statutory provision in this case is Sec. 4(d) of the NIRC which provides:

Specific provisions to be contained in regulations. The regulations of the BIR shall, among other things, contain provisions specifying, prescribing, or defining:

xxx xxx xxx

(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and conduct of legal actions and proceedings.

RAO 5-83 and 10-95 are in harmony with this statutory mandate.

As amended by R.A. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

c) The power to compromise or abate under Sec. 204 (A) and (B) of this Code, any tax deficiency: Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax

are produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.

QUIRICO UNGAB v. HON. VICENTE CUSI, CIR COMMISSIONER, & JESUS ACEBES

MAY 30, 1980 GR. L-41919-24

What is involved is not the collection of taxes where the assessment of the CIR Commissioner may be reviewed by CTA, but a criminal prosecution for violations of NIRC which is within the recognizance of CFI. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.

It has been ruled that a petition for reconsideration of an assessment ay affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest of Ungab against the assessment of the District Revenue Officer cannot stop his prosecution for violation of NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the motion to quash filed by Ungab.

CIR v. CA, FORTUNE TOBACCO CORP., & LUCIO TAN

JUNE 04, 1996 GR. 119322

In every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR, and since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates the price, excluding the VAT, at which the goods are sold at wholesale in the place of production, otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that Fortune made fraudulent returns or wilfully attempted to evade payment of taxes due.

If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortunes production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence of BIR personnels malfeasance. There is the presumption that the BIR personnel performed their duties in the regular course in ensuing that the correct taxes were paid by Fortune.

The SC share the same view of both the trial court and CA that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that Fortune have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. Before one is prosecuted for wilful attempt to evade or defeat any tax under Sec. 253 and Sec. 255 of the Tax Code, the fact that a tax is due must first be proved.

DISTINGUISHED FROM UNGAB v. CUSI

The pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointed and deliberately qualified by the Court. The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with the intent to evade and defeat a part or all of the tax. For criminal prosecution to proceed before assessment there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade taxes because of the taxpayers failure to declare in his ITR his income derived from banana saplings. In

the mind of the trial court and CA, Fortunes situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible f criminal prosecution. Herein lies a WHALE of difference between Ungab and Fortune.

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATION JUNE 29, 1999 GR. 128315

Pascor maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Sec. 222 of NIRC specifically states that in cases where false or fraudulent return is submitted or in case of failure to file a return such as in this case, proceedings in court may be commenced without an assessment. Sec. 205 clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, Ungab sought the dismissal of the criminal complaints for being premature since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the CIR Commissioner had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.

Pascor insist that Sec. 222 should be read in relation to Sec. 255 of NIRC, which penalizes failure to file a return. Pascor add that a tax assessment should precede a criminal indictment. The SC disagrees. Sec. 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Pascor failed to show that they are entitled to an exception. The criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is a PAN sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the Commissioner is unsatisfied, an assessment signed by him is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ.

Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the Commissioner has issued an assessment. It must be stressed that a criminal complaint is institute not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

2) COMPROMISE PENALTY

RMO 19-07

CIR v. LIANGA BAY LOGGING CO., INC., & CTA JAN. 21, 1991 GR. 35266

Sec. 11 of Regulations No. 85 applies, as the CTA points out, to a forest concessionaire who is the holder of an ordinary license;but there are separate provisions on invoicing and payment of forest charges in the case of owners or operators of sawmills who are forest concessionaire, like Lianga. For purposes of said regulations, sawmills are classified into Class A, B, C and D. The Tax Courts finding on the basis of the evidence is that Lianga is a Class C sawmill. The record does indeed establish its character as such: in accordance with said regulation, forest officers have been permanently assigned to its concession for the purpose of scaling all logs felled and it has posted a bond to guarantee the payment of the forest charges that may be due from it. It is not therefore required by the regulation to accomplish and submit auxiliary invoices required only of Class A sawmills, i.e., holders of ordinary timber licenses. What is required in lieu thereof, pursuant to said regulation, are monthly scale reports (BIR Form 14.15) as well as the Daily Trimmer Tally (BIR Form 14.11), and monthly Abstract of Sawmill invoice (BIR Form 14.14). It is noteworthy that the CIR does not claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga has complied with the requirements regarding the keeping and use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally and commercial invoices. In fact, it appears that the forest officers reports and computations were the basis for the payment of forest charges by Lianga, and the basis, as well of the Commissioners computation of the alleged 25% surcharge. Sec. 267 imposing a surcharge of 25% of the regular forest charges if forest products are removed from the forest concession without invoice does not specify the nature of the invoice contemplated. The term is not limited to auxiliary invoices. It may refer as well to official or commercial invoices such as those prepared by Class C sawmills. This is the interpretation placed on the term by said regulation themselves, which declare that the 25% surcharge is imposable on Forest products transported without official invoice or commercial invoice, as the case requires. And since sawmill or commercial invoices were in fact prepared by Lianga, no violation of the rule may be imputed to it at all.

3) ELEMENTS OF TAX EVASION

CIR v. THE ESTATE OF BENIGNO TODA, JR.

SEP. 14, 2006 GR. 147188

4) PAYMENT OF TAX IN CRIMINAL CASES SEC. 253(d) OF NIRC SEC. 205 (b)

REPUBLIC v. PEDRO PATANAO JULY 21, 1967 GR. L-22356

Under the Penal Coe, the civil liability is incurred by reason of the offenders criminal act. The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code, he cannot be civilly liable there under. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business and not because of any criminal at committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, while Sec. 73 of NIRC has provided for the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it does not provide the collection of said tax in criminal proceedings.

Since taxpayers civil liability is not included in the criminal action, his acquittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be affected by his attempt to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of non- existence of the criminal acts charged.

MARIA B. CASTRO v. CIR APR. 26, 1962 GR. L-12174

With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal case could not operate to discharge Castro from the duty to pay the tax, since that duty is imposed by statute prior to and independently of any attempts on the part of the taxpayer to evade payment. The obligation to pay the tax is not a

mere consequence of the felonious acts charged in the information, nor is it a mere civil liability derived from crime that would be wiped out by the judicial declaration that the criminal acts charged did not exist.

As to the 50% surcharge, in Coffey v. U.S., the U.S. SC states that additions of this kind to the main tax are not penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the state revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud. This is made plain by the fact that such surcharges are enforceable, like the primary tax itself, by distraint or civil suit, and that they are provided in a section of Sec. 5 and Sec. 7, RA 55 that is separate and distinct from that providing for criminal prosecution. The SC concludes that the defense of jeopardy and estoppel by reason of Castros acquittal is untenable and without merit. Whether or not there was fraud committed by the taxpayer justifying the imposition of the surcharge is an issue of fact to be inferred from the evidence and surrounding circumstances; and the finding of its existence by the Tax Court is conclusive upon the SC.

5) PRESCRIPTION OF VIOLATION OF NIRC

EMILIO S. LIM, SR. & ANTONIA SUN LIM v. CA & PEOPLE OF THE PHILIPPINES

OCT. 18, 1990 GR. 48134-37

Relative to Criminal Cases Nos. 1788 and 1789 which involved Lims refusal to pay deficiency income taxes due, again both parties are in accord that by their nature, the violations as charged could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Lim maintains that the 5-year period of limitation under Sec. 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insist that it should be counted from July 3, 1968 when final notice and demand was served on Lims daughter-in-law. The SC holds for the Government.

Sec. 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax After the return is filed, the BIR Commissioner shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the BIR Commissioner. Inasmuch as the final notice and demand for payment of the deficiency taxes was served on Lim on July 3, 1968, it was only then that the cause of action on the part o the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the allotted period. The two criminal information, having been filed on June 23,

1970, are well within the 5-year prescriptive period and are not time-barred.

VI. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENT

A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT

1) BASIS OF TAX REFUNDS

CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION

FEB. 16, 2007 GR. 147295

Tax refunds are based on the principle of quasi-contract or solutio indebeti and the pertinent laws governing this principle are found in Art. 2142 and Art. 2154 of the NCC. When money is paid to another under the influence of a mistake of fact, on the mistaken supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it.

