NIRC REMEDIES

1. CIR VS. PERF REALTY CORP.

G.R. No. 163345 July 4, 2008
2. CIR vs. MENGUITO
G.R. No.167560 September 07, 2008
3. CIR VS. ENRON SUBIC POWER CORPORATION
G.R. No. 166387, January 19, 2009
4. LUCAS ADAMSON, ET AL. VS. CA ET AL.
G.R. NO. 120935 and G.R. NO. 124557, May 21, 2009
5. SILKAIR (SINGAPORE) PTE. LTD. VS. CIR
G.R. NO. 171383 and 172379, Nov. 14, 2008
6. CIR vs. FIRST EXPRESS PAWNSHOP COMPANY INC.
G.R. Nos. 172045-46, June 16, 2009
7. CIR VS. GONZALEZ
8. RIZAL COMMERCIAL BANKING CORPORATION VS. CIR
COMMISSIONER OF G.R. No. 163345
INTERNAL REVENUE,
Petitioner, Present:
YNARES-SANTIAGO, J.,

Chairperson,

AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
PERF REALTY CORPORATION,
Respondent. July 4, 2008
x--------------------------------------------------x
DECISION
REYES, R.T., J.:

FOR Our review on certiorari is the Decision[1] of the Court of Appeals (CA) granting the claim for
refund of respondent PERF Realty Corporation (PERF) for creditable withholding tax for the year 1997.
Facts
Petitioner Commissioner is the head of the Bureau of Internal Revenue (BIR) whose principal duty is
to assess and collect internal revenue taxes. Respondent PERF is a domestic corporation engaged in the
business of leasing properties to various clients including the Philippine American Life and General
Insurance Company (Philamlife) and Read-Rite Philippines (Read-Rite).

On April 14, 1998, PERF filed its Annual Income Tax Return (ITR) for the year 1997 showing a net
taxable income in the amount of P6,430,345.00 and income tax due ofP2,250,621.00.
For the year 1997, its tenants, Philamlife and Read-Rite, withheld and subsequently remitted
creditable withholding taxes in the total amount of P3,531,125.00.
After deducting creditable withholding taxes in the total amount of P3,531,125.00 from its total
income tax due of P2,250,621.00, PERF showed in its 1997 ITR an overpayment of income taxes in the
amount of P1,280,504.00.
On November 3, 1999, PERF filed an administrative claim with the appellate division of the BIR for
refund of overpaid income taxes in the amount of P1,280,504.00.
On December 3, 1999, due to the inaction of the BIR, PERF filed a petition for review with the Court
of Tax Appeals (CTA) seeking for the refund of the overpaid income taxes in the amount of P1,280,504.00.
CTA Disposition
In a Decision dated November 20, 2001, the CTA denied the petition of PERF on the ground of
insufficiency of evidence. The CTA noted that PERF did not indicate in its 1997 ITR the option to either
claim the excess income tax as a refund or tax credit pursuant to Section 69 [2] (now 76) of the National
Internal Revenue Code (NIRC)
Further, the CTA likewise found that PERF failed to present in evidence its 1998 annual ITR. It held
that the failure of PERF to signify its option on whether to claim for refund or opt for an automatic tax
credit and to present its 1998 ITR left the Court with no way to determine with certainty whether or
not PERF has applied or credited the refundable amount sought for in its administrative and judicial claims
for refund.
PERF moved for reconsideration attaching to its motion its 1998 ITR. The motion was, however, denied by
the CTA in its Resolution dated March 26, 2002.
Aggrieved by the decision of the CTA, PERF filed a petition for review with the CA under Rule 43 of
the Rules of Court.
CA Disposition
In a Decision dated July 18, 2003, the CA ruled in favor of PERF, disposing as follows:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated November 20,
2001, and Resolution of March 26, 2002 of the Court of Tax Appeals are SET ASIDE. The
Commissioner of Internal Revenue is ordered to REFUND to the petitioner the amount
of P1,280,504.00 as creditable withholding tax for the year 1997.
SO ORDERED.[3]

According to the appellate court, even if the taxpayer has indicated its option for refund or tax
credit in its ITR, it does not mean that it will automatically be entitled to either option since the
Commissioner of Internal Revenue (CIR) must be given the opportunity to investigate and confirm the
veracity of the claim. Thus, there is still a need to file a claim for refund.
As to the failure of PERF to present its 1998 ITR, the CA observed that there is no need to rule on its
admissibility since the CTA already held that PERF had complied with the requisites for applying for a tax
refund. The sole purpose of requiring the presentation of PERFs 1998 ITR is to verify whether or
not PERF had carried over the 1997 excess income tax claimed for refund to the year 1998. The
verification process is not incumbent upon PERF; rather, it is the duty of the BIR to disprove the taxpayers
claim.
The CIR filed a motion for reconsideration which was subsequently denied by the CA. Thus, this
appeal to Us under Rule 45.
Issues
Petitioner submits the following assignment:
I
THE COURT OF APPEALS ERRED IN GRANTING RESPONDENTS TAX REFUND CONSIDERING
THE LATTERS FAILURE TO SUBSTANTIALLY ESTABLISH ITS CLAIM FOR REFUND.
II
THE COURT OF APPEALS ERRED IN CONSIDERING RESPONDENTS ANNUAL CORPORATE
INCOME TAX RETURN FOR 1998 NOTWITHSTANDING THAT IT WAS NOT FORMALLY OFFERED
IN EVIDENCE.[4] (Underscoring supplied)

Our Ruling
We rule in favor of respondent.
I. Respondent substantially complied with the requisites
for claim of refund.

The CTA, citing Section 10 of Revenue Regulations 6-85 and Citibank, N.A. v. Court of Appeals,
[5]

determined the requisites for a claim for refund, thus:

1) That the claim for refund was filed within the two (2) year period as prescribed under
Section 230 of the National Internal Revenue Code;
2) That the income upon which the taxes were withheld were included in the return of the
recipient;
3) That the fact of withholding is established by a copy of a statement (BIR Form 1743.1)
duly issued by the payor (withholding agent) to the payee, showing the amount paid
and the amount of tax withheld therefrom.[6]
We find that PERF filed its administrative and judicial claims for refund on November 3,

1999 and December 3, 1999, respectively, which are within the two-year prescriptive period under Section
230 (now 229) of the National Internal Tax Code.
The CTA noted that based on the records, PERF presented certificates of creditable withholding tax
at source reflecting creditable withholding taxes in the amount ofP4,153,604.18 withheld from PERFs rental
income of P83,072,076.81 (Exhibits B, C, D, E, and H). In addition, it submitted in evidence the Monthly
Remittance Returns of its withholding agents to prove the fact of remittance of said taxes to
the BIR. Although the certificates of creditable withholding tax at source for 1997 reflected a total amount
ofP4,153,604.18 corresponding to the rental income of P83,072,076.81, PERF is claiming only the amount
of P3,531,125.00 pertaining to a rental income of P70,813,079.00. The amount of P3,531,125.00 less the
income tax due of PERF of P2,250,621.00 leaves the refundable amount of P1,280,504.00.
It is settled that findings of fact of the CTA are entitled to great weight and will not be disturbed on appeal
unless it is shown that the lower courts committed gross error in the appreciation of facts. We see no
cogent reason not to apply the same principle here.
II. The failure of respondent to indicate its option in its
annual ITR to avail itself of either the tax refund or
tax credit is not fatal to its claim for refund.
Respondent PERF did not indicate in its 1997 ITR the option whether to request a refund or claim
the excess withholding tax as tax credit for the succeeding taxable year.
Citing Section 76 of the NIRC, the CIR opines that such failure is fatal to PERFs claim for refund.
We do not agree.
In Philam Asset Management, Inc. v. Commissioner of Internal Revenue,[7] the Court had occasion to
trace the history of the Final Adjustment Return found in Section 69 (now 76) of the NIRC. Thus:

The provision on the final adjustment return (FAR) was originally found in Section 69
of Presidential Decree (PD) No. 1158, otherwise known as the National Internal Revenue
Code of 1977. On August 1, 1980, this provision was restated as Section 86 in PD 1705.
On November 5, 1985, all prior amendments and those introduced by PD 1994 were
codified into the National Internal Revenue Code (NIRC) of 1985, as a result of which Section
86 was renumbered as Section 79.
On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all net income
phrases appearing in Title II of the NIRC of 1977 to taxable income. Section 79 of the NIRC of
1985, however, was not amended.
On July 25, 1987, EO 273 renumbered Section 86 of the NIRC as Section 76, which
was also rearranged to fall under Chapter of Title II of the NIRC. Section 79, which had earlier
been renumbered by PD 1994, remained unchanged.
Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705;
later, as Section 79 under PD 1994; then, as Section 76 under EO 273. Finally, after being
renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO 37.
Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section
76, which reads:
Section 76. Final Adjustment Return. Every corporation liable to tax
under Section 24 shall file a final adjustment return covering the total net
income for the preceding calendar or fiscal year. If the sum of the quarterly
tax payments made during the said taxable year is not equal to the total tax
due on the entire taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on its final
adjustment return may be credited against the estimated quarterly income
tax liabilities for the taxable quarters of the succeeding taxable year. [8]
Section 76 offers two options: (1) filing for tax refund and (2) availing of tax credit. The two options
are alternative and the choice of one precludes the other. However, inPhilam Asset Management, Inc. v.
Commissioner of Internal Revenue,[9] the Court ruled that failure to indicate a choice, however, will not bar
a valid request for a refund, should this option be chosen by the taxpayer later on. The requirement is only
for the purpose of easing tax administration particularly the self-assessment and collection aspects.Thus:
These two options under Section 76 are alternative in nature. The choice of one precludes
the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal
Revenue, the Court ruled that 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 Section
76, subject to prior verification and approval by respondent.
The reason for requiring that a choice be made in the FAR upon its filing is to ease tax
administration, particularly the self-assessment and collection aspects. A taxpayer that

makes a choice expresses certainty or preference and thus demonstrates clear

diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of
preference and hence shows simple negligence or plain oversight.
xxxx
Third, there is no automatic grant of a tax refund. As a matter of procedure,
the BIR should be given the opportunity to investigate and confirm the veracity of a
taxpayers claim, before it grants the refund. Exercising the option for a tax refund or a tax
credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the
choice made. Neither does it impose a duty on the government to allow tax collection to be
at the sole control of a taxpayer.
Fourth, the BIR ought to have on file its own copies of petitioners FAR for the
succeeding year, on the basis of which it could rebut the assertion that there was a
subsequent credit of the excess income tax payments for the previous year. Its failure to
present this vital document to support its contention against the grant of a tax refund to
petitioner is certainly fatal.
Fifth, the CTA should have taken judicial notice of the fact of filing and the pendency
of petitioners subsequent claim for a refund of excess creditable taxes withheld for
1998. The existence of the claim ought to be known by reason of its judicial
functions. Furthermore, it is decisive to and will easily resolve the material issue in this
case. If only judicial notice were taken earlier, the fact that there was no carry-over of the
excess creditable taxes withheld for 1997 would have already been crystal clear.
Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing
within two years after payment of the taxes erroneously received by the BIR. Despite the
failure of petitioner 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 a tax 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 two-year prescriptive period.
In fact, in BPI-Family Savings Bank v. CA, this Court even ordered the refund of a
taxpayers excess creditable taxes, despite the express declaration in the FAR to apply the
excess to the succeeding year. When circumstances show that a choice of tax credit has
been made, it should be respected. But when indubitable circumstances clearly show that
another choice a tax refund is in order, it should be granted. Technicalities and legalisms,
however exalted, should not be misused by the government to keep money not belonging to
it and thereby enrich itself at the expense of its law-abiding citizens.
In the present case, although petitioner did not mark the refund box in its 1997 FAR,
neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed
onSeptember 11, 1998, an administrative claim for the refund of its excess taxes withheld in
1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under
these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in
the amount of P522,092.[10]
In this case, PERF did not mark the refund box in its 1997 FAR. Neither did it perform any act
indicating that it chose tax credit. In fact, in its 1998 ITR, PERF left blank the portion Less: Tax Credit/
Payments. That action coupled with the filing of a claim for refund indicates that PERF opted to claim a
refund. Under these circumstances, PERF is entitled to a refund of its 1997 excess tax credits in the
amount of P1,280,504.00.
III. The failure of respondent to present in evidence the
1998 ITR is not fatal to its claim for refund.

The CIR takes the view that the CA erred in considering the 1998 ITR of PERF. It was not formally offered in
evidence. Section 34, Rule 132 of the Revised Rules of Court states that the court shall consider no
evidence which has not been formally offered.
The reasoning is specious.

PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part of the records of the
case and clearly showed that income taxes in the amount ofP1,280,504.00 were not claimed as tax
credit in 1998.
In Filinvest Development Corporation v. Commissioner of Internal Revenue,[11] the Court held that the 1997
ITR attached to the motion for reconsideration is part of the records of that case and cannot be simply
ignored by the CTA. Moreover, technicalities should not be used to defeat substantive rights, especially
those that have been held as a matter of right. We quote:
In the proceedings before the CTA, petitioner presented in evidence its letter of claim
for refund before the BIR to show that it was made within the two-year reglementary period;
its Income Tax Returns for the years 1995 and 1996 to prove its total creditable withholding
tax and the fact that the amounts were declared as part of its gross income; and several
certificates of income tax withheld at source corresponding to the period of claim to prove
the total amount of the taxes erroneously withheld. More importantly, petitioner attached its
1997 Income Tax Return to its Motion for Reconsideration, making the same part of the
records of the case. The CTA cannot simply ignore this document.
Thus, we hold that petitioner has complied with all the requirements to prove its
claim for tax refund. The CA, therefore, erred in denying the petition for review of the CTAs
denial of petitioners claim for tax refund on the ground that it failed to present its 1997
Income Tax Return.
The CAs reliance on Rule 132, Section 34 26 of the Rules on Evidence is
misplaced. This provision must be taken in the light of Republic Act No. 1125, as
amended, the law creating the CTA, which provides that proceedings therein shall
not be governed strictly by technical rules of evidence. Moreover, this Court has
held time and again that technicalities should not be used to defeat substantive
rights, especially those that have been established as a matter of fact.
xxxx
We must also point out that, simply by exercising the CIRs power to examine and
verify petitioners claim for tax exemption as granted by law, respondent CIR could have
easily verified petitioners claim by presenting the latters 1997 Income Tax Return, the
original of which it has in its files. However, records show that in the proceedings before
the CTA, respondentCIR failed to comment on petitioners formal offer of evidence, waived its
right to present its own evidence, and failed to file its memorandum. Neither did it file an
opposition to petitioners motion to reconsider the CTA decision to which the 1997 Income
Tax Return was appended.
That no one shall unjustly enrich oneself at the expense of another is a long-standing
principle prevailing in our legal system. This applies not only to individuals but to the State
as well.In the field of taxation where the State exacts strict compliance upon its citizens, the

State must likewise deal with taxpayers with fairness and honesty. The harsh power of
taxation must be tempered with evenhandedness. Hence, under the principle of solutio
indebiti, the Government has to restore to petitioner the sums representing erroneous
payments of taxes.[12]
Further, We sustain the CA that there is no need to rule on the issue of the admissibility of the 1998
ITR since the CTA ruled that PERF already complied with the requisites of applying for a tax refund. The
verification process is not incumbent on PERF; it is the duty of the CIR to verify whether or not PERF had
carried over the 1997 excess income taxes.
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,

G.R. No. 167560

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

- versus -

DOMINADOR MENGUITO,
Promulgated:
Respondent.
September 17, 2008
x----------------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the March 31, 2005
Decision[1] of the Court of Appeals (CA) which reversed and set aside the Court of Tax Appeals (CTA) April 2, 2002
Decision[2] and October 10, 2002 Resolution[3] ordering Dominador Menguito (respondent) to pay the Commissioner of
Internal Revenue (petitioner) deficiency income and percentage taxes and delinquency interest.
Based on the Joint Stipulation of Facts and Admissions[4] of the parties, the CTA summarized the factual and procedural
antecedents of the case, the relevant portions of which read:
Petitioner Dominador Menguito [herein respondent] is a Filipino citizen, of legal age, married to
Jeanne Menguito and is engaged in the restaurant and/or cafeteria business. For the years 1991, 1992
and 1993, its principal place of business was at Gloriamaris, CCP Complex, Pasay City and later
transferred to Kalayaan Bar (Copper Kettle Cafeteria Specialist or CKCS), Departure
Area, Ninoy Aquino InternationalAirport, Pasay City. During the same years, he also operated a
branch at Club John Hay, Baguio City carrying the business name of Copper Kettle Cafeteria Specialist
(Joint Stipulation of Facts and Admissions, p. 133, CTA records).

