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COURT OF TAX APPEALS G.R. No. L-29059 December 15, 1987
By virtue of a decision of the CTA, as modified on appeal by the Supreme Court, the CIR was
ordered to refund to Cebu Portland Cement Company the amount of P 359,408.98, representing
overpayments of ad valorem taxes on cement produced and sold by it. When respondent moved
for a writ of execution, petitioner opposed on the ground that the private respondent had an
outstanding sales tax liability to which the judgment debt had already been credited. In fact, it was
stressed, there was still a balance owing on the sales taxes in the amount of P 4,789,279.85 plus
28% surcharge. The CTA granted the CIRs motion. The CIR claims that the refund should be
charged against the tax deficiency of the private respondent on the sales of cement under Section
186 of the Tax Code. His position is that cement is a manufactured and not a mineral product and
therefore not exempt from sales taxes. The petitioner also denies that the sales tax assessments
have already prescribed because the prescriptive period should be counted from the filing of the
sales tax returns, which had not yet been done by the private respondent. Meanwhile, the private
respondent disclaims liability for the sales taxes, on the ground that cement is not a manufactured
product but a mineral product. As such, it was exempted from sales taxes. Also, the alleged sales tax
deficiency could not as yet be enforced against it because the tax assessment was not yet final, the
same being still under protest and still to be definitely resolved on the merits. Besides, the
assessment had already prescribed, not having been made within the reglementary five-year period
from the filing of the tax returns.
WON sales tax was properly imposed upon private respondent.
HELD: Yes, because cement has always been considered a manufactured product and not a
mineral product. This matter was extensively discussed and categorically resolved
in Commissioner of Internal Revenue v. Republic Cement Corporation, decided on August 10,
1983, stating that cement qua cement was never considered as a mineral product within the
meaning of Section 246 of the Tax Code, notwithstanding that at least 80% of its components are
minerals, for the simple reason that cement is the product of amanufacturing process and is no
longer the mineral product contemplated in the Tax Code (i.e.; minerals subjected to simple
treatments) for the purpose of imposing the ad valorem tax. The argument that the assessment
cannot as yet be enforced because it is still being contested loses sight of the urgency of the need to
collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by
simply questioning their validity, the machinery of the state would grind to a halt and all government
functions would be paralyzed.

Petitioner BPI Family Savings Bank had an excess withholding taxes for the year 1989 amounting to
P112,491.90. It indicated in its 1989 Income Tax Return that it would apply the said amount as a tax

credit for the succeeding taxable year, 1990. However because of business losses, petitioner
informed the Bureau of Internal Revenue (BIR) that it would claim the amount as a tax refund,
instead of applying it as a tax credit. When no action from the BIR was forthcoming, petitioner filed
its claim with the Court of Tax Appeals. The CTA and the CA, however, denied the claim for tax
refund. Since petitioner declared in its 1989 Income Tax Return that it would apply the excess
withholding tax as a tax credit for the following year, the Tax Court held that petitioner was presumed
to have done so. The CTA and the CA ruled that petitioner failed to overcome this presumption
because it did not present its 1990 Return, which would have shown that the amount in dispute was
not applied as a tax credit. Hence, the CA concluded that petitioner was not entitled to a tax refund.
WON petitioner is entitled to the refund of P112,491.90, representing excess creditable withholding
tax paid for the taxable year 1989.
It is undisputed that petitioner had excess withholding taxes for the year 1989 and was thus entitled
to a refund amounting to P112,491. Pursuant to Section 69 of the 1986 Tax Code which states that a
corporation entitled to a refund may opt either (1) to obtain such refund or (2) to credit said amount
for the succeeding taxable year. Petitioner presented evidence to prove its claim that it did not apply
the amount as a tax credit. A copy of the Final Adjustment Return for 1990 was attached to
petitioner's Motion for Reconsideration filed before the CTA. A final adjustment return shows whether
a corporation incurred a loss or gained a profit during the taxable year. In this case, that Return
clearly showed that petitioner incurred P52,480,173 as net loss in 1990. Clearly, it could not have
applied the amount in dispute as a tax credit. The BIR did not controvert the veracity of the said
return. It did not even file an opposition to petitioner's Motion and the 1990 Final Adjustment Return
attached thereto. Petitioner also calls the attention of this Court, as it had done before the CTA, to a
Decision rendered by the Tax Court in CTA Case No. 4897, involving its claim for refund for the year
1990. In that case, the Tax Court held that "petitioner suffered a net loss for the taxable year
1990 . . . ." Respondent, however, urges this Court not to take judicial notice of the said case.
Respondents' reasoning underscores the weakness of their case. For if they had really believed that
petitioner is not entitled to a tax refund, they could have easily proved that it did not suffer any loss in
1990. Indeed, it is noteworthy that respondents opted not to assail the fact appearing therein
that petitioner suffered a net loss in 1990 in the same way that it refused to controvert the same
fact established by petitioner's other documentary exhibits 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. If the State expects its taxpayers to observe
fairness and honesty in paying their taxes, so must it apply the same standard against itself in
refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor,
dignity and uprightness



Atlas Consolidated Mining and Development Corporation, a domestic corporation, entered into a
Loan and Sales Contract with Mitsubishi Metal Corporation, a Japanese corporation licensed to
engage in business in the Philippines. To be able to extend the loan to Atlas, Mitsubishi entered
into another loan agreement with Export-Import Bank (Eximbank), a financing institution owned,
controlled, and financed by the Japanese government. After making interest payments to
Mitsubishi, with the corresponding 15% tax thereon remitted to the Government of the Philippines,
Altas claimed for tax credit with the Commissioner of Internal Revenue based on Section 29(b)(7)
(A) of the National Internal Revenue Code, stating that since Eximbank, and not Mitsubishi, is
where the money for the loan originated from Eximbank, then it should be exempt from paying taxes
on its loan thereon.
WON the interest income from the loans extended to Atlas by Mitsubishi is excludible from gross
income taxation.
NO. Mitsubishi secured the loan from Eximbank in its own independent capacity as a private entity
and not as a conduit of Eximbank. Therefore, what the subject of the 15% withholding tax is not the
interest income paid by Mitsubishi to Eximbank, but the interest income earned by Mitsubishi from
the loan to Atlas. Thus, it does not come within the ambit of Section 29(b)(7)(A), and it is not
exempt from the payment of taxes. (Note: Findings of fact of the Court of Tax Appeals are entitled
to the highest respect and can only be disturbed on appeal if they are not supported by substantial
evidence or if there is a showing of gross error or abuse on the part of the tax court. Laws
granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in
favor of the taxing power. Taxation is the rule and exemption is the exception.)

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking corporation duly
organized under Philippine laws, filed its quarterly income tax returns for the first and second
quarters of 1985, reported profits, and paid the total income tax of P5,016,954.00. The taxes due
were settled by applying PBCom's tax credit memos. Subsequently, however, PBCom suffered
losses so that when it filed its Annual Income Tax Returns for the year-ended December 31, 1986,
the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no tax payable for
the year. But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in 1985 and
P234,077.69 in 1986. Subsequently, Petitioner requested the Commissioner of Internal Revenue,
among others, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first
and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of
creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986
for P234,077.69. Pending the investigation of the respondent Commissioner of Internal Revenue,
petitioner instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals

(CTA). The CTA rendered a decision which, as stated on the outset, denied the request of petitioner
for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond
the two-year reglementary period provided for by law. The petitioner's claim for refund in 1986
amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited
by PBCom against its tax payment in the succeeding year.
WON the CA erred in denying the plea for tax refund or tax credits on the ground of prescription
No. Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to
generate funds for the State to finance the needs of the citizenry and to advance the common weal.
Due process of law under the Constitution does not require judicial proceedings in tax cases. This
must necessarily be so because it is upon taxation that the government chiefly relies to obtain the
means to carry on its operations and it is of utmost importance that the modes adopted to enforce
the collection of taxes levied should be summary and interfered with as little as possible. From the
same perspective, claims for refund or tax credit should be exercised within the time fixed by law
because the BIR being an administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters. Sec. 230 of the National Internal Revenue Code
(NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive period for filing a court
proceeding for the recovery of tax erroneously or illegally collected. The rule states that the taxpayer
may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years
after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period
provided, should be computed from the time of filing the Adjustment Return and final payment of the
tax for the year
SISON V. ANCHETA GR L-59431; 25 JULY 1984
Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher rates upon his income as a professional, that it
amounts to class legislation, and that it transgresses against the equal protection and due process
clauses of the Constitution as well as the rule requiring uniformity in taxation.
WON BP 135 violates the due process and equal protection clauses, and the rule on uniformity in
There is a need for proof of such persuasive character as would lead to a conclusion that there was
a violation of the due process and equal protection clauses. Absent such showing, the presumption
of validity must prevail. Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation. Where the differentiation

conforms to the practical dictates of justice and equity, similar to the standards of equal protection, it
is not discriminatory within the meaning of the clause and is therefore uniform. Taxpayers may be
classified into different categories, such as recipients of compensation income as against
professionals. Recipients of compensation income are not entitled to make deductions for income
tax purposes as there is no practically overhead expense, while professionals and businessmen
have no uniform costs or expenses necessary to produce their income. There is ample justification to
adopt the gross system of income taxation to compensation income, while continuing the system of
net income taxation as regards professional and business income.


INTERNAL REVENUE G.R. No. 115455 August 25, 1994
Herein various petitioners seek to declare RA 7166 as unconstitutional as it seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National Internal
Revenue Code. The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling
price or gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. CREBA asserts that R.A. No. 7716 (1) impairs the
obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis
and (3) violates the rule that taxes should be uniform and equitable and that Congress shall "evolve
a progressive system of taxation." With respect to the first contention, it is claimed that the
application of the tax to existing contracts of the sale of real property by installment or on deferred
payment basis would result in substantial increases in the monthly amortizations to be paid because
of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not
anticipate at the time he entered into the contract. It is next pointed out that while Section 4 of R.A.
No. 7716 exempts such transactions as the sale of agricultural products, food items, petroleum, and
medical and veterinary services, it grants no exemption on the sale of real property which is equally
essential. The sale of real property for socialized and low-cost housing is exempted from the tax, but
CREBA claims that real estate transactions of "the less poor," i.e., the middle class, who are equally
homeless, should likewise be exempted. Finally, it is contended, for the reasons already noted, that
R.A. No. 7716 also violates Art. VI, Section 28(1) which provides that "The rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of taxation."
WON RA 7166 violates the principle of progressive system of taxation.
No, there is no justification for passing upon the claims that the law also violates the rule that
taxation must be progressive and that it denies petitioners' right to due process and that equal
protection of the laws. The reason for this different treatment has been cogently stated by an
eminent authority on constitutional law thus: "When freedom of the mind is imperiled by law, it is
freedom that commands a momentum of respect; when property is imperiled it is the lawmakers'

judgment that commands respect. This dual standard may not precisely reverse the presumption of
constitutionality in civil liberties cases, but obviously it does set up a hierarchy of values within the
due process clause." Petitioners contend that as a result of the uniform 10% VAT, the tax on
consumption goods of those who are in the higher-income bracket, which before were taxed at a
rate higher than 10%, has been reduced, while basic commodities, which before were taxed at rates
ranging from 3% to 5%, are now taxed at a higher rate. Just as vigorously as it is asserted that the
law is regressive, the opposite claim is pressed by respondents that in fact it distributes the tax
burden to as many goods and services as possible particularly to those which are within the reach of
higher-income groups, even as the law exempts basic goods and services. It is thus equitable. The
goods and properties subject to the VAT are those used or consumed by higher-income groups.
These include real properties held primarily for sale to customers or held for lease in the ordinary
course of business, the right or privilege to use industrial, commercial or scientific equipment, hotels,
restaurants and similar places, tourist buses, and the like. On the other hand, small business
establishments, with annual gross sales of less than P500,000, are exempted. This, according to
respondents, removes from the coverage of the law some 30,000 business establishments. On the
other hand, an occasional paper of the Center for Research and Communication cities a NEDA
study that the VAT has minimal impact on inflation and income distribution and that while additional
expenditure for the lowest income class is only P301 or 1.49% a year, that for a family earning
P500,000 a year or more is P8,340 or 2.2%. Lacking empirical data on which to base any conclusion
regarding these arguments, any discussion whether the VAT is regressive in the sense that it will hit
the "poor" and middle-income group in society harder than it will the "rich," is largely an academic
exercise. On the other hand, the CUP's contention that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service cooperatives, while maintaining that
granted to electric cooperatives, not only goes against the constitutional policy to promote
cooperatives as instruments of social justice (Art. XII, 15) but also denies such cooperatives the
equal protection of the law is actually a policy argument. The legislature is not required to adhere to
a policy of "all or none" in choosing the subject of taxation. Nor is the contention of the Chamber of
Real Estate and Builders Association (CREBA), petitioner in G.R. 115754, that the VAT will reduce
the mark up of its members by as much as 85% to 90% any more concrete. It is a mere allegation.
On the other hand, the claim of the Philippine Press Institute, petitioner in G.R. No. 115544, that the
VAT will drive some of its members out of circulation because their profits from advertisements will
not be enough to pay for their tax liability, while purporting to be based on the financial statements of
the newspapers in question, still falls short of the establishment of facts by evidence so necessary
for adjudicating the question whether the tax is oppressive and confiscatory. Indeed, regressivity is
not a negative standard for courts to enforce. What Congress is required by the Constitution to do is
to "evolve a progressive system of taxation." This is a directive to Congress, just like the directive to
it to give priority to the enactment of laws for the enhancement of human dignity and the reduction of
social, economic and political inequalities (Art. XIII, 1), or for the promotion of the right to "quality
education" (Art. XIV, 1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.