The government comes within the scope of solution indebeti principle, where that: enshrined in the basic legal principles is the time honoured doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempt from the application of this doctrine.

2) TAXPAYER, WITHHOLDING AGENT

CIR v. PROCTER & GAMBLE PHILIPPINES MANUFACTURING CORPOATION, & CTA

DEC. 02, 1991 GR. 66838

The SC believes that the BIR should not be allowed to defeat an otherwise valid claim for refund by raising the question of alleged incapacity. CIR does not pretend that P&G-Phil., should it succeed in the claim for refund instead of transmitting such refund, is likely to run away with the refund instead of transmitting such refund or tax credit to its parent or sole stockholder. It is commonplace that in the absence of explicit statutory provisions to the

contrary, the government must follow the same rules of procedure which bind private parties. It is, for instance, clear that the government is held to compliance with the provisions of Circular No. 1-88 of the SC in exactly the same way that private litigants are held to such compliance, save only in respect of the matter of filing fees from which the Republic is exempt by the Rules of Court.

A taxpayer is any person subject to tax imposed by the Tax Code. Under Sec. 53(c), the withholding agent who is required to deduct and withhold any tax is made personally liable for such tax and is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. A person liable for tax has been held to be a person subject to tax and subject to tax both connote legal obligation or duty to pay a tax. By any reasonable standard, such a person should be regarded as a party-in-interest or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.

TAX PAIRING RULE

The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation, goes down to 15% if the country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable against the tax payable to the domiciliary country by the foreign stockholder corporation.

In the instant case, the reduced 15% dividend tax rate is applicable if the USA shall allow to P&G-USA a tax credit for taxes deemed paid in the Philippines applicable against the US taxes of P&G-USA. The NIRC specifies that such tax credit for taxes deemed paid in the Philippines must, as a minimum, reach an amount equivalent to 20% points which represents the difference between the regular 35% dividend tax rate and the preferred 15% dividend tax rate. However, Sec. 24(b)(1), does not require that the US must give a deemed paid tax credit for the dividend tax (20% points) waived by the Philippines in making applicable the preferred dividend tax rate of 15%. In other words, NIRC does not require that the US tax law deemed the parent-corporation to have paid the 20% points of dividend tax waived by the Philippines. The NIRC only requires that the US shall allow P&G-USA a deemed paid tax credit in an amount equivalent to the 20% points waived by the Philippines.

3) REQUISITES FOR A VALID CLAIM FOR REFUND

FINLEY J. GIBBS & DIANE P. GIBBS v. CIR, CTA

NOV. 29, 1965 GR. L-17406

AJG, signing as attorney-in-fact, acknowledged for the Gibbs receipt of the deficient income tax assessment; formally protested the same in writing, paid the assessment and likewise formally demanded in writing its refund. Besides, in one of his letters to the Commissioner, he stated that if his demand for refund for the Gibbs was not effected, he would collect from CIR certain charges including attorneys fees.

The forgoing circumstances show that AJG acted not merely an agent or attorney-in-fact of the Gibbs but as their legal counsel. The receipt, therefore by AJG of the Commissioners decision denying the claim for refund was receipt of the same by the Gibbs, and the 30-day prescriptive period for filing of a petition for review should be computed from the date of such receipt.

A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really deposit an amount to the BIR Commissioner, but, to perform or extinguish his tax obligation for the year concerned. He is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the 2-year prescriptive period under Sec. 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since the delay of the Collector is rendering the decision does not extend the peremptory period fixed by the statute.

KOPPEL (PHILIPPINES), INC. v. CIR

SEP. 19, 1961 GR. L-10550

It is the duty of the taxpayer to urge the Collector for his decision and wake him up from his lethargy or file his action within the time prescribed by law. Koppel not having filed his claim within the time fixed by law, his cause of action has prescribed, and the court should not give a premium to a litigant who sleeps on his rights.

Having failed to file his action for refund on time of Koppel may not now invoke estoppels when he himself is guilty of laches. The government is never stopped by error or mistake on the part of its agents.

CIR v. JOSE CONCEPCION

MAR. 15, 1968 GR. L-23912

Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is Sec. 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time.

CIR v. VICTORIAS MILLING CO., & CTA

JAN. 03, 1968 GR. L-24108

Sec. 306 and 309 of NIRC were intended to govern all kinds of refunds of internal revenue taxes those taxes imposed and collected pursuant to the NIRC. Thus, this Court stated that "this provision" referring to Sec. 306, "which is mandatory, is not subject to qualification, and hence, it applies regardless of the conditions under which payment has been made." And to hold that the instant claim for refund of a specific tax, an internal revenue tax imposed in Sec. 142 of NIRC, is beyond the scope of Sec. 306 and 309 as to thwart the aforesaid intention and spirit underlying said provisions.

xxx xxx xxx

. . . The intention is clear that refunds of internal revenue taxes are generally governed by Sec. 306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the 2-year

prescriptive period provided for in Sec. 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the CIR, and the subsequent appeal to the CTA must be instituted, within the said 2-year period.

xxx xxx xxx

In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund. The ruling in Muller & Phipps is accordingly modified.

It is not disputed that the oils and fuels involved in this case were used during the period from June 1952 to December 1955; that the claim for refund was filed on December 1957; and that the appeal to the Court CTA was instituted only on February 1962. The taxpayer's claim for refund with the BIR of December 1957 is within 2 years from December 1955 the last month of the period during which the fuels and oils were used. The appeal to the CTA however, was instituted more than 6 years. The SC has repeatedly held that the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year period. "If, however, the Collector takes time in deciding the claim, and the period of 2 years is about to end, the suit or proceeding must be started in the CTA before the end of the 2- year period without awaiting the decision of the Collector." In the light of the above quoted ruling, the SC finds that the right of Victorias Milling to claim refund of P2,817.08 has prescribed.

CIR v. CA, & CITYTRUST BANKING CORPORATION, & CTA

JULY 21, 1994 GR. 106611

The CTA erred in denying CIRs supplemental motion for reconsideration alleging and bringing to said courts attention the existence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of Citytrust Bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Citytrust cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, the facts stated therein are true and

correct. The deficiency assessment, although not yet final, created a doubt as to and constitute a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund.

To grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should be subsequently be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of 10-years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and entail additional efforts and expenses on the part of the Government impose a burden on and a drain of government funds, and impedes or delays the collection of much- needed revenue for government operations.

DR. FELISA L. VDA. DE SAN AGUSTIN v. CIR

The estate received a PAN indicating a deficiency estate tax of P538,509.50. Within the 10-day period given in the PAN, CIR received a letter from San Agustin expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that sum from the estate but requesting that the surcharge, interests and penalties be waived. However, San Agustin received from the CIR notice insisting payment of the tax due on or before the lapse of 30 days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until December 1991.

The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Sec. 248A(3) of NIRC. The basic deficiency tax in this case being P538,509.50, the 25% thereof comes to P134,627.37. Sec. 249 of NIRC states that any deficiency in the tax due would be subject to interest at the rate of 20% per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The computation of interest by the CTA -

"Deficiency estate tax

P538,509.50

Interest Rate

20% per annum

Terms 11/2 mo./12 mos (11/04/91 to 12/19/91)

= P13,462.74

conforms with the law, i.e., computed on the deficiency tax from the date prescribed for its payment until it is paid.

The CTA correctly held that the compromise penalty of P20,000.00 could not be imposed on San Agustin, a compromise being, by its nature, mutual in essence. The payment made under protest by San Agustin could only signify that there was no agreement that had effectively been reached between the parties.

Regrettably for San Agustin, the need for an authority from the probate court in the payment of the deficiency estate tax, over which CIR has hardly any control, is not one that can negate the application of the Tax Code provisions. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions.

4) REFUNDS OF CORPORATE TAXPAYERS, IRREVOCABILITY RULE

SEC. 76 OF NIRCACCRA INVESTMENTS CORPORATION v. CA, CIR, & CTA

DEC. 20, 1991 GR. 96322

There is a need to file a return first before a claim for refund can prosper inasmuch as the Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its

withholding agents to the BIR. ACCRA filed its final adjustment return for its 1981 taxable year on April 15, 1982. The 2-year prescriptive period within which to claim a refund commences to run at the earliest, on the date of the filing of the adjusted final tax return. Hence, ACCRA had until April 15, 1984 within which to file its claim for refund.

CIR v. TMX SALES INC., & CTA

JAN. 15, 1992 GR. 83736

The filing of quarterly ITRs required in Sec. 68 and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere instalments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Sec. 69 which provides for the filing of adjustment returns and final payment of income tax. Consequently, the 2-year prescriptive period provided in Sec. 230 of the Tax Code should be computed from the time of filing of the Adjustment Return or Annual ITR and final payment of income tax.

In the instant case, TMX Sales, filed a suit for a refund on March 14, 1984. Since the 2-year prescriptive period should

be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales is not yet barred by prescription.

SYSTRA PHILIPPINES, INC. v. CIR

SEP. 21, 2007 GR. 176290

A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has 2 options:

To carry over the excess credit;

To apply for the issuance of a tax credit certificate or to claim a cash refund.

If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR Form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Sec. 76 of the Tax Code. The phrase such option shall be considered irrevocable for that taxable period means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid:

As automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and; As a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.

SITHE PHILIPPINES HOLDINGS, INC. v. CIR

APR. 04, 2003 CTA 6274

By the clear wording of Sec. 76, every taxpayer-corporation is required to file a final adjustment return reflecting therein all the items of gross income and deductions as well as the total taxable income for the taxable year. By the filing thereof, it enables a taxpayer to ascertain whether it has a tax still due or an excess and overpaid income tax based on the adjusted and audited figures. If it is shown that the taxpayer has a tax still due, then he must pay the balance thereof and on the other hand, if he has an excess or overpaid income tax, then he could carry it over to the succeeding taxable year or he may credit or refund the excess amount paid as the case may be.

Sec. 76, gives the taxpayer the privilege to carry over its excess credit or crediting/ claiming for the refund of the excess amount paid, as the case may be. If Sithe believes that Sec. 76 is inapplicable to its case, then why did they carry over to the succeeding taxable year its 1998 excess credit?

Sec. 204 and Sec. 229 of the 1997 Tax Code, if treated in isolation, vest no right. Sec. 204 merely provides for the authority of the Commissioner to compromise, abate and refund/ credit taxes and the period of time within which a taxpayer may claim a refund o tax credit. The same holds true with regard to Sec. 22, which merely sets a period of limitation within which to recover an erroneously or illegally collected tax. Thus, a taxpayers option to carry over the excess credit or to refund/ credit the excess amount paid is actually provided for by Sec. 76. In order to give

effect to its provisions, it is important that Sec. 76 should be read together with Sec. 204 and Sec. 229 of the Tax Code.

In the case at bar, when Sithe opted to carry over its excess tax credit to the succeeding taxable year, it has in effect availed of the privilege allowed only by Sec. 76. Thus, it is absurd for Sithe to exercise the option to carry over the excess amount paid and on the same breath, invoke the inapplicability of Sec. 76 to his case.

BPI-FAMILY SAVINGS BANK, INC. v. CA, CTA, & CIR

APR. 12, 2000 GR. 122480

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on the grounds of strict technicality, the Return submitted before the CTA and even before this Court. The undisputed fact is that BPI suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to BPI.

CIR argues that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of the case, the SC holds that BPI has established its claim. BPI may have filed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that BPI suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Substantial justice, equity and fair play are on the side of BPI.

Technicalities, and legalism, however exalted, should not be misused by the Government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honour, dignity and uprightness.

PHILAM ASSET MANAGEMENT, INC. v. CIR

DEC. 14, 2005 GR. 156637 AND 162004

PAID ON OPTIONS: NO DILIGENCE ON PART OF PHILAM

Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given taxable year

exceed its total income tax due. These options are:

a) Filing for a tax refund;

b) Availing of a tax credit.

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These 2 options are alternative in nature. The choice of one precludes the other. A corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the selfassessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.

In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its 1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in requesting a tax refund has no basis in law and

jurisprudence.

TWO YEAR PRESCRIPTIVE PERIOD, NOT APPLICABLE

The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within 2 years after payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for refund will be instantly hindered by a failure to signify ones intention in the FAR is to render nugatory the clear provision that allows for a 2-year prescriptive period. In BPIFamily Savings Bank v. CA, the court ordered the refund of a taxpayers excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice a tax refund is in order, it should be granted. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens.

5) RULE IN CASE OF MERGER, CORPORATE TAXPAYERS CONTEMPLATING DISSOLUTION

SEC. 52(c) OF NIRC

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIR

OCT. 25, 2005 GR. 161997

It is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has ruled that at the earliest, the 2-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.

In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:

Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIRs stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes that FBTC is operating on a calendar year period based on the audited financial statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30, 1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor."

Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of NIRC and under Sec. 244 of RR 2.

As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the 15th day of April, or almost 10 months after it ceased its operations, before filing its ITR.

Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.

BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to

the SEC, within the period contemplated by Sec. 78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution. As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47 of the NIRC.

BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in 1985.

Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000.

Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies not covered by Sec. 78 of NIRC.

Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29, 1987, it is clear that the claim is barred by prescription.

6) WHEN 2 YEAR PERIOD DOES NOT APPLY

CIR v. PHILIPPINE NATIONAL BANK (PNB)

OCT. 25, 2005 GR. 1611887

7) ERRONEOUSLY REFUNDED TAX

GUAGUA ELECTRIC LIGHT CO., INC. v. CIR

APR. 24, 1967 GR. L-23611

Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A special law (Tax Code) prevails over a general law (NCC).

Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.

VII.ABATEMENT OF TAX, TAX COMPROMISE SEC. 7, SEC. 204 OF NIRC RR 13-01 RR30-02

A. POWER TO COMPROMISE

1) BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT AND RATES

CIR. v. AZUCENA T. REYES

JAN. 27, 2006 GR. 159694

been transferred to innocent purchasers prior to demand. In order that a lien may follow the property into the hands of a third party; it is further essential that the latter should have notice, either actual or constructive.

B. JUDICIAL REMEDIES

SEC. 205

SEC. 220-221, OF NIRC

MAMBULAO LUMBER COMPANY v. REPUBLIC OF THE PHILIPPINES

SEP. 05, 1984 GR. L-37061

The taxpayers defenses are similar to those of the Republic in a case for the enforcement of a judgement by judicial action under Sec. 6 of Rule 39 of Rules of Court. No inquiry can be made therein as to the merits of the original case or the justness of the judgement relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings. The taxpayer may raise only the question whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of that act.

FERNANDEZ HERMANOS, INC. v. CIR, & CTA

SEP. 30, 1969 GR. L-21551

A judicial action for the collection of a tax begins by the filing of a complaint with the proper court of first instance or where the assessment is appealed to the CTA, by filing an answer to the taxpayers petition for review wherein payment of the tax is prayed for. This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the CTA, the said Court is vested with the authority to pronounce judgment as to the taxpayers liability to the exclusion of any other court.

The capital investment method is not a method of depletion, but the Tax Code provision, prior to its amendment by Sec. 1 of RA 3698, expressly provided that when the allowances shall equal the capital invested no further allowances shall be made; in other words, the capital investment was but the limitation of the amount of depletion that could be claimed. The outright deduction by the taxpayer of 1/5 of the cost of the mines, as if it were a straight line rate of depreciation is not authorized by the Tax Code.

V. STATUTORY OFFENSES AND PENALTIES

A. CIVIL PENALTIES, SURCHARGES, INTEREST SEC. 247-251 OF NIRC RR 12-99

1) RULES ON INTERESTBANK OF THE PHILIPPINE ISLAND (BPI) v. CIR

JUL. 27, 2006 GR. 137002

In the case of PRC v. CA, the SC ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. As correctly pointed out by the Solicitor General, the deficiency tax assessment, which was the subject of the demand letter of the Commissioner, should have been paid within 30 days from receipt thereof. By reason of PRC's default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that PRC appealed the assessment to the CTA and that the same was modified does not relieve PRC of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

The legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum/s due and unpaid after the dates prescribed in subsections (b), (c), and (d) of the Act for the payment of the amounts due. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.