xxxx
Subsequently, BIR Baguio received information that Petitioner [herein respondent] has
undeclared income from Texas Instruments and Club John Hay, prompting the BIR to
conduct another investigation. Through a letter dated July 28, 1997, Spouses Dominador
Menguito and Jeanne Menguito (Spouses Menguito) were informed by the Assessment
Division of the said office that they have underdeclared sales totaling P48,721,555.96
(Exhibit 11, p. 83, BIR records). This was followed by a Preliminary Ten (10) Day Letter
dated August 11, 1997, informing Petitioner [herein respondent] that in the investigation
of his 1991, 1992 and 1993 income, business and withholding tax case, it was found out
that there is still due from him the total sum of P34,193,041.55 as deficiency income and
percentage tax.
On September 2, 1997, the assessment notices subject of the instant petition were
issued. These were protested by Ms. Jeanne Menguito, through a letter dated September
28, 1997 (Exhibit 14, p. 112, BIR Records), on the ground that the 40% deduction allowed
on their computed gross revenue, is unrealistic. Ms. Jeanne Menguito requested for a
period of thirty (30) days within which to coordinate with the BIR regarding the contested
assessment.
On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the source of
assessment was not through the disallowance of claimed expenses but on data received from Club
John Hay and Texas Instruments Phils., Inc. Said letter gave the spouses ten (10) days to present
evidence (Exhibit 15, p. 110, BIR Records).
In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria Specialist
(CKCS) being a sole proprietorship owned by the Spouses, and Copper Kettle Catering
Services, Inc. (CKCS, Inc.) being a corporation with whom Texas Instruments and Club
John Hay entered into a contract, Petitioner [respondent] submitted to BIR Baguio a
photocopy of the SEC Registration of Copper Kettle Catering Services, Inc. on March 23,
1999 (pp. 134-141, BIR Records).
On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito, informing the latter that a
reinvestigation or reconsideration cannot be given due course by the mere submission of an
uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the amendment issued is
still valid and enforceable.
On May 26, 1999, Petitioner [respondent] filed the present case, praying for the cancellation and
withdrawal of the deficiency income tax and percentage tax assessments on account of prescription,
whimsical factual findings, violation of procedural due process on the issuance of assessment notices,
erroneous address of notices and multiple credit/ investigation by the Respondent [petitioner] of
Petitioner's [respondents] books of accounts and other related records for the same tax year.
Instead of filing an Answer, Respondent [herein petitioner] moved to dismiss the instant petition
on July 1, 1999, on the ground of lack of jurisdiction. According to Respondent [petitioner], the
assessment had long become final and executory when Petitioner [respondent] failed to comply with
the letter dated October 10, 1997.
Petitioner opposed said motion on July 21, 1999, claiming that the final decision on Petitioner's
[respondents] protest is the April 12, 1999 letter of the Baguio Regional Office; therefore, the filing of
the action within thirty (30) days from receipt of the said letter was seasonably filed. Moreover,
Petitioner [respondent] asserted that granting that the April 12, 1999 letter in question could not be
construed to mean as a denial or final decision of the protest, still Petitioner's [respondents] appeal
was timely filed since Respondent [petitioner] issued a Warrant of Distraint and/or Levy against the
Petitioner [respondent] on May 3, 1999, which warrant constituted a final decision of the Respondent
[petitioner] on the protest of the taxpayer.
On September 3, 1999, this Court denied Respondent's [petitioners] 'Motion to Dismiss' for lack of
merit.

Respondent [petitioner] filed his Answer on September 24, 1999, raising the following Special
and Affirmative Defenses:
xxxx
5. Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner
[respondent] filed false or fraudulent income and percentage tax returns with intent to
evade tax by under declaring his sales.
6. The alleged duplication of investigation of petitioner [respondent] by the BIR
Regional Office in Baguio City and by the Revenue District Office in Pasay City is
justified by the finding of fraud on the part of the petitioner [respondent], which is an
exception to the provision in the Tax Code that the examination and inspection of
books and records shall be made only once in a taxable year (Section 235, Tax Code).
At any rate, petitioner [respondent], in a letter dated July 18, 1994, waived his right to
the consolidation of said investigation.
7. The aforementioned falsity or fraud was discovered on August 5, 1997.
The assessments were issued on September 2, 1997, or within ten (10)
years from the discovery of such falsity or fraud (Section 223, Tax Code).
Hence, the assessments have not prescribed.
8. Petitioner's [respondents] allegation that the assessments were not
properly addressed is rendered moot and academic by his acknowledgment
in his protest letter dated September 28, 1997 that he received the
assessments.
9. Respondent [petitioner] complied with the provisions of Revenue
Regulations No. 12-85 by informing petitioner [respondent] of the findings
of the investigation in letters dated July 28, 1997 and August 11,
1997 prior to the issuance of the assessments.
10. Petitioner [respondent] did not allege in his administrative protest that
there was a duplication of investigation, that the assessments have
prescribed, that they were not properly addressed, or that the provisions of
Revenue Regulations No. 12-85 were not observed. Not having raised them
in the administrative level, petitioner [respondent] cannot raise the same
for the first time on appeal (Aguinaldo Industries Corp. vs. Commissioner of
Internal Revenue, 112 SCRA 136).
11. The assessments were issued in accordance with law and regulations.
12. All presumptions are in favor of the correctness of tax assessments (CIR vs.
Construction Resources of Asia, Inc., 145 SCRA 67), and the burden to prove otherwise
is upon petitioner [respondent].[5] (Emphasis supplied)
On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which reads:
Accordingly, Petitioner [herein respondent] is ORDERED to PAY the Respondent [herein petitioner]
the amount of P11,333,233.94 and P2,573,655.82 as deficiency income and percentage tax liabilities,
respectively for taxable years 1991, 1992 and 1993 plus 20% delinquency interest from October 2,
1997 until full payment thereof.
SO ORDERED.[6]
Respondent filed a motion for reconsideration but the CTA denied the same in its Resolution of October 10, 2002.[7]

Through a Petition for Review[8] filed with the CA, respondent questioned the CTA Decision and Resolution
mainly on the ground that Copper Kettle Catering Services, Inc. (CKCS, Inc.) was a separate and distinct entity from
Copper Kettle Cafeteria Specialist (CKCS); the sales and revenues of CKCS, Inc. could not be ascribed to CKCS; neither
may the taxes due from one, charged to the other; nor the notices to be served on the former, coursed through the
latter.[9] Respondent cited the Joint Stipulation in which petitioner acknowledged that its (respondents) business was
called Copper Kettle Cafeteria Specialist, not Copper Kettle Catering Services, Inc.[10]
Based on the unrefuted[11] CTA summary, the CA rendered the Decision assailed herein, the dispositive portion
of which reads:
WHEREFORE, the instant petition is GRANTED. Reversing the assailed Decision dated April 2, 2002 and
Resolution dated October 10, 2002, the deficiency income tax and percentage income tax
assessments against petitioner in the amounts of P11,333,233.94 and P2,573,655.82 for taxable
years 1991, 1992 and 1993 plus the 20% delinquency interest thereon are annulled.
SO ORDERED.[12]
Petitioner filed a motion for reconsideration but the CA denied the same in its October 10, 2002 Resolution.[13]
Hence, herein recourse to the Court for the reversal of the CA decision and resolution on the following grounds:
I
The Court of Appeals erred in reversing the decision of the Court of Tax Appeals and in holding that
Copper Kettle Cafeteria Specialist owned by respondent and Copper Kettle Catering Services, Inc.
owned and managed by respondent's wife are not one and the same.
II
The Court of Appeals erred in holding that respondent was denied due process for failure of petitioner
to validly serve respondent with the post-reporting and pre-assessment notices as required by law.
On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the same corporation because [t]he
contract between Texas Instruments and Copper Kettle was signed by petitioners [respondents] wife, Jeanne Menguito
as proprietress.[14]
However, the CA reversed the CTA on these grounds:
Respondents [herein petitioners] allegation that Copper Kettle Catering Services, Inc. and Copper
Kettle Cafeteria Specialists are not distinct entities and that the under-declared sales/revenues of
Copper Kettle Catering Services, Inc. pertain to Copper Kettle Cafeteria Specialist are belied by the
evidence on record. In the Joint Stipulation of Facts submitted before the tax court, respondent
[petitioner] admitted that petitioners [herein respondents] business name is Copper Kettle Cafeteria
Specialist.
Also, the Certification of Club John Hay and Letter dated July 9, 1997 of Texas Instruments both
addressed to respondent indicate that these companies transacted with Copper Kettle Catering
Services, Inc., owned and managed by JEANNE G. MENGUITO, NOT petitioner Dominador Menguito.
The alleged under-declared sales income subject of the present assessments were shown to have
been earned by Copper Kettle Catering Services, Inc. in its commercial transaction with Texas
Instruments and Camp John Hay; NOT by petitioners dealing with these companies. In fact, there is
nothing on record which shows that Texas Instruments and Camp John Hay conducted business
relations with Copper Kettle Cafeteria Specialist, owned by herein petitioner Dominador Menguito. In
the absence, therefore, of clear and convincing evidence showing that Copper Kettle Cafeteria

Specialist and Copper Kettle Catering Services, Inc. are one and the same, respondent can NOT validly
impute alleged underdeclared sales income earned by Copper Kettle Catering Services, Inc. as sales
income of Copper Kettle Cafeteria Specialist.[15] (Emphasis supplied)
Respondent is adamant that the CA is correct. Many times in the past, the BIR had treated CKCS separately from
CKCS, Inc.: from May 1994 to June 1995, the BIR sent audit teams to examine the books of account and other
accounting records of CKCS, and based on said audits, respondent was held liable for deficiency taxes, all of which he
had paid.[16] Moreover, the certifications[17] issued by Club John Hay and Texas Instruments identify the concessionaire
operating therein as CKCS, Inc., owned and managed by his spouse Jeanne Menguito, and not
CKCS.[18]
Petitioner impugns the findings of the CA, claiming that these are contradicted by evidence on record
consisting of a reply to the September 2, 1997 assessment notice of BIR Baguio which Jeanne Menguito wrote
on September 28, 1997, to wit:
We are in receipt of the assessment notice you have sent us, dated September 2, 1997. Having taken
hold of the same only now following our travel overseas, we were not able to respond
immediately and manifest our protest. Also, with the impending termination of our businesses
at 19th Tee, Club John Hay and at Texas Instruments, Loakan, Baguio City, we have
already started the transfer of our records and books in Baguio City to Manila that we will
need more time to review and sort the records that may have to be presented relative to the
assessment x x x.[19] (Emphasis supplied)
Petitioner insists that said reply confirms that the assessment notice is directed against the businesses which she and
her husband, respondent herein, own and operate at Club John Hay and Texas Instruments, and establishes that she is
protesting said notice not just for herself but also for respondent.[20]
Moreover, petitioner argues that if it were true that CKCS, Inc. and CKCS are separate and distinct entities,
respondent could have easily produced the articles of incorporation of CKCS, Inc.; instead, what respondent presented
was merely a photocopy of the incorporation articles. [21] Worse, petitioner adds, said document was not offered in
evidence before the CTA, but was presented only before the CA.[22]
Petitioner further insists that CKCS, Inc. and CKCS are merely employing the fiction of their separate corporate
existence to evade payment of proper taxes; that the CTA saw through their ploy and rightly disregarded their
corporate individuality, treating them instead as one taxable entity with the same tax base and liability;[23] and that the
CA should have sustained the CTA.[24]
In effect, petitioner would have the Court resolve a purely factual issue [25] of whether or not there is substantial
evidence that CKCS, Inc. and CKCS are one and the same taxable entity.
As a general rule, the Court does not venture into a trial of facts in proceedings under Rule 45 of the Rules of
Courts, for its only function is to review errors of law. [26] The Court declines to inquire into errors in the factual
assessment of the CA, for the latters findings are conclusive, especially when these are synonymous to those of the

CTA.[27] But when the CA contradicts the factual findings of the CTA, the Court deems it necessary to determine
whether the CA was justified in doing so, for one basic rule in taxation is that the factual findings of the CTA, when
supported by substantial evidence, will not be disturbed on appeal unless it is shown that the CTA committed gross
error in its appreciation of facts.[28]
The Court finds that the CA gravely erred when it ignored the substantial evidence on record and reversed the CTA.
In a number of cases, the Court has shredded the veil of corporate identity and ruled that where a corporation is
merely an adjunct, business conduit or alter ego of another corporation or when they practice fraud on our internal
revenue laws,[29] the fiction of their separate and distinct corporate identities shall be disregarded, and both
entities treated as one taxable person, subject to assessment for the same taxable transaction.
The Court considers the presence of the following circumstances, to wit: when the owner of one directs and
controls the operations of the other, and the payments effected or received by one are for the accounts due from or
payable to the other;[30] or when the properties or products of one are all sold to the other, which in turn immediately
sells them to the public,[31] as substantial evidence in support of the finding that the two are actually one juridical
taxable personality.
In the present case, overwhelming evidence supports the CTA in disregarding the separate identity of CKCS, Inc. from
CKCS and in treating them as one taxable entity.
First, in respondents Petition for Review before the CTA, he expressly admitted that he is engaged in restaurant
and/or cafeteria business and that [i]n 1991, 1992 and 1993, he also operated a branch at Club John Hay,
Baguio City with a business name of Copper Kettle Cafeteria Specialist.[32] Respondent repeated such
admission in the Joint Stipulation.[33] And then in Exhibit 1[34] for petitioner, a July 18, 1994 letter sent by Jeanne
Menguito to BIR, Baguio City, she stated thus:
in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at
19th Tee Club John Hay, Baguio City under letter of authority nos. 0392897, 0392898, and 0392690
dated May 16, 1994, investigating myincome, business, and withholding taxes for the years 1991,
1992, and 1993.[35] (Emphasis supplied)
Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist.[36]
Related to Exhibit 1 is petitioner's Exhibit 14, which is another letter dated September 28, 1997, in which
Jeanne Menguito protested the September 2, 1997 assessment notices directed at Copper Kettle Cafeteria Specialist
and referred to the latter as our business at 19th Tee Club John Hay and at Texas Instruments.[37] Taken along with the
Joint Stipulation, Exhibits A through C and the August 3, 1993 Certification of Camp John Hay, Exhibits 1 and 14,
confirm that respondent, together with his spouse Jeanne Menguito, own, operate and manage a branch of Copper
Kettle Cafeteria Specialist, also called Copper Kettle Catering Services at Camp John Hay.

Moreover, in Exhibits A to A-1,[38] Exhibits B to B-1[39] and Exhibits C to C-1[40] which are lists of concessionaires
that operated in Club John Hay in 1992, 1993 and 1991, respectively, [41] it appears that there is no outlet with the
name Copper Kettle Cafeteria Specialist as claimed by respondent. The name that appears in the lists is 19 th TEE
CAFETERIA (Copper Kettle, Inc.). However, in the light of the express admission of respondent that in 1991, 1992 and
1993, he operated a branch called Copper Kettle Cafeteria Specialist in Club John Hay, the entries in Exhibits A through
C could only mean that said branch refers to 19th Tee Cafeteria (Copper Kettle, Inc.). There is no evidence presented
by respondent that contradicts this conclusion.
In addition, the August 9, 1993 Certification issued by Club John Hay that COPPER KETTLE CATERING
SERVICES owned and managed by MS. JEANNE G. MENGUITO is a concessionaire in John Hay since July 1991 up to the
present and is operating the outlet 19TH TEE CAFETERIA AND THE TEE BAR[42] convincingly establishes that
respondent's branch which he refers to as Copper Kettle Cafeteria Specialist at Club John Hay also appears in the
latter's records as Copper Kettle Catering Services with an outlet called 19th Tee Cafeteria and The Tee Bar.
Second, in Exhibit 8[43] and Exhibit E,[44] Texas Instruments identified the concessionaire operating its canteen as
Copper Kettle Catering Services, Inc.[45] and/or COPPER KETTLE CAFETERIA SPECIALIST SVCS.[46] It being settled that
respondent's Copper Kettle Cafeteria Specialist is also known as Copper Kettle Catering Services, and that respondent
and JeanneMenguito both own, manage and act as proprietors of the business, Exhibit 8 and Exhibit E further establish
that, through said business, respondent also had taxable transactions with Texas Instruments.
In view of the foregoing facts and circumstances, the Articles of Incorporation of CKCS, Inc. -- a certified true copy of
which respondent attached only to his Reply filed with the CA[47] -- cannot insulate it from scrutiny of its real identity in
relation to CKCS. It is noted that said Articles of Incorporation of CKCS, Inc. was issued in 1989, but documentary
evidence indicate that after said date, CKCS, Inc. has also assumed the name CKCS, and vice-versa. The most
concrete indication of this practice is the 1991 Quarterly Percentage Tax Returns covering the business name/trade
19th Tee Camp John Hay. In said returns, the taxpayer is identified as Copper Kettle Cafeteria Specialist [48] or CKCS, not
CKCS, Inc. Yet, in several documents already cited, the purported owner of 19th Tee Bar at Club John Hay is CKCS, Inc.
All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and 1993, respondent, together with his
spouse Jeanne Menguito, owned and operated outlets in Club John Hay and Texas Instruments under the names
Copper Kettle Cafeteria Specialist or CKCS and Copper Kettle Catering Services or Copper Kettle Catering Services, Inc..
Turning now to the second issue.
In respondent's Petition for Review with the CTA, he questioned the validity of the Assessment Notices, [49] all dated
September 2, 1997, issued by BIR, Baguio City against him on the following grounds:
1.

The assessment notices, based on income and percentage tax returns filed for 1991, 1992 and
1993, were issued beyond the three-year prescriptive period under Section 203 of the Tax Code;[50]

2.

The assessment notices were addressed to Copper Kettle Specialist, Club John Hay, Baguio City,
despite notice to petitioner that respondent's principal place of business was at the CCP
Complex, Pasay City.[51]

3.

The assessment notices were issued in violation of the requirement of Revenue Regulations No.
12-85, dated November 27, 1985, that the taxpayer be issued a post-reporting notice and preassessment notice before the preliminary findings of deficiency may ripen into a formal assessment;
[52]

4.

and
The assessment notices did not give respondent a 15-day period to reply to the findings of

deficiency.[53]
The Court notes that nowhere in his Petition for Review did respondent deny that he received the September 2,
1997 assessment notices. Instead, during the trial, respondent's witness, Ma. TheresaNalda (Nalda), testified that she
informed the BIR, Baguio City that there was no Notice or letter, that we did not receive,
perhaps, because they were not addressed to Mr. Menguito's head office.[54]
The CTA correctly upheld the validity of the assessment notices. Citing Section 223 of the Tax Code which provides
that the prescriptive period for the issuance of assessment notices based on fraud is 10 years, the CTA ruled that the
assessment notices issued against respondent on September 2, 1997 were timely because petitioner discovered the
falsity in respondent's tax returns for 1991, 1992 and 1993 only on February 19, 1997.[55] Moreover, in accordance
with Section 2 of Revenue Regulation No. 12-85, which requires that assessment notices be sent to the address
indicated in the taxpayer's return, unless the latter gives a notice of change of address, the assessment notices in the
present case were sent by petitioner to Camp John Hay, for this was the address respondent indicated in his tax
returns.[56] As to whether said assessment notices were actually received, the CTA correctly held that since respondent
did not testify that he did not receive said notices, it can be presumed that the same were actually sent to and
received by the latter. The Court agrees with the CTA in considering as hearsay the testimony of Nalda that
respondent did not receive the notices, because Nalda was not competent to testify on the matter, as she was
employed by respondent only in June 1998, whereas the assessment notices were sent on September 2, 1997.[57]
Anent compliance with the requirements of Revenue Regulation No. 12-85, the CTA held:
BIR records show that on July 28, 1997, a letter was issued by BIR Baguio to Spouses Menguito,
informing the latter of their supposed underdeclaration of sales totaling P48,721,555.96 and giving
them 5 days to communicate any objection to the results of the investigation (Exhibit 11, p. 83, BIR
Records). Records likewise reveal the issuance of a Preliminary Ten (10) Day Letter on August 11, 1997,
informing Petitioner [respondent herein] that the sum of P34,193,041.55 is due from him as deficiency
income and percentage tax (Exhibit 13, p. 173, BIR Records). Said letter gave the Petitioner
[respondent herein] a period of ten (10) days to submit his objection to the proposed assessment,
either personally or in writing, together with any evidence he may want to present.
xxxx
As to Petitioner's allegation that he was given only ten (10) days to reply to the findings of deficiency
instead of fifteen (15) days granted to a taxpayer under Revenue Regulations No. 12-85, this Court
believes that when Respondent [petitioner herein] gave the Petitioner [respondent herein] on October
10, 1997 an additional period of ten (10) days to present documentary evidence or a total of twenty

(20) days, there was compliance with Revenue Regulations No. 12-85 and the latter was amply given
opportunity to present his side x x x.[58]
The CTA further held that respondent was estopped from raising procedural issues against the assessment
notices,

because

these

were

not

Jeanne Menguito filed with petitioner.

cited

in

the September

28,

1997 letter-protest

which

his

spouse

[59]

On appeal by respondent,[60] the CA resolved the issue, thus:

Moreover, if the taxpayer denies ever having received an assessment from the BIR, it is
incumbent upon the latter to prove by competent evidence that such notice was indeed
received by the addressee. Here, respondent [petitioner herein] merely alleged that it forwarded
the assessment notices to petitioner [respondent herein]. The respondent did not show any proof of
mailing, registry receipt or acknowledgment receipt signed by the petitioner [respondent
herein]. Since respondent [petitioner herein] has not adduced sufficient evidence that
petitioner [respondent herein] had in fact received the pre-assessment notice and postreporting notice required by law, it cannot be assumed that petitioner [respondent
herein] had been served said notices.[61]
No other ground was cited by the CA for the reversal of the finding of the CTA on the issue.
The CA is gravely mistaken.
In their Petition for Review with the CTA, respondent expressly stated that [s]ometime in September 1997, petitioner
[respondent herein] received various assessment notices, all dated 02 September 1997, issued by BIR-Baguio for
alleged deficiency income and percentage taxes for taxable years ending 31 December 1991, 1992 and 1993 x x x.
[62]

In their September 28, 1997 protest to the September 2, 1997 assessment notices, respondent, through his

spouses Jeanne Menguito, acknowledged that [they] are in receipt of the assessment notice you have sent us,
dated September 2, 1997 x x x.[63]
Respondent is therefore estopped from denying actual receipt of the September 2, 1997 assessment notices,
notwithstanding the denial of his witness Nalda.
As to the address indicated on the assessment notices, respondent cannot question the same for it is the said address
which appears in its percentage tax returns.[64] While respondent claims that he had earlier notified petitioner of a
change in his business address, no evidence of such written notice was presented. Under Section 11 of Revenue
Regulation No. 12-85, respondent's failure to give written notice of change of address bound him to whatever
communications were sent to the address appearing in the tax returns for the period involved in the investigation.[65]
Thus, what remain in question now are: whether petitioner issued and mailed a post-reporting notice and a preassessment notice; and whether respondent actually received them.
There is no doubt that petitioner failed to prove that it served on respondent a post-reporting notice and a preassessment notice. Exhibit 11[66] of petitioner is a mere photocopy of a July 28, 1997 letter it sent to respondent,
informing him of the initial outcome of the investigation into his sales, and the release of a preliminary assessment

upon completion of the investigation, with notice for the latter to file any objection within five days from receipt of the
letter. Exhibit 13[67] of petitioner is also a mere photocopy of an August 11, 1997 Preliminary Ten (10) Day Letter to
respondent, informing him that he had been found to be liable for deficiency income and percentage tax and inviting
him to submit a written objection to the proposed assessment within 10 days from receipt of notice. But nowhere on
the face of said documents can be found evidence that these were sent to and received by respondent. Nor is there
separate evidence, such as a registry receipt of the notices or a certification from the Bureau of Posts, that petitioner
actually mailed said notices.
However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the
requirements under Section 1[68] and Section 2[69] of Revenue Regulation No. 12-85, the same cannot detract
from the fact that formal assessments were issued to and actually received by respondents in accordance with
Section 228 of the National Internal Revenue Code which was in effect at the time of assessment.
It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have
been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the
taxpayer,[70] applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code,
but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a
substantive prerequisite to tax collection,[71] for it contains not only a computation of tax liabilities but also a demand
for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue
against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be
served on and received by the taxpayer.[72]
A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The postreporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites
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 the taxpayer
for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment
notice was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof,
he filed a protest with the BIR, Baguio City and eventually a petition with the CTA.
WHEREFORE,

the

petition

is GRANTED.

The

March

31,

2005

Decision of

the

Court

of

Appeals

is REVERSED and SET ASIDE and the April 2, 2002 Decision and October 10, 2002 Resolution of the Court of Tax
Appeals are REINSTATED.
SO ORDERED.
COMMISSIONER OF INTERNAL G.R. No. 166387
REVENUE,
Petitioner,
Present:
PUNO, C.J., Chairperson,
CARPIO,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.

ENRON SUBIC POWER

CORPORATION,
Respondent. Promulgated:
January 19, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
RESOLUTION
CORONA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of
Internal Revenue (CIR) assails the November 24, 2004 decision [1] of the Court of Appeals (CA) annulling the
formal assessment notice issued by the CIR against respondent Enron Subic Power Corporation (Enron) for
failure to state the legal and factual bases for such assessment.
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport
enterprise,[2] filed its annual income tax return for the year 1996 on April 12, 1997. It indicated a net loss
of P7,684,948. Subsequently, the Bureau of Internal Revenue, through a preliminary five-day letter,
[3]

informed it of a proposed assessment of an alleged P2,880,817.25 deficiency income tax.[4] Enron

disputed the proposed deficiency assessment in its first protest letter. [5]
On May 26, 1999, Enron received from the CIR a formal assessment notice [6] requiring it to pay the
alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency
tax assessment.[7]
Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in
the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of
Section 228 of the National Internal Revenue Code (NIRC), as amended, [8] and Section 3.1.4 of Revenue
Regulations (RR) No. 12-99[9] by not providing the legal and factual bases of the assessment. Enron
likewise questioned the substantive validity of the assessment.[10]
In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the
cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the assessment
notice sent to Enron failed to comply with the requirements of a valid written notice under Section 228 of

the NIRC and RR No. 12-99. The CIRs motion for reconsideration of the CTA decision was denied in a
resolution dated November 12, 2001.
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit
working papers did not substantially comply with Section 228 of the NIRC and RR No. 12-99 because they
failed to show the applicability of the cited law to the facts of the assessment. The CIR filed a motion for
reconsideration but this was deemed abandoned when he filed a motion for extension to file a petition for
review in this Court.
The CIR now argues that respondent was informed of the legal and factual bases of the deficiency
assessment against it.
We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere Sucres et
Denrees v. CIR,[11] we held:
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will
not set aside the conclusion reached by an agency, like the CTA, especially if affirmed by the
[CA]. By the very nature of its function, it has dedicated itself to the study and consideration
of tax problems and has necessarily developed an expertise on the subject, unless there has
been an abuse or improvident exercise of authority on its part, which is not present here.
The CIR errs in insisting that the notice of assessment in question complied with the requirements
of the NIRC and RR No. 12-99.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a PreAssessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was
found to be without merit. The Notice of Assessment shall inform the [t]axpayer of this fact,
and that the report of investigation submitted by the Revenue Officer conducting the audit
shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes
shall state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, otherwise the formal letter of demand and the notice of
assessment shall be void. (emphasis supplied)[12]

Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the
facts on which the assessment is made. Otherwise, the assessment is void. To implement the provisions of
Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand
and assessment notice shall be issued by the Commissioner or his duly authorized

representative.The letter of demand calling for payment of the taxpayers deficiency

tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence
on which the assessment is based, otherwise, the formal letter of demand and
assessment notice shall be void. The same shall be sent to the taxpayer only by
registered mail or by personal delivery. xxx (emphasis supplied)

It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of
the tax assessment made against him. The use of the word shall in these legal provisions indicates the
mandatory nature of the requirements laid down therein. We note the CTAs findings:
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the
supposed tax, surcharge, interest and compromise penalty due thereon. The Revenue
Officers of the [the CIR] in the issuance of the Final Assessment Notice did not provide Enron
with the written bases of the law and facts on which the subject assessment is based. [The
CIR] did not bother to explain how it arrived at such an assessment. Moreso, he failed to
mention the specific provision of the Tax Code or rules and regulations which were not
complied with by Enron.[13]

Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the
deductions disallowed and included these in the gross income. It also imposed the preferential rate of 5%
on some items categorized by Enron as costs. The legal and factual bases were, however, not indicated.
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enrons representative of the tax deficiency,
informed it of the proposed tax deficiency assessment through a preliminary five-day letter and furnished
Enron a copy of the audit working paper [14] allegedly showing in detail the legal and factual bases of the
assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the
deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and
factual bases of the assessment. These steps were mere perfunctory discharges of the CIRs duties in
correctly assessing a taxpayer.[15] The requirement for issuing a preliminary or final notice, as the case may
be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter
during the pre-assessment stage and a final notice, in the order required by law, does not necessarily
mean that Enron was informed of the law and facts on which the deficiency tax assessment was made.

The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of
Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged factual bases in the
advice, preliminary letter and audit working papers did not suffice. There was no going around the
mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal
letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by
the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of
the facts on which the assessment is made. [16] Such amendment is in keeping with the constitutional
principle that no person shall be deprived of property without due process. [17] In view of the absence of a
fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the
assessment in question was void. We reiterate our ruling in Reyes v. Almanzor, et al.:[18]
Verily, taxes are the lifeblood of the Government and so 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 the
Government itself.
WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of the Court of Appeals
is AFFIRMED.

LUCAS G. ADAMSON, THERESE G.R. No. 120935

JUNE D. ADAMSON, and SARA
S. DE LOS REYES, in their capacities
as President, Treasurer and Secretary
of Adamson Management Corporation,
Petitioners,
- versus COURT OF APPEALS and
LIWAYWAY VINZONS-CHATO,
in her capacity as Commissioner
of the Bureau of Internal Revenue,
Respondents.
x-- - - - - - - - - - - - - - - - - - - - - - - - x
COMMISSIONER OF G.R. No. 124557
INTERNAL REVENUE,
Petitioner,
Present:

-versus- PUNO, C.J., Chairperson,

CARPIO,
CORONA,
COURT OF APPEALS, COURT LEONARDO-DE CASTRO, and
OF TAX APPEALS, ADAMSON BERSAMIN, JJ.
MANAGEMENT CORPORATION,
LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA Promulgated:
S. DE LOS REYES,
Respondents. May 21, 2009
x--------------------------------------------------x

DECISION

PUNO, C.J.:

Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No. 124557.

G.R. No. 120935 involves a petition for review on certiorari filed by petitioners LUCAS G.
ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES (private respondents), in their
respective capacities as president, treasurer and secretary of Adamson Management Corporation (AMC)
against then Commissioner of Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER), under Rule
45 of the Revised Rules of Court. They seek to review and reverse the Decision promulgated onMarch
21, 1995 and Resolution issued on July 6, 1995 of the Court of Appeals in CA-G.R. SP No. 35488
(Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna Falloran-Aliposa, et al.).
G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner, assailing the
Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP No. 35520, titled Commissioner of
Internal Revenue v. Court of Tax Appeals, Adamson Management Corporation, Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes. In the said Decision, the Court of Appeals upheld
the Resolution promulgated on September 19, 1994 by the Court of Tax Appeals (CTA) in C.T.A. Case
No. 5075 (Adamson Management Corporation, Lucas G. Adamson, Therese Adamson and Sara de los
Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate court, follow:

On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock in Adamson
and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were valued at P7,789,995.00.
[1]

On June 22, 1990, P159,363.21 was paid as capital gains tax for the transaction.

On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common shares of
stock in AAI for P17,718,360.00. AMC paid the capital gains tax ofP352,242.96.

On October 15, 1993, the Commissioner issued a Notice of Taxpayer to AMC, Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes, informing them of deficiencies on their payment of
capital gains tax and Value Added Tax (VAT). The notice contained a schedule for preliminary
conference.
The events preceding G.R. No. 120935 are the following:

On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ) her Affidavit
of Complaint[2] against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes for
violation of Sections 45 (a) and (d)[3], and 110[4], in relation to Section 100[5], as penalized under Section
255,[6] and for violation of Section 253[7], in relation to Section 252 (b) and (d) of the National Internal
Revenue Code (NIRC).[8]

AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the DOJ a
motion to suspend proceedings on the ground of prejudicial question, pendency of a civil case with the
Supreme Court, and pendency of their letter-request for re-investigation with the Commissioner. After
the preliminary investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion for
Reconsideration against the findings of probable cause was denied by the prosecutor.

On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were
charged before the Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case Nos. 94-1842 to
94-1846. They filed a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that
there was yet no final assessment of their tax liability, and there were still pending relevant Supreme
Court and CTA cases. Initially, the trial court denied the motion. A Motion for Reconsideration was
however filed, this time assailing the trial courts lack of jurisdiction over the nature of the subject
cases. On August 8, 1994, the trial court granted the Motion. It ruled that the complaints for tax
evasion filed by the Commissioner should be regarded as a decision of the Commissioner regarding the
tax liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, and appealable
to the CTA. It further held that the said cases cannot proceed independently of the assessment case
pending before the CTA, which has jurisdiction to determine the civil and criminal tax liability of the
respondents therein.

On October 10, 1994, the Commissioner filed a Petition for Review with the Court of Appeals
assailing the trial courts dismissal of the criminal cases. She averred that it was not a condition

prerequisite that a formal assessment should first be given to the private respondents before she may
file the aforesaid criminal complaints against them. She argued that the criminal complaints for tax
evasion may proceed independently from the assessment cases pending before the CTA.

On March 21, 1995, the Court of Appeals reversed the trial courts decision and reinstated the
criminal complaints. The appellate court held that, in a criminal prosecution for tax evasion,
assessment of tax deficiency is not required because the offense of tax evasion is complete
or consummated when the offender has knowingly and willfully filed a fraudulent return
with intent to evade the tax.[9] It ruled that private respondents filed false and fraudulent
returns with intent to evade taxes, and acting thereupon, petitioner filed an Affidavit of
Complaint with the Department of Justice, without an accompanying assessment of the tax
deficiency of private respondents, in order to commence criminal action against the latter
for tax evasion.[10]

Private respondents filed a Motion for Reconsideration, but the trial court denied the motion
on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising the following issues:
1.

WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS ERRED

IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May 30, 1980, 97
SCRA 877) TO THE CASE AT BAR.

2.

WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND

CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC.

3.

WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE

COMMISSIONER IN THE CASE AT BAR.

4.

WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN

IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER.

5.

WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX

EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO BASIS FOR
THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE PAYMENT OF A TAX.

6.

WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES V.

FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION SHIPPING CORP.
(G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE TO THE CASE AT
BAR.

7.

WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER THE
DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE TAXPAYER.

In parallel circumstances, the following events preceded G.R. No. 124557:

On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes filed a letter request for re-investigation with the Commissioner of the Examiners Findings earlier
issued by the Bureau of Internal Revenue (BIR), which pointed out the tax deficiencies.

On March 15, 1994 before the Commissioner could act on their letter-request, AMC, Lucas G.
Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition for Review with the
CTA. They assailed the Commissioners finding of tax evasion against them. The Commissioner moved
to dismiss the petition, on the ground that it was premature, as she had not yet issued a formal
assessment of the tax liability of therein petitioners. On September 19, 1994, the CTA denied the
Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ as an
implied formal assessment, and the filing of the criminal informations with the RTC as a denial of
petitioners protest regarding the tax deficiency.

The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave
abuse of discretion. She contended that, with regard to the protest provided under Section 229 of the
NIRC, there must first be a formal assessment issued by the Commissioner, and it must be in accord
with Section 6 of Revenue Regulation No. 12-85. She maintained that she had not yet issued a formal
assessment of tax liability, and the tax deficiency amounts mentioned in her criminal complaint with
the DOJ were given only to show the difference between the tax returns filed and the audit findings of
the revenue examiner.

The Court of Appeals sustained the CTAs denial of the Commissioners Motion to Dismiss. Thus,
the Commissioner filed the petition for review under G.R. No. 124557, raising the following issues:
1.

WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR FAILURE

TO COMPLY WITH THE MANDATORY REQUIREMENT OF A CERTIFICATION UNDER OATH
AGAINST FORUM SHOPPING;

2.

WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT BAR
CAN PROCEED WITHOUT AN ASSESSMENT;

3.

WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF JUSTICE

CAN BE CONSTRUED AS AN IMPLIED ASSESSMENT; and

4.

WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON

PRIVATE RESPONDENTS PETITION FOR REVIEW FILED WITH THE SAID COURT.

The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into three:
1.

WHETHER
THE
COMMISSIONER HAS ALREADY
RENDERED
AN
ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC,

LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS

REYES;
2.

WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX

EVASION TO PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D.
ADAMSON AND SARA S. DE LOS REYES; and

3.

WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE

COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX
LIABILITY
OF
AMC,
LUCAS
G.
ADAMSON,
THERESE
JUNE
D.
ADAMSON AND SARA S. DE LOS REYES.

The case of CIR v. Pascor Realty, et al.[11] is relevant. In this case, then BIR Commissioner Jose U.
Ong authorized revenue officers to examine the books of accounts and other accounting records of Pascor
Realty and Development Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986
and 1987, respectively.

On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ against PRDC, its
President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount
of P10,513,671.00. Private respondents filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability.

The Commissioner denied the urgent request for reconsideration/reinvestigation because she had
not yet issued a formal assessment.

Private respondents then elevated the Decision of the Commissioner to the CTA on a petition for
review. The Commissioner filed a Motion to Dismiss the petition on the ground that the CTA has no
jurisdiction over the subject matter of the petition, as there was yet no formal assessment issued against
the petitioners. The CTA denied the said motion to dismiss and ordered the Commissioner to file an answer
within thirty (30) days. The Commissioner did not file an answer nor did she move to reconsider the
resolution.Instead, the Commissioner filed a petition for review of the CTA decision with the Court of
Appeals. The Court of Appeals upheld the CTA order. However, this Court reversed the Court of Appeals
decision and the CTA order, and ordered the dismissal of the petition. We held:
An assessment contains not only a
payment within a prescribed period. It
begin to accrue against the taxpayer.
thereon, due process requires that

computation of tax liabilities, but also a demand for

also signals the time when penalties and interests
To enable the taxpayer to determine his remedies
it must be served on and received by the

taxpayer. Accordingly, an affidavit, which was executed by revenue officers 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 Court of Tax Appeals.
Neither the NIRC nor the revenue regulations governing the protest of
assessments[12] provide a specific definition or form of an assessment. However, the NIRC
defines the specific functions and effects of an assessment. To consider the affidavit
attached to the Complaint as a proper assessment is to subvert the nature of an assessment
and to set a bad precedent that will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the taxpayer
that he or she has tax liabilities. But not all documents coming from the BIR containing a
computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must
demand payment of the taxes described therein within a specific period. Thus, the NIRC
imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay
the deficiency tax within the time prescribed for its payment in the notice of
assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be
prescribed by rules and regulations, is to be collected from the date prescribed for its
payment until the full payment.[13]
The issuance of an assessment is vital in determining the period of limitation regarding
its proper issuance and the period within which to protest it. Section 203[14] of the NIRC
provides that internal revenue taxes must be assessed within three years from the last day
within which to file the return. Section 222,[15] on the other hand, specifies a period of ten
years in case a fraudulent return with intent to evade was submitted or in case of failure to
file a return. Also, Section 228[16] of the same law states that said assessment may be
protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be
certain that a specific document constitutes an assessment. Otherwise, confusion would
arise regarding the period within which to make an assessment or to protest the same, or
whether interest and penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of internal
revenue releases, mails or sends such notice to the taxpayer.[17]
In the present case, the revenue officers Affidavit merely contained a computation of
respondents tax liability. It did not state a demand or a period for payment. Worse, it was
addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply understood
to mean:
A notice to the effect that the amount therein stated is due as tax and
a demand for payment thereof.[18]
Fixes the liability of the taxpayer and ascertains the facts and furnishes
the data for the proper presentation of tax rolls.[19]
Even these definitions fail to advance private respondents case. That the BIR examiners
Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities
of private respondents does not ipso facto make it an assessment. The purpose of the Joint
Affidavit was merely to support and substantiate the Criminal Complaint

for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the
private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department
of Justice and not to private respondents shows that the intent of the commissioner was to
file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue
officers recommended the issuance of an assessment, the commissioner opted instead to
file a criminal case for tax evasion. What private respondents received was a notice from the
DOJ that a criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.
Private respondents maintain that the filing of a criminal complaint must be preceded by
an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in
cases where a false or fraudulent return is submitted or in cases of failure to file a return
such as this case, proceedings in court may be commenced without an
assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and
criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi,[20] petitioner
therein 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 commissioner of internal revenue 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.
Private respondents insist that Section 222 should be read in relation to Section 255 of
the NIRC,[21] which penalizes failure to file a return. They add that a tax assessment should
precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an
assessment is not necessary before a criminal charge can be filed. This is the general
rule. Private respondents failed to show that they are entitled to an exception. Moreover, the
criminal charge need only be supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice
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 or her is then sent to the taxpayer informing the latter
specifically and clearly that an assessment has been made against him or her. 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 instituted not to demand payment, but to penalize the taxpayer for violation of
the Tax Code.

In the cases at bar, the Commissioner denied that she issued a formal assessment of the tax liability of
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes. She admits though that
she wrote the recommendation letter[22] addressed to the Secretary of the DOJ recommending the filing
of criminal complaints against AMC and the aforecited persons for fraudulent returns and tax evasion.
The first issue is whether the Commissioners recommendation letter can be considered as a formal
assessment of private respondents tax liability.

In the context in which it is used in the NIRC, an assessment is a written notice and demand
made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and
fixed. A written communication containing a computation by a revenue officer of the tax liability of a
taxpayer and giving him an opportunity to contest or disprove the BIR examiners findings is not an
assessment since it is yet indefinite.[23]

We rule that the recommendation letter of the Commissioner cannot be considered a formal
assessment. Even a cursory perusal of the said letter would reveal three key points:

1.

It was not addressed to the taxpayers.

2.

There was no demand made on the taxpayers to pay the tax liability, nor a period for
payment set therein.

3.

The letter was never mailed or sent to the taxpayers by the Commissioner.

In fine, the said recommendation letter served merely as the prima facie basis for filing criminal
informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100,
as penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and
(d) of the Tax Code.[24]
The next issue is whether the filing of the criminal complaints against the private respondents
by the DOJ is premature for lack of a formal assessment.

Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In
the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court after the collection of such tax may be
begun without assessment, at any time within ten years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for collection thereof

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in
court after the collection of such tax may be begun without assessment.Here, the private
respondents had already filed the capital gains tax return and the VAT returns, and paid the taxes they
have declared due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary
finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots
of AAI shares, first to APAC and then to APAC Philippines, Limited. The examiners also found that the

VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably,
the gross disparity in the taxes due and the amounts actually declared by the private respondents
constitutes badges of fraud.

Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this seminal case,
this Court ruled that there was no need for precise computation and formal assessment in order for
criminal complaints to be filed against him. It quoted Mertens Law of Federal Income Taxation, Vol. 10,
Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator has
knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he
has made an inaccurate return, and the governments failure to discover the error and
promptly to assess has no connections with the commission of the crime.
This hoary principle still underlies Section 269 and related provisions of the present Tax Code.

We now go to the issue of whether the CTA has no jurisdiction to take cognizance of both the
criminal and civil cases here at bar.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as amended, the rulings
of the Commissioner are appealable to the CTA, thus:
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 Internal Revenue Code or other laws or part of law administered
by the Bureau of Internal Revenue;

Republic Act No. 8424, titled An Act Amending the National Internal Revenue Code, As Amended,
And For Other Purposes, later expanded the jurisdiction of the Commissioner and, correspondingly, that of
the CTA, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The
power to interpret the provisions of this Code and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate jurisdiction
of the Court of Tax Appeals.

The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282. [26] It provides:
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) 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 in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue Code or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code provides a specific period of action, in
which case the inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their original or
appellate jurisdiction;
xxx
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs Code and
other laws administered by the Bureau of Internal Revenue or the Bureau of
Customs: Provided, however, That offenses or felonies mentioned in this
paragraph where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) or where
there is no specified amount claimed shall be tried by the regular courts and the
jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of
Court to the contrary notwithstanding, the criminal action and the corresponding
civil action for the recovery of civil liability for taxes and penalties shall at all
times be simultaneously instituted with, and jointly determined in the same
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the
filling of such civil action separately from the criminal action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the
Regional Trial Courts in tax cases originally decided by them, in their
respected territorial jurisdiction.

(b) Over petitions for review of the judgments, resolutions or orders

of the Regional Trial Courts in the exercise of their appellate jurisdiction
over tax cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving
final and executory assessments for taxes, fees, charges and
penalties: Provided, however, That collection cases where the
principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than One million pesos (P1,000,000.00)
shall be tried by the proper Municipal Trial Court, Metropolitan Trial
Court and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of
the Regional Trial Courts in tax collection cases originally decided
by them, in their respective territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax collection cases originally decided
by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction.

These laws have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of
the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in
cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at
bar, the Commissioner has not issued an assessment of the tax liability of private respondents.

Finally, we hold that contrary to private respondents stance, the doctrines laid down in CIR v.
Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at bar. In these earlier cases,
the Commissioner already rendered an assessment of the tax liabilities of the delinquent taxpayers, for
which reason the Court ruled that the filing of the civil suit for collection of the taxes due was a final
denial of the taxpayers request for reconsideration of the tax assessment.
IN VIEW WHEREOF, premises considered, judgment is rendered:
1.

In G.R. No. 120935, AFFIRMING the CA decision dated March 21, 1995, which set
aside the Regional Trial Courts Order dated August 8, 1994, and REINSTATING
Criminal Case Nos. 94-1842 to 94-1846 for further proceedings before the trial court;
and

2.

In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of the Court of
Appeals dated March 29, 1996, and ORDERING the dismissal of C.T.A. Case No. 5075.

No costs.

SO ORDERED.
FIRST DIVISION

SILKAIR (SINGAPORE) PTE.

G.R. Nos. 171383 & 172379

LTD.,
Petitioner,

Present:

CARPIO, J.,
Acting Chairperson,*
- versus -

AUSTRIA-MARTINEZ,**
CORONA,
CARPIO MORALES,*** and
LEONARDO-DE CASTRO, JJ.

COMMISSIONER OF INTERNAL

Promulgated:

REVENUE,
Respondent.

November 14, 2008

x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case

G.R. No. 171383

Silkair (Singapore) Pte. Ltd. (petitioner) filed this Petition for Review [1] to reverse the Court of Tax Appeals
Decision[2] dated 20 October 2005 in C.T.A. Case No. 6217 as well as the Resolution dated 3 February 2006
denying the Motion for Reconsideration. In the assailed decision, the Court of Tax Appeals En Banc denied
petitioners claim for refund or issuance of a tax credit certificate of P4,239,374.81, representing excise
taxes paid on petitioners purchase of aviation jet fuel from Petron Corporation (Petron) for the period from
1 January 1999 to 30 June 1999.

G.R. No. 172379

Petitioner filed this Petition for Review [3] to reverse the Court of Tax Appeals Decision [4] dated 5 January
2006 in C.T.A. Case No. 6308 as well as the Resolution dated 18 April 2006 denying the Motion for
Reconsideration. In the assailed decision, the Court of Tax Appeals En Banc denied petitioners claim for
refund or issuance of a tax credit certificate of P4,831,224.70, representing excise taxes paid on
petitioners purchase of aviation jet fuel from Petron for the period from 1 July 1999 to 31 December 1999.

On 2 August 2006, this Court issued a resolution to consolidate both cases since they involve the same
parties and the same issue, whether petitioner is entitled to a refund of the excise taxes paid on its
purchases of aviation jet fuel from Petron.