RA 9337: VAT Reform Act enacted on May 24, 2005. Sec. 4 (sales of goods and properties), Sec. 5
(importation of goods) and Sec. 6 (services and lease of property) of RA 9337, in collective, granted
the Secretary of Finance the authority to ascertain: (a) whether by 12/31/05, the VAT collection as a
percentage of the 2004 GDP exceeds 2.8% or (b)the national government deficit as a percentage of
the 2004 GDP exceeds 1.5%. If either condition is met, the Sec of Finance must inform the President
who, in turn, must impose the 12% VAT rate (from 10%) effective January 1, 2006. ABAKADA
maintained that Congress abandoned its exclusive authority to fix taxes and that RA 9337 contained
a uniform proviso authorizing the President upon recommendation by the DOF Secretary to rasie
VAT to 12%. Sen Pimentel maintained that RA 9337 constituted undue delegation of legislative
powers and a violation of due process since the law was ambiguous and arbitrary. Same with Rep.
Escudero. Pilipinas Shell dealers argued that the VAT reform was arbitrary, oppressive and
confiscatory. Respondents countered that the law was complete, that it left no discretion to the
President, and that it merely charged the President with carrying out the rate increase once any of
the two conditions arise.
WON there was undue delegation.
No delegation but mere implementation of the law. Constitution allows as under exempted
delegation the delegation of tariffs, customs duties, and other tolls, levies on goods imported and
exported. VAT is tax levied on sales of goods and services which could not fall under this exemption.
Hence, its delegation if unqualified is unconstitutional. Legislative power is authority to make a
complete law. Thus, to be valid, a law must be complete in itself, setting forth therein the policy and it
must fix a standard, limits of which are sufficiently determinate and determinable. No undue
delegation when congress describes what job must be done who must do it and the scope of the
authority given. (Edu v Ericta) Sec of Finance was merely tasked to ascertain the existence of facts.
All else was laid out. Mainly ministerial for the Secretary to ascertain the facts and for the president
to carry out the implementation for the VAT. They were agents of the legislative dept


Plaintiff-appellant is a domestic corporation with principal offices in Manila. lt is a consolidated
corporation of Procter & Gamble Trading Company and Philippine Manufacturing Company, which
later became Procter & Gamble Trading Company, Philippines. It is engaged in the manufacture of
soap, edible oil, margarine and other similar products, and for this purpose maintains a "bodega" in
defendant Municipality where it stores copra purchased in the municipality and therefrom ships the
same for its manufacturing and other operations. On December 13, 1957, the Municipal Council of
Jagna enacted Municipal Ordinance No. 4, Series of 1957 or An Ordinance imposing storage fees of
all exportable copra deposited in the bodega within the jurisdlcti0n of the municipality of jagna bohol.
For a period of six years, from 1958 to 1963, plaintiff paid defendant Municipality, allegedly under

protest, storage fees in the total sum of P42,265.13. On March 3, 1964, plaintiff filed this suit in the
Court of First Instance of Manila, Branch VI, wherein it prayed that 1) Ordinance No. 4 be declared
inapplicable to it, or in the alter. native, that it be pronounced ultra-vires and void for being beyond
the power of the Municipality to enact; and 2) that defendant Municipality be ordered to refund to it
the amount of P42,265.13 which it had paid under protest; and costs. The trial Court upheld its
jurisdiction as well as defendant Municipality's power to enact the Ordinance in question under
section 2238 of the Revised Administrative Code, otherwise known as the general welfare clause.
WON defendant Municipality was authorized to impose and collect the storage fee provided for in
the challenged Ordinance under the laws then prevailing. WON the imposition of P0.10 per 100 kilos
of copra stored in a bodega within the municipality ofJagnas' territory is beyond the cost of regulation
and surveillance
The validity of the Ordinance must be upheld pursuant to the broad authority conferred upon
municipalities by Commonwealth Act No. 472, which was the prevailing law when the Ordinance was
enacted. A municipality is authorized to impose three kinds of licenses: (1) a license for regulation of
useful occupation or enterprises; (2) license for restriction or regulation of non-useful occupations or
enterprises; and (3) license for revenue. 4 It is thus unnecessary, as plaintiff would have us do, to
determine whether the subject storage fee is a tax for revenue purposes or a license fee to
reimburse defendant Municipality for service of supervision because defendant Municipality is
authorized not only to impose a license fee but also to tax for revenue purposes. The storage fee
imposed under the question Ordinance is actually a municipal license tax or fee on persons, firms
and corporations, like plaintiff, exercising the privilege of storing copra in a bodega within the
Municipality's territorial jurisdiction. For the term "license tax" has not acquired a fixed meaning. It is
often used indiscriminately to designate impositions exacted for the exercise of various privileges. In
many instances, it refers to revenue-raising exactions on privileges or activities. Municipal
corporations are allowed wide discretion in determining the rates of imposable license fees even in
cases of purely police power measures. In the absence of proof as to municipal conditions and the
nature of the business being taxed as well as other factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates, Courts will go slow in writing off an Ordinance. In the
case at bar, appellant has not sufficiently shown that the rate imposed by the questioned Ordinance
is oppressive, excessive and prohibitive.

CIR v. CA, CTA, AdMU GR No.115349; 18 April 1997

Private respondent, Ateneo de Manila University, is a non-stock, non-profit educational institution
with auxiliary units and branches all over the country. The Institute of Philippine Culture (IPC) is an
auxiliary unit with no legal personality separate and distinct from private respondent. The IPC is a
Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it
accepts sponsorships for its research activities from international organizations, private foundations

and government agencies. On 8 July 1983, private respondent received from CIR a demand letter
dated 3 June 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency
contractors tax, and an assessment dated 27 June 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended 31 March 1978. Denying said tax liabilities,
private respondent sent petitioner a letter-protest and subsequently filed with the latter a
memorandum contesting the validity of the assessments. After some time petitioner issued a final
decision dated 3 August 1988 reducing the assessment for deficiency contractor s tax from
P193,475.55 to P46,516.41, exclusive of surcharge and interest. The lower courts ruled in favor of
respondent. Hence this petition. Petitioner Commissioner of Internal Revenue contends that Private
Respondent Ateneo de Manila University "falls within the definition" of an independent contractor
and "is not one of those mentioned as excepted"; hence, it is properly a subject of the three percent
contractor's tax levied by the foregoing provision of law. Petitioner states that the "term
'independent contractor' is not specifically defined so as to delimit the scope thereof, so much so that
any person who . . . renders physical and mental service for a fee, is now indubitably considered an
independent contractor liable to 3% contractor's tax."
WON private respondent falls under the purview of independent contractor pursuant to Section 205
of the Tax Code and is subject to a 3% contractors tax.
The petition is unmeritorious. The term "independent contractors" include persons (juridical or
natural) not enumerated above (but not including individuals subject to the occupation tax under
Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance of the service calls for the exercise
or use of the physical or mental faculties of such contractors or their employees. Petitioner
Commissioner of Internal Revenue erred in applying the principles of tax exemption without first
applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously both
illogical and impractical to determine who are exempted without first determining who are covered by
the aforesaid provision. The Commissioner should have determined first if private respondent was
covered by Section 205, applying the rule of strict interpretation of laws imposing taxes and other
burdens on the populace, before asking Ateneo to prove its exemption therefrom. Interpretation of
Tax Laws. The doctrine in the interpretation of tax laws is that (a) statute will not be construed
as imposing a tax unless it does so clearly, expressly, and unambiguously. . . . (A) tax cannot be
imposed without clear and express words for that purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the
provisions of a taxing act are not to be extended by implication. In case of doubt, such statutes
are to be construed most strongly against the government and in favor of the subjects or citizens
because burdens are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. Ateneos Institute of Philippine Culture never sold its services for a
fee to anyone or was ever engaged in a business apart from and independently of the academic
purposes of the university. Funds received by the Ateneo de Manila University are technically not a
fee. They may however fall as gifts or donations which are tax-exempt as shown by private
respondents compliance with the requirement of Section 123 of the National Internal Revenue
Code providing for the exemption of such gifts to an educational institution. Transaction of IPC not a

contract of sale nor a contract for a piece of work. The transactions of Ateneos Institute of
Philippine Culture cannot be deemed either as a contract of sale or a contract for a piece of work. By
the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
In the case of a contract for a piece of work, the contractor binds himself to execute a piece of
work for the employer, in consideration of a certain price or compensation. . . . If the contractor
agrees to produce the work from materials furnished by him, he shall deliver the thing produced to
the employer and transfer dominion over the thing. . . . In the case at bench, it is clear from the
evidence on record that there was no sale either of objects or services because, as adverted to
earlier, there was no transfer of ownership over the research data obtained or the results of research
projects undertaken by the Institute of Philippine Culture.

FACTS: Hydro Resources Contractors Corporation entered into a contract of sale with the National
Irrigation Authority (NIA) for the construction of Magat River Multipurpose Project in Isabella in
August 1978. The contract provided that Hydro will import parts, construction equipment and tools
and taxes and duties to be paid by NIA. Tools and equipment arrived during 1978 and
1979. NIA reneged on the contract. Therefore causing the transfer its sale to Hydro in
seperate dates in December 6, 1982 and March 24, 1983. Executive Order 860 took effect during
December 21, 1982 provided for 3% ad valorem tax on importations and it specifically provided that
it should have no retroactive effect. During the contract of sale execution, Hydro was assessed
and paid the said 3% ad valorem tax worth P 281,591 under protest. The Hydro when filing for
refund with Customs Commissioner who indorsed the approval of the refund but was denied by the
Secretary of Finance and motion was denied by the Court of Tax Appeals.
WON should the Executive Order 860 should have a retroactive effect.
The Court of Tax Appeals erred in applying a retroactive effect for the Executive Order therefore
should not have been subject to the additional 3% ad valorem tax. In general tax laws are not
retroactive in nature. Not only that Executive Order 860 specifically provides that it is not
retroactive in nature, but also when the conditional contract of sale was executed, its had a
suspensive condition contemplated in the Civil Code (Article 1187) where it returned ownership to
the seller Hydro because NIA was not able to comply with its part of the contract, it was deemed
executed as if during the constitution of the obligation which was in 1978 and not in 1982.

CIR V. BENGUET CORP G.R. NOS. 134587 AND 134588; JANUARY 8, 2005

Benguet Corporation is a domestic corporation engaged in the exploration, development and

operation of mineral resources, and the sale or marketing thereof to various entities. It is a VAT
registered enterprise. The transactions in question occurred during the period between 1988 and
1991. Under Sec. 99 of NIRC as amended by E.O. 273 s. 1987 then in effect, any person who, in
the course of trade or business, sells, barters or exchanges goods, renders services, or engages in
similar transactions and any person who imports goods is liable for output VAT at rates of either 10%
or 0% (zero-rated) depending on the classification of the transaction under Sec. 100 of the NIRC.
In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of
gold to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued which declared
that the sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant
toSection 100 of the Tax Code, as amended by EO 273. Relying on its zero-rated status and the
above issuances, Benguet sold gold to the Central Bank during the period of 1 August 1989 to 31
July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject
sales of gold. It then filed applications for tax refunds/credits corresponding to input VAT. However,
such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that
was issued subsequent to the consummation of the subject sales of gold to the Central
Ban`k which provides that sales of gold to the Central Bank shall not be considered as export
sales and thus, shall be subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew, modified, and
superseded all inconsistent BIR issuances. Both petitioner and Benguet agree that the retroactive
application of VAT Ruling No. 008-92 is valid only if such application would not be prejudicial to the
Benguet pursuant Sec. 246 of the NIRC.
(1) WON Benguets sale of gold to the Central Bank during the period when such was
classified by BIR issuances as zerorated could be taxed validly at a 10% rate after the
consummation of the transactions involved;
(2) WON there was prejudice to Benguet Corp due to the new BIR VAT Ruling.
(1) NO. At the time when the subject transactions were consummated, the prevailing BIR
regulations relied upon by Benguet ordained that gold sales to the Central Bank were zero-rated.
Benguet should not be faulted for relying on the BIRs interpretation of the said laws and regulations.
While it is true, as CIR alleges, that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and there could be no
vested right arising from an erroneous interpretation of law, these principles must give way to
exceptions based on and in keeping with the interest of justice and fair play. (then the Court cited the
ABS-CBN case).
(2) YES. The adverse effect is that Benguet Corp became the unexpected and unwilling debtor
to the BIR of the amount equivalent to the total VAT cost of its product, a liability it previously could
have recovered from the BIR in a zero-rated scenario or at least passed on to the Central Bank had
it known it would have been taxed at a 10% rate. Thus, it is clear that Benguet suffered economic
prejudice when it consummated sales of gold to the Central Bank were taken out of the zero-rated
category. The change in the VAT rating of Benguets transactions with the Central
Bank resulted in the twin loss of its exemption from payment of output VAT and its opportunity to

recover input VAT, and at the same time subjected it to the 10% VAT sans the option to pass on
this cost to the Central Bank, with the total prejudice in money terms being equivalent to the 10%
VAT levied on its sales of gold to the Central Bank. Even assuming that the right to recover Benguets
excess payment of income tax has not yet prescribed, this relief would only address Benguet s
overpayment of income tax but not the other burdens discussed above. Verily, this remedy is not a
feasible option for Benguet because the very reason why it was issued a deficiency tax assessment
is that its input VAT was not enough to offset its retroactive output VAT. Indeed, the burden of
having to go through an unnecessary and cumbersome refund process is prejudice enough.


A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The
foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a
mixture of currencies while the consortium, in turn, paid Burmeister foreign currency inwardly
remitted into the Philippines. BIR did not want to grant refund since the services are not
destined for consumption abroad (or the destination principle).
ISSUE: Are the receipts of Burmeister entitled to VAT zero-rated status?
PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior
to the filing of CIRs Answer in the CTA. The claim has no merit since the consortium, which was
the recipient of services rendered by Burmeister, was deemed doing business within the Philippines
since its 15-year O&M with NPC can not be interpreted as an isolated transaction. In addition, the
services referring to processing, manufacturing, repacking and services other than
those in (1) of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii)
accounted for by the BSP; AND (iv) that the service recipient is doing business outside the
Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating
payment in foreign currency. The refund was partially allowed since Burmeister secured a ruling from
the BIR allowing zero-rating of its sales to foreign consortium. However, the ruling is only valid until
the time that CIR filed its Answer in the CTA which is deemed revocation of the previously-issued
ruling. The Court said the revocation cannot retroact since none of the instances in Section 246 (bad
faith, omission of facts, etc.) are present.