In Ross v. U.S., When the U.S. SC ruled that it was only equitable for the government to collect interest from a taxpayer who, by the government's error, received a refund which was not due him. Even though the taxpayer did not request the refund made to him, and the situation is entirely due to an error on the part of the government, taxpayer and not the government has had the use of the money during the period involved and it is not unjustly penalizing taxpayer to require him to pay compensation for this use of money.

Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers' use of the funds at the time when the State should have control of said funds. Collecting such charges

is mandatory. Therefore, the Decision of the CA imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Sec. 249(c)(3) of NIRC.

2) SURCHARGE: 25% OR 50%

SEC. 248 OF NIRC

a) MANDATORY IMPOSITION OF PENALTIES

PHILIPPINE REFINING COMPANY (UNILEVER PHILS., INC.) v. CA, CTA, & CIR

MAY 08, 1996 GR. 118794

Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected. The intention of the law is to discourage delay in the payment of taxes due the Government and, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government. Unquestionably, PRC chose to turn a deaf ear to these injunctions.

CIR v. AIR INDIA, & CTA

JAN. 29, 1998 GR. 72443

The 50% surcharge or fraud penalty provided in Sec. 72 of the NIRC is imposed on a delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand, if the failure to file the required tax return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the taxpayer.

The SC is not convinced that Air India can be considered to have willfully neglected to file the required tax return thereby warranting the imposition of the 50% fraud penalty provided in Sec. 72. At the most, there is the barren claim that such failure was fraudulent in character, without any evidence or justification for the same. The willful

neglect to file the required tax return or the fraudulent intent to evade the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed.

In the case of Aznar v. CA. The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to give up some legal right or to evade the tax contemplated by the law. It must amount to intentional wrongdoing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both Aznar and the CIR committed mistakes in making entries in the returns and in the assessment, respectively, under the inventory method of determining tax liability, it would be unfair to treat the mistakes of Aznar as tainted with fraud and those of the CIR as made in good faith.

There being no cogent basis to find willful neglect to file the required tax return on the part of Air India, the 50% surcharge or fraud penalty imposed upon it is improper. Nonetheless, such failure subjects Air India to a 25% penalty pursuant to Section 72 of NIRC. P74, 203.90 constitutes the tax deficiency of Air India. 25% of this amount is P37, 101.95.

MICHEL J. LHUILLIER PAWNSHOP, INC. v. CIR

SEP. 11, 2006 GR. 166786

Documentary Stamp Tax (DST) is essentially an excise tax; it is not an imposition on the document itself but on the privilege to enter into a taxable transaction of pledge. Sec. 195 of NIRC imposes a DST on every pledge regardless of whether the same is a conventional pledge governed by the Civil Code or one that is governed by the provision of PD 114. All pledges are subject to DST, unless there is a law exempting them in clear and categorical language. This explains why the Legislature did not see the need to explicitly impose a DST on pledges entered into by pawnshops. These pledges are already covered by Sec. 195 and to create a separate provision especially for them would be superfluous.

It is the exercise of the privilege to enter into an accessory contract of pledge, as distinguished from contract of loan, which give rise to the obligation to pay DST. If the DST under Sec. 195 is levied on the loan or the exercise of the

privilege to contract a loan, then there would be no use for Sec. 179 of the NIRC, to separately impose stamp tax on all debt instruments, like a simple loan agreement. It is for this reason why the definition of pawnshop ticket, as not an evidence of indebtedness, is inconsequential to and has no bearing on the taxability of contracts of pledge entered into by pawnshops. For purposes of Sec. 195, pawnshop tickets need not be an evidence of indebtedness nor a debt instrument because it taxes the same as a pledge instrument. Neither should the definition of pawnshop ticket, as not a security, exempt it from the imposition f DST. It was correctly defined as such because the ticket itself is not the security but the pawn or the personal property pledge to the pawnbroker.

b) RULE ON PRIMA FACIE FRAUD

SEC. 248(B) OF NIRC

JOSE AZNAR v. CTA, & CIR

AUG. 23, 1974 GR. L-20569

The lower courts conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a wilful filing of false and fraudulent returns as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception wilfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by law. It must amount to intentional wrong-doing with the sole object of avoiding the tax.

CIR v. MELCHOR JAVIER JR., & CTA

JULY 31, 1991 GR. 78953

Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at most, create only suspicion and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

In the case at bar, there was no actual and intentional fraud through wilful and deliberate misleading of the government agency concerned, the BIR, headed by CIR. The government was not induced to give up some legal right and place itself at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities

because Javier did not conceal anything. Error or mistake of law is not fraud. The CIRs zealousness to collect taxes from the unearned windfall to Javier is highly commendable. Unfortunately, the imposition of the fraud penalty in this case is not justified by the extant facts.

B. CRIMES, OFFENSES, PENALTIES, FORFEITURES SEC. 220-221, 224-226 OF NIRC SEC. 253-281 OF NIRC RMC 101-90

1) PRECONDITIONED BEFORE A CRIMINAL CASE MAY BE FILED

REPUBLIC OF THE PHILIPPINES v. SALUD HIZON

DEC. 31, 1999 GR. 130430

Sec. 221 of NIRC provides:

Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the BIR shall be brought in the name of the Government of the Philippines and shall be conducted by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the BIR deputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall begin without the approval of the Commissioner.

To implement this provision RAO 5-83 of the BIR provides in pertinent portions:

The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in the

Legal Branches of Revenues Regions:

xxx

xxx

xxx

II. Civil Cases

1. Complaints for collection on cases falling within the jurisdiction of the Region. . .

In all the above mentioned cases, the Regional Director is authorized to sign all pleadings filed in connection therewith which, otherwise, requires the signature of the Commissioner.

xxx

xxx

xxx

RAO 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of RDO to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law.

However, the lower court refused to recognize RAO 10-95 and, by implication, RAO 5-83. It held:

Memoranda, circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such memoranda and circulars are not the official acts of the legislative, executive and judicial departments of the Philippines. ...

This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they are valid and have the force of law. The governing statutory provision in this case is Sec. 4(d) of the NIRC which provides:

Specific provisions to be contained in regulations. The regulations of the BIR shall, among other hings, contain

provisions specifying, prescribing, or defining:

xxx xxx xxx

(d) The conditions to be observed by revenue officers, provincial fiscals and other officials respectingthe institution and conduct of legal actions and proceedings.

RAO 5-83 and 10-95 are in harmony with this statutory mandate.

As amended by R.A. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following:

a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;

c) The power to compromise or abate under Sec. 204 (A) and (B) of this Code, any tax deficiency: Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax

are produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.

QUIRICO UNGAB v. HON. VICENTE CUSI, CIR COMMISSIONER, & JESUS ACEBES

MAY 30, 1980 GR. L-41919-24

What is involved is not the collection of taxes where the assessment of the CIR Commissioner may be reviewed by CTA, but a criminal prosecution for violations of NIRC which is within the recognizance of CFI. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.

It has been ruled that a petition for reconsideration of an assessment ay affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. The protest of Ungab against the assessment of the District Revenue Officer cannot stop his prosecution for violation of NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the motion to quash filed by Ungab.

CIR v. CA, FORTUNE TOBACCO CORP., & LUCIO TAN

JUNE 04, 1996 GR. 119322

In every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortunes premises, and considering that the Manufacturers Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR, and since the manufacturers wholesale price was duly approved by the BIR, then it is presumed that such registered wholesale price is the same as, or approximates the price, excluding the VAT, at which the goods are sold at wholesale in the place of production, otherwise, the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature to conclude that Fortune made fraudulent returns or wilfully attempted to evade payment of taxes due.

If there was fraud or wilful attempt to evade payment of ad valorem taxes by Fortune through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortunes production activities to see to it that the correct taxes were paid. But there is no allegation, much less evidence of BIR personnels malfeasance. There is the presumption that the BIR personnel performed their duties in the regular course in ensuing that the correct taxes

were paid by Fortune.

The SC share the same view of both the trial court and CA that before the tax liabilities of Fortune are first finally determined, it cannot be correctly asserted that Fortune have wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. Before one is prosecuted for wilful attempt to evade or defeat any tax under Sec. 253 and Sec. 255 of the Tax Code, the fact that a tax is due must first be proved.

DISTINGUISHED FROM UNGAB v. CUSI

The pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointed and deliberately qualified by the Court. The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with the intent to evade and defeat a part or all of the tax. For criminal prosecution to proceed before assessment there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade taxes because of the taxpayers failure to declare in his ITR his income derived from banana saplings. In the mind of the trial court and CA, Fortunes situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible f criminal prosecution. Herein lies a WHALE of difference between Ungab and Fortune.

CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATION

JUNE 29, 1999 GR. 128315

Pascor maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Sec. 222 of NIRC specifically states that in cases where false or fraudulent return is submitted or in case of failure to file a return such as in this case, proceedings in court may be commenced without an assessment. Sec. 205 clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, Ungab sought the dismissal of the criminal complaints for being premature since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the CIR Commissioner had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.

Pascor insist that Sec. 222 should be read in relation to Sec. 255 of NIRC, which penalizes failure to file a return.

Pascor add that a tax assessment should precede a criminal indictment. The SC disagrees. Sec. 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Pascor failed to show that they are entitled to an exception. The criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is a PAN sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the Commissioner is unsatisfied, an assessment signed by him is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ.

Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the Commissioner has issued an assessment. It must be stressed that a criminal complaint is institute not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

2) COMPROMISE PENALTY

RMO 19-07

CIR v. LIANGA BAY LOGGING CO., INC., & CTA

JAN. 21, 1991 GR. 35266

Sec. 11 of Regulations No. 85 applies, as the CTA points out, to a forest concessionaire who is the holder of an ordinary license;but there are separate provisions on invoicing and payment of forest charges in the case of owners or operators of sawmills who are forest concessionaire, like Lianga. For purposes of said regulations, sawmills are classified into Class A, B, C and D. The Tax Courts finding on the basis of the evidence is that Lianga is a Class C sawmill. The record does indeed establish its character as such: in accordance with said regulation, forest officers have been permanently assigned to its concession for the purpose of scaling all logs felled and it has posted a bond to guarantee the payment of the forest charges that may be due from it. It is not therefore required by the regulation to accomplish and submit auxiliary invoices required only of Class A sawmills, i.e., holders of ordinary timber

licenses. What is required in lieu thereof, pursuant to said regulation, are monthly scale reports (BIR Form 14.15) as well as the Daily Trimmer Tally (BIR Form 14.11), and monthly Abstract of Sawmill invoice (BIR Form 14.14). It is noteworthy that the CIR does not claim and has made no effort whatever to prove that these forms were not accomplished. Thus, as the Tax Court declares, it is presumed that Lianga has complied with the requirements regarding the keeping and use of the records and documents required of Class C sawmills, among which are the Daily Trimmer Tally and commercial invoices. In fact, it appears that the forest officers reports and computations were the basis for the payment of forest charges by Lianga, and the basis, as well of the Commissioners computation of the alleged 25% surcharge. Sec. 267 imposing a surcharge of 25% of the regular forest charges if forest products are removed from the forest concession without invoice does not specify the nature of the invoice contemplated. The term is not limited to auxiliary invoices. It may refer as well to official or commercial invoices such as those prepared by Class C sawmills. This is the interpretation placed on the term by said regulation themselves, which declare that the 25% surcharge is imposable on Forest products transported without official invoice or commercial invoice, as the case requires. And since sawmill or commercial invoices were in fact prepared by Lianga, no violation of the rule may be imputed to it at all.

3) ELEMENTS OF TAX EVASION

CIR v. THE ESTATE OF BENIGNO TODA, JR.

SEP. 14, 2006 GR. 147188

4) PAYMENT OF TAX IN CRIMINAL CASES SEC. 253(d) OF NIRC SEC. 205 (b)

REPUBLIC v. PEDRO PATANAO

JULY 21, 1967 GR. L-22356

Under the Penal Coe, the civil liability is incurred by reason of the offenders criminal act. The criminal liability gives birth to the civil obligation such that, generally, if one is not criminally liable under the Penal Code, he cannot be civilly liable there under. The situation under the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business and not because of any criminal at

committed by him. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Another reason, while Sec. 73 of NIRC has provided for the imposition of the penalty of imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a return thereof, it does not provide the collection of said tax in criminal proceedings.

Since taxpayers civil liability is not included in the criminal action, his acquittal in the criminal proceeding does not necessarily entail exoneration from his liability to pay the taxes. His legal duty to pay taxes cannot be affected by his attempt to evade payment. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from a crime that could be wiped out by the judicial declaration of non- existence of the criminal acts charged.

MARIA B. CASTRO v. CIR

APR. 26, 1962 GR. L-12174

With regard to the tax proper, the state correctly points out in its brief that the acquittal in the criminal case could not operate to discharge Castro from the duty to pay the tax, since that duty is imposed by statute prior to and independently of any attempts on the part of the taxpayer to evade payment. The obligation to pay the tax is not a mere consequence of the felonious acts charged in the information, nor is it a mere civil liability derived from crime that would be wiped out by the judicial declaration that the criminal acts charged did not exist.

As to the 50% surcharge, in Coffey v. U.S., the U.S. SC states that additions of this kind to the main tax are not penalties but civil administrative sanctions, provided primarily as a safeguard for the protection of the state revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud. This is made plain by the fact that such surcharges are enforceable, like the primary tax itself, by distraint or civil suit, and that they are provided in a section of Sec. 5 and Sec. 7, RA 55 that is separate and distinct from that providing for criminal prosecution. The SC concludes that the defense of jeopardy and estoppel by reason of Castros acquittal is untenable and without merit. Whether or not there was fraud committed by the taxpayer justifying the imposition of the surcharge is an issue of fact to be inferred from the evidence and surrounding circumstances; and the finding of its existence by the Tax Court is conclusive upon the SC.

5) PRESCRIPTION OF VIOLATION OF NIRC

EMILIO S. LIM, SR. & ANTONIA SUN LIM v. CA & PEOPLE OF THE PHILIPPINES

OCT. 18, 1990 GR. 48134-37

Relative to Criminal Cases Nos. 1788 and 1789 which involved Lims refusal to pay deficiency income taxes due, again both parties are in accord that by their nature, the violations as charged could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayers. Lim maintains that the 5-year period of limitation under Sec. 354 should be reckoned from April 7, 1965, the date of the original assessment while the Government insist that it should be counted from July 3, 1968 when final notice and demand was served on Lims daughter-in-law. The SC holds for the Government.

Sec. 51 (b) of the Tax Code provides: (b) Assessment and payment of deficiency tax After the return is filed, the BIR Commissioner shall examine it and assess the correct amount of the tax. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the BIR Commissioner. Inasmuch as the final notice and demand for payment of the deficiency taxes was served on Lim on July 3, 1968, it was only then that the cause of action on the part o the BIR accrued. This is so because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers. The offense was committed only after receipt was coupled with the wilful refusal to pay the taxes due within the allotted period. The two criminal information, having been filed on June 23, 1970, are well within the 5-year prescriptive period and are not time-barred.

VI. CLAIMS FOR REFUND AND CREDIT OF TAXES/ REMEDY AFTER PAYMENT

A. WHO MAY FILE CLAIM FOR REFUND/ TAX CREDIT

1) BASIS OF TAX REFUNDS

CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION

FEB. 16, 2007 GR. 147295

Tax refunds are based on the principle of quasi-contract or solutio indebeti and the pertinent laws governing this principle are found in Art. 2142 and Art. 2154 of the NCC. When money is paid to another under the influence of a mistake of fact, on the mistaken supposition of the existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the person who paid it.

The government comes within the scope of solution indebeti principle, where that: enshrined in the basic legal principles is the time honoured doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempt from the application of this doctrine.

2) TAXPAYER, WITHHOLDING AGENT

CIR v. PROCTER & GAMBLE PHILIPPINES MANUFACTURING CORPOATION, & CTA

DEC. 02, 1991 GR. 66838

The SC believes that the BIR should not be allowed to defeat an otherwise valid claim for refund by raising the question of alleged incapacity. CIR does not pretend that P&G-Phil., should it succeed in the claim for refund instead of transmitting such refund, is likely to run away with the refund instead of transmitting such refund or tax credit to its parent or sole stockholder. It is commonplace that in the absence of explicit statutory provisions to the contrary, the government must follow the same rules of procedure which bind private parties. It is, for instance, clear that the government is held to compliance with the provisions of Circular No. 1-88 of the SC in exactly the same way that private litigants are held to such compliance, save only in respect of the matter of filing fees from which the Republic is exempt by the Rules of Court.

A taxpayer is any person subject to tax imposed by the Tax Code. Under Sec. 53(c), the withholding agent who is required to deduct and withhold any tax is made personally liable for such tax and is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. A person liable for tax has been held to be a person subject to tax and subject to tax both connote legal

obligation or duty to pay a tax. By any reasonable standard, such a person should be regarded as a party-in-interest or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.

TAX PAIRING RULE

The ordinary 35% tax rate applicable to dividend remittances to non-resident corporate stockholders of a Philippine corporation, goes down to 15% if the country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax credit for taxes deemed paid in the Philippines, applicable against the tax payable to the domiciliary country by the foreign stockholder corporation.

In the instant case, the reduced 15% dividend tax rate is applicable if the USA shall allow to P&G-USA a tax credit for taxes deemed paid in the Philippines applicable against the US taxes of P&G-USA. The NIRC specifies that such tax credit for taxes deemed paid in the Philippines must, as a minimum, reach an amount equivalent to 20% points which represents the difference between the regular 35% dividend tax rate and the preferred 15% dividend tax rate. However, Sec. 24(b)(1), does not require that the US must give a deemed paid tax credit for the dividend tax (20% points) waived by the Philippines in making applicable the preferred dividend tax rate of 15%. In other words, NIRC does not require that the US tax law deemed the parent-corporation to have paid the 20% points of dividend tax waived by the Philippines. The NIRC only requires that the US shall allow P&G-USA a deemed paid tax credit in an amount equivalent to the 20% points waived by the Philippines.

3) REQUISITES FOR A VALID CLAIM FOR REFUND

FINLEY J. GIBBS & DIANE P. GIBBS v. CIR, CTA

NOV. 29, 1965 GR. L-17406

AJG, signing as attorney-in-fact, acknowledged for the Gibbs receipt of the deficient income tax assessment; formally protested the same in writing, paid the assessment and likewise formally demanded in writing its refund. Besides, in one of his letters to the Commissioner, he stated that if his demand for refund for the Gibbs was not effected, he would collect from CIR certain charges including attorneys fees.

The forgoing circumstances show that AJG acted not merely an agent or attorney-in-fact of the Gibbs but as their

legal counsel. The receipt, therefore by AJG of the Commissioners decision denying the claim for refund was receipt of the same by the Gibbs, and the 30-day prescriptive period for filing of a petition for review should be computed from the date of such receipt.

A taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really deposit an amount to the BIR Commissioner, but, to perform or extinguish his tax obligation for the year concerned. He is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at the source will be deemed to have paid his tax liability when the same falls due at the end of the tax year. It is from this latter date then, or when the tax liability falls due, that the 2-year prescriptive period under Sec. 306 of the Revenue Code starts to run with respect to payments effected through the withholding tax system. It is of no consequence whatever that a claim for refund or credit against the amount withheld at the source may have been presented and may have remained unresolved since the delay of the Collector is rendering the decision does not extend the peremptory period fixed by the statute.

KOPPEL (PHILIPPINES), INC. v. CIR

SEP. 19, 1961 GR. L-10550

It is the duty of the taxpayer to urge the Collector for his decision and wake him up from his lethargy or file his action within the time prescribed by law. Koppel not having filed his claim within the time fixed by law, his cause of action has prescribed, and the court should not give a premium to a litigant who sleeps on his rights.

Having failed to file his action for refund on time of Koppel may not now invoke estoppels when he himself is guilty of laches. The government is never stopped by error or mistake on the part of its agents.

CIR v. JOSE CONCEPCION

MAR. 15, 1968 GR. L-23912

Where a taxpayer seeking a refund of estate and inheritance taxes whose request is denied and whose appeal to the CTA was dismissed for being filed out of time, sues anew to recover such taxes, already paid under protest, his action is devoid of merit. For in the same way that the expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which had become conclusive and binding on the taxpayer, so is Sec. 360 of the Tax Code not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time.

CIR v. VICTORIAS MILLING CO., & CTA

JAN. 03, 1968 GR. L-24108

Sec. 306 and 309 of NIRC were intended to govern all kinds of refunds of internal revenue taxes those taxes imposed and collected pursuant to the NIRC. Thus, this Court stated that "this provision" referring to Sec. 306, "which is mandatory, is not subject to qualification, and hence, it applies regardless of the conditions under which payment has been made." And to hold that the instant claim for refund of a specific tax, an internal revenue tax imposed in Sec. 142 of NIRC, is beyond the scope of Sec. 306 and 309 as to thwart the aforesaid intention and spirit underlying said provisions.

xxx xxx xxx

. . . The intention is clear that refunds of internal revenue taxes are generally governed by Sec. 306 and 309 of the Tax Code. Since in those cases the tax sought to be refunded was collected legally, the running of the 2-year prescriptive period provided for in Sec. 306 should commence, not from the date the tax was paid, but from the happening of the supervening cause which entitled the taxpayer to a tax refund. And the claim for refund should be filed with the CIR, and the subsequent appeal to the CTA must be instituted, within the said 2-year period.

xxx xxx xxx

In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund. The ruling in Muller & Phipps is accordingly modified.

It is not disputed that the oils and fuels involved in this case were used during the period from June 1952 to December 1955; that the claim for refund was filed on December 1957; and that the appeal to the Court CTA was instituted only on February 1962. The taxpayer's claim for refund with the BIR of December 1957 is within 2 years from December 1955 the last month of the period during which the fuels and oils were used. The appeal to the CTA however, was instituted more than 6 years. The SC has repeatedly held that the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year period. "If, however, the Collector takes time in deciding the claim, and the period of 2 years is about to end, the suit or proceeding must be started in the CTA before the end of the 2- year period without awaiting the decision of the Collector." In the light of the above quoted ruling, the SC finds that the right of Victorias Milling to claim refund of P2,817.08 has prescribed.

CIR v. CA, & CITYTRUST BANKING CORPORATION, & CTA

JULY 21, 1994 GR. 106611

The CTA erred in denying CIRs supplemental motion for reconsideration alleging and bringing to said courts attention the existence of the deficiency income and business tax assessment against Citytrust. The fact of such deficiency assessment is intimately related to and inextricably intertwined with the right of Citytrust Bank to claim for a tax refund for the same year. To award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects. Citytrust cannot be entitled to refund and at the same time be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitute a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund.

To grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should be subsequently be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously refunded taxes which recourse must be filed within the prescriptive period of 10-years after discovery of the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require and entail additional efforts and expenses on the part of the Government impose a burden on and a drain of government funds, and impedes or delays the collection of much- needed revenue for government operations.

DR. FELISA L. VDA. DE SAN AGUSTIN v. CIR

The estate received a PAN indicating a deficiency estate tax of P538,509.50. Within the 10-day period given in the PAN, CIR received a letter from San Agustin expressing the latter's readiness to pay the basic deficiency estate tax of P538,509.50 as soon as the trial court would have approved the withdrawal of that sum from the estate but requesting that the surcharge, interests and penalties be waived. However, San Agustin received from the CIR notice insisting payment of the tax due on or before the lapse of 30 days from receipt thereof. The deficiency estate tax of P538,509.50 was not paid until December 1991.

The delay in the payment of the deficiency tax within the time prescribed for its payment in the notice of assessment justifies the imposition of a 25% surcharge in consonance with Sec. 248A(3) of NIRC. The basic deficiency tax in this case being P538,509.50, the 25% thereof comes to P134,627.37. Sec. 249 of NIRC states that any deficiency in the tax due would be subject to interest at the rate of 20% per annum, which interest shall be assessed and collected from the date prescribed for its payment until full payment is made. The computation of interest by the CTA -

"Deficiency estate tax

P538,509.50

Interest Rate

20% per annum

Terms 11/2 mo./12 mos (11/04/91 to 12/19/91)

= P13, 462.74 conforms to the law, i.e., computed on the deficiency tax from the date prescribed for its payment

until it is paid.