The Facts

Petitioner is a foreign corporation organized under the laws of Singapore with a Philippine representative
office in Cebu City. It is engaged in business as an on-line international carrier, operating the SingaporeCebu-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Davao-Singapore routes. [5]

From 1 January 1999 to 31 December 1999, petitioner purchased aviation jet fuel from Petron for use on
petitioners international flights.[6] Based on the Aviation Delivery Receipts and Invoices presented, P3.67
per liter as excise (specific) tax was added to the amount paid by petitioner on its purchases of aviation jet
fuel.[7] Petitioner, through its sister company Singapore Airlines Ltd., paid P4,239,374.81 from 1 January
1999 to 30 June 1999[8] and P4,831,224.70 from 1 July 1999 to 31 December 1999, [9] as excise taxes for its
purchases of the aviation jet fuel from Petron. Petitioner, contending that it is exempt from the payment of
excise taxes, filed a formal claim for refund with the Commissioner of Internal Revenue (respondent).

Petitioner claims that it is exempt from the payment of excise tax under the 1997 National Internal
Revenue Code (NIRC), specifically Section 135, and under Article 4 of the Air Transport Agreement between
the Governments of the Republic of the Philippines and the Republic of Singapore (Air Agreement). [10]

Section 135 of the NIRC provides:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or
Agencies. - Petroleum products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption outside
the Philippines: Provided, That the petroleum products sold to these international carriers
shall be stored in a bonded storage tank and may be disposed of only in accordance with the
rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of
the Commissioner;
(b) Exempt entities or agencies covered by tax treaties, conventions and other international
agreements for their use or consumption: Provided, however, That the country of said
foreign international carrier or exempt entities or agencies exempts from similar taxes
petroleum products sold to Philippine carriers, entities or agencies; and

(c)

Entities which are by law exempt from direct and indirect taxes. [11]

Article 4 of the Air Agreement provides:

Art. 4
xxx
2. Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or
taken on board aircraft in the territory of one Contracting Party by, or on behalf of, a
designated airline of the other Contracting Party and intended solely for use in the operation
of the agreed services shall, with the exception of charges corresponding to the services
performed, be exempt from the same custom duties, inspection fees and other duties or
taxes imposed in the territory of the first Contracting Party, even when these supplies are to
be used on the parts of the journey performed over the territory of the Contracting Party in
which they are introduced into or taken on board. The materials referred to above may be
required to be kept under customs supervision and control.[12]

Petitioner contends that in reality, it paid the excise taxes due on the transactions and Petron merely
remitted the payment to the Bureau of Internal Revenue (BIR). Petitioner argues that to adhere to the view
that Petron is the legal claimant of the refund will make petitioners right to recover the erroneously paid
taxes dependent solely on Petrons action over which petitioner has no control. If Petron fails to act or acts
belatedly, petitioners claim will be barred, depriving petitioner of its private property. [13]
Petitioner also maintains that to hold that only Petron can legally claim the refund will negate the tax
exemption expressly granted to petitioner under the NIRC and the Air Agreement. [14] Petitioner argues that
a tax exemption is a personal privilege of the grantee, which is petitioner in this case. Petitioner further
argues that a tax exemption granted to the buyer cannot be availed of by the seller; hence, in the present
case, Petron as seller cannot legally claim the refund. On the other hand, if only the entity that paid the tax
Petron in this case can claim the refund, then petitioner as the grantee of the tax exemption cannot enjoy
its tax exemption. In short, neither petitioner nor Petron can claim the refund, rendering the tax exemption
useless. Petitioner submits that this is contrary to the language and intent of the NIRC and the Air
Agreement.[15]

Petitioner also cites this Courts Resolution in Maceda v. Macaraig, Jr.,[16] quoting the opinion of the
Secretary of Justice which states, thus:

The view which refuses to accord the exemption because the tax is first paid by the seller
disregards realities and gives more importance to form than substance. Equity and law
always exalt substance over form.[17]

Petitioner believes that its tax exemption under Section 135 of the NIRC also includes its entitlement to a
refund from the BIR in any case of erroneous payment of excise tax. [18]

Respondent claims that as explained in Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue,
[19]

the nature of an indirect tax allows the tax to be passed on to the purchaser as part of the commoditys

purchase price. However, an indirect tax remains a tax on the seller. Hence, if the buyer happens to be tax
exempt, the seller is nonetheless liable for the payment of the tax as the same is a tax not on the buyer
but on the seller.[20]

Respondent insists that in indirect taxation, the manufacturer or seller has the option to shift the burden of
the tax to the purchaser. If and when shifted, the amount added by the manufacturer or seller becomes
part of the purchase price of the goods. Thus, the purchaser does not really pay the tax but only the price
of the commodity and the liability for the payment of the indirect tax remains with the manufacturer or
seller.[21] Since the liability for the excise tax payment is imposed by law on Petron as the manufacturer of
the petroleum products, any claim for refund should only be made by Petron as the statutory taxpayer. [22]

The Ruling of the Court of Tax Appeals

G.R. No. 171383

On 20 October 2005, the Court of Tax Appeals En Banc (CTA) ruled that the excise tax imposed on the
removal of petroleum products by the oil companies is an indirect tax. [23] Although the burden to pay an
indirect tax can be passed on to the purchaser of the goods, the liability to pay the indirect tax remains
with the manufacturer or seller. [24]When the manufacturer or seller decides to shift the burden of the
indirect tax to the purchaser, the tax becomes a part of the price; therefore, the purchaser does not really
pay the tax per se but only the price of the commodity.[25]
The CTA pointed out that Section 130(A)(2) [26] of the NIRC provides that the liability for the payment of
excise taxes is imposed upon the manufacturer or producer of the petroleum products. Under the law, the
manufacturer or producer is the taxpayer. The CTA stated that it is only the taxpayer that may ask for a
refund in case of erroneous payment of taxes. Citing Cebu Portland Cement Co. v. Collector of Internal
Revenue,[27] the CTA ruled that the producer of the goods is the one entitled to claim for a refund of indirect
taxes.[28] The CTA held that since the liability for the excise taxes was placed on Petron as the manufacturer
of the petroleum products and it was shown in the Excise Tax Returns [29] that the excise taxes were paid by
Petron, any claim for refund of the excise taxes should only be made by Petron as the taxpayer. This is in
consonance with the rule on strictissimi juris with respect to tax exemptions. Petitioner cannot be
considered the taxpayer because what was transferred to petitioner was only the burden and not the
liability to pay the excise tax on petroleum products.[30]

The CTA also considered the Aviation Fuel Supply Agreement between petitioner and Petron, which states:

Buyer shall pay any taxes, fees or other charges imposed by any national, local or airport
authority on the delivery, sale, inspection, storage and use of fuel, except for taxes on
Sellers income and taxes on raw material. To the extent allowed, Seller shall show these
taxes, fees and other charges as separate items on the invoice for the account of the Buyer.
[31]

However, the CTA held that even with this provision, the liability for the excise tax remained with Petron as
manufacturer or producer of the aviation jet fuel. The shifting of the burden of the excise tax to petitioner
did not transform petitioner into a taxpayer. Hence, Petron is the proper party that can claim for refund of
any erroneous excise tax payments.[32]
G.R. No. 172379

The CTA En Banc held that excise taxes on domestic products are paid by the manufacturer or producer
before removal of the products from the place of production. The payment of an excise tax, being an
indirect tax, can be shifted to the purchaser of goods but the statutory liability for such payment is still
with the seller or manufacturer.[33] The CTA cited Maceda v. Macaraig, Jr.:[34]
It may be useful to make a distinction, for the purpose of this disposition, between a direct
tax and an indirect tax. A direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it is engaged in. Examples are custom duties and ad valorem taxes
paid by the oil companies to the Bureau of Customs for their importation of crude oil, and
the specific and ad valorem taxes they pay to the Bureau of Internal Revenue after
converting the crude oil into petroleum products.

On the other hand, indirect taxes are taxes primarily paid by persons who can shift the
burden upon someone else. For example, the excise tax and ad valorem taxes that the oil
companies pay to the Bureau of Internal Revenue upon removal of petroleum products from
its refinery can be shifted to its buyer, like the NPC, by adding them to the cash and/or
selling price.[35]

The CTA further cited Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue [36] and Contex
Corporation v. Hon. Commissioner of Internal Revenue[37] and concluded that the tax sought to be refunded
is an excise tax on petroleum products, partaking of the nature of an indirect tax. [38]
The CTA further ruled that while it is cognizant of the exempt status of petitioner under the NIRC and the
Air Agreement, it is also aware that the right to claim for refund of taxes erroneously paid lies with the
person statutorily liable to pay the tax in accordance with Section 204 of the NIRC.[39] The CTA also
suggested that petitioner should invoke its tax exemption to Petron before buying the petroleum products.
[40]

The CTA concluded that the right to claim for the refund of the excise taxes paid on the petroleum

products lies with Petron which paid and remitted the excise taxes to the BIR.

The Issue

Petitioner submits this sole issue for our consideration: whether petitioner is the proper party to claim a
refund for the excise taxes paid.[41]

The Ruling of the Court

The issue presented is not novel. In a similar case involving the same parties, this Court has categorically
ruled that the proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to
another.[42] The Court added that even if Petron Corporation passed on to Silkair the burden of the tax, the
additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a
purchaser.[43]

An excise tax is an indirect tax where the tax burden

can be shifted to the consumer but the tax liability remains with the
manufacturer or producer.

Section 129 of the NIRC provides that excise taxes refer to taxes imposed on specified goods manufactured
or produced in the Philippines for domestic sale or consumption or for any other disposition and to things
imported. The excise taxes are collected from manufacturers or producers before removal of the domestic
products from the place of production. Although excise taxes can be considered as taxes on production,
they are really taxes on property as they are imposed on certain specified goods. [44]

Section 148(g) of the NIRC provides that there shall be collected on aviation jet fuel an excise tax of P3.67
per liter of volume capacity. Since the tax imposed is based on volume capacity, the tax is referred to as
specific tax.[45] However, excise tax, whether classified as specific or ad valorem tax, is basically an indirect
tax imposed on the consumption of a specified list of goods or products. The tax is directly levied on the
manufacturer upon removal of the taxable goods from the place of production but in reality, the tax is
passed on to the end consumer as part of the selling price of the goods sold. [46]

In Commissioner of Internal Revenue v. Philippine Long Distance Company,[47] the Court explained the
difference between a direct tax and an indirect tax:

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the
burden of taxation, taxes may be classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intended
or desired, should pay them; they are impositions for which a taxpayer is directly liable on
the transaction or business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first instance,
from, or are paid by, one person in the expectation and intention that he can shift
the burden to someone else. Stated elsewise, indirect taxes are taxes wherein the
liability for the payment of the tax falls on one person but the burden thereof can
be shifted or passed on to another person, such as when the tax is imposed upon
goods before reaching the consumer who ultimately pays for it. When the seller
passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability
to pay it, to the purchaser as part of the price of goods sold or services
rendered. (Emphasis supplied)

In Maceda v. Macaraig, Jr., the Court specifically mentioned excise tax as an example of an indirect tax
where the tax burden can be shifted to the buyer:
On the other hand, indirect taxes are taxes primarily paid by persons who can shift the
burden upon someone else. For example, the excise and ad valorem taxes that the oil
companies pay to the Bureau of Internal Revenue upon removal of petroleum products from
its refinery can be shifted to its buyer, like the NPC, by adding them to the cash and/or
selling price.[48]

When Petron removes its petroleum products from its refinery in Limay, Bataan, [49] it pays the excise tax
due on the petroleum products thus removed. Petron, as manufacturer or producer, is the person liable for
the payment of the excise tax as shown in the Excise Tax Returns filed with the BIR. Stated otherwise,
Petron is the taxpayer that is primarily, directly and legally liable for the payment of the excise taxes.
However, since an excise tax is an indirect tax, Petron can transfer to its customers the amount of the
excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price.
As correctly observed by the CTA, this Court held in Philippine Acetylene Co., Inc. v. Commissioner of
Internal Revenue:

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it
does the tax becomes part of the price which the purchaser must pay. [50]

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers. The
fact that Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not
make the latter the taxpayers and the former the withholding agent.
Petitioner, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not
transform petitioners status into a statutory taxpayer.

In the refund of indirect taxes, the statutory taxpayer

is the proper party who can claim the refund.

Section 204(c) of the NIRC provides:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes.
The Commissioner may xxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) years after
the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund. (Emphasis and
underscoring supplied)

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a
taxpayer as any person subject to tax. In Commissioner of Internal Revenue v. Procter and Gamble Phil.
Mfg. Corp., the Court ruled that:

A person liable for tax has been held to be a person subject to tax and properly considered a
taxpayer. The terms liable for tax and subject to tax both connote a legal obligation or duty
to pay a tax.[51]

The excise tax is due from the manufacturers of the petroleum products and is paid upon removal of the
products from their refineries. Even before the aviation jet fuel is purchased from Petron, the excise tax
is already paid by Petron. Petron, being the manufacturer, is the person subject to tax. In this case, Petron,
which paid the excise tax upon removal of the products from its Bataan refinery, is the person liable for
tax. Petitioner is neither a person liable for tax nor a person subject to tax. There is also no legal duty on
the part of petitioner to pay the excise tax; hence, petitioner cannot be considered the taxpayer.
Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the
aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the
excise tax is imposed directly on Petron as the manufacturer. Hence, Petron, as the statutory taxpayer, is
the proper party that can claim the refund of the excise taxes paid to the BIR.

The General Terms & Conditions for Aviation Fuel Supply (Supply Contract) signed between petitioner
(buyer) and Petron (seller) provide:

11.3 If Buyer is entitled to purchase any Fuel sold pursuant to the Agreement free of any
taxes, duties or charges, Buyer shall timely deliver to Seller a valid exemption
certificate for such purchase.[52] (Emphasis supplied)

This provision instructs petitioner to timely submit a valid exemption certificate to Petron in order that
Petron will not pass on the excise tax to petitioner. As correctly suggested by the CTA, petitioner should
invoke its tax exemption to Petron before buying the aviation jet fuel. Petron, however, remains the
statutory taxpayer on those excise taxes.

Revenue Regulations No. 3-2008 (RR 3-2008) provides that subject to the subsequent filing of a claim for
excise tax credit/refund or product replenishment, all manufacturers of articles subject to excise tax under
Title VI of the NIRC of 1997, as amended, shall pay the excise tax that is otherwise due on every removal
thereof from the place of production that is intended for exportation or sale/delivery to international
carriers or to tax-exempt entities/agencies. [53] The Department of Finance and the BIR recognize the tax
exemption granted to international carriers but they consistently adhere to the view that manufacturers of
articles subject to excise tax are the statutory taxpayers that are liable to pay the tax, thus, the proper
party to claim any tax refunds.

WHEREFORE, we DENY the petition. We AFFIRM the assailed Decisions dated 20 October 2005 and 5
January 2006 and the Resolutions dated 3 February 2006 and 18 April 2006 of the Court of Tax Appeals in
C.T.A. Case Nos. 6217 and 6308, respectively.

COMMISSIONER OF INTERNAL

G.R. Nos. 172045-46

REVENUE,
Petitioner,

Present:

PUNO, C.J., Chairperson,

CARPIO,
- versus -

CORONA,
LEONARDO-DE CASTRO, and
BERSAMIN, JJ.

FIRST EXPRESS PAWNSHOP

Promulgated:

COMPANY, INC.,
Respondent.

June 16, 2009

x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case
The Commissioner of Internal Revenue (petitioner) filed this Petition for Review [1] to reverse the Court of
Tax Appeals Decision[2] dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62. In the

assailed decision, the Court of Tax Appeals (CTA) En Banc partially reconsidered the CTA First Divisions
Decision[3] dated 24 September 2004.
The Facts

On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of Revenue Region
6 Manila, issued the following assessment notices against First Express Pawnshop Company, Inc.
(respondent):

a. Assessment

No.

31-1-98[4] for

deficiency

income

tax

of P20,712.58

with

compromise penalty of P3,000;

b.

Assessment

No.