GR L-31156; FEBRUARY 27, 1976
In February 1963, plaintiff commenced a complaint seeking to declare Section 2 of R.A. 2264 (Local
Autonomy Act) unconstitutional as an undue delegation of taxing power and to declare Ordinance
Nos. 23 and 27 issued by the Municipality of Tanauan, Leyte as null and void. Municipal Ordinance

No. 23 levies and collects from soft drinks producers and manufacturers one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked. On the other hand, Municipal Ordinance No. 27 levies
and collects on soft drinks produced or manufactured within the territorial jurisdiction of the
municipality a tax of one centavo (P0.01) on each gallon of volume capacity. The tax imposed in both
Ordinances Nos. 23 and 27 is denominated as "municipal production tax.
(1) Is Section 2 of R.A. 2264 an undue delegation of the power of taxation?
(2) (2) Do Ordinance Nos. 23 and 24 constitute double taxation and impose percentage or
specific taxes?
(1) NO. The power of taxation is purely legislative and cannot be delegated to the executive or
judicial department of the government without infringing upon the theory of separation of powers. But
as an exception, the theory does not apply to municipal corporations. Legislative powers may be
delegated to local governments in respect of matters of local concern.
(2) NO. The Municipality of Tanauan discovered that manufacturers could increase the volume
contents of each bottle and still pay the same tax rate since tax is imposed on every bottle corked.
To combat this scheme, Municipal Ordinance No. 27 was enacted. As such, it was a repeal of
Municipal Ordinance No. 23. In the stipulation of facts, the parties admitted that the Municipal
Treasurer was enforcing Municipal Ordinance No. 27 only. Hence, there was no case of double

OF APPEALS 309 SCRA 87; June 25, 1999 (Topic: Double Taxation)
SC. JOHNSON AND SON, INC., a domestic corporation organized and operating under the
Philippine laws, entered into a license agreement with SC Johnson and Son, United States of
America (USA), a non-resident foreign corporation was granted the right to use the trademark,
patents and technology owned by the latter including the right to manufacture, package and
distribute the products. License Agreement was duly registered with the Technology Transfer Board
of the Bureau of Patents, Trade Marks and Technology Transfer under Certificate of Registration No.
8064.SC. JOHNSON AND SON, INC was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the same to 25% withholding tax on royalty
payments which [respondent] paid from July 1992 to May 1993. Respondent filed with the
International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on
royalties arguing that Since the agreement was approved by the Technology Transfer Board, the
preferential tax rate of 10% should apply hence royalties paid by the [respondent] to SC Johnson
and Son, USA is only subject to 10% withholding tax pursuant to the most-favored nation clause of
the RP-US Tax Treaty. The Commissioner did not act on said claim for refund. Respondent filed a
petition for review before the CTA to claim a refund of the overpaid withholding tax on royalty
payments. CTA decided for Respondent and ordered CIR to issue a tax credit certificate in the

amount of P963,266.00 representing overpaid withholding tax on royalty payments, beginning July,
1992 to May, 1993. CIR filed a petition for review with CA. CA upheld CTA. CIR contends that under
RP-US Tax Treaty, which is known as the "most favored nation" clause, the lowest rate of the
Philippine tax at 10% may be imposed on royalties derived by a resident of the United States from
sources within the Philippines only if the circumstances of the resident of the United States are
similar to those of the resident of West Germany. Since the RP-US Tax Treaty contains no "matching
credit" provision as that provided in RP-West Germany Tax Treaty, the tax on royalties under the RPUS Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany
Tax Treaty. Also petitioner argues that since S.C. Johnson's invocation of the "most favored nation"
clause is in the nature of a claim for exemption from the application of the regular tax rate of 25% for
royalties, the provisions of the treaty must be construed strictly against it. Respondent countered that
the "most favored nation" clause under the RP-US Tax Treaty refers to royalties paid under similar
circumstances as those royalties subject to tax in other treaties; that the phrase "paid under similar
circumstances" does not refer to payment of the tax but to the subject matter of the tax, that is,
royalties, because the "most favored nation" clause is intended to allow the taxpayer in one state to
avail of more liberal provisions contained in another tax treaty wherein the country of residence of
such taxpayer is also a party thereto, subject to the basic condition that the subject matter of taxation
in that other tax treaty is the same as that in the original tax treaty under which the taxpayer is liable;
thus, the RP-US Tax Treaty speaks of "royalties of the same kind paid under similar circumstances".
Issue: WON SC Johnson can refund.
NO. The tax rates on royalties and the circumstances of payment thereof are the same for all the
recipients of such royalties and there is no disparity based on nationality in the circumstances of
such payment. On the other hand, a cursory reading of the various tax treaties will show that there is
no similarity in the provisions on relief from or avoidance of double taxation as this is a matter of
negotiation between the contracting parties. This dissimilarity is true particularly in the treaties
between the Philippines and the United States and between the Philippines and West Germany. The
RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into
for the avoidance of double taxation. The purpose of these international agreements is to reconcile
the national fiscal legislations of the contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted
with a view towards the elimination of international juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the same taxpayer in respect of the same
subject matter and for identical periods. The apparent rationale for doing away with double taxation
is of encourage the free flow of goods and services and the movement of capital, technology and
persons between countries, conditions deemed vital in creating robust and dynamic economies.
Double taxation usually takes place when a person is resident of a contracting state and derives
income from, or owns capital in, the other contracting state and both states impose tax on that
income or capital. In order to eliminate double taxation, a tax treaty resorts to several methods. First,
it sets out the respective rights to tax of the state of source or situs and of the state of residence with
regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred
on one of the contracting states; however, for other items of income or capital, both states are given
the right to tax, although the amount of tax that may be imposed by the state of source is limited.
Double taxation usually takes place when a person is resident of a contracting state and derives

income from, or owns capital in, the other contracting state and both states impose tax on that
income or capital. In order to eliminate double taxation, a tax treaty resorts to several methods. First,
it sets out the respective rights to tax of the state of source or situs and of the state of residence with
regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred
on one of the contracting states; however, for other items of income or capital, both states are given
the right to tax, although the amount of tax that may be imposed by the state of source is limited. On
the other hand, in the credit method, although the income or capital which is taxed in the state of
source is still taxable in the state of residence, the tax paid in the former is credited against the tax
levied in the latter. The basic difference between the two methods is that in the exemption method,
the focus is on the income or capital itself, whereas the credit method focuses upon the tax. The
phrase "royalties paid under similar circumstances" in the most favored nation clause of the US-RP
Tax Treaty necessarily contemplated "circumstances that are tax-related". In the case at bar, the
state of source is the Philippines because the royalties are paid for the right to use property or
rights, i.e. trademarks, patents and technology, located within the Philippines. The United States is
the state of residence since the taxpayer, S. C. Johnson and Son, U. S. A., is based there. Under the
RP-US Tax Treaty, the state of residence and the state of source are both permitted to tax the
royalties, with a restraint on the tax that may be collected by the state of source. The concessional
tax rate of 10 percent provided for in the RP-Germany Tax Treaty should apply only if the taxes
imposed upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid under
similar circumstances. This would mean that private respondent must prove that the RP-US Tax
Treaty grants similar tax reliefs to residents of the United States in respect of the taxes imposable
upon royalties earned from sources within the Philippines as those allowed to their German
counterparts under the RP-Germany Tax Treaty. The RP-US and the RP-West Germany Tax Treaties
do not contain similar provisions on tax crediting. If the rates of tax are lowered by the state of
source, in this case, by the Philippines, there should be a concomitant commitment on the part of the
state of residence to grant some form of tax relief, whether this be in the form of a tax credit or
exemption. Otherwise, the tax which could have been collected by the Philippine government will
simply be collected by another state, defeating the object of the tax treaty since the tax burden
imposed upon the investor would remain unrelieved. If the state of residence does not grant some
form of tax relief to the investor, no benefit would redound to the Philippines, i.e., increased
investment resulting from a favorable tax regime, should it impose a lower tax rate on the royalty
earnings of the investor, and it would be better to impose the regular rate rather than lose muchneeded revenues to another country. The entitlement of the 10% rate by U.S. firms despite the
absence of a matching credit (20% for royalties) would derogate from the design behind the most
grant equality of international treatment since the tax burden laid upon the income of the investor is
not the same in the two countries. The similarity in the circumstances of payment of taxes is a
condition for the enjoyment of most favored nation treatment precisely to underscore the need for
equality of treatment. Respondent cannot be deemed entitled to the 10 percent rate granted under
the RP-West Germany Tax Treaty for the reason that there is no payment of taxes on royalties under
similar circumstances in RP-US treaty.

DELPHER TRADES CORPORATION vs. IAC G.R. No. L-69259 January 26, 1988

Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now Valenzuela). On
April 3, 1974, they leased to Construction Components International Inc. the property and providing
for a right of first refusal should it decide to buy the said property. Construction Components
International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro
Pipes Philippines, Inc. with the signed conformity and consent of Delfin and Pelagia. In 1976, a deed
of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher
TradesCorporation whereby the Pachecos conveyed to the latter the leased property together with
another parcel of land also located in Malinta Estate, Valenzuela for 2,500 shares of stock of
defendant corporation with a total value of P1.5M. On the ground that it was not given the first
option to buy the leased property pursuant to the proviso in the lease agreement, respondent
Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the lot.
WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher
Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced
the Hydro Phil's right of first refusal over the leased property included in the "deed of exchange,"
No, by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong
to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the
Pachecos. What they really did was to investtheir properties and change the nature of their
ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to
take control of their properties and at the same time save on inheritance taxes. The "Deed of
Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale.There was no transfer of actual ownership interests by the Pachecos to
a third party. The Pacheco family merely changed their ownership from one form to another. The
ownership remained in the same hands. Hence, the private respondent has no basis for its claim of
a light of first refusal

CIR v. Toda, Jr. GR No. 147188; 14 September 2004

On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its
outstanding capital stock, to sell the Cibeles Building. On 30 August 1989, Toda purportedly sold
the property for P100 million to Rafael A. Altonaga, who, in turn, sold the same property on the same
day to Royal Match Inc. (RMI) for P200 million. Three and a half years later Toda died. On 29 March
1994, the BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for
the year 1989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented by special coadministrators Lorna Kapunan and Mario Luza Bautista, received a Notice of Assessment from the
CIR for deficiency income tax for the year 1989. The Estate thereafter filed a letter of protest. The
Commissioner dismissed the protest. On 15 February 1996, the Estate filed a petition for review with
the CTA. In its decision the CTA held that the Commissioner failed to prove that CIC committed fraud

to deprive the government of the taxes due it. It ruled that even assuming that a pre-conceived
scheme was adopted by CIC, the same constituted mere tax avoidance, and not tax evasion. Hence,
the CTA declared that the Estate is not liable for deficiency of income tax. The Commissioner filed a
petition for review with the Court of Appeals. The Court of Appeals affirmed the decision of the CTA,
hence, this recourse.
Whether or not this is a case of tax evasion or tax avoidance.
HELD: Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e. the
payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it
is shown that a tax is due; (2) an accompanying state of mind which is described as being
evil, in bad faith, willfull, or deliberate and not accidental; and (3) a
course of action or failure of action which is unlawful. All these factors are present in the instant
case. The scheme resorted to by CIC in making it appear that there were two sales of the subject
properties, i.e. from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud. Altonagas sole purpose of acquiring
and transferring title of the subject properties on the same day was to create a tax shelter. The sale
to him was merely a tax ploy, a sham, and without business purpose and economic substance.
Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of
reducing the consequent income tax liability.
Domingo vs. Garlitos [GR L-18994, 29 June 1963.] En Banc, Labrador (J):8 concurring, 1 concurring
in result, 1 took no part
In Melecio R. Domingo vs. Hon. Judge S. C. Moscoso (106 Phil. 1138), the Supreme Court declared
as final and executory the order for the payment by the estate of the estate and inheritance taxes,
charges and penalties amounting to P40,058.55, issued by the CFI Leyte in special proceedings 14
entitled In the Matter of the Intestate Estate of the Late Walter Scott Price. In order to
enforce the claims against the estate the fiscal presented a petition dated 21 June 1961, to the CFI
for the execution of the judgment. The petition was, however, denied by the court which held that the
execution is not justifiable as the Government is indebted to the estate under administration in the
amount of P262,200. The lower court ordered on 20 August 1960 that the payment of inheritance
taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by said Court
on 5 July 1960 in accordance with the order of the Supreme Court promulgated 30 July 1960 in 106
Phil. 1138, be deducted from the amount of P262,200.00 due and payable to the administratrix
Simeona K. Price, in the estate, the balance to be paid by the Government to her without further
delay. The lower court ordered on 28 September 1960 that the payment of the claim of the Collector
of Internal Revenue be deferred until the Government shall have paid its accounts to the
administratrix amounting to P262,200.00. The court ruled that it is only fair for the Government, as a
debtor, to pay its accounts to its citizens-creditors before it can insist in the prompt payment of the
latters account to it, specially taking into consideration that the amount due the Government
draws interests while the credit due to the present estate does not accrue any interest. Thus, the
petition for certiorari and madamus filed by Melecio R. Domingo, as Commissioner of Internal
Revenue, against the Judge of the Court of First Instance of Leyte, Hon. Lorenzo C. Garlitos,

presiding, seeking to annul the orders of the court and for an order in the Supreme Court directing
the lower court to execute the judgment in favor of the Government against the estate of alter Scott
Price for internal revenue taxes.
Issue: WON a tax and debt may be compensated
The court having jurisdiction of the estate had found that the claim of the estate against the
Government has been recognized and an amount of P262,200 has already been appropriated for
the purpose by a corresponding law (RA 2700). Under the circumstances, both the claim of the
Government for inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable as well as fully liquidated. Compensation, therefore, takes place
by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount. Article 1200 provides that when all
the requisites mentioned in article 1279 are present, compensation takes effect by operation of law,
and extinguishes both debts to the concurrent amount, even though the creditors and debtors are
not aware of the compensation.