The CTA correctly held that the compromise penalty of P20,000.00 could not be imposed on San Agustin, a compromise being, by its nature, mutual in essence. The payment made under protest by San Agustin could only signify that there was no agreement that had effectively been reached between the parties.

Regrettably for San Agustin, the need for an authority from the probate court in the payment of the deficiency estate tax, over which CIR has hardly any control, is not one that can negate the application of the Tax Code provisions. Taxes, the lifeblood of the government, are meant to be paid without delay and often oblivious to contingencies or conditions.

4) REFUNDS OF CORPORATE TAXPAYERS, IRREVOCABILITY RULE

SEC. 76 OF NIRCACCRA INVESTMENTS CORPORATION v. CA, CIR, & CTA

DEC. 20, 1991 GR. 96322

There is a need to file a return first before a claim for refund can prosper inasmuch as the Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the BIR. ACCRA filed its final adjustment return for its 1981 taxable year on April 15, 1982. The 2-year prescriptive period within which to claim a refund commences to run at the earliest, on the date of the filing of the adjusted final tax return. Hence, ACCRA had until April 15, 1984 within which to file its claim for refund.

CIR v. TMX SALES INC., & CTA

JAN. 15, 1992 GR. 83736

The filing of quarterly ITRs required in Sec. 68 and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere instalments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the

calendar or fiscal year. This is reinforced by Sec. 69 which provides for the filing of adjustment returns and final payment of income tax. Consequently, the 2-year prescriptive period provided in Sec. 230 of the Tax Code should be computed from the time of filing of the Adjustment Return or Annual ITR and final payment of income tax.

In the instant case, TMX Sales, filed a suit for a refund on March 14, 1984. Since the 2-year prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX Sales is not yet barred by prescription.

SYSTRA PHILIPPINES, INC. v. CIR

SEP. 21, 2007 GR. 176290

A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has 2 options:

To carry over the excess credit;

To apply for the issuance of a tax credit certificate or to claim a cash refund.

If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR Form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Sec. 76 of the Tax Code. The phrase such option shall be considered irrevocable for that taxable period means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid:

As automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and;

As a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.

SITHE PHILIPPINES HOLDINGS, INC. v. CIR

APR. 04, 2003 CTA 6274

By the clear wording of Sec. 76, every taxpayer-corporation is required to file a final adjustment return reflecting therein all the items of gross income and deductions as well as the total taxable income for the taxable year. By the filing thereof, it enables a taxpayer to ascertain whether it has a tax still due or an excess and overpaid income tax based on the adjusted and audited figures. If it is shown that the taxpayer has a tax still due, then he must pay the balance thereof and on the other hand, if he has an excess or overpaid income tax, then he could carry it over to the succeeding taxable year or he may credit or refund the excess amount paid as the case may be.

Sec. 76, gives the taxpayer the privilege to carry over its excess credit or crediting/ claiming for the refund of the excess amount paid, as the case may be. If Sithe believes that Sec. 76 is inapplicable to its case, then why did they carry over to the succeeding taxable year its 1998 excess credit?

Sec. 204 and Sec. 229 of the 1997 Tax Code, if treated in isolation, vest no right. Sec. 204 merely provides for the authority of the Commissioner to compromise, abate and refund/ credit taxes and the period of time within which a taxpayer may claim a refund o tax credit. The same holds true with regard to Sec. 22, which merely sets a period of limitation within which to recover an erroneously or illegally collected tax. Thus, a taxpayers option to carry over the excess credit or to refund/ credit the excess amount paid is actually provided for by Sec. 76. In order to give effect to its provisions, it is important that Sec. 76 should be read together with Sec. 204 and Sec. 229 of the Tax Code.

In the case at bar, when Sithe opted to carry over its excess tax credit to the succeeding taxable year, it has in effect availed of the privilege allowed only by Sec. 76. Thus, it is absurd for Sithe to exercise the option to carry over the excess amount paid and on the same breath, invoke the inapplicability of Sec. 76 to his case.

BPI-FAMILY SAVINGS BANK, INC. v. CA, CTA, & CIR

APR. 12, 2000 GR. 122480

It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on the grounds of strict technicality, the Return submitted before the CTA and even before this

Court. The undisputed fact is that BPI suffered a net loss in 1990; accordingly, it incurred no tax liability to which the tax credit could be applied. Consequently, there is no reason for the BIR and this Court to withhold the tax refund which rightfully belongs to BPI.

CIR argues that tax refunds are in the nature of tax exemptions and are to be construed strictissimi juris against the claimant. Under the facts of the case, the SC holds that BPI has established its claim. BPI may have filed to strictly comply with the rules of procedure; it may have even been negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that BPI suffered a net loss in 1990, and that it could not have applied the amount claimed as tax credits. Substantial justice, equity and fair play are on the side of BPI.

Technicalities, and legalism, however exalted, should not be misused by the Government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honour, dignity and uprightness.

PHILAM ASSET MANAGEMENT, INC. v. CIR

DEC. 14, 2005 GR. 156637 AND 162004

PAID ON OPTIONS: NO DILIGENCE ON PART OF PHILAM

Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceed its total income tax due. These options are:

a) Filing for a tax refund;

b) Availing of a tax credit.

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These 2 options are alternative in nature. The choice of one precludes the other. A corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the selfassessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.

In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its 1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in requesting a tax refund has no basis in law and jurisprudence.

TWO YEAR PRESCRIPTIVE PERIOD, NOT APPLICABLE

The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within 2 years after payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for refund will be instantly hindered by a failure to signify ones intention in the FAR is to render nugatory the clear provision that allows for a 2-year prescriptive period. In BPIFamily Savings Bank v. CA, the court ordered the refund of a taxpayers excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice a tax refund is in order, it should be granted. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens.

5) RULE IN CASE OF MERGER, CORPORATE TAXPAYERS CONTEMPLATING DISSOLUTION

SEC. 52(c) OF NIRC

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIR

OCT. 25, 2005 GR. 161997

It is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has ruled that at the earliest, the 2-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.

In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:

Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIRs stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes that FBTC is operating on a calendar year period based on the audited financial statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30, 1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor."

Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of NIRC and under Sec. 244 of RR 2.

As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable

year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the 15th day of April, or almost 10 months after it ceased its operations, before filing its ITR.

Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.

BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to the SEC, within the period contemplated by Sec. 78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution. As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47 of the NIRC.

BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in 1985.

Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000.

Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease

operations. This would obviate any difficulty which may arise out of the discrepancies not covered by Sec. 78 of NIRC.

Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29, 1987, it is clear that the claim is barred by prescription.

6) WHEN 2 YEAR PERIOD DOES NOT APPLY

CIR v. PHILIPPINE NATIONAL BANK (PNB)

OCT. 25, 2005 GR. 1611887

7) ERRONEOUSLY REFUNDED TAX

GUAGUA ELECTRIC LIGHT CO., INC. v. CIR

APR. 24, 1967 GR. L-23611

Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A special law (Tax Code) prevails over a general law (NCC).

Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it is patently unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.

VII.ABATEMENT OF TAX, TAX COMPROMISE SEC. 7, SEC. 204 OF NIRC RR 13-01

RR30-02

A. POWER TO COMPROMISE

1) BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT AND RATES

CIR. v. AZUCENA T. REYES

JAN. 27, 2006 GR. 159694

Technicalities, and legalism, however exalted, should not be misused by the Government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honour, dignity and uprightness.

PHILAM ASSET MANAGEMENT, INC. v. CIR

DEC. 14, 2005 GR. 156637 AND 162004

PAID ON OPTIONS: NO DILIGENCE ON PART OF PHILAM

Sec. 76 offers 2 options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceed its total income tax due. These options are:

a) Filing for a tax refund;

b) Availing of a tax credit.

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax

liabilities of the succeeding taxable year.

These 2 options are alternative in nature. The choice of one precludes the other. A corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Sec. 76, subject to prior verification and approval by CIR. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the selfassessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight.