31-14-000053-98[5] for

deficiency

value-added

tax

(VAT)

of P601,220.18 with compromise penalty of P16,000;

c. Assessment No. 31-14-000053-98[6] for deficiency documentary stamp tax (DST)
of P12,328.45 on deposit on subscription with compromise penalty ofP2,000; and
d. Assessment No. 31-1-000053-98[7] for deficiency DST of P62,128.87 on pawn tickets
with compromise penalty of P8,500.
Respondent received the assessment notices on 3 January 2002. On 1 February 2002, respondent filed its
written protest on the above assessments. Since petitioner did not act on the protest during the 180-day
period,[8] respondent filed a petition before the CTA on 28 August 2002. [9]
Respondent contended that petitioner did not consider the supporting documents on the interest expenses
and donations which resulted in the deficiency income tax. [10]Respondent maintained that pawnshops are
not lending investors whose services are subject to VAT, hence it was not liable for deficiency VAT.
[11]

Respondent also alleged that no deficiency DST was due because Section 180 [12] of the National Internal

Revenue Code (Tax Code) does not cover any document or transaction which relates to respondent.
Respondent also argued that the issuance of a pawn ticket did not constitute a pledge under Section
195[13] of the Tax Code.[14]

In its Answer filed before the CTA, petitioner alleged that the assessment was valid and correct and the
taxpayer had the burden of proof to impugn its validity or correctness. Petitioner maintained that
respondent is subject to 10% VAT based on its gross receipts pursuant to Republic Act No. 7716, or the
Expanded Value-Added Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which provides that
pawnshop tickets are subject to DST.

[15]

On 1 July 2003, respondent paid P27,744.88 as deficiency income tax inclusive of interest. [16]

After trial on the merits, the CTA First Division ruled, thus:

IN VIEW OF ALL THE FOREGOING, the instant petition is hereby PARTIALLY GRANTED.
Assessment No. 31-1-000053-98 for deficiency documentary stamp tax in the amount of
Sixty-Two Thousand One Hundred Twenty-Eight Pesos and 87/100 (P62,128.87) and
Assessment No. 31-14-000053-98 for deficiency documentary stamp tax on deposits on
subscription in the amount of Twelve Thousand Three Hundred Twenty-Eight Pesos and
45/100 (P12,328.45) are CANCELLED and SET ASIDE. However, Assessment No. 31-14000053-98 is herebyAFFIRMED except the imposition of compromise penalty in the
absence of showing that petitioner consented thereto (UST vs. Collector, 104 SCRA 1062;
Exquisite Pawnshop Jewelry, Inc. vs. Jaime B. Santiago, et al., supra).

Accordingly petitioner is ORDERED to PAY the deficiency value added tax in the amount of
Six Hundred One Thousand Two Hundred Twenty Pesos and 18/100 (P601,220.18) inclusive
of deficiency interest for the year 1998. In addition, petitioner is ORDERED to PAY 25%
surcharge and 20% delinquency interest per annum from February 12, 2002 until fully paid
pursuant to Sections 248 and 249 of the 1997 Tax Code.

SO ORDERED.[17] (Boldfacing in the original)

Both parties filed their Motions for Reconsideration which were denied by the CTA First Division for lack of
merit. Thereafter, both parties filed their respective Petitions for Review under Section 11 of Republic Act
No. 9282 (RA 9282) with the CTA En Banc.[18]

On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondents liability to pay the VAT
and ordering it to pay DST on its pawnshop tickets. However, the CTA En Banc found that respondents
deposit on subscription was not subject to DST.[19]

Aggrieved by the CTA En Bancs Decision which ruled that respondents deposit on subscription was not
subject to DST, petitioner elevated the case before this Court.
The Ruling of the Court of Tax Appeals

On the taxability of deposit on subscription, the CTA, citing First Southern Philippines Enterprises, Inc. v.
Commissioner of Internal Revenue,[20] pointed out that deposit on subscription is not subject to DST in the
absence of proof that an equivalent amount of shares was subscribed or issued in consideration for the
deposit. Expressed otherwise, deposit on stock subscription is not subject to DST if: (1) there is no
agreement to subscribe; (2) there are no shares issued or any additional subscription in the restructuring
plan; and (3) there is no proof that the issued shares can be considered as issued certificates of stock. [21]

The CTA ruled that Section 175 [22] of the Tax Code contemplates a subscription agreement. The CTA
explained that there can be subscription only with reference to shares of stock which have been unissued,
in the following cases: (a) the original issuance from authorized capital stock at the time of incorporation;
(b) the opening, during the life of the corporation, of the portion of the original authorized capital stock
previously unissued; or (c) the increase of authorized capital stock achieved through a formal amendment
of the articles of incorporation and registration of the articles of incorporation with the Securities and
Exchange Commission.[23]

The CTA held that in this case, there was no subscription or any contract for the acquisition of unissued
stock for P800,000 in the taxable year assessed. The General Information Sheet (GIS) of respondent
showed only a capital structure of P500,000 as Subscribed Capital Stock and P250,000 as Paid-up Capital
Stock and did not include the assessed amount. Mere reliance on the presumption that the assessment
was correct and done in good faith was unavailing vis--vis the evidence presented by respondent. Thus,
the CTA ruled that the assessment for deficiency DST on deposit on subscription has not become final. [24]

The Issue

Petitioner submits this sole issue for our consideration: whether the CTA erred on a question of law in
disregarding the rule on finality of assessments prescribed under Section 228 of the Tax Code. Corollarily,

petitioner raises the issue on whether respondent is liable to pay P12,328.45 as DST on deposit on
subscription of capital stock.

The Ruling of the Court

Petitioner contends that the CTA erred in disregarding the rule on the finality of assessments prescribed
under Section 228 of the Tax Code. [25] Petitioner asserts that even if respondent filed a protest, it did not
offer evidence to prove its claim that the deposit on subscription was an advance made by respondents
stockholders.[26] Petitioner alleges that respondents failure to submit supporting documents within 60 days
from the filing of its protest as required under Section 228 of the Tax Code caused the assessment
ofP12,328.45 for deposit on subscription to become final and unassailable. [27]

Petitioner alleges that revenue officers are afforded the presumption of regularity in the performance of
their official functions, since they have the distinct opportunity, aside from competence, to peruse records
of the assessments. Petitioner invokes the principle that by reason of the expertise of administrative
agencies over matters falling under their jurisdiction, they are in a better position to pass judgment
thereon; thus, their findings of fact are generally accorded great respect, if not finality, by the courts.
Hence, without the supporting documents to establish the non-inclusion from DST of the deposit on
subscription, petitioners assessment pursuant to Section 228 of the Tax Code had become final and
unassailable.[28]

Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner of Internal Revenue,

[29]

asserts that the submission of all the relevant supporting documents within the 60-day period from

filing of the protest is directory.

Respondent claims that petitioner requested for additional documents in petitioners letter dated 12 March
2002, to wit: (1) loan agreement from lender banks; (2) official receipts of interest payments issued to
respondent; (3) documentary evidence to substantiate donations claimed; and (4) proof of payment of DST
on subscription.[30] It must be noted that the only document requested in connection with respondents DST
assessment on deposit on subscription is proof of DST payment. However, respondent could not produce
any proof of DST payment because it was not required to pay the same under the law considering that the
deposit on subscription was an advance made by its stockholders for future subscription, and no stock
certificates were issued.[31] Respondent insists that petitioner could have issued a subpoena requiring
respondent to submit other documents to determine if the latter is liable for DST on deposit on
subscription pursuant to Section 5(c) of the Tax Code.[32]

Respondent argues that deposit on future subscription is not subject to DST under Section 175 of the Tax
Code. Respondent explains:

It must be noted that deposits on subscription represent advances made by the stockholders
and are in the nature of liabilities for which stocks may be issued in the future. Absent any
express agreement between the stockholders and petitioner to convert said
advances/deposits to capital stock, either through a subscription agreement or any other
document, these deposits remain as liabilities owed by respondent to its stockholders. For
these deposits to be subject to DST, it is necessary that a conversion/subscription
agreement be made by First Express and its stockholders. Absent such conversion, no DST
can be imposed on said deposits under Section 175 of the Tax Code. [33] (Underscoring in the
original)

Respondent contends that by presenting its GIS and financial statements, it had already sufficiently proved
that the amount sought to be taxed is deposit on future subscription, which is not subject to DST.
[34]

Respondent claims that it cannot be required to submit proof of DST payment on subscription because

such payment is non-existent. Thus, the burden of proving that there was an agreement to subscribe and
that certificates of stock were issued for the deposit on subscription rests on petitioner and his examiners.
Respondent states that absent any proof, the deficiency assessment has no basis and should be cancelled.
[35]

On the Taxability of Deposit on Stock Subscription

DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property incident thereto.DST is actually an excise
tax because it is imposed on the transaction rather than on the document. [36] DST is also levied on the
exercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments. [37] The Tax Code provisions on
DST relating to shares or certificates of stock state:

Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue,
whether on organization, reorganization or for any lawful purpose, of shares of stock by any
association, company or corporation, there shall be collected a documentary stamp tax of
Two pesos (P2.00) on each Two hundred pesos (P200), or fractional part thereof, of the par
value, of such shares of stock: Provided, That in the case of the original issue of shares of
stock without par value the amount of the documentary stamp tax herein prescribed shall
be based upon the actual consideration for the issuance of such shares of stock: Provided,

further, That in the case of stock dividends, on the actual value represented by each share.
[38]

Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or
Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. - On all
sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills,
certificates of obligation, or shares or certificates of stock in any association, company or
corporation, or transfer of such securities by assignment in blank, or by delivery, or by any
paper or agreement, or memorandum or other evidences of transfer or sale whether
entitling the holder in any manner to the benefit of such due-bills, certificates of obligation
or stock, or to secure the future payment of money, or for the future transfer of any due-bill,
certificate of obligation or stock, there shall be collected a documentary stamp tax of One
peso and fifty centavos (P1.50) on each Two hundred pesos (P200), or fractional part thereof,
of the par value of such due-bill, certificate of obligation or stock: Provided, That only one
tax shall be collected on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is issued, indorsed,
or delivered in pursuance of such sale or transfer: And provided, further, That in the case of
stock without par value the amount of the documentary stamp tax herein prescribed shall be
equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the
original issue of said stock.[39]

In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The DST, as an
excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of
stock. In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,[40] this Court explained
that the DST attaches upon acceptance of the stockholders subscription in the corporations capital stock
regardless of actual or constructive delivery of the certificates of stock. Citing Philippine Consolidated
Coconut Ind., Inc. v. Collector of Internal Revenue,[41] the Court held:

The documentary stamp tax under this provision of the law may be levied only once, that is
upon the original issue of the certificate. The crucial point therefore, in the case before Us is
the proper interpretation of the word issue. In other words, when is the certificate of stock
deemed issued for the purpose of imposing the documentary stamp tax? Is it at the time the
certificates of stock are printed, at the time they are filled up (in whose name the stocks
represented in the certificate appear as certified by the proper officials of the corporation),
at the time they are released by the corporation, or at the time they are in the possession
(actual or constructive) of the stockholders owning them?

xxx

Ordinarily, when a corporation issues a certificate of stock (representing the ownership of

stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for
the exercise of the attributes of ownership over the stocks mentioned on its face. The stocks
can be alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be
conveyed, pledged or encumbered. The certificate as issued by the corporation, irrespective

of whether or not it is in the actual or constructive possession of the stockholder, is

considered issued because it is with value and hence the documentary stamp tax must be
paid as imposed by Section 212 of the National Internal Revenue Code, as amended.

In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda of sales,
deliveries or transfer of shares or certificates of stock in any association, company, or corporation, or
transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or
memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the
benefit of such certificates of stock, or to secure the future payment of money, or for the future transfer of
certificates of stock. In Compagnie Financiere Sucres et Denrees v. Commissioner of Internal Revenue, this
Court held that under Section 176 of the Tax Code, sales to secure the future transfer of due-bills,
certificates of obligation or certificates of stock are subject to documentary stamp tax. [42]
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the corporate stock
documentary stamp tax program. RMO 08-98 states that:

1. All existing corporations shall file the Corporation Stock DST Declaration, and the DST
Return, if applicable when DST is still due on the subscribed share issued by the
corporation, on or before the tenth day of the month following publication of this Order.

xxx

3. All existing corporations with authorization for increased capital stock shall file their
Corporate Stock DST Declaration, together with the DST Return, if applicable when DST
is due on subscriptions made after the authorization, on or before the tenth day of
the month following the date of authorization. (Boldfacing supplied)

RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states that what is
being taxed is the privilege of issuing shares of stock, and, therefore, the taxes accrue at the time the
shares are issued. RMC 47-97 also defines issuance as the point in which the stockholder acquires and may
exercise attributes of ownership over the stocks.

As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription agreement in
order for a taxpayer to be liable to pay the DST. A subscription contract is defined as any contract for the

acquisition of unissued stocks in an existing corporation or a corporation still to be formed. [43] A stock
subscription is a contract by which the subscriber agrees to take a certain number of shares of the capital
stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same. [44]
In this case, respondents Stockholders Equity section of its Balance Sheet as of 31 December
1998[45] shows:

STOCKHOLDERS EQUITY

1998

1997

Authorized Capital Stock

P 2,000,000.00

P 2,000,000.00

Paid-up Capital Stock

250,000.00

250,000.00

Deposit on Subscription

800,000.00

Retained Earnings

62,820.34

209,607.20

Net Income

(858,498.38)

(146,786.86)

TOTAL

P 254,321.96

P 312,820.34

The GIS submitted to the Securities and Exchange Commission on 31 March 1999 shows the following
Capital Structure:[46]

B. Financial Profile
1. Capital Structure :
AUTHORIZED - P2,000,000.00
SUBSCRIBED - 500,000.00
PAID-UP - 250,000.00

These entries were explained by Miguel Rosario, Jr. (Rosario), respondents external auditor, during the
hearing before the CTA on 11 June 2003. Rosario testified in this wise:

Atty. Napiza
Q. Mr. Rosario, I refer you to the balance sheet of First Express for the year 1998 particularly
the entry of deposit on subscription in the amount of P800 thousand, will you please tell us
what is (sic) this entry represents?

Mr. Rosario Jr.

A. This amount of P800 thousand represents the case given by the stockholders to
the company but does not necessarily made (sic) payment to subscribed portion.

Atty. Napiza
Q. What is (sic) that payment stands for?

Mr. Rosario Jr.

A. This payment stands as (sic) for the deposit for future subscription.

Atty. Napiza
Q. Would you know if First Express issued corresponding shares pertinent to the amount
being deposited?

Mr. Rosario Jr.

A. No.

Atty. Napiza
Q. What do you mean by no? Did they or they did not?

Mr. Rosario Jr.

A. They did not issue any shares because that is not the payment of subscription.
That is just a mere deposit.

Atty. Napiza
Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of First Express
Pawnshop?

Mr. Rosario Jr.

A. The Subscribed Capital of First Express Pawnshop Company, Inc. for the year 1998 is P500
thousand.

Atty. Napiza
Q. How about the Paid Up Capital?

Mr. Rosario Jr.

A. The Paid Up Capital is P250 thousand.

Atty. Napiza
Q. Are (sic) all those figures appear in the balance sheet?

Mr. Rosario Jr.

A. The Paid Up Capital appeared here but the Subscribed Portion was not stated. (Boldfacing
supplied)

Based on Rosarios testimony and respondents financial statements as of 1998, there was no agreement to
subscribe to the unissued shares. Here, the deposit on stock subscription refers to an amount of money
received by the corporation as a deposit with the possibility of applying the same as payment for the
future issuance of capital stock. [47] InCommissioner of Internal Revenue v. Construction Resources of Asia,
Inc.,[48] we held:

We are firmly convinced that the Government stands to lose nothing in imposing the
documentary stamp tax only on those stock certificates duly issued, or wherein the
stockholders can freely exercise the attributes of ownership and with value at the time they
are originally issued. As regards those certificates of stocks temporarily subject to
suspensive conditions they shall be liable for said tax only when released from
said conditions, for then and only then shall they truly acquire any practical value
for their owners. (Boldfacing supplied)

Clearly, the deposit on stock subscription as reflected in respondents Balance Sheet as of 1998 is not a
subscription agreement subject to the payment of DST. There is noP800,000 worth of subscribed capital
stock that is reflected in respondents GIS. The deposit on stock subscription is merely an amount of money
received by a corporation with a view of applying the same as payment for additional issuance of shares in
the future, an event which may or may not happen. The person making a deposit on stock subscription
does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other
prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment of DST on its
deposit on subscription for the reason that there is yet no subscription that creates rights and obligations
between the subscriber and the corporation.

On the Finality of Assessment as Prescribed

under Section 228 of the Tax Code

Section 228 of the Tax Code provides:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a preassessment notice shall not be
required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer
withholding tax for
automatically applied
the taxable quarter or

who opted to claim a refund or tax credit of excess creditable

a taxable period was determined to have carried over and
the same amount claimed against the estimated tax liabilities for
quarters of the succeeding taxable year; or

(d) When the excise tax due on excisable articles has not been paid; or
(e) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.