CIR V. PASCOR REALTY & DEVT CORP et. al. GR No. 128315, June 29, 1999
Facts: The CIR authorized certain BIR officers to examine the books of accounts and
other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987
and 1988. The examination resulted inrecommendation for the issuance of an assessment of
P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. The Commissioner filed
acriminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ.
Private respondents filed immediately an urgent request for reconsideration on reinvestigation
disputing the tax assessment and tax liability. The Commissioner denied private respondent s
request for reconsideration/reinvestigation on the ground that no formal assessment has been
issued which the latter elevated to the CTA on a petition for review. The
Commissioners motion to dismiss on the ground of the CTAs lack of jurisdiction denied
by CTA and ordered the Commissioner to file an answer. Instead of complying with the order of
CTA, Commissioner filed a petition with the CA alleging grave abuse of discretion and lack of
jurisdiction on the part of CTA for considering the affidavit/report of the revenue officers and the
endorsement of said report as assessment which may be appealed to the CTA. The CA sustained
the CTA decision and dismissed the petition.
(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.
(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be

The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment.
Neither the Tax Code nor the revenue regulations governing the protest assessments provide a
specific definition or form of an assessment. An assessment must be sent to and received by
the taxpayer, and must demand payment of the taxes described therein within a specific period.
The revenue officers affidavit merely contained a computation of respondent s tax liability. It
did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the
taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not
meant to be a notice of tax due and a demand to private respondents for the payment thereof. The
fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner
intended to file a criminal complaint for tax evasion, not to issue an assessment. An assessment is
not necessary before criminal charges can be filed. A criminal charge need not only be supported by
a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases,
discretion on whether to issue an assessment, or to file a criminal caseagainst the taxpayer, or to
do both

Marcos II vs. CA 273 SCRA 47 1997

Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income
tax assessments and estate tax assessments upon the estate and properties of his late father
despite the pendency of the probate proceedings of the will of the late President. On the other hand,
the BIR argued that the States authority to collect internal revenue taxes is paramount.
Petitioner further argues that "the numerous pending court cases questioning the late president's
ownership or interests in several properties (both real and personal) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time.
Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale
are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos.
0001-0034 and 0141, which were filed by the government to question the ownership and interests of
the late President in real and personal properties located within and outside the Philippines.
Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of
estate taxes upon the decedent's estate were among those involved in the said cases pending in the
Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at
issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not
affect the enforcement of tax assessments over the properties indubitably included in his estate.
Issue: Is the contention of Marcos correct?
No. The approval of the court, sitting in probate or as a settlement tribunal over the deceased s
estate, is not a mandatory requirement in the collection of estate taxes. There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
settlement court's approval of the state's claim for estate taxes, before the same can be enforced
and collected. The enforcement of tax laws and the collection of taxes are of paramount importance
for the sustenance of government. Taxes are the lifeblood of government and should be collected

without unnecessary hindrance. However, such collection should be made in accordance with law as
any arbitrariness will negate the existence of government itself. It is not the Department of Justice
which is the government agency tasked to determine the amount of taxes due upon the subject
estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed
correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of
proof of any irregularities in the performance of official duties, an assessment will not be disturbed.
Even an assessment based on estimates is prima facie valid and lawful where it does not appear
to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining
party to show clearly that the assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. In this instance, petitioner has not
pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to
the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the
assessment bears mainly on the alleged improbable and unconscionable amount of the taxes
charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the
assessments made. .

On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and
children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation against
the Meralco Securities Corporation for tax evasion for having paid income tax only on 25 % of the
dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly
shortchanging the government of income tax due from 75% of the said dividends. Petitioner
Commissioner of Internal Revenue caused the investigation of the denunciation after which he found
and held that no deficiency corporate income tax was due from the Meralco Securities Corporation
on the dividends it received from the Manila Electric Co. and accordingly denied Maniago's claim for
informer's reward on a non-existent deficiency. On August 28, 1970, Maniago filed a petition for
mandamus, and subsequently an amended petition for mandamus, in the Court of First Instance of
Manila, docketed therein as Civil Case No. 80830, against the Commissioner of Internal Revenue
and the Meralco Securities Corporation to compel the Commissioner to impose the alleged
deficiency tax assessment on the Meralco Securities Corporation and to award to him the
corresponding informer's reward under the provisions of R.A. 2338. Respondent judge granted the
said petition and thereafter, denied the motions for reconsideration filed by all the parties.
(1) Whether or not respondent judge has jurisdiction over the subject matter of the case;
(2) Whether or not respondent heirs of Maniago are entitled to informers reward.
(1) Respondent judge has no jurisdiction to take cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of
Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax

Appeals exclusive appellate jurisdiction to review by appeal, among others, 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 law or part of law administered by the Bureau of
Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases
involving said assessments previously cognizable by courts of first instance, and even those already
pending in said courts. The question of whether or not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed
assessments" or of "other matters arising under the National Internal Revenue Code . . . .In the case
of Blaquera vs. Rodriguez, et al, this Court ruled that "the determination of the correctness or
incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction
of the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section
7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review,
on appeal, any decision of the Collector of Internal Revenue in cases involving disputed
assessments and other matters arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue."
(2) Considering then that respondent judge may not order by mandamus the Commissioner to issue
the assessment against Meralco Securities Corporation when no such assessment has been found
to be due, no deficiency taxes may therefore be assessed and collected against the said
corporation. Since no taxes are to be collected, no informer's reward is due to private respondents
as the informer's heirs. Informer's reward is contingent upon the payment and collection of unpaid or
deficiency taxes. An informer is entitled by way of reward only to a percentage of the taxes actually
assessed and collected. Since no assessment, much less any collection, has been made in the
instant case, respondent judge's writ for the Commissioner to pay respondents 25% informer's
reward is gross error and without factual nor legal basis. Petitions granted and the questioned
decision of respondent judge and order reversed and set aside.

SY PO VS. CTA G.R. NO. 81446; AUGUST 18, 1988

Po Bien Sing, the sole proprietor of Silver Cup Wine Factory (SCWF), engaged in the business of
manufacture and sale of compounded liquors. On the basis of a denunciation against SCWF
allegedly "for tax evasion amounting to millions of pesos, Secretary of Finance directed the FinanceBIR--NBI team to investigate. On the basis of the team's report of investigation, the respondent
Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax for 1966 to
1970 in the amount of P7,154,685.16 and for deficiency specific tax for January 2,1964 to
January 19, 1972 in the amount of P5,595,003.68 Petitioner protested the deficiency assessments.
The BIR recommended the reiteration of the assessments in view of the taxpayer's persistent failure
to present the books of accounts for examination.
Issue: WON the assessments have valid and legal basis.

The law is specific and clear. The rule on The Best Evidence Obtainable applies when a tax
report required by law for the purpose of assessment is not available or when tax report is
incomplete or fraudulent. The tax assessment by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of irregularities in
the performance of duties, an assessment duly made by the BIR examiner and approved by his
superior officers will not be disturbed. All presumptions are in favour of the correctness of tax
Facts: Misael Vera, Commissioner of Internal Revenue, wrote a letter seeking issuance for a search
warrant against Bache & Co. for the violation of Section 46(a) of the NIRC and authorizing Revenue
Examiner Rodolfo de Leon to make ad file the application for search warrant. The respondent judge,
Judge Vivencio Ruiz requested his deputy clerk of court to take the depositions of deLeon and his
witness because he was hearing a certain case when de Leon arrived. After his hearing of the case,
the stenographer read the depositions to him and Logronia (the witness) was asked to take the oath.
Three days later, the agents of BIR served the warrant and seized 6 boxes of documents.
WON the search warrant was properly issued
No. The requirements for the issuance of a search warrant are: (1) issued for not more than 1
specific offense; (2) probable cause determined by the personal examination of the Judge of the
complainant and witnesses under oath (depositions must have already be written); (3) it must
particularly describe the things to be seized. In the case at bar, no personal examination was made
by the judge of the complainant and witness since it was the deputy clerk of court who made the

CIR vs. CA, CTA and FORTUNE TOBACCO CORP. G.R. No. 119761; August 29, 1996
Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands of
cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign
brands since they were listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortun changed the names of 'Hope' to 'Hope Luxury'and 'More' to 'Premium More,'
thereby removing the said brands from the foreign brand category. A 45% Ad Valorem taxes were
imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted 55% for locally
manufactured foreign brand while 45% for locally manufactured brands. 2 days before the
effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the
BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it
follows that the same shall be considered locally manufactured foreign brand for purposes of
determining the ad valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to
Fortune Tobacco addressed to no one in particular. CIR assessed Fortune Tobacco for ad

valorem tax deficiency amounting to P9,598,334.00. Fortune Tobacco filed a petition for review with
the CTA. CTA upheld the position of Fortune. CA affirmed.
Issue: WON it was necessary for BIR to follow the legal requirements when it issued its RMC
YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers
which publication, filing, and prior hearing. When an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its bare issuance for it gives no real consequence
more than what the law itself has already prescribed. BUT when, upon the other hand, the
administrative rule goes beyond merely providing for the means that can facilitate or render least
cumbersome the implementation of the law but substantially increases the burden of those
governed, the agency must accord, at least to those directly affected, a chance to be heard, before
that new issuance is given the force and effect of law. RMC 37-93 cannot be viewed simply as
construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been
made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of
locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA
7654 which subjects mentioned brands to 55% the BIR not simply interpreted the law; verily, it
legislated under its quasi-legislative authority. The due observance of the requirements of notice, of
hearing, and of publication should not have been then ignored

Burroughs Limited is a foreign corporation authorized to engage in trade or business in the
Philippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village,
Makati, Metro Manila. Sometime in March 1979, said branch office applied with the Central Bank for
authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on
14 March 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and
remitted to its head office the amount of P6,499,999.30. Claiming that the 15% profit remittance tax
should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not
on the amount before profit remittance tax (P7,647,058.00), Burroughs Ltd. filed on 24 December
1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged
overpaid branch profit remittance tax. On 24 February 1981, Burroughs Ltd. filed with the Court of
Tax Appeals, a petition for review (CTA Case) 3204 for the recovery of the amount of P172,058.81.
On 27 June 1983, the tax court rendered its Decision, ordering the Commission of Internal Revenue
to grant a tax credit in favor of Burroughs Ltd. the said amount claimed; without pronouncement as
to costs. Unable to obtain reconsideration from the decision, the Commissioner filed the petition for
certiorari before the Supreme Court. The Supreme Court affirmed the assailed decision of the Court
of Tax Appeals; without pronouncement as to costs.

WON Memorandum Circular 8-22, revoking Revenue Ruling of January 21, 1980, may be applied
No. What is applicable in the present case is still the Revenue Ruling of 21 January 1980 because
Burroughs Limited paid the branch profit remittance tax in question on 14 March 1979. Memorandum
Circular 8-82 dated 17 March 1982, which states that considering that the 15% branch profit
remittance tax is imposed and collected at source, necessarily the tax base should be the amount
actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted
abroad, cannot be given retroactive effect in the light of Section 327 of the National Internal
Revenue Code. Section 327 (Non-retroactivity of rulings) of the National Internal Revenue Code
provides any revocation, modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated
by the Commissioner shall not be given retroactive application if the revocation, modification, or
reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any document required of him by
the Bureau of Internal Revenue; (b) where the facts subsequently gathered\ by the Bureau of
Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the
taxpayer acted in bad faith.

ABS-CBN Broadcasting Corporation was engaged in the business of telecasting local as well as
foreign films acquired from foreign corporations not engaged in trade or business within the
Philippines, for which it paid rentals after withholding income tax of 30% of one-half of the film
rentals. On 12 April 1961, in implementation of Section 24 (b) of the National Internal Revenue
Code, the Commissioner of Internal Revenue issued General Circular V-334. Pursuant to the
foregoing, the company dutifully withheld and turned over to the Bureau of Internal Revenue the
amount of 30% of one-half of the film rentals paid by it to foreign corporations not engaged in trade
or business within the Philippines. The last year that the company withheld taxes pursuant to the
foregoing Circular was in 1968. On 27 June 1968, RA 5431 amended Section 24(b) of the Tax Code
increasing the tax rate from 30% to 35% and revising the tax basis from such amount
referring to rents. etc. to gross income. On 8 February 1971, the Commissioner of Internal
Revenue issued Revenue Memorandum Circular 4-71, revoking General Circular V-334, and holding
that the latter was erroneous for lack of legal basis, because the tax therein prescribed
should be based on gross income without deduction whatever. On the basis of the new Circular,
the Commissioner issued against the company a letter of assessment and demand dated 16 April
1971, but allegedly released by it and received by the Commissioner on 12 April 1971, requiring
them to pay deficiency withholding income tax on the remitted film rentals for the years 1965 through
1968 and film royalty as of the end of 1968 in the total amount of P525,897.06. On 5 May 1971, the
company requested for a reconsideration and withdrawal of the assessment. However, without
acting thereon, the Commissioner, on 6 April 1976, issued a warrant of distraint and levy over the

companys personal as well as real properties. The company then filed its Petition for Review
with the Court of Tax Appeals (CTA Case 2809) whose Decision, dated 29 November 1979, affirmed
the assessment by the Commissioner of Internal Revenue of a deficiency withholding income tax
against the company for the years 1965 to 1968 for a total amount of P525,897.06 (P75,895.24,
P99,239.18, P128,502.00 and P222,260.64), plus the surcharge and interest which have accrued
thereon incident to delinquency, pursuant to Section 51(e) of the National Internal Revenue Code, as
amended; with the costs against the company. Hence, the Petition for Review on Certiorari. The
Supreme Court reversed the judgment of the Court of Tax Appeals, and set aside the questioned
assessment; without costs.
WON Revenue Memorandum Circular 4-71, revoking General Circular V-344, may be retroactively
Rulings or circulars promulgated by the Commissioner of Internal Revenue have no retroactive
application where to so apply them would be prejudicial to taxpayers. In the present case, the
prejudice to the company of the retroactive application of Memorandum Circular 4-71 is beyond
question. It was issued only in 1971, or 3 years after 1968, the last year that the company had
withheld taxes under General Circular V-334. The assessment and demand on company to pay
deficiency withholding income tax was also made 3 years after 1968 for a period of time
commencing in 1965. The company was no longer in a position to withhold taxes due from foreign
corporations because it had already remitted all film rentals and no longer had any control over them
when the new Circular was issued. And in so far as the enumerated exceptions are concerned,
admittedly, the company does not fall under any of them.