Obillos vs. Commissioner of Internal Revenue G.R. No. L-68118. October 29, 1985
Digest by: AVILA, Alyssa Daphne M.
FACTS:
This case is about the income tax liability of four brothers and sisters who sold two
parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two
lots located at Greenhills, San Juan, Rizal. The next day he transferred his rights to
his four children, the petitioners, to enable them to build their residences.
Presumably, the Torrens titles issued to them would show that they were co-owners
of the two lots. In 1974, the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda, deriving from the sale a total profit of
P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain
and paid an income tax on one-half thereof or of P16,792. In April, 1980, the
Commissioner of Internal Revenue required the four petitioners to pay corporate
income tax on the total profit of P134,336 in addition to individual income tax on
their shares thereof. He assessed P37,018 as corporate income tax, P18,509 as 50%
fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of
P71,074.56. He also considered the share of the profits of each petitioner in the sum
of P33,584 as a taxable in full (not a mere capital gain of which is taxable)
and required them to pay deficiency income taxes aggregating P56,707.20 including
the 50% fraud surcharge and the accumulated interest. Thus, the petitioners are
being held liable for deficiency income taxes and penalties totalling P127,781.76 on
their profit of P134,336, in addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and
84(b) of the Tax Code. ISSUES: 1. Whether or not the petitioners have formed a
partnership under article 1767 of the Civil Code. 2. Whether or not the petitioners
are liable under the Tax Code. HELD: 1. NO. To regard the petitioners as having
formed a taxable unregistered partnership would result in oppressive taxation and
confirm the dictum that the power to tax involves the power to destroy. As testified
by Jose Obillos, Jr., they had no such intention. They were co-owners pure and
simple. Their original purpose was to divide the lots for residential purposes. If later
on they found it not feasible to build their residences on the lots because of the high
cost of construction, then they had no choice but to resell the same to dissolve the
co-ownership. The petitioners were not engaged in any joint venture by reason of
that isolated transaction. The division of the profit was merely incidental to the
dissolution of the co-ownership. Article 1769(3) of the Civil Code provides that
the sharing of gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived. There must be an unmistakable
intention to form a partnership or joint venture.
2. NO. Not all co-ownerships are deemed unregistered partnership. A co-ownership
owning properties which produce income should not automatically be considered
partners of an unregistered
partnership, or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all co-ownerships of inherited
properties to the tax on corporations, inasmuch as if a property does not produce an
income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation.
CIR vs. Philippine Airlines, Inc. (PAL) G.R. No. 179800. February 4, 2010 Digest by:
BAUTISTA, Cecille Catherine A.
FACTS:
PAL availed of the communication services of the Philippine Long Distance Company
(PLDT). For the period January 1, 2002 to December 31, 2002, PAL allegedly paid
PLDT the 10% (Overseas Communications Tax) OCT in the amount of P134,431.95
on its overseas telephone calls. Subsequently, PAL filed a claim for refund in the for
the amount of 10% OCT paid to PLDT from January to December 2002 citing as legal
bases Section 13 of Presidential Decree No. 1590 and BIR Ruling No. 97-94 dated
April 13, 1994. PAL contends that since it incurred negative taxable income for fiscal
years 2002 and 2003 and opted for zero basic corporate income tax, which was
lower than the 2% franchise tax, it had complied with the in lieu of all other
taxes clause of Presidential Decree (P.D.) No. 1590. Thus, it was no longer liable
for all other taxes of any kind, nature, or description, including the 10% OCT, and
the erroneous payments thereof entitled it to a refund pursuant to its franchise.
Petitioner CIR, on the other hand, insists that Section 120 of the 1997 NIRC, as
amended, imposes 10% OCT on overseas dispatch, message or conversion
originating from the Philippines, which includes PLDT communication services. It
further stated that respondent PAL, in order for it to be not liable for other taxes, in
this case the 10% OCT, should pay the 2% franchise tax, since it did not pay any
amount as its basic corporate income tax. ISSUE: Whether or not respondent PAL is
entitled to the tax refund claimed HELD: Yes. The Court, citing a similar case entitled
Commissioner of Internal Revenue vs. PAL, ruled that Presidential Decree 1590
granted Philippine Airlines an option to pay the lower of two alternatives: (a)
the basic corporate income tax based on PALs annual net taxable income
computed in accordance with the provisions of the National Internal Revenue
Code or (b) a franchise tax of two percent of gross revenues. Availment
of either of these two alternatives shall exempt the airline from the payment of
all other taxes, including the 20 percent final withholding tax on bank
deposits. A careful reading of Section 13 rebuts the argument of the CIR that
the in lieu of all other taxes proviso is a mere incentive that applies only
when PAL actually pays something. It is clear that PD 1590 intended to give
respondent the option to avail itself of Subsection (a) or (b) as consideration for its
franchise. Either option excludes the payment of other taxes and dues imposed or
collected by the national or the local government. PAL has the option to choose the
alternative that results in lower taxes. It is not the fact of tax payment that exempts
it, but the exercise of its option.
Chamber of Real Estate and Builders Associations (CREBA), Inc. vs. Romulo, et
al. G.R. No. 16075. March 9, 2010 Digest by: CABATU, Ricky Boy V.