The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall
be required to respond to said notice. If the taxpayer fails to respond, the Commissioner
or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration

or reinvestigation within thirty (30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and regulations. Within sixty (60)
days from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable. (Boldfacing
supplied)

Section 228 of the Tax Code [49] provides the remedy to dispute a tax assessment within a certain period of
time. It states that an assessment may be protested by filing a request for reconsideration or
reinvestigation within 30 days from receipt of the assessment by the taxpayer. Within 60 days from filing of
the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall
become final.

In this case, respondent received the tax assessment on 3 January 2002 and it had until 2 February 2002
to submit its protest. On 1 February 2002, respondent submitted its protest and attached the GIS and
Balance Sheet as of 31 December 1998. Respondent explained that it received P800,000 as a deposit with
the possibility of applying the same as payment for the future issuance of capital stock.

Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant
supporting documents. Respondent, having submitted the supporting documents together with its
protest, did not present additional documents anymore.

In a letter dated 12 March 2002, petitioner requested respondent to present proof of payment of DST on
subscription. In a letter-reply, respondent stated that it could not produce any proof of DST payment
because it was not required to pay DST under the law considering that the deposit on subscription was an
advance made by its stockholders for future subscription, and no stock certificates were issued.

Since respondent has not allegedly submitted any relevant supporting documents, petitioner now claims
that the assessment has become final, executory and demandable, hence, unappealable.
We reject petitioners view that the assessment has become final and unappealable. It cannot be said that
respondent failed to submit relevant supporting documents that would render the assessment final
because when respondent submitted its protest, respondent attached the GIS and Balance Sheet. Further,
petitioner cannot insist on the submission of proof of DST payment because such document does not exist
as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription.

The term relevant supporting documents should be understood as those documents necessary to support
the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the
taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents
should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the
production of documents that a taxpayer cannot submit.

After respondent submitted its letter-reply stating that it could not comply with the presentation of the
proof of DST payment, no reply was received from petitioner.

Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the
taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the
180-day period. Respondent, having submitted its supporting documents on the same day the protest was
filed, had until 31 July 2002 to wait for petitioners reply to its protest. On 28 August 2002 or within 30 days
after the lapse of the 180-day period counted from the filing of the protest as the supporting documents
were simultaneously filed, respondent filed a petition before the CTA.
Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the
Tax Code. Hence, the tax assessment cannot be considered as final, executory and demandable. Further,
respondents deposit on subscription is not subject to the payment of DST. Consequently, respondent is not
liable to pay the deficiency DST of P12,328.45.

WHEREFORE, we DENY the petition. We AFFIRM the Court of Tax Appeals Decision dated 24 March 2006
in the consolidated cases of C.T.A. EB Nos. 60 and 62.

SO ORDERED.
EN BANC
G.R. No. L-19495

November 24, 1966

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
LILIA YUSAY GONZALES and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General for the petitioner.
Ramon A. Gonzales for respondent Lilia Yusay Gonzales.
BENGZON, J.P., J.:
Matias Yusay, a resident of Pototan, Iloilo, died intestate on May 13, 1948, leaving two heirs, namely, Jose
S. Yusay, a legitimate child, and Lilia Yusay Gonzales, an acknowledged natural child. Intestate proceedings
for the settlement of his estate were instituted in the Court of First Instance of Iloilo (Special Proceedings
No. 459). Jose S. Yusay was therein appointed administrator.
On May 11, 1949 Jose S. Yusay filed with the Bureau of Internal Revenue an estate and inheritance tax
return declaring therein the following properties:

Personal properties

Palay
Carabaos

P6,444.00
1,000.00

P7,444.00

Real properties:
Capital, 74 parcels )

Conjugal 19 parcels)

Total gross estate

The return mentioned no heir.

assessed
at

P179,760.0
0

P187,204.0
0

Upon investigation however the Bureau of Internal Revenue found the following properties:

Personal properties:

Palay
Carabaos
Packard Automobile
2 Aparadors

P6,444.00
1,500.00
2,000.00
500.00

Real properties:
Capital, 25 parcels assessed
at

P87,715.32

1/2 of Conjugal, 130 parcels

assessed at

P121,425.00

Total

P10,444.00

P209,140.32

P219,584.32

The fair market value of the real properties was computed by increasing the assessed value by forty
percent.
Based on the above findings, the Bureau of Internal Revenue assessed on October 29, 1953 estate and
inheritance taxes in the sums of P6,849.78 and P16,970.63, respectively.
On January 25, 1955 the Bureau of Internal Revenue increased the assessment to P8,225.89 as estate tax
and P22,117.10 as inheritance tax plus delinquency interest and demanded payment thereof on or before
February 28, 1955. Meanwhile, on February 16, 1955, the Court of First Instance of Iloilo required Jose S.
Yusay to show proof of payment of said estate and inheritance taxes.
On March 3, 1955 Jose S. Yusay requested an extension of time within which to pay the tax. He posted a
surety bond to guarantee payment of the taxes in question within one year. The Commissioner of Internal
Revenue however denied the request. Then he issued a warrant of distraint and levy which he transmitted
to the Municipal Treasurer of Pototan for execution. This warrant was not enforced because all the personal
properties subject to distraint were located in Iloilo City.
On May 20, 1955 the Provincial Treasurer of Iloilo requested the BIR Provincial Revenue Officer to furnish
him copies of the assessment notices to support a motion for payment of taxes which the Provincial Fiscal
would file in Special Proceedings No. 459 before the Court of First Instance of Iloilo. The papers requested
were sent by the Commissioner of Internal Revenue to the Provincial Revenue Officer of Iloilo to be
transmitted to the Provincial Treasurer. The records do not however show whether the Provincial Fiscal filed
a claim with the Court of First Instance for the taxes due.
On May 30, 1956 the commissioner appointed by the Court of First Instance for the purpose, submitted a
reamended project of partition which listed the following properties:

Personal properties:

Buick Sedan
Packard car
Aparadors
Cash in Bank (PNB)
Palay
Carabaos

P8,100.00
2,000.00
500.00
8,858.46
6,444.00
1,500.00

P27,402.46

P324,797.21
4,500.00

P329,297.2
1

Real properties:

Land, 174 parcels

assessed at
Buildings

Total

P356,699.6
7

More than a year later, particularly on July 12, 1957, an agent of the Bureau of Internal Revenue apprised
the Commissioner of Internal Revenue of the existence of said reamended project of partition. Whereupon,
the Internal Revenue Commissioner caused the estate of Matias Yusay to be reinvestigated for estate and
inheritance tax liability. Accordingly, on February 13, 1958 he issued the following assessment:

Estate tax

P16,246.04

5% surcharge

411.29

Delinquency interest

Compromise
No notice of death
Late payment

Total

11,868.90

P15.00
40.00

55.00

P28,581.23

Inheritance Tax

P38,178.12

5% surcharge

1,105.86

Delinquency interest

Compromise for late payment

Total

Total estate and inheritance taxes

28,808.75

50.00

P69,142.73

P97,723.96

Like in previous assessments, the fair market value of the real properties was arrived at by adding 40% to
the assessed value.
In view of the demise of Jose S. Yusay, said assessment was sent to his widow, Mrs. Florencia Piccio Vda. de
Yusay, who succeeded him in the administration of the estate of Matias Yusay.
No payment having been made despite repeated demands, the Commissioner of Internal Revenue filed a
proof of claim for the estate and inheritance taxes due and a motion for its allowance with the settlement
court in voting priority of lien pursuant to Section 315 of the Tax Code.
On June 1, 1959, Lilia Yusay, through her counsel, Ramon Gonzales, filed an answer to the proof of claim
alleging non-receipt of the assessment of February 13, 1958, the existence of two administrators, namely
Florencia Piccio Vda. de Yusay who administered two-thirds of the estate, and Lilia Yusay, who administered
the remaining one-third, and her willingness to pay the taxes corresponding to her share, and praying for
deferment of the resolution on the motion for the payment of taxes until after a new assessment
corresponding to her share was issued.
On November 17, 1959 Lilia Yusay disputed the legality of the assessment dated February 13, 1958. She
claimed that the right to make the same had prescribed inasmuch as more than five years had elapsed
since the filing of the estate and inheritance tax return on May 11, 1949. She therefore requested that the
assessment be declared invalid and without force and effect. This request was rejected by the
Commissioner in his letter dates January 20, 1960, received by Lilia Yusay on March 14, 1960, for the
reasons, namely, (1) that the right to assess the taxes in question has not been lost by prescription since
the return which did not name the heirs cannot be considered a true and complete return sufficient to start
the running of the period of limitations of five years under Section 331 of the Tax Code and pursuant to
Section 332 of the same Code he has ten years within which to make the assessment counted from the
discovery on September 24, 1953 of the identity of the heirs; and (2) that the estate's administrator
waived the defense of prescription when he filed a surety bond on March 3, 1955 to guarantee payment of
the taxes in question and when he requested postponement of the payment of the taxes pending
determination of who the heirs are by the settlement court.
On April 13, 1960 Lilia Yusay filed a petition for review in the Court of Tax Appeals assailing the legality of
the assessment dated February 13, 1958. After hearing the parties, said Court declared the right of the

Commissioner of Internal Revenue to assess the estate and inheritance taxes in question to have
prescribed and rendered the following judgment:
WHEREFORE, the decision of respondent assessing against the estate of the late Matias Yusay
estate and inheritance taxes is hereby reversed. No costs.
The Commissioner of Internal Revenue appealed to this Court and raises the following issues:
1. Was the petition for review in the Court of Tax Appeals within the 30-day period provided for in Section
11 of Republic Act 1125?
2. Could the Court of Tax Appeals take cognizance of Lilia Yusay's appeal despite the pendency of the
"Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of Taxes" filed by the
Commissioner of Internal Revenue in Special Proceedings No. 459 before the Court of First Instance of
Iloilo?
3. Has the right of the Commissioner of Internal Revenue to assess the estate and inheritance taxes in
question prescribed?
On November 17, 1959 Lilia Yusay disputed the legality of the assessment of February 13, 1958. On March
14, 1960 she received the decision of the Commissioner of Internal Revenue on the disputed assessment.
On April 13, 1960 she filed her petition for review in the Court of Tax Appeals. Said Court correctly held that
the appeal was seasonably interposed pursuant to Section 11 of Republic Act 1125. We already ruled in St.
Stephen's Association v. Collector of Internal Revenue,1 that the counting of the thirty days within which to
institute an appeal in the Court of Tax Appeals should commence from the date of receipt of the decision of
the Commissioner on the disputed assessment, not from the date the assessment was issued.
Accordingly, the thirty-day period should begin running from March 14, 1960, the date Lilia Yusay received
the appealable decision. From said date to April 13, 1960, when she filed her appeal in the Court of Tax
Appeals, is exactly thirty days. Hence, the appeal was timely.
Next, the Commissioner attacks the jurisdiction of the Court of Tax Appeals to take cognizance of Lilia
Yusay's appeal on the ground of lis pendens. He maintains that the pendency of his motion for allowance of
claim and for order of payment of taxes in the Court of First Instance of Iloilo would preclude the Court of
Tax Appeals from acquiring jurisdiction over Lilia Yusay's appeal. This contention lacks merit.
Lilia Yusay's cause seeks to resist the legality of the assessment in question. Should she maintain it in the
settlement court or should she elevate her cause to the Court of Tax Appeals? We say, she acted correctly
by appealing to the latter court. An action involving a disputed assessment for internal revenue taxes falls
within the exclusive jurisdiction of the Court of Tax Appeals. 2 It is in that forum, to the exclusion of the
Court of First Instance,3 where she could ventilate her defenses against the assessment.
Moreover, the settlement court, where the Commissioner would wish Lilia Yusay to contest the assessment,
is of limited jurisdiction. And under the Rules,4 its authority relates only to matters having to do with the
settlement of estates and probate of wills of deceased persons. 5 Said court has no jurisdiction to adjudicate
the contentions in question, which assuming they do not come exclusively under the Tax Court's
cognizance must be submitted to the Court of First Instance in the exercise of its general jurisdiction. 6
We now come to the issue of prescription. Lilia Yusay claims that since the latest assessment was issued
only on February 13, 1958 or eight years, nine months and two days from the filing of the estate and
inheritance tax return, the Commissioner's right to make it has expired. She would rest her stand on
Section 331 of the Tax Code which limits the right of the Commissioner to assess the tax within five years
from the filing of the return.
The Commissioner claims that fraud attended the filing of the return; that this being so, Section 332(a) of
the Tax Code would apply.7 It may be well to note that the assessment letter itself (Exhibit 22) did not
impute fraud in the return with intent to evade payment of tax. Precisely, no surcharge for fraud was
imposed. In his answer to the petition for review filed by Lilia Yusay in the Court of Tax Appeals, the
Commissioner alleged no fraud. Instead, he broached the insufficiency of the return as barring the

commencement of the running of the statute of limitations. He raised the point of fraud for the first time in
the proceedings, only in his memorandum filed with the Tax Court subsequent to resting his case. Said
Court rejected the plea of fraud for lack of allegation and proof, and ruled that the return, although not
accurate, was sufficient to start the period of prescription.
Fraud is a question of fact.8 The circumstances constituting it must be alleged and proved in the court
below.9And the finding of said court as to its existence and non-existence is final unless clearly shown to be
erroneous.10As the court a quo found that no fraud was alleged and proved therein, We see no reason to
entertain the Commissioner's assertion that the return was fraudulent.
The conclusion, however, that the return filed by Jose S. Yusay was sufficient to commence the running of
the prescriptive period under Section 331 of the Tax Code rests on no solid ground.
Paragraph (a) of Section 93 of the Tax Code lists the requirements of a valid return. It states:
(a) Requirements.In all cases of inheritance or transfers subject to either the estate tax or the
inheritance tax, or both, or where, though exempt from both taxes, the gross value of the estate
exceeds three thousand pesos, the executor, administrator, or anyone of the heirs, as the case may
be, shall file a return under oath in duplicate, setting forth (1) the value of the gross estate of the
decedent at the time of his death, or, in case of a nonresident not a citizen of the Philippines ; (2)
the deductions allowed from gross estate in determining net estate as defined in section eightynine; (3) such part of such information as may at the time be ascertainable and such supplemental
data as may be necessary to establish the correct taxes.
A return need not be complete in all particulars. It is sufficient if it complies substantially with the law.
There is substantial compliance (1) when the return is made in good faith and is not false or fraudulent; (2)
when it covers the entire period involved; and (3) when it contains information as to the various items of
income, deduction and credit with such definiteness as to permit the computation and assessment of the
tax.11
There is no question that the state and inheritance tax return filed by Jose S. Yusay was substantially
defective.
First, it was incomplete. It declared only ninety-three parcels of land representing about 400 hectares and
left out ninety-two parcels covering 503 hectares. Said huge under declaration could not have been the
result of an over-sight or mistake. As found in L-11378, supra note 7, Jose S. Yusay very well knew of the
existence of the ommited properties. Perhaps his motive in under declaring the inventory of properties
attached to the return was to deprive Lilia Yusay from inheriting her legal share in the hereditary estate,
but certainly not because he honestly believed that they did not form part of the gross estate.
Second, the return mentioned no heir. Thus, no inheritance tax could be assessed. As a matter of law, on
the basis of the return, there would be no occasion for the imposition of estate and inheritance taxes.
When there is no heir - the return showed none - the intestate estate is escheated to the State. 12 The State
taxes not itself.
In a case where the return was made on the wrong form, the Supreme Court of the United States held that
the filing thereof did not start the running of the period of limitations. 13 The reason is that the return
submitted did not contain the necessary information required in the correct form. In this jurisdiction,
however, the Supreme Court refrained from applying the said ruling of the United States Supreme Court
in Collector of Internal Revenue v. Central Azucarera de Tarlac, L-11760-61, July 31, 1958, on the ground
that the return was complete in itself although inaccurate. To our mind, it would not make much difference
where a return is made on the correct form prescribed by the Bureau of Internal Revenue if the data
therein required are not supplied by the taxpayer. Just the same, the necessary information for the
assessment of the tax would be missing.
The return filed in this case was so deficient that it prevented the Commissioner from computing the taxes
due on the estate. It was as though no return was made. The Commissioner had to determine and assess
the taxes on data obtained, not from the return, but from other sources. We therefore hold the view that
the return in question was no return at all as required in Section 93 of the Tax Code.

The law imposes upon the taxpayer the burden of supplying by the return the information upon which an
assessment would be based.14 His duty complied with, the taxpayer is not bound to do anything more than
to wait for the Commissioner to assess the tax. However, he is not required to wait forever. Section 331 of
the Tax Code gives the Commissioner five years within which to make his assessment. 15 Except, of course,
if the taxpayer failed to observe the law, in which case Section 332 of the same Code grants the
Commissioner a longer period. Non-observance consists in filing a false or fraudulent return with intent to
evade the tax or in filing no return at all.
Accordingly, for purposes of determining whether or not the Commissioner's assessment of February 13,
1958 is barred by prescription, Section 332(a) which is an exception to Section 331 of the Tax Code finds
application.16We quote Section 332(a):
SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the
case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity, fraud or omission.
As stated, the Commissioner came to know of the identity of the heirs on September 24, 1953 and the
huge underdeclaration in the gross estate on July 12, 1957. From the latter date, Section 94 of the Tax
Code obligated 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 under Section 332(a) of the Tax Code should therefore be reckoned
from said date for, as aforesaid, it is from that time that the Commissioner was expected by law to make
his return and assess the tax due thereon. From July 12, 1957 to February 13, 1958, the date of the
assessment now in dispute, less than ten years have elapsed. Hence, prescription did not abate the
Commissioner's right to issue said assessment.
Anent the Commissioner's contention that Lilia Yusay is estopped from raising the defense of prescription
because she failed to raise the same in her answer to the motion for allowance of claim and for the
payment of taxes filed in the settlement court (Court of First Instance of Iloilo), suffice it to state that it
would be unjust to the taxpayer if We were to sustain such a view. The Court of First Instance acting as a
settlement court is not the proper tribunal to pass upon such defense, therefore it would be but futile to
raise it therein. Moreover, the Tax Code does not bar the right to contest the legality of the tax after a
taxpayer pays it. Under Section 306 thereof, he can pay the tax and claim a refund therefor. A fortiori his
willingness to pay the tax is no waiver to raise defenses against the tax's legality.
WHEREFORE, the judgment appealed from is set aside and another entered affirming the assessment of
the Commissioner of Internal Revenue dated February 13, 1958. Lilia Yusay Gonzales, as administratrix of
the intestate estate of Matias Yusay, is hereby ordered to pay the sums of P16,246.04 and P39,178.12 as
estate and inheritance taxes, respectively, plus interest and surcharge for delinquency in accordance with
Section 101 of the National Internal Revenue Code, without prejudice to reimbursement from her coadministratrix, Florencia Piccio Vda. de Yusay for the latter's corresponding tax liability. No costs. So
ordered.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Sanchez and Castro, JJ., concur.
Zaldivar, J., took no part.

RESOLUTION
April 24, 1967
BENGZON, J.P., J.:
Respondent Lilia Yusay Gonzales seeks reconsideration of our decision holding her liable for the payment
of P97,723.96 as estate and inheritance taxes plus delinquency penalties as administratrix of the intestate
estate of Matias Yusay. The grounds raised by her deserve this extended resolution.

Firstly, movant maintains that the issue of whether or not the estate and inheritance tax return filed by
Jose Yusay on May 13, 1949 was sufficient to start the running of the statute of limitations on assessment,
was neither raised in the Court of Tax Appeals nor assigned as error before this Court. The records in the
Court of Tax Appeals however show the contrary. Paragraph 2 of the answer filed by the Commissioner of
Internal Revenue states:
2. That he likewise admits, as alleged in paragraph 1 thereof having received the letter of the
petitioner dated November 27, 1959 (Annex "A" of the Petition for Review), contesting the
assessment of estate and inheritance taxes levied against the Intestate Estate of the late Matias
Yusay, Special Proceedings No. 459, Court of First Instance of Iloilo, on the ground that the said
assessment has already prescribed, but specifically denies the allegation that the assessment have
already prescribed, the truth of the matter being that the returns filed on May 11, 1949 cannot be
considered as a true, and complete return sufficient to start the running of the period of five (5)
years prescribed in Sec. 331 of the Tax Code;
This point was discussed in the memorandum of the Commissioner of Internal Revenue, thus:
In the estate and inheritance tax return filed by Jose S. Yusay (Exhibits B & 1, pp. 14-20, B.I.R.
records) the net value of the estate of the deceased was claimed to be P203,354.00 and no
inheritance tax was shown as the heirs were not indicated. In the final computation of the estate by
an examiner of the respondent, the net estate was found to be worth P410,518.38 (p. 105, B.I.R.
records) or about more than twice the original amount declared in the return. In the subsequent
investigation of this case, it was also determined that the heirs of the deceased were Jose S. Yusay,
a legitimate son, and Lilia Yusay, an acknowledged natural child, (petitioner herein).
Under the circumstances, we believe the return filed on May 11, 1949 was false or fraudulent in the
sense that the value of the properties were underdeclared and that the said return was also
incomplete as the heirs to the estate were not specified. Inasmuch as the respondent was not
furnished adequate data upon which to base an assessment, the said return cannot be considered a
true and complete return sufficient to start the running of the period of limitations of five (5) years
prescribed in Section 331 of the Tax Code.
In the lower court the defense of the Commissioner of Internal Revenue against Lilia Yusay Gonzales' plea
of prescription, centered on the insufficiency and fraudulence or falsity of the return filed by Jose Yusay.
The Court of Tax Appeals overruled the Commissioner of Internal Revenue. Said the Tax Code:
The provision of Section 332(a) of the Tax Code cannot be invoked in this case as it was neither
alleged in respondent's answer, nor proved during the hearing that the return was false or
fraudulent with intent to evade the payment of tax. Moreover, the failure of respondent to charge
fraud and impose the penalty thereof in the assessments made in 1953, 1955 and 1956 is an
eloquent demonstration that the filing of petitioner's transfer tax return was not attended by falsity
or fraud with intent to evade tax.
xxx

xxx

xxx

But respondent urges upon us that the filing of the return did not start the running of the five (5)
year period for the reason that the return did not disclose the heirs of the deceased Matias Yusay,
and contained inadequate data regarding the value of the estate. We believe that these mere
omissions do not require additional returns for the same. Altho incomplete for being deficient on
these matters, the return cannot be regarded as a case of failure to file a return where want of good
faith and intent to evade the tax on the part of petitioner are not charged. It served as a sufficient
notice to the Commissioner of Internal Revenue to make his assessment and start the running, of
the period of limitation. In this connection, it must be borne in mind that the Commissioner is not
confined to the taxpayer's return in making assessment of the tax, and for this purpose he may
secure additional information from other sources. As was done in the case at bar, he sends
investigators to examine the taxpayer's records and other pertinent data. His assessment is based
upon the facts uncovered by the investigation (Collector vs. Central Azucarera de Tarlac, G.R. Nos.
L-11760 and L-11761, July 31, 1958).

Furthermore, the failure to state the heirs in the return can be attributed to the then unsettled
conflict raging before the probate court as to who are the heirs of the estate. Such failure could not
have been a deliberate attempt to mislead the government in the assessment of the correct taxes.
In his appeal, the Commissioner of Internal Revenue assigned as third error of the Court of Tax Appeals the
finding that the assessment in question was "made beyond the five-year statutory period provided in
Section 332 (a) of the Tax Code," and that the right of the Commissioner of Internal Revenue to assess the
estate and inheritance taxes has already prescribed. To sustain his side, the Commissioner ventilated in his
brief, fraud in the filing of the return, absence of certain data from the return which prevented him from
assessing thereon the tax due and the pendency in this Court of L-11374 entitled "Intestate Estate of the
late Matias Yusay, Jose C. Yusay, Administrator vs. Lilia Yusay Gonzales" which allegedly had the effect of
suspending the running of the period of limitations on assessment.
Clearly, therefore, it would be incorrect to say that the question of whether or not the return filed by Jose
Yusay was sufficient to start the running of the statute of limitations to assess the corresponding tax, was
not raised by the Commissioner in the Court of Tax Appeals and in this Court.
Second. Movant contend that contrary to Our ruling, the return filed by Jose Yusay was sufficient to start
the statute of limitations on assessment. Inasmuch as this question was amply discussed in Our decision
sought to be reconsidered, and no new argument was advanced, We deem it unnecessary to pass upon the
same. There is no reason for any change on Our stand on this point.
Third. Movant insists that since she administers only one-third of the estate of Matias Yusay, she should not
be liable for the whole tax. And she suggests that We hold the intestate estate of Matias Yusay liable for
said taxes, one-third to be paid by Lilia Yusay Gonzales and two-thirds to be paid by Florencia P. Vda. de
Yusay.
The foregoing suggestion to require payment of two-thirds of the total taxes by Florencia P. Vda. de Yusay
is not acceptable, for she (Florencia P. Vda. de Yusay) is not a party in this case.
It should be pointed out that Lilia Yusay Gonzales appealed the whole assessment to the Court of Tax
Appeals. Thereupon, the Commissioner of Internal Revenue questioned her legal capacity to institute the
appeal on the ground that she administered only one-third of the estate of Matias Yusay. In opposition, she
espoused the view, which was sustained by the Tax Court, that in co-administration, the administratrices
are regarded as one person and the acts of one of them in relation to the regular administration of the
estate are deemed to be the acts of all; hence, each administratrix can represent the whole estate. In
advancing such proposition, Lilia Yusay Gonzales represented the whole estate and hoped to benefit from
the favorable outcome of the case. For the same reason that she represented her co-administratrix and the
whole estate of Matias Yusay, she risked being ordered to pay the whole assessment, should the
assessment be sustained.
Her change of stand adopted in the motion for reconsideration to the effect that she should be made liable
for only one-third of the total tax, would negate her aforesaid proposition before the Court of Tax Appeals.
She is now estopped from denying liability for the whole tax.
At any rate, estate and inheritance taxes are satisfied from the estate and are to be paid by the executor
or administrator.1 Where there are two or more executors, all of them are severally liable for the payment
of the estate tax.2 The inheritance tax, although charged against the account of each beneficiary, should
be paid by the executor or administrator.3 Failure to pay the estate and inheritance taxes before
distribution of the estate would subject the executor or administrator to criminal liability under Section
107(c) of the Tax Code.
It is immaterial therefore that Lilia Yusay Gonzales administers only one-third of the estate and will receive
as her share only said portion, for her right to the estate comes after taxes. 4 As an administratrix, she is
liable for the entire estate tax. As an heir, she is liable for the entire inheritance tax although her liability
would not exceed the amount of her share in the estate.5 The entire inheritance tax which amounts to
P39,178.12 excluding penalties is obviously much less than her distributive share.
Motion for reconsideration denied.

G.R. No. 168498

April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
YNARES-SANTIAGO, J.:
For resolution is petitioners Motion for Reconsideration of our Decision1 dated June 16, 2006 affirming the
Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed the
Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A.
Case No. 6475, denying petitioners Petition for Relief from Judgment and Motion for Reconsideration,
respectively.
Petitioner reiterates its claim that its former counsels failure to file petition for review with the Court of Tax
Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC) was
excusable and raised the following issues for resolution:
A.
THE DENIAL OF PETITIONERS PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE DENIAL OF
SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF THIS HONORABLE
COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED A FACT NOT
DENIED BY THE RESPONDENT IN ITS ANSWER.
B.
CONTRARY TO THIS HONORABLE COURTS DECISION, AND FOLLOWING THE LASCONA DECISION, AS WELL
AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR
REVIEW BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD JURISDICTION
OVER THE CASE.
C.
CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY
ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE
TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD BE
ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX APPEALS. 2
Petitioners motion for reconsideration is denied for lack of merit.
Other than the issue of prescription, which is raised herein for the first time, the issues presented are a
mere rehash of petitioners previous arguments, all of which have been considered and found without
merit in our Decision dated June 16, 2006.
Petitioner maintains that its counsels neglect in not filing the petition for review within the reglementary
period was excusable. It alleges that the counsels secretary misplaced the Resolution hence the counsel
was not aware of its issuance and that it had become final and executory.
We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of
petitioners counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke
neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment, thereby
putting no end to litigation.
Negligence to be "excusable" must be one which ordinary diligence and prudence could not have guarded
against and by reason of which the rights of an aggrieved party have probably been impaired. Petitioners
former counsels omission could hardly be characterized as excusable, much less unavoidable.
The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive
promptly judicial notices and pleadings intended for them. Apparently, petitioners counsel was not only
remiss in complying with this admonition but he also failed to check periodically, as an act of prudence and
diligence, the status of the pending case before the CTA Second Division. The fact that counsel allegedly
had not renewed the employment of his secretary, thereby making the latter no longer attentive or
focused on her work, did not relieve him of his responsibilities to his client. It is a problem personal to him
which should not in any manner interfere with his professional commitments. 3
Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened
considering that it was allegedly not accorded its day in court when the Court of Tax Appeals dismissed its
petition for review for late filing. It claims that rules of procedure are intended to help secure, not override,
substantial justice.
Petitioners arguments fail to persuade us.
As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:
If indeed there was negligence, this is obviously on the part of petitioners own counsel whose prudence in
handling the case fell short of that required under the circumstances. He was well aware of the motion filed
by the respondent for the Court to resolve first the issue of this Courts jurisdiction on July 15, 2003, that a
hearing was conducted thereon on August 15, 2003 where both counsels were present and at said hearing
the motion was submitted for resolution. Petitioners counsel apparently did not show enthusiasm in the
case he was handling as he should have been vigilant of the outcome of said motion and be prepared for
the necessary action to take whatever the outcome may have been. Such kind of negligence cannot
support petitioners claim for relief from judgment.
Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment unless proven otherwise. 4 Also,
petitioners failure to file a petition for review with the Court of Tax Appeals within the statutory period
rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing
the defenses of legality or validity of the assessment and prescription of the Governments right to assess. 5
The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters as
are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125,
otherwise known as the Law Creating the Court of Tax Appeals, provides:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) 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 in relation

thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;
Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals 6 state:
RULE 4
Jurisdiction of the Court
xxxx
SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
or other applicable law provides a specific period for action: Provided, that in case of
disputed assessments, the inaction of the Commissioner of Internal Revenue within the one
hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be
deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and
does not necessarily constitute a formal decision of the Commissioner of Internal Revenue
on the tax case; Provided, further, that should the taxpayer opt to await the final decision of
the Commissioner of Internal Revenue on the disputed assessments beyond the one
hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to
the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the
case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a
petition for review with the Court prior to the expiration of the two-year period under Section
229 of the National Internal Revenue Code;
xxxx
RULE 8
Procedure in Civil Cases
xxxx
SECTION 3. Who May Appeal; Period to File Petition. (a) A party adversely affected by a decision, ruling
or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of
internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of
Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the

exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days
after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the
Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the
Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally
collected, the taxpayer must file a petition for review within the two-year period prescribed by law from
payment or collection of the taxes. (n)
From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to
include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The
decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax Appeals
with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision
or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to
act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and
failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to
entertain and determine the correctness of the assessments. Such period is not merely directory but
mandatory and it is beyond the power of the courts to extend the same. 7
In case the Commissioner failed to act on the disputed assessment within the 180-day period from date of
submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax Appeals
within 30 days after the expiration of the 180-day period; or 2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals
within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive, and
resort to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from date
of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days
after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late
filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory.
Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner
and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced.
After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner
can not successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and
appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the
disputed assessment because of the Commissioners inaction.
Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion for
reconsideration. Although the same was raised in the petition for review, it was dismissed for late filing. No
motion for reconsideration was filed hence the disputed assessment became final, demandable and
executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for relief from judgment.
However, it failed to raise the issue of prescription therein. After its petition for relief from judgment was
denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition for review before this Court
without raising the issue of prescription. It is only in the instant motion for reconsideration that petitioner
raised the issue of prescription which is not allowed. The rule is well-settled that points of law, theories,
issues and arguments not adequately brought to the attention of the lower court need not be considered
by the reviewing court as they cannot be raised for the first time on appeal, 8 much more in a motion for
reconsideration as in this case, because this would be offensive to the basic rules of fair play, justice and
due process.9 This last ditch effort to shift to a new theory and raise a new matter in the hope of a
favorable result is a pernicious practice that has consistently been rejected.

WHEREFORE, in view of the foregoing, petitioners motion for reconsideration is DENIED.

SO ORDERED.