In the present case, CIR denied the claim of Philam for a tax refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence is 1998 ITR, which could have been applied against its 1998 tax liabilities. Requiring that he ITR or the FAR of the succeeding year be presented to the BR in requesting a tax refund has no basis in law and jurisprudence.

TWO YEAR PRESCRIPTIVE PERIOD, NOT APPLICABLE

The Tax Code allows the refund of taxes to a taxpayer that claims it in writing within 2 years after payment of the taxes erroneously received by the BIR. Despite the failure of Philam to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for refund will be instantly hindered by a failure to signify ones intention in the FAR is to render nugatory the clear provision that allows for a 2-year prescriptive period. In BPIFamily Savings Bank v. CA, the court ordered the refund of a taxpayers excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice a tax refund is in order, it should be granted. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens.

5) RULE IN CASE OF MERGER, CORPORATE TAXPAYERS CONTEMPLATING DISSOLUTION

SEC. 52(c) OF NIRC

BANK OF THE PHILIPPINE ISLANDS (BPI) v. CIR

OCT. 25, 2005 GR. 161997

It is the Final Adjustment Return, in which amounts of the gross receipts and deductions have been audited and adjusted, which is reflective of the results of the operations of a business enterprise. It is only when the return, covering the whole year, is filed that the taxpayer will be able to ascertain whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. Hence, this Court has ruled that at the earliest, the 2-year prescriptive period for claiming a refund commences to run on the date of filing of the adjusted final tax return.

In the case at bar, however, the CTA, applying Sec. 78 of the Tax Code, held:

Before this Court can be rule on the issue of prescription, it is noteworthy to point out that based on the financial statements of FBTC and the independent auditor's opinion, FBTC operates on a calendar year basis. Its 12 months accounting period was shortened at the time it was merged with BPI. Thereby, losing its corporate existence on July 1985 when the Articles of Merger was approved by the SEC. Thus CIRs stand that FBTC operates on a fiscal year basis, based on its ITR, holds no ground. Third Court believes that FBTC is operating on a calendar year period based on the audited financial statements and the opinion thereof. The fiscal period ending June 30, 1985 on the upper left corner of the ITR can be concluded as an error on the part of FBTC. It should have been for the 6 month period ending June 30, 1985. It should also be emphasized that "where one corporation succeeds another both are separate entities and the income earned by the predecessor corporation before organization of its successor is not income to the successor."

Ruling now on the issue of prescription, this Court finds that the petition for review is filed out of time. FBTC, after the end of its corporate life on June 30, 1985, should have filed its ITR within 30 days after the cessation of its business or 30 days after the approval of the Articles of Merger. This is bolstered by Sec. 78 of NIRC and under Sec. 244 of RR 2.

As the FBTC did not file its quarterly ITR for the year 1985, there was no need for it to file a Final adjustment Return because there was nothing for it to adjust or to audit. After it ceased operations on June 30, 1985, its taxable year was shortened to 6 months, from January 1, 1985 to June 30, 1985. The situation of FBTC is precisely what was contemplated under Sec. 78 of NIRC. It thus became necessary for FBTC to file its ITR within 30 days after approval by the SEC of its plan or resolution of dissolution. Indeed, it would be absurd for FBTC to wait until the 15th day of April, or almost 10 months after it ceased its operations, before filing its ITR.

Thus, Sec. 46(a) of the NIRC applies only to instances in which the corporation remains subsisting and its business operations are continuing. In instances in which the corporation is contemplating dissolution, Sec. 78 of NIRC applies. It is a rule of statutory construction that "Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment.

BPI argues that to hold, as the CTA and CA do, that Sec. 78 applies in case a corporation contemplates dissolution would lead to absurd results. It contends that it is not feasible for the certified public accountants to complete their report and audited financial statements, which are required to be submitted together with the plan of dissolution to the SEC, within the period contemplated by Sec. 78. It maintains that, in turn, the SEC would not have sufficient time to process the papers considering that Sec. 78 also requires the submission of a tax clearance certificate before the SEC can approve the plan of dissolution. As the CTA observed, however, BPI could have asked for an extension of time to file its ITR under Sec. 47 of the NIRC.

BPI further argues that the filing of a FAR would fall due on July 30, 1985, even before the due date for filing the quarterly return. This argument begs the question. It assumes that a quarterly return was required when the fact is that, because its taxable year was shortened, the FBTC did not have to file a quarterly return. In fact, BPI presented no evidence that the FBTC ever filed such quarterly return in 1985.

Finally, BPI cites a hypothetical situation wherein the directors of a corporation would convene on June 30, 2000 to plan the dissolution of the corporation on December 31, 2000, but would submit the plan for dissolution earlier with the SEC, which, in turn, would approve the same on October 1, 2000. Following Sec. 78 of NIRC, the corporation would be required to submit its complete return on October 31, 2000, although its actual dissolution would take place only on December 31, 2000.

Suffice it to say that such a situation may likewise be remedied by resort to Sec. 47 of NIRC. The corporation can ask for an extension of time to file a complete income tax return until December 31, 2000, when it would cease operations. This would obviate any difficulty which may arise out of the discrepancies not covered by Sec. 78 of NIRC.

Considering that Sec. 78 of NIRC, in relation to Sec. 244 of RR 2 applies to FBTC, the 2-year prescriptive period should be counted from July 30, 1985, i.e., 30 days after the approval by the SEC of its plan for dissolution. In accordance with Sec. 292 of NIRC, July 30, 1985 should be considered the date of payment by FBTC of the taxes withheld on the earned income. Consequently, the 2-year period of prescription ended on July 30, 1987. As BPI's claim for tax refund before the CTA was filed only on December 29, 1987, it is clear that the claim is barred by prescription.

6) WHEN 2 YEAR PERIOD DOES NOT APPLY

CIR v. PHILIPPINE NATIONAL BANK (PNB)

OCT. 25, 2005 GR. 1611887

7) ERRONEOUSLY REFUNDED TAX

GUAGUA ELECTRIC LIGHT CO., INC. v. CIR

APR. 24, 1967 GR. L-23611

Where the CIR seeks to recover from the taxpayer an amount which was erroneously refunded to the latter as excess franchise tax, said amount is in effect an assessment for deficiency franchise tax. And the right to assess or collect it is governed by Sec. 331 of the Tax Code rather than by Art. 1145 of the NCC. A special law (Tax Code) prevails over a general law (NCC).

Where the taxpayer acted in good faith in paying the franchise tax at the lower rate fixed y its franchise, it is patently

unfair on the part of the Government to require him to pay 25% surcharge on the amount correctly due.

VII.ABATEMENT OF TAX, TAX COMPROMISE SEC. 7, SEC. 204 OF NIRC RR 13-01 RR30-02

A. POWER TO COMPROMISE

1) BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT AND RATES

CIR. v. AZUCENA T. REYES

JAN. 27, 2006 GR. 159694

Citibank vs. Court of Appeals; G.R. No. 107434, October 10, 1997
FACTS: Citibank is a foreign corporation doing business in the Philippines. In 1979 and 1980, its tenants withheld and paid to the Bureau of Internal Revenue its taxes on rents due to Citibank. This is pursuant to Section 1(c) of the Expanded Withholding Tax Regulations requiring lessee to withhold and remit to the BIR five percent (5%) of the rental due the lessor, by way of advance payment of the latters income liability. The lessor, Citibank asked for tax refund alleging that it is not liable for any income tax liability because its annual operation resulted in a net loss as shown in its income tax return filed at the end of the taxable year. The Court of Tax Appeals adjudged Citibanks entitlement to the tax refund sought for. The BIR Commissioner appealed to the Court of Appeals who reversed the CTAs decision. Hence, this petition for review on certiorari.

ISSUE: Whether or not the lessor-Citibank is entitled to a refund on account of its loss in operations.

HELD: The petition is meritorious. Petitioner is entitled to refund under Section 230 of the NIRC. In the present case, there is no question that the taxes were withheld legally by the tenants. However, the annual income tax returns of Citibank for tax years 1979 and 1980 undisputedly reflected the net losses it suffered. Taxes withheld do not remain legal and correct at the end of the taxable year if the taxpayer had sustained a loss in its annual operation.

(UB)

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