FACTS:
Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is
assessed an MCIT of 2% of its gross income when such MCIT is greater than the
normal corporate income tax imposed under Section 27(A). If the regular income tax
is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the
MCIT over the normal tax shall be carried forward and credited against the normal
income tax for the three immediately succeeding taxable years. Petitioner assails
the validity of the imposition of MCIT on corporations. Petitioner argues that the
MCIT violates the due process clause because it levies income tax even if there is no
realized gain. It explains that gross income as defined under said provision only
considers the cost of goods sold and other direct expenses; other major
expenditures, such as administrative and interest expenses which are equally
necessary to produce gross income, were not taken into account. Thus, pegging the
tax base of the MCIT to a corporations gross income is tantamount to a
confiscation of capital because gross income, unlike net income, is not realized
gain. ISSUE: Whether or not the imposition of the MCIT on domestic corporations
is unconstitutional. HELD: MCIT Is Not Violative of Due Process. An income tax is
arbitrary and confiscatory if it taxes capital because capital is not income. In other
words, it is income, not capital, which is subject to income tax. However, the MCIT is
not a tax on capital. The MCIT is imposed on gross income which is arrived at by
deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of
goods and other direct expenses from gross sales. Clearly, the capital is not being
taxed. Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu
of the normal net income tax, and only if the normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporations gross income.
Further, Revenue Regulation 9-98, in declaring that MCIT should be imposed
whenever such corporation has zero or negative taxable income, merely defines the
coverage of Section 27(E). This means that even if a corporation incurs a net loss in
its business operations or reports zero income after deducting its expenses, it is still
subject to an MCIT of 2% of its gross income. This is consistent with the law which
imposes the MCIT on gross income notwithstanding the amount of the net income.
But the law also states that the MCIT is to be paid only if it is greater than the
normal net income. Obviously, it may well be the case that the MCIT would be less
than the net income of the corporation which posts a zero or negative taxable
income.f
china guinaldo Industries Corporation vs. Commissioner of Internal Revenues G.R.
No. L-29790 February 25, 1982
Digest by: MANALO, Samantha Grace N.
FACTS:
Petitioner claimed for a refund or in the alternative, issuance of a tax credit
certificate (TCC) in the amount of P 4,178,134.00 representing excess creditable
withholding taxes for taxable years 1994,1995 and 1996. CTA dismissed the case for
insufficiency of evidence its 1997 income tax return. CA assailed the decision of CTA
and denied petition of Filinvest. The SC initially denied petition for review but on April 3,
2002, case was re-filed on a petition for reconsideration.
ISSUE:
Whether petitioner is entitled to the tax credit anent insufficient evidence.
RULING:
CA erred in ruling that petitioner failed to discharge the burden of proving that it
is entitled to the refund because of the latters failure to attach its 1997 ITR.
It is worth nothing that under Section 230 of NIRC and Section 10 of Revenue
Regulation No. 12-84, the CIR is given the power to grant a tax credit or refund even
without a written claim therefore, if the former determines from the face of the return that
payment had clearly been erroneously made. The CIRs function is not merely to
receive the claims for refund but it is also given the positive duty to determine the
veracity of such claim.
Simply by exercising the CIRs power to examine and verify petitioners claim for
tax exemption are granted by law, respondent CIR could have easily verified petitioners
claim by representing the latters 1997 ITR, the original of which it has in its files. Hence,
under solutio indebiti, the Government has to restore to petitioners the sums
representing erroneous payments of taxes.
A party seeking an administrative rimedy must not merely initiate the prescribed
administrative procedure to obtain relie but also to pursue it to its appropriate conclusion
before seeking judicial intervention in order to give administrative agency an opportunity
to decide the matter itself correctly and prevent unnecessary and premature resort to
court action. At the time respondent filed her amended return, the 1997, NIRC was not
yet in effect, hence respondent had no reason to think that the filing of an amended
return would constitute the written claim required by law.
CTA likewise stressed that even the date of filing of the Final Adjustment return
was omitted, inadvertently or otherwise, by respondent in her petition for review. This is
fatal to respondents claim, for it deprived the CTA of its jurisdiction over the subject
matter of the case.
Finally, revenue statutes are substantive laws and in no sense must with that of
remedial laws. Revenue laws are not intended to be liberally constructed.
minute aspect of its case by presenting, formally offering and submitting its evidence to
the CTA.
While CTA is not governed by technical rules of evidence, as rules of procedure
are not ends in themselves but are primarily intended as tools in the administration of
justice, the presentation of the purchase receipts is no0t a mere procedural technically
which may be disregarded considering that it is the only means by which the CTA may
ascertain and verify the truth of claims.
FACTS: In two notices dated October 28, 1988, petitioner Commissioner of Internal
Revenue (CIR) assessed respondent Bank of the Philippine Islands' (BPI's) deficiency
percentage and documentary stamp taxes for the year 1986 in the total amount of
P129,488,656.63:cra:nad
1986 - Deficiency Percentage Tax
Deficiency percentage tax
P 7, 270,892.88
1,817,723.22
3,215,825.03
Compromise penalty
15,000.00
P12,319,441.13
P93,723,372.40
23,430,843.10
Compromise penalty
15,000.00
P117,169,215.50.5