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Pamantasan ng Lungsod ng Maynila

College of Law
Atty. Padilla





Purposes and objective of Taxation

As Implement of Police Power

Walter Lutz v. Araneta 98 Phil 148

Lutz assailed the constitutionality of Sec. 2 and 3 which provided for an increase of
the existing tax on the manufacture of sugar alleging such tax as unconstitutional
and void for not being levied for public purpose but for the aid and support of the
sugar industry exclusively. Is the tax levy a valid exercise of state power?

Held: Yes. As the protection and promotion of the sugar industry is a matter of public
concern, the Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative discretion
must be allowed full play, subject only to the test of reasonableness; and it is not
contended that the means provided in Sec. 6 of CA 567 bear no relation to the
objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid no reason is seen why the state may not levy taxes to raise
funds for their prosecution and attainment. Taxation maybe made the implement of
the state’s Police Power.

Basis of Taxation

Taxation involves power to destroy

Mc Cullough vs. Maryland 4L Ed 579

Maryland (P) enacted a statute imposing a tax on all banks operating in Maryland not
chartered by the state. The statute provided that all such banks were prohibited from
issuing bank notes except upon stamped paper issued by the state. The statute set
forth the fees to be paid for the paper and established penalties for violations.

The Second Bank of the United States was established pursuant to an 1816 act of
Congress. McCulloch (D), the cashier of the Baltimore branch of the Bank of the
United States, issued bank notes without complying with the Maryland law. Maryland
sued McCulloch for failing to pay the taxes due under the Maryland statute and

McCulloch contested the constitutionality of that act. The state court found for
Maryland and McCulloch appealed.

1) Does Congress have the power under the Constitution to incorporate a bank, even
though that power is not specifically enumerated within the Constitution? 2) Does the
State of Maryland have the power to tax an institution created by Congress pursuant
to its powers under the Constitution?

Held 1) Yes. Congress has power under the Constitution to incorporate a bank
pursuant to the Necessary and Proper clause (Article I, section 8). 2) No. The State of
Maryland does not have the power to tax an institution created by Congress pursuant
to its powers under the Constitution.

The Government of the Union, though limited in its powers, is supreme within its
sphere of action, and its laws, when made in pursuance of the Constitution, form the
supreme law of the land. There is nothing in the Constitution of the United States
which excludes incidental or implied powers. If the end be legitimate, and within the
scope of the Constitution, all the means which are appropriate and plainly adapted to
that end, and which are not prohibited, may constitutionally be employed to carry it
into effect pursuant to the Necessary and Proper clause.

The power of establishing a corporation is not a distinct sovereign power or end of

Government, but only the means of carrying into effect other powers which are
sovereign. It may be exercised whenever it becomes an appropriate means of
exercising any of the powers granted to the federal government under the U.S.
Constitution. If a certain means to carry into effect of any of the powers expressly
given by the Constitution to the Government of the Union be an appropriate
measure, not prohibited by the Constitution, the degree of its necessity is a question
of legislative discretion, not of judicial cognizance.

The Bank of the United States has a right to establish its branches within any state.
The States have no power, by taxation or otherwise, to impede or in any manner
control any of the constitutional means employed by the U.S. government to execute
its powers under the Constitution. This principle does not extend to property taxes on
the property of the Bank of the United States, nor to taxes on the proprietary interest
which the citizens of that State may hold in this institution, in common with other
property of the same description throughout the State.

It does not involve power to destroy as long as this Court sits

Panhandle Oil Co. v. Mississippi ex Rel. Knox, 277 U.S. 218 (1928)

Based on a Mississippi statute Chapter 116 of the Laws of Mississippi of 1922

provided that "any person engaged in the business of distributor of gasoline or retail
dealer in gasoline shall pay for the privilege of engaging in such business, an excise
tax of 1¢ (one cent) per gallon upon the sale of gasoline, . . ." except that sold in
interstate commerce or purchased outside the state and brought in by the consumer
for his own use. Chapter 115, Laws of 1924, increased the tax to three cents, and c.
119, Laws of 1926, made it four cents per gallon. Since some time in 1925, petitioner
has been engaged in that business. The state sued to recover taxes claimed on

account of sales made by petitioner to the United States for the use of its Coast
Guard fleet in service in the Gulf of Mexico and its Veterans' Hospital at Gulfport.
Some of the sales were made while the Act of 1924 was in force, and some after the
rate had been increased by the Act of 1926. Accordingly, the demand was for three
cents a gallon on some and four cents on the rest. Petitioner defended on the ground
that these statutes, if construed to impose taxes on such sales, are repugnant to the
federal Constitution. The court of first instance sustained that contention, and the
state appealed. The supreme court held the exaction a valid privilege tax measured
by the number of gallons sold; that it was not a tax upon instrumentalities of the
federal government, and that the United States was not entitled to buy such gasoline
without payment of the taxes charged dealers. Is the United States Federal
government Exempt from the tax being imposed by the state?

Held: Yes. The United States is empowered by the Constitution to maintain and
operate the fleet and hospital. Art. I, § 8. That authorization and laws enacted
pursuant thereto are supreme (Art. VI), and, in case of conflict, they control state
enactments. The states may not burden or interfere with the exertion of national
power or make it a source of revenue or take the funds raised or tax the means used
for the performance of federal functions. The strictness of that rule was emphasized
in Gillespie v. Oklahoma, The right of the United States to make such purchases is
derived from the Constitution. The petitioner's right to make sales to the United
States was not given by the state, and does not depend on state laws; it results from
the authority of the national government under the Constitution to choose its own
means and sources of supply. While Mississippi may impose charges upon petitioner
for the privilege of carrying on trade that is subject to the power of the state, it may
not lay any tax upon transactions by which the United States secures the things
desired for its governmental purposes. The exactions demanded from petitioner
infringe its right to have the constitutional independence of the United States in
respect of such purchases remain untrammeled. Petitioner is not liable for the taxes

In the dissenting opinion of Justice Holmes, he enunciated, thus,

It seems to me that the state court was right. I should say plainly right but for the
effect of certain dicta of Chief Justice Marshall which culminated in, or, rather, were
founded upon, his often quoted proposition that the power to tax is the power to
destroy. In those days, it was not recognized, as it is today, that most of the
distinctions of the law are distinctions of degree. If the states had any power, it was
assumed that they had all power, and that the necessary alternative was to deny it
altogether. But this Court, which so often has defeated the attempt to tax in certain
ways, can defeat an attempt to discriminate or otherwise go too far without wholly
abolishing the power to tax. The power to tax is not the power to destroy while
this Court sits. The power to fix rates is the power to destroy if unlimited, but this
Court, while it endeavors to prevent confiscation, does not prevent the fixing of rates.
A tax is not an unconstitutional regulation in every case where an absolute
prohibition of sales would be one

Taxation vs Police Power and Eminent Domain

Domingo vs Garlitos 8 SCRA 443

The government has assessed inheritance tax on the Estate of the late Walter Scott
Price, which also has a claim with the government for past services rendered. 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 (RA2700). Under the above
circumstances, both the claim of the government for inheritance taxes and the claim
of the intestate for services rendered have already become overdue and demandable
as well fully liquidated. Are the obligations subject to compensation?

Held: Yes. The ordinary procedure by which to settle claims of indebtedness against
the estate of a deceased person, as an inheritance tax is for the claimant to present
a claim before the probate court so that said court may order the administrator to
pay the amount thereof. However, Compensation, takes place by operation of law, in
accordance with the provisions of Art. 1279 and 1290 of the Civil Code. And both
debts are extinguished to the concurrent amount.

Cu Unjieng vs. Patstone 42 Phil 818 - 1922

G. A. Cu Unjieng applied for a building permit for the construction of a warehouse in

Azcarraga street but was denied unless he shall have made provision for the
construction of an arcade over the sidewalk in front of the building, and until he shall
have further complied with Section 1 of Ordinance 301 of the City of Manila, which
states that once the plan of work has been approved by the city engineer, pay ½ of
the assessed value of the city land located within the arcades of the said building or
construction, exacted as a license fee for the use occupation of the said land. Cu
Unjieng assailed the action of the City Engineer claiming that the arcade is
unnecessary and unsuitable for his warehouse and the Ordinance 301 is in excess of
legislative powers of the Municipal Board, and therefore unconstitutional. May upon
its charter the city of Manila, under the guise of a license fee and as a prerequisite for
the issuance of a building permit, exact the payment of ½ of the assessed value of
the portion of the sidewalk covered by the arcade.

Held: The city of Manila has the power to require the construction of the arcades in
certain circumstances but the license fee prescribed by the City Ordinance No. 301 is
illegal. A license is issued under police power; but the exaction of license fee with
view to revenue would be an exercise of the power of taxation; and the charter must
plainly show an intent to confer that power, or the municipal corporation cannot
assume it. The allowable amount of license fee or tax depends so much on the
special circumstances of each particular case. Adjudications, however, appear to
recognize 3 classes licenses (license for regulation of useful occupations or
enterprises; licenses for the regulation of non-useful occupations or enterprises; and
licenses for revenue only), which should be taken into consideration in determining
the reasonableness of the license fee. Herein, in imposing a fee equal to 1/2 of the
assessed value of the portion of the sidewalk covered by the arcade, the municipal
board exceeded its powers. The construction of buildings is a useful enterprise and
the amount of the license fee should therefore be limited to the cost of licensing,
regulating, and surveillance. As it does not appear such cost would materially
increase through the construction of the arcade, the excess fee is clearly imposed for
the purpose of revenue. There is nothing in the charter of the City indicating
legislative intent to confer tot the municipal board to impose a license tax for
revenue on the construction of buildings. Although the city can require the
construction of arcades in certain circumstances, the license fee prescribed by
Ordinance 301 is illegal. The power conferred in relation to such construction is
considered merely as police power from which, as we have seen, taxing power is not

inferred. Under the circumstances, to hold the fee valid would amount to judicial


Respondent Hui Chiong Tsai Pao Ho challenged the validity of Ordinance 6537 passed
by the Municipal Board of Manila. The said ordinance prohibited aliens from being
employed or to engage or participate in any position, occupation or business
enumerated therein, whether permanent, temporary or casual, without first securing
an employment permit from the mayor of manila and paying the permit fee. Is the
ordinance valid regulatory and revenue measure?

Held: Ordinance 637 is partly regulatory in requiring employment permit for alien as
it involves the exercise of discretion and judgment in the processing and approval
and disapproval of application for employment permits. That which requires the
payment of P50 as employee’s fee is however not regulatory but a revenue measure.
The ordinance’s purpose is clearly to raise money under the guise of regulation by
exacting P50 from aliens who have been cleared for employment. The amount is
unreasonable and excessive because it fails to consider difference in situation among
aliens required to pay it, i.e. being casual, permanent, part-time, rank-and-file or
executive. It is thus invalid as it is arbitrary, oppressive and unreasonable, being
applied only to aliens who are thus deprived of their rights to life, liberty and property
and therefore violates the due process and equal protection clauses of the
Constitution. Further, the ordinance does not lay down any criterion or standard to
guide the Mayor in the exercise of his discretion, thus conferring upon the mayor
arbitrary and unrestricted powers.

Apostolic Prefect vs City Treasurer of Baguio 71 Phil 547

The Apostolic Prefect is a corporation sole, of religious character, organized under the
Philippine laws, and with residence in Baguio City. The City government imposed a
special assessment against the properties within its territorial jurisdiction, including
those of the Apostolic Prefect, which benefits from its drainage and sewerage system.
The Apostolic Prefect contends that being a religious entity, its properties should be
exempt from paying the special assessment. Is it exempt?

Held: In its broad meaning, tax includes both general taxes and special assessment.
Yet actually, there is a recognized distinction between them in that assessment is
confined to local impositions upon property for the payment of the cost of public
improvements in its immediate vicinity and levied with reference to special benefits
to the property assessed. A special assessment is not, strictly speaking, a tax; and
neither the decree nor the Constitution exempt the Apostolic Prefect from payment of
said special assessment. Furthermore, assuming that exemption may encompass
such assessment, the Apostolic Prefect cannot claim exemption as it has not proven
the property in question is used exclusively for religious purposes; but that it appears
that the same is being used to other non-religious purposes. Thus, the Apostolic
Prefect is required to pay the special assessment.



Public Purpose

Pascual vs. Secretary of Public Works 110 Phil 331

A law was enacted in 1953 containing a provision for the construction,

reconstruction, repair, extension and improvement of Pasig feeder road terminals
within Antonio Subdivision owned by Senator Jose C. Zulueta. Zulueta “donated” said
parcels of land to the Government 5 months after the enactment of the law, on the
condition that if the Government violates such condition the lands would revert to
Zulueta. The provincial governor of Rizal, Wenceslao Pascual, questioned the validity
of the donation and the Constitutionality of the particular provision, it being an
appropriation not for a public purpose. Is the appropriation valid?

Held: No. The appropriation of amount for the construction on a land owned by
private individual is invalid imposition since it results in the promotion of private
enterprise, it benefits the property of a particular individual. The provision that the
land thereafter be donated to the government does not cure this defect. The rule is
that if the public advantage or benefit is merely incidental in the promotion of a
particular enterprise, such defect shall render the law invalid. On the other hand, if
what is incidental is the promotion of a private enterprise, the tax law shall be
deemed “for public purpose”.

Government is Tax-exempt, However it can tax itself.

Situs or Territoriality
Mobilia Sequntuur Personam rule is not applicable to Philippine Share of stocks

Wells Fargo Bank vs Collector 70 Phil 325

Birdie Lillian Eye died in Los Angeles, California, the place of her alleged last
residence and domicile. Among the properties she left was her 1/2 conjugal shares of
stock in the Benguet Consolidated Mining Co., an anonymous partnership (sociedad
anonima), organized under the laws of the Philippines. She left a will duly admitted to
probate in California where her estate was administered and settled. Wells Fargo
bank and Union Trust Co. was duly appointed trustee of the trust by the said will. The
Federal and California State’s inheritance taxes due thereon have been duly paid.
The Collector of Internal Revenue in the Philippines, however, sought to subject the
shares of stock to inheritance tax, to which Wells Fargo objected contending that the
shares of stocks cannot be subjected to inheritance tax considering that the
decedent was domiciled in California. Where is the situs of Tax?

Held: The situs is in the Philippines. Originally, the settled law in the United States is
that intangibles have only one situs for the purpose of inheritance tax, and such situs
is in the domicile of the decedent at the time of his or her death. But the rule has
been relaxed. The maxim “mobila sequuntur personam,” upon which the rule rests,
has been decried as a mere “fiction of law having its origin in considerations of
general convenience and public policy, and cannot be applied to limit or control the
right of the State to tax property within its jurisdiction” and must “yield to
established fact of legal ownership, actual presence and control elsewhere; it cannot

be applied if to do so would result in inescapable and patent injustice.” The relaxation
of the original rule rests on either of two fundamental considerations: (1) upon the
recognition of the inherent power of each government to tax persons, properties, and
rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2)
upon the principle that as to intangibles, a single location in space is hardly possible,
considering the multiple, distinct relationships which may be entered into with
respect thereto. Herein, the actual situs of the shares of stock is in the Philippines,
the corporation being domiciled therein. The certificates of stock remained in the
Philippines up to the time when the deceased died in California, and they were in
possession of one Syrena McKee, secretary of the corporation, to whom they have
been delivered and indorsed in blank. McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. The owner residing in California has
extended here her activities with respect to her intangibles so as to avail herself of
the protection and benefit of Philippine laws. Accordingly, the jurisdiction of the
Philippine Government to tax must be upheld.

Situs for sales tax purposes

Shell vs Municipality of Sipocot 105 Phil. 1263

The municipality of Sipocot, Camarines Norte, by an ordinance imposed additional

sales tax on the sale of fuels and oils by Shell Co. effected through its delivery trucks
outside the territorial limits of Sipocot. Shell protested contending that the sales
should not be taxed as the transactions are consummated outside the territory of its
location Sipocot . Where is the situs of the transaction?

Held: The situs of the sale for tax purposes is not the place where the contract of
sale is perfected but the place of its consummation. The additional sales tax on sales
of petroleum products can not be applied to deliveries outside the municipality of
Sipocot since the consummation of sale is determined by the delivery of the things
which are the subject matter of the contract.

Commissioner vs. British Overseas Airways Corp. GR 6573-74-April 30-87

British Overseas Airways Corp. (BOAC) is a 100% British Government-owned

corporation engaged in international airline business and is a member of the Interline
Air Transport Association. It operates air transportation service and sells
transportation tickets over the routes of the other airline members. From 1959 to
1972, BOAC had no landing rights for traffic purposes in the Philippines and thus did
not carry passengers and/or cargo to or from the Philippines but maintained a
general sales agent in the Philippines — Warner Barnes & Co. Ltd., and later,
Qantas Airways — which was responsible for selling BOAC tickets covering
passengers and cargoes. The Commissioner of Internal Revenue assessed deficiency
income taxes against BOAC. BOAC protested contending that it can not be taxed for
income derived from ticket sales in the Philippines because it can not be considered
derived from sources “ within the Philippines “ where it had no landing rights and
without certificate of convenience thus not allowed in carrying passengers nor
cargoes to and from.

Held: It is taxable. The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as coming from the

Philippines, it is sufficient that the income is derived from activity within the
Philippines. Herein, the sale of tickets in the Philippines is the activity that produced
the income. The tickets exchanged hands here and payments for fares were also
made here in Philippine currency. The situs of the source of payments is the
Philippines. The flow of wealth proceeded from, and occurred within, Philippine
territory, enjoying the protection accorded by the Philippine Government. In
consideration of such protection, the flow of wealth should share the burden of
supporting the government. PD 68, in relation to PD 1355, ensures that international
airlines are taxed on their income from Philippine sources. The 2 1/2 %tax on gross
billings is an income tax. If it had been intended as an excise or percentage tax, it
would have been placed under Title V of the Tax Code covering taxes on business.

Constitutional Limitations


Villegas vs Hsiu Chiong Tsai Pai 86 SCRA 270 (Supra)

The imposition of license fee on all aliens desiring to seek employment in Manila,
regardless of the nature of employment (whether causal, permanent or part-time or
full time, lowly paid or highly paid executive) is unconstitutional. It is discriminatory
because it fails to consider valid substantial differences in situation among aliens
required to pay it. Classification should be based on real and substantial differences
having reasonable relation to the subject of legislation.

Roman Catholic Bishop of Abra vs. Hernando 107 SCRA

The provincial assessor made a tax assessment on the properties of the Roman
Catholic Bishop of Bangued. The bishop claims tax exemption from real estate tax,
through an action for declaratory relief. A summary judgment was made granting the
exemption without hearing the side of the Province of Abra but relying merely on the
declaration of the Roman Catholic Bishop of Bangued that they are using the
properties actually, directly and exclusively for religious purposes. Was the state
deprived of due process?

Held: The petitioner’s right to due process was violated absent the conduct of
hearing. It is fully justified in invoking the protection of procedural due process. If
there is any case where proof is necessary to demonstrate that there is compliance
with the constitutional provision that allows an exemption, this is it. Instead,
respondent Judge accepted at its face the allegation of private respondent. All that
was alleged in the petition for declaratory relief filed by private respondents, after
mentioning certain parcels of land owned by it, are that they are used "actually,
directly and exclusively" as sources of support of the parish priest and his helpers
and also of private respondent Bishop. 18 In the motion to dismiss filed on behalf of
petitioner Province of Abra, the objection was based primarily on the lack of
jurisdiction, as the validity of a tax assessment may be questioned before the Local
Board of Assessment Appeals and not with a court. There was also mention of a lack
of a cause of action, but only because, in its view, declaratory relief is not proper, as
there had been breach or violation of the right of government to assess and collect
taxes on such property. It clearly appears, therefore, that in failing to accord a
hearing to petitioner Province of Abra and deciding the case immediately in favor of

private respondent, respondent Judge failed to abide by the constitutional command
of procedural due process.

Commissioner vs Campos Rueda Co. GR 70648

Campos Rueda Corporation (Respondent Company, for short), imported several

articles from United States and filed corresponding import entry. However the Bureau
of Customs re-appraised them for higher rate based on alert notices sent by Finance
Ataches abroad. Respondent then paid under protest for refund. Denied by BOC. On
appeal CTA which found BOC violated the Tariff Code ordering refund of the overpaid
amount. The issue posed is whether or not the re-appraisal made by the
Commissioner of Customs was in accordance with Section 201 of the Tariff and
Customs Code of the Philippines (RA No. 1937), as amended by PD Nos. 34 and 1464.
which required that the correct dutiable value of the article shall be ascertained from
the reports of the Revenue Attache or Commercial Attache where there exists a
reasonable doubt as to the value or price of the imported article declared in the
entry. Was there violation of the due process?

Held: In the Import Entries, Respondent quoted the prices of the imported
merchandise as declared in the consular invoices and as required by Section 201.
Reasonable doubt regarding the declarations was not shown to have existed such
that recourse to reports from commercial attachés or other information became
necessary. Neither was there compliance with the requirement in Section 201
regarding publication of the lists of dutiable values of imported articles from time to
time. The re-appraisal made by the Bureau of Customs was based on "Alert Notices"
received from Finance Attachés abroad, which, however, were not disclosed, neither
to Respondent Company nor to respondent Court. The respondent's re-appraisal of
the subject shipments or articles imported were based on the alleged "Alert Notice"
which was not even presented by respondent to the Court. Assuming that there really
is such a document and the same was received by the Commissioner of Customs, the
fact is that the records do not show from what data the alleged alerted value was
taken, and how the Commissioner of Customs ascertained and established the home
consumption value of the imported articles and/or merchandise and when and where
such alerted value was published as required by law. Under these circumstances, the
re-appraisal made by respondent is clearly not in accordance with the provisions of
Section 201 of the Tariff and Customs Code. While it is true that appraisers of the
Bureau of Customs are given ample leeway in determining the correct customs
duties under Section 1405 of the Tariff and Customs Code, 1 Section 201 of the same
Code, which prescribes the criteria for the determination of the dutiable values of
imported articles, has not been complied with. What is more, administrative
proceedings are not exempt from the operation of due process requirements one of
which is that a finding by an administrative tribunal should be supported by
substantial evidence presented at the hearing or at least contained in the records or
disclosed to the parties affected. 2 In this case the "Alert Notices" on which petitioner
based its re-appraisal were not disclosed during the proceedings before the Bureau of
Customs nor presented in evidence before respondent Court. The re-appraisal made
by petitioner, therefore, can be faulted with arbitrariness in disregard of the standard
of due process to which all governmental action should conform to impress upon it
the stamp of validity.


Juan Luna Subdivision vs. Sarmiento 91 PHIL 371

Juan Luna Subdivision, Inc. brought a suit against the City treasurer and the
Philippines Trust Company as defendants in the alternative to determine which of the
two defendants is liable for plaintiff’s checks. Is appears that the plaintiff issued to
the City treasurer of Manila a check to be applied to plaintiff’s land tax for the second
semester of 1941, the exact amount of which was yet undetermined . On Feb. 20,
1942, after the amount had been verified , which was P341.60, the balance of
P1,868.92, covered by voucher no 1487 of the City Treasurer’s Office , was noted in
the ledger as a credit to Juan Luna Subdivision, Inc. Thereafter, the books of the
Philippine Trust Company revealed that plaintiff’s check was deposited by the City
Treasurer with the Philippine National Bank, and the latter was paid the cash
equivalent thereof by the Philippines Turst Company, which debited the amount
against Juan Luna Subd.. However the City Treasurer refused after liberation to
refund the plaintiff’s deposit or apply it to such future taxes as maybe found due. The
plaintiff claims the whole amount of the check contending that the taxes for the last
semester of 1941 had been remitted by CA No. 703.

Held: The law is clear that it applies to “taxes and penalties due and payable,” i.e.
taxes owed or owing. The remission of taxes due and payable to the exclusion of
taxes already collected does not constitute unfair discrimination. Each set of taxes is
a class by itself, and the law would be open to attack as class legislation only if all
taxpayers belonging to one class were not treated alike. Herein, they are not. The
taxpayers who paid their taxes before liberation and those who had not were not on
the same footing on the need of material relief. Taxpayers who had been in arrears in
their obligation should have to satisfy their liability with genuine currency, while the
taxes paid during the occupation had been satisfied in Japanese War Notes, many of
them at a time when those notes were well-nigh worthless. To refund those taxes
with restored currency would be unduly enrich many of the payers at a greater
expense to the people at large.

Pepsi-Cola Bottling Co. vs. City of Butuan 24 SCRA 789

The City of Butuan enacted Ordinance 110 imposing a tax of P0.10 per case of 24
bottles of soft drinks or carbonated drinks upon dealers engaged in selling soft drinks
or carbonated drinks. Under the Ordinance tax was imposed upon an agent or
consignee of any person, association, partnership, company or corporation engaged
in selling soft drinks or carbonated drinks, with “agent or consignee” being
particularly defined on the inserted provision Section 3-A. In effect, local merchants
engaged in the sale of soft drinks, etc. are not subject to the tax unless they are
agents or consignees of another dealer who must be one engaged in business
outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it to the
city pursuant to the Ordinance, which it claims to be null and void for being
discriminatory. Is the ordinance violative of the equal protection clause of the

Held:The ordinance is void for being discriminatory thus in violation of the equal
protection clause of the constitution. There is discrimination because the tax was
imposed on “agents and consignees of outside dealer” in soft drinks without said tax
being also levied on local dealers. The classification of such “agents and consignees”

who are taxable and “local delaers” who are exempt is not based on substantial

Association of Custom Brokers vs. City of Manila 92 Phil 107

Plaintiff Association of Custom Brokers, Inc. challenge the validity of Ord. No 3379
which confers upon the municipal board the power to tax motor and other vehicles
operating within the City of Manila on the ground that said ordinance offends against
the rule of uniformity of taxation. Does the ordinance infringe on the rule on
uniformity of taxes as ordained by the Constitution.

Held: The ordinance infringes upon the rule of uniformity. It exacts the tax upon all
motor vehicles operating within the City of Manila . It does not distinguish between a
motor vehicle for hire and one which is purely for private use. Neither does it
distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets and
public highways. There is no pretense that the ordinance equally applies to motor
vehicles which come to Manila for a temporary stay or for short errands, and it
cannot be denied that they contribute in no small degree to the deterioration of the
streets and public highways. As they are benefited by their use they should also be
made to share the corresponding burden. This inequality renders the ordinance in
question offensive to the constitution.

Shell Company of P.I, Ltd. Vs. Vano, etc. 94 Phil 387

The municipal council of Cordova, Cebu adopted several ordinances among which
Ordinance 10 imposing an annual tax of P150 on occupation or the exercise of the
privilege of installation manager. Shell Co., a foreign corporation, filed suit for the
refund of the taxes paid by it on the ground that the ordinance imposing such tax is
ultra vires for being discriminatory and hostile because there is no other person in
the locality who exercise such designation or occupation.

Held: : A tax on “installation manager” is not discriminatory just because at the time
said tax was imposed, there was no other person in the locality who exercised such
occupation. The tax is and will be applicable to any person or firm who exercises such
calling or occupation designated as “installation manager”.


American Bible Society vs. City of Manila 101 Phil 386

The City of Manila enacted an ordinance imposing a license fee on those engaged in
the business of general merchandise. The American Bible Society is a non-stock, non-
profit missionary organization engaged in sale of bibles and religious articles at little
profit. The acting City Treasurer of Manila required the society to secure the
corresponding Mayor’s permit and municipal license fees, together with compromise
covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953. The

society paid such under protest, and filed suit questioning the legality of the
ordinances under which the fees are being collected on the ground that it violates the
freedom of religious profession and worship.

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

- Applies only to taxation but not in Police and Eminent Domain powers

Removal of tax exemption in a franchise is not a violation of the clause.

Cagayan Electric Power & Light Co. vs. Commissioner GR. L-60126 Sept. 25-85

Cagayan Electric was granted an electric power franchise under is a holder of a

legislative franchise under Republic Act 3247 where payment of 3% tax on gross
earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431
amended the franchise by making all corporate taxpayers liable for income tax
except those indicated in paragraph (c) (1) of Section 24 of the Tax Code. In 1969,
through RA 6020, its franchise was extended to two other towns and the tax
exemption was reenacted. In 1973, the Commissioner required the company to pay
deficiency income taxes for 1968 to 1971. Cagayan Electric protested invoking non-
impairment of contract.

Held: The non-impairment clause does not apply to oublic utility franchises. Art. XII
sec. 11 of the Constitution mandates that no public utility franchise or right shall be
granted “except under the condition that it shall be subject to amendment, alteration
or repeal by the congress when the common good so requires.


Churchill vs. Concepcion (22 September 1916)

Act 2339 was promulgated on 1914. Sec 100 thereof provided for imposition of an
annual tax of P4 per square meter upon electric signs, billboards, and spaces used for
posting or displaying temporary signs, and all signs displayed on premises not
occupied by buildings. The section was amended by Act 2432, reducing the tax to P2
per square meter. The taxes imposed by Act 2432 were ratified by the US Congress
on 4 March 1915. Francis A. Churchill and Stewart Tait, co-partners in Mercantile
Advertising Agency, owned a billboard to which they were taxed at P104. The tax was
paid under protest. Churchill and Tait instituted the action to recover the amount
contending that the tax is void for lack of uniformity.

Held: Uniformity in taxation means that all taxable articles or kinds of property, of
the same class, shall be taxed at the same rate. It does not mean that lands,
chattels, securities, incomes, occupations, franchises, privileges, necessities, and
luxuries shall all be assessed at the same rate. Different articles may be taxed at
different amounts provided the rate is uniform on the same class everywhere, with all
people, at all times. Herein, the Act imposes a tax of P2 per square meter or a
fraction thereof upon every electric sign, billboard, etc., wherever found in the
Philippine Islands. The rule of taxation upon such signs is uniform throughout the
islands. The rule does not require taxes to be graded according to the value of the
subject(s) upon which they are imposed, especially those levied as privilege or
occupation taxes.


“Obnoxious” or direct duplicate taxation vs Broad, permissive or indirect

duplicate taxation

Procter and Gamble vs. Municipaliity of Jagna L-24265 Dec. 28, 1979

The municipality of Jagna enacted Ordinance No. 04 under the authority of CA472
ehich allows it to impose licenses for regulation as well as revenue. Through the said
ordinance it imposed license tax or fee on persons, firms or corporation exercising
the privilege of storing copra in a bodega within the municipality’s jurisdiction.
Procter and Gamble Philippines Manufacturing Corp. contended that the ordinance
which imposed a storage fee of 0.10 for every 100 kilos of all exportable copra
deposited in its “bodega” at said municipality is inapplicable to it even if it is valid
according to the laws in force because it is not engaged in the business or occupation
of buying and selling copra but only in storing copra in connection with its business of
manufacturing soap and other similar products which products are already being
taxed. It paid under protest and filed a suit seeking that the ordinance be declared
void for being a double taxation. Is there a double taxation?

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


Tax exemption- Strictly construed s. taxpayer


Meralco, holder of franchise to construct , maintain and operate an electric light heat
and power system in the city of manila, imported copper wires, transformers and
insulators for use in the operation of its business in 1962. In 1963, it again imported
copper wires, transformers and insulators to be used therein, Both importations were
subject to the compensating tax (now, VAT). After payment thereof, Meralco
claimed for refund which was sequentially denied by BIR and CTA, on the ground that
it is tax exempt under its franchise. Is the claim tenable?

Held : No. One who claims exemption from payment of a particular tax must do so
under clear and unmistakable terms found in the statute as it is strictly construed
against the taxpayer Meralco’s franchise exempts it from payment of property tax on
its poles, wires, transformers and insulators, but not from payment of taxes of the
ones in question which by mere necessity or consequence alone, fall upon property.
The compensating tax being imposed is not a property but an excise tax imposed on
the performance of an act, engaging in occupation or enjoyment of a privilege.
Property tax is a direct tax whereas the compensating tax which is levied on the
property because of its use s an excise tax.

Manila Jockey Club vs Collector 98 Phil 670

Philippine Charity sweepstakes (PCSO) is allowed by law to hold some specific day of
race for charitable purposes in the racetrack of Manila Jockey Club (MJC). PCSO paid
its rentals. From said rentals the BIR collected income tax. MJC later claimed for
refund on the ground that it is exempted under the law authorizing said PCSO races,
MJC is exempted from paying municipal and national taxes. Is the claim valid?

Held: The exemption clause provided for in the said law merely intends to exempt
racing club in whose premises PCSO holds it charitable races, from payment of
municipal and national taxes that the law requires to be paid in connection with the
said races. It cannot refer to income tax that may be imposed on the rentals that
maybe paid for the use of said tracks and other paraphernalia. That is an income the
the MJC has to account for income tax purposes because it is an income earned
because of the use by PCSO of its tracks, and not arising from the horse race it held
but from the rentals , thus can be considered not connected with the races within the
purview of the exemption clause.

Liberally construed –

SSS vs City of Bacolod L-35726 July 21, 1982.

For SSS’ failure to pay realty tax for three years for lands being used in pursuance of
its operations, City of Bacolo levied upon said properties and thereafter declared
them forfeited in its favor. SSS sought reconsideration on the ground that being a
government owned and controlled corporation, it is exempt from payment of real
estate taxes. When no action was taken thereon, SSS filed an action with the CFI fir
the nullification of the forfeiture proceedings. After due hearing , the court rendered
decision declaring the properties of SSS not exempt from the payment of realty taxes
since SSS does not fall under the section 39 of the Charter of the city of Bacolod and
there is no low exempting said entity from taxes. Is SSS exempt?

Held: Under Sc. 29 of the said charter, lands and buildings owned by the Republic of
the Philippines, regardless of whether such property is devoted to governmental or
proprietary purpose is exempt from payment of real estate taxes and PD No. 24
which amended SSS Act of 1954,has removed all doubts as to the exemption of the

SSS from taxation by explicitly providing for such exemption it is axiomatic that when
public property is involved, exemption is the rule and taxation, the exception.

David Nifanan vs Commissioner L-78780 July 23, 1987

The BIR thru the Fiscal Management and Budget Office of the Court deducted
withholding taxes from the salariesmof the judges and justices of the court. Certain
RTc judges n Manila sought to prohibit and perpetually enjoin the said deductions on
the ground that Sec. 10 art. VIII of the 1987 constitution mandates that “during their
continuance in office, their salary shall not be decreased” and thus constitutes
diminution of their salary. Are they exempt from the said tax?\

Held : No. The salaries of Court justices and judges are taxable. The clear intent of
the Constitution was to delete the proposed express grant of exemption from
payment of income tax to members of judiciary, so as to give substance to the
equality among the three branches of the government. In the course of the
deliberations in the constitutional Commission, it was expressly made clear that the
salaries of members of the judiciary would be subject to the general income tax
applied to all taxpayers. Settled is the fundamental principle that the intent of the
framers of the organic law and of the people adopting it should be given effect.

Commissioner vs Gotamco L-31092-Feb 27, 1987

The World Health Organization has regional office in Manila. Under the host
agreement between it and the Republic of the Philippines, it enjoys immunities and
privileges specifically, inter alia, “the Organization, its assets, income and other
properties shall be exempt from all direct and indirect taxes. It is understood
however, that the Organization will not claim exemption from taxes which are in fact,
no more than charges for public utility services.” It then entered into another
agreement with the RP when it decided to construct its headquarters building which
provided that it may import into the country materials and fixtures required for the
construction free from all duties and taxes and agrees not to utilize any portion of the
international reserves of the government. Based on the opinion of BIR that WHO
would be exempt from the contractor’s tax being an indirect tax, WHO opened the
bidding for the construction stating the exemption and subsequently awarded the
same to Gotamco and Sons. Upon completion of the project BIR however demanded
the 3% contractors tax from Gotamco. CTA reversed the BIR. Is the contractor’s tax
an indirect one wherein WHO is exempted?

Held: Yes. Direct Taxes are those that are demanded from the very person who, it is
intended or desired should pay them. While the indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention that
he can shift the burden to someone else. The contractor’s tax is of course payable by
the contractor , but n the last analysis, it is the owner of the building that shoulders
the burden of tax because the same is shifted by the contractor to the owner as a
matter of self-preservation, thus it is AN INDIRECT TAX. It is an indirect tax on WHO
as the contractor can shift the burden to WHO and it cannot be said that this tax has
no bearing with WHO. Being exempted from indirect tax, it is thus exempt from the
contractor’s tax.

Commissioner vs Frank Robertson, et al. (L-70116-19 Aug. 12 1986)

The Commissioner assessed income taxes on several US NAVY employees stationed

in the Philippines some of whom were bon in the Philippines repatriated in the US and

returned for assignment in the Philippines. The assessment was cancelled by CTA on
the ground that under the RP-Us Military Bases Agreement , No national of the US
employed in the Philippines in connection with the Bases x x x residing in the
Philippines only by reason of such employment, x x x shall be liable to pay income
tax in respect to income derived from the Philippines or sources other than the US.
BIR contends that the respondents do not reside on the Phils. Only by reason of the
employment. Is BIR correct?

Held: No. In order to avail oneself of the tax exemption under the RP-US Military
bases agreement : he must be national of US, employed in connection with the
construction, maintenance operation and defense of the Bases, residing in the
Philippines by reason of such employment and the income derived is from the US.
The agreement intention was to exempt all US citizens working in the Military bases
fro the burden of paying Philippines Income tax without distinction as to whether
born locally. The principle of international law requires the obligation to fulfil in good
faith the treaty engagement, for the stipulations thereof to be observed in their spirit
and according to their letter.


1. Not penal nor political but Civil

Hidalgo vs. Collector (100 Phil 288)

Hidalgo filed his tax return for 1951 but deducted from his gross the casualty loss
incurred during the war, i.e loss from fire , storms, shipwreck etc. Including war
losses on the contention that internal revenue laws were at the time unenforceable
or in state of suspension. Is Hidalgo correct?

Held: No. Although such loss was incurred during said war, it was not possible for him
to make the deductions because the same was not allowed under the revenue laws
which even under the Japanese occupation, continued to be in force.


Tax laws nor for avoidance but for collection

Commissioner vs. Phoenix Assurance L-19903, May 30, 1965.

Phoenix, British insurance company licensed to do business in the Philippines,

entered into reinsurance treaties with various foreign insurance companies agreeing
to cede portion of its premiums originally underwritten by its entities in consideration
of the assumption of equivalent portion of liability by the re-insurers. Later on
Phoenix filed its return reporting losses in 1952. in 1955 it filed an amended return.
After examination of the amended return, Commissioner in 1958 assessed deficiency
income tax. CTA found the Commissioner barred by prescription having been
exercised more than five years from the date original return was filed. Commissioner
insists it is within the prescriptive period reckoned from the filing of amended return.
From when should the reckoning commence?

Held: From the time of filing of the emended return. Considering that the deficiency
assessment was based on the amended return which is substantially dirrefent from
the original return, the period of limitation of the right to issue the same should be

counted from the filing of the emended income tax return. Thus the right of the
Commissioner to issue the assessment has not lapsed. To hold otherwise would be
paving the way for the taxpayers to evade the payment of taxes by simply reporting
in their original return heavy losses and amending the same more than five years
later when the commissioner has lost its authority to assess the property tax
hereunder. The object of the TAX CODE is to impose taxes for the needs of the
government, not to enhance TAX AVOIDANCE to its prejudice.

Legislative intent – imposition of taxes- Good faith is presumed.

Commissioner vs Connel Brothers GR no. L-27752-53 Aug. 30, 1971

Connel Bros. filed its income tax return at the rate determined from its deduction for
bad debts, depreciation and excess in valuation of leasehold improvements. The
commissioner upon review disallowed said deductions and assesses deficiency taxes.
After due trial, the CTA reduced the liability of Connel for the one taxable year but
sustained the assessment for the other taxable year ordering its payment within 30
days ,otherwise shal be imposed a surcharge of 5% and interest of 1 % from the date
of the finality of decision until paid, but not to exceed an amount corresponding to
the interest for a period of 3 years. Upon motions for clarifications the CTA modified
its decision applying the provision of the amending law (RA 2343). Commissioner
maintained that the CTA should have observed the unamended provision which was
enforcible when the assessments were made and not that as amended by RA 2343.
CTA justified that though the deficiency taxes were due and assessed before the
effectivity of the amending law, its decision modifying the commissioner assessment
constituted new assessment during which the amending law was in force. What law
shall be applied?

Held . The imposition of surcharge and interest has been well settled upon failure of
the taxpayer to to pay the tax on the date fixed by law. The rule has to be so
because a deficiency indicates non-payment of the correct and collectible tax and
such stte of deficiency exists not only from the very time the taxpayer failed to pay
the correct amount due from him. Public policy demands that the date they are
payable being fixed by law should not be moved or changed at the discretion of the
commissioner and for that matter neither the accrual of interest be dependent on the
final outcome of action contesting the correctness of the assessment of deficiency
tax. The law creating Court of Tax appeals or Revenue Code do not vest the CTA
with authority to supersede the period of payment of the tax or exercise primary duty
of commissioner in assessing /collecting the tax. Since the taxpayer in these cases
has failed to pay the correct amount of tax due collectible in 1955 and 1956, his
liability therefore should be etermined pursuant to the law then in force when the tax
originally fell due.

In case of doubt as to taxability, resolved in favor of non-imposition.

Commissioner vs Fireman’s Fund Insurance L-30644 Mar 9, 1987

As required y law, in its issuance of insurance policies, Fireman bought Documentary

stamps (DST) but instead of being affixed on the policies issued affixed on the
monthly statements of policies issued and to corresponding pages of policy register,
without authority from the Commissioner. The Policy register lost The commissioner
therefore assessed and demanded the payment of DST plus compromise penalties .
CTA overruled the BIR holding that while respondent failed to follow the mode of
affixing the DST, it is not tantamount to failure of paying the same, the fact remains

that the same were purchased by Firemen and paid by it. Evidence exists that the
said DST were paid by Fireman’s such as the checks and vouchers. There thus
created a doubt whether Fireman indeed on account of the lost register, paid the
DST, and if not should they be asked to pay same tax for the same documents?

Held: no. while it is true that the best evidence showing payment of the DST are the
policies themselves, the said payment are sufficiently shown by the surrounding
evidence which are uncontradicted and of considerable weight. It is a general rule n
the interpretation of the statutes levying taxes or duties , that in case of doubt, such
statutes are to be construed most strongly against the government and in favour of
the subjects of citizens, because burdens are not to be imposed , nor presumed to be
imposed beyond what statues expressly and clearly import. The purpose of imposing
DST is to raise revenue and the corresponding amount has already been paid and
actually become part of the revenue of the government revenue.

Taxes as lifeblood of the government- prompt collection is in imperious


Cebu Portland Cement Co. vs CTA L-29059 Dec. 15, 1987

By virtue of a decision by the Supreme Court modifying CTA decision, the

Commissioner was ordered to Refund to Cebu Portland the amount representing
overpayment of ad valorem taxes on cement produced and sold by the latter. The
commissioner posited that the cement is a manufactured and not mineral product
therefore not exempt from sales taxes.

Motion for reconsideration of both parties denied , Cebu moved for Writ of Execution.
Commissioner opposed the motion contending that Cebu still had outstanding sales
tax liabilities for which the judgment was already credited and in fact a balance still
remains. CTA granted the writ ruling that the alleged tax liability is still being
questioned and therefore cold not be set off against the refund. Commissioner
contends that the enforcement is was properly effected through his power of distraint
of personal property pursuant to Tax code moreover the collection of tax may not be
enjoined under Sec. 305 subject only to the exception prescribed in RA 1125. Does
the pending contest of the assessment stall the enforcement of the tax deficiency?

Held: No. 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. That is the reason why save for the
exceptions, No court shall have the authority to grant an injunction when assessment
is being questioned in court o justice more so if as in this case the assessment is
being questioned still and only in administrative level- much more that even after
crediting the refund against the deficiency a balance is still due to the respondent. To
reuire the Commissioner to actually refund the amount of the judgment debt which
he will have later the right to distraint for payment of its tax liability is only an IDLE

Republic vs Oasan Vda De Fernandez
“No expos facto law” rule not applicable to taxes.

Olimpio Fernandez and his wife Angelina Oasan had a networth which grew with their
acquisition of everall real properties during the Japanese occupation until his death.
Pursuant to War profits tax law, the commissioner assessed war profits tax to his
estate which the administratrix refused to pay. The latter questioned the
constitutionality of the law for being retroactive.

Held: Tax laws not being penal in character , the rule in constitution agsint passage
of Ex ps Facto Law cannot be invoked . the unconstitutional prohibition against the
passage of ex pos facto legislation, applies only to criminal or penal matters and not
to laws which concern civil matters or proceedings generally ,or which effect or
regulate civil or private rights.

Bagatsing vs Ramirez 74 SCRA 306

Publication of local tax ordinance; local tax code governs

The Municipal board of Manila enacted ordinance (No.7522) regulating the operations
of public markets and prescribing fees for the rentals of its stalls. It was approved by
mayor Bagatsing without being published in two daily newspapers of general
circulation in Manila before its enactment neither was it published after approval.
RTC declared it null and void for not complying with the Revised City charter of
Manila. Petitioner moved for reconsideration alleging that the local Tax Code requires
only post-enactment publication. What law should apply?

Held : The local Tax code applies. There is no question that the Charter of Manila is
a Special law and the Local tax code a general one. The rule that the special law
should remain as exception to the general one yields to a situation where the special
statute (charter) refers to a subject in general, which the general statute (Local Tax
code) treats in particular. The charter speaks of ordnance in general while the Tax
code relates to ordinance levying or imposing taxes in particular. The charter is
dominant therefore in ordinances in general but the dominant force loses its
continuity when it approaches the realm of ordinance levying or imposing taxes in
general. The general provision must give way to the particular provision especially so
that the particular provision was enacted later than the general provision.

Publication requirement

Tanada vs Tuvera GR 63915 April 4,1985

Invoking the peoples right to be informed on matters of public concern, a right

recognized in sec. 6 Art. IV of the 1973 Constitution , as well as the principle that
laws to be valid and enforceable must be published in the Official Gazette (OG) or
otherwise effectively promulgated , petitioners sought a writ of mandamus to compel
respondent public officials to public and or cause the publication in the Official
Gazette of various presidential decrees, letters of instruction, general orders,
proclamations, executive orders , letters of implementation ad administrative orders.
The respondents contend that publication in the OG is not sine quanon requirement
for the effectivity of laws where the laws themselves provide for their own effectivity
dates as the presidential decrees questioned contain especial provision as to the dte

of its effectivity, publication in OG is not indispensable for their effectivity. Such
position is anchored in Art. 2 of New Civil Code which provides that Laws shall take
effect after fifteen days following the completion of their publication in the OG unless
it is otherwise provided… Is publication necessary?

Held: the conclusion is reached that article 2 does not preclude the requirement of
publication in the OG even if the law provides for the date of effectivity.
Commonwealth Act 638 requires publication of statutes among others in the OG. The
clear object of the provision is to ive the general public adequate notice of the
various laws which are to regulate their actions and conduct as citizens. Without such
notice and publication there wouolde be no basis for the application of the maxim
“Ignorantia Legis non excusat”. It would e height of injustice to punish or otherwise
burden a citizen for the transgression of a law which he had no notice.

Exemptions to NON-Retroactivity of BIR Ruling

Commissioner vs Burroughs Ltd., et al GR 66653, June 19, 1986.

BIR Ruling issued on January 21, 1980 wherein it was ruled that the 15% branch
profit remittance tax under Sec. 25 (a)(5) of the Tax Code should be based on the
amount of profit actually remitted by a Philippines Branch to its parent company
abroad. However in 1982 under Revenue Memorandum Circular No8-82, the BIR
reversed the prior ruling and held that the 15% branch profit remittance should be
based not on the amont of profits actually remitted but on the amount applied for
remittance thereby making the basis of the 15% tax larger than on which said tax
was computed under the original 1980 ruling . the BIR in its subsequent ruling in
1982 reasoned that the amount applied for remittance should be the tax base, thus
giving to a bigger amount of tax. Will the reversal ruling in 1982 retroact to the
branch profit remittances made before that year or will apply to remittances made by
it in 1979?

Held: The payment of the branch profit remittance having made on March 1979, it
follows that BIR Meorandum Circular No. 8-82 issued on March 17, 1982 can not be
given retroactive effect in the light of Sec. 327 of Tax Code which provides that any
revocation, modification or reversal of any rules and regulations promulgated in
accordance with the preceding section or any of the ruling 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 he following
cases: Where taxpayer deliberately mistakes or omits material facts from his return
or any document required by BIR; where the facts subsequently gathered by BIR
were materially different from the facts on which the ruling is based or where the
taxpayer acted in bad faith.


Republic vs LIMACO & DE GUZMAN 5 SCRA 990

In 1946, Limaco & De Guzman Co. was engaged in the importation of cigarettes. To
guarantee payment of revenue taxes, the company and the Visayan Surety and
Insurance Corp.. as surety, executed 2 importer bonds. On 27 June 1946, the
company filed with the Bureau of Customs entry papers covering shipment of 2

million “Spud” cigarettes it had imported from New York. the specific tax due thereon
amounted to P6,000. The company, through its agent/broker J. O. Hiponia, paid the
Bureau of Customs the tax with P1000 in cash and P5,000 in a PNB Check on 15 July
1946. The cigarettes were released to the company but the check bounced. On 17
June 1948, the Collector of Internal Revenue demanded the payment of the
deficiency specific tax. The amount remained unpaid. On 15 April 1951, the company
requested that action be deferred as it intends to settle the matter amicably with the
BIR. The Republic filed a complaint for the forfeiture of the bonds, and the payment
of the sum of P5,000 plus interest. The company invoked the defense of estoppel and
prescription has the action prescribed on the ground that the assessment was made
in beyond 5 years from July 15 1946. What is Assessment? and has the power of
assessment prescribed?

Held: To Assess means to impose a tax; to charge with a tax; to declare a tax to be
payable; to apportion a tax to be paid or contributed; to fix a rate; to fix or settle a
sum to be paid by way of tax; to set, or charge a certain sum to each taxpayer; to
settle, determine or fix the amount of tax to be paid (84 C.J.S. pp. 749-750). The
assessment in question has not yet prescribed. It was not issued on July 14, 1946, but
on June 17, 1948. When the Collector of Internal Revenue received information from
the Bureau of Customs that the said sum of P5,000.00 was not paid (for lack of
funds), he immediately issued a letter dated June 17, 1948 addressed to the
defendant assessing and demanding from the latter the payment of the said
P5,000.00. It was then that the unpaid specific tax of P5,000.00 was deemed to have
been assessed. When the tax was paid in cash and in check on July 15, 1946, the
Collector had a right to rely, as it, in fact, relied that said payment fully settled the
specific taxes due on the imported cigarettes. The cigarettes would not have been
released, had Collector been aware that the payment did not fully settle the said
specific taxes. It can not be said that July 15, 1946 (the date of payment) was the
date of assessment from which the period of collection should start. July 15, 1946
was simply the date of tender of payment. The right to collect the amount of
P5,000.00 began only after the P5,000.00 — rubber check was dishonored. The
action to assess and collect the unpaid tax commenced anew on June 14, 1948, when
a letter of demand for the amount of said rubber-check had been sent to the
defendant. This letter should be deemed to be an assessment because it declared
and fixed a tax to be payable against the party liable thereto, and demanded the
settlement thereof. Judicial action having been instituted on February 18, 1953, the
five-year period for collection had not then elapsed.

Even assuming that July 15, 1946 is the date of assessment, still the action to collect
is not barred by the statute of limitations, because the statute was suspended when
the rubber-check was dishonored and demand letters were sent by the
commissioner. The defendant likewise wrote two letters to the Solicitor General on
April 15, and 25, 1951, respectively, requesting for the deferment of the judicial
action to be taken by the latter towards the collection of the obligation, so that the
former could make representations with the Collector to settle the matter amicably.
This being the case, the prescriptive period to effect the collection of the tax which
allegedly commenced on July 15, 1946, was interrupted. "The prescription of actions
is interrupted when they are filed before the court, when there is any written
extrajudicial demand by the creditors and when there is any written acknowledgment
of the debt by the debtor" (Art. 1155, New Civil Code). "Taxpayers seeking to recover
overpayment in income could not claim that collection by Commissioner was barred
by limitations where procedure carried out which result in postponement of collection
was that requested by taxpayers". Having acknowledged the debt in writing in April
1951, and the complaint was filed in 1953, prescription had not set in. The full time
for the prescription must be reckoned from the cessation of the interruption (Sagucio

v. Bulos, G.R. Nos. L-17608-09, July 31, 1962, and cases cited therein). Had it not
been for the filing of the complaint in 1953, the interruption would have ceased in
April 1956.


1. Prima Facie presumed correct. Burden of proof to dispute correctness is

on the taxpayer.

Interprovincial Autobus Inc. vs Collector of Internal Revenue GR L-6741 Jan 31, 1956

Autobus is a common carrier engaged in transporting passengers and freight.

Provincial Revenue Agent examined the stubs of the freight receipts that had been
issued by it. However most of the stubs were not preserved so he referred to the
Conductor report but the same basis did not state the value of the goods transported
therein so that pursuant to Revised Documentary Stamp Tax Regulations, he
assumed that the value of each of the receipt amounted to more that P5 and so
assessed a Documentary stamp tax on each of the issued receipts. The Documentary
Stamp tax was collected, Autobus filed for Refund which was denied contending that
the evidence it submitted proved that the freight receipts covered shipments of
merchandise worth not more than P5. Who has the burden of proving that the
assessment was illegal?

Held: The taxpayer. The evidence submitted failed to prove that the receipts
covered shipment of merchandise worth below P5, it merely tried to establish that
the said receipts were issued to people carrying agricultural produce from one place
to another. The conclusion is drawn however that the receipts were covered
shipments above P5 and thus the assessment was valid, because it is a common
knowledge that barrio people do not bother to secure receipts for small cargo for
convenience and save them some centavos. On the other hand receipts are
demanded for valuable cargoes to insure against their loss. The testimony
notwithstanding , the fact that it was not contradicted fails to prove that the
merchandise covered were worth P5 or less. Furthermore , the rule is that in actions
for recovery of Taxes assessed and collected , the taxpayer has the burden of
proving that the assessment was illegal. All presumptions are in favor of correctness
of Tax assessments. The good faith of Tax assessors and the validity of their actions
are presumed. They will be presumed to have taken into consideration all the facts to
which their attention was called. No presumption can be indulged that all of the
public officials of the state in various countries who have to do with the assessment
of property for taxation will knowingly violate the duties imposed upon them by law.

Tan Guan vs CTA GR No. L-23676 April 27, 1967

Tan Guan and Sian Lin , both chinese nationals formed and registered a general
partnersip. A general Partnership is exempt from income tax although it I required to
file income tax return and profits whether or not distributed are considered income of
the partners. Upon confidential report BIR investigator examined the books of the
partnership and found fictitious expenses posted therein to avoid taxes, it then
disallowed certain expenses and treated the same as individual income of Tan Guan.
The latter was assessed by the commissioner for the deficiency tax which the CTA
affirmed. To whom lies the burden of proof?

Held: The taxpayer Tan Guan. The Commissioner, sustained by the Tax Court found
for a fact that the expenses posted are fictitious. Tan Guan presented no evidence to

disprove such findings, he only alleged that he could not present the receipts
anymore considering that the assessment was made after the prescription period of
Five years within which he is required to preserve the books. The same cannot be
accepted as the investigation was conducted within five years. In appeals to the CTA,
the determination of the Commissioner of Internal Revenue is presumed correct and
it behoves the taxpayers to rebut such presumption. Tan Guan failed to overcome his
burden. Being fictitious , the expenses cannot be deducted from the gross income.

Assessments presumed correct, they must be based on facts, a

presumption cannot be based on another presumption

Alberto Benipayo vs Collector GR. No. L-13656, Jan 31, 1962

Benipayo is the owner operator of Lucena theatre, He was investigated by BIR for
amusement tax purposes. In 1949 to 1951, the BIR examiner found that the ratio of
adults patronizing the taxpayers theatre was 3 adults to one child, However in 1952
to 1953, the ratio was in the reverse 3 children to 1 adult. Concluding that P0.40
tickets for adults was split into two P0.20 tax exempt tickets for children, the
examiner assessed the corresponding tax. Will the assessment prosper?
Held: No. the assessment is faulty since it merely assumes that the ratio of adult
theatre goers in 1952 to 1953 is the same as that which obtained in 1949 to 1951. As
soon as it is served an obligation arises on the part of the taxpayer concerned to pay
the amount assessed and demanded, Hence assessments should not be based on
mere presumptions. The presumption of correctness of assessment can no be made
to rest on another presumption that he circumstances in 1952 to 953 are presumed
to be the same as those existing in 1949 to 1951, there are no substantial facts to
support the assessment is question. Fraud is a serious charge and clear and
convincing proof is lacking in this case to substantiate it.

Commissioner cannot be compelled by Mandamus to assess taxes.


Juan Maniago, who after his death was substituted in the proceedings by his wife and
children, submitted to the Commissioner confidential information against the Meralco
Securities Corporation for Tax evasion for having paid income tax only on 25% of the
dividends it received from Meralco for the years 1962-1966, thereby allegedly
shortchanging the government of income tax due from 75% of said dividends. The
Commissioner 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 MEralco. Consequently, the
Commissioner denied claim for informer’s reward. The action of the Commissioner
was sustained by the Secretary of Finance. On mandamus, respondent judge,
however, rendered judgment granting the writ prayed for and ordered the
Commissioner to assess and collect from the Meralco Securities corp. the sum of
deficiency corporate income tax for the period covered plus interest and surcharges
due thereon and to pay 25% thereof to Maniago as informer’s reward. Can te
Commissioner be compelled by Mandamus?

Held: No. Mandamus only lies to enforce the performance of a ministerial act and not
to control the performance of a discretionary power. Purely administrative and
discretionary functions can not be interfered with by the court. Since the office of the
Commissioner is charged with the administration of administration of revenue laws,
which is the primary responsibility of the executive branch of the government,
mandamus may not lie against the commissioner to compel him to impose a tax

assessment not found by him to be due and proper for that would be tantamount to
usurpation of executive function. The decision or ruling of the Commissioner of
Internal Revenue that no tax is due and collectible is a valid exercise of discretion in
the performance of official duty and cannot be controlled much less reversed by
mandamus. Hence, no tax is due, nothing can be assessed and no reward is due to

Government is not estopped by the mistakes and errors of its agents

Commissioner vs Armando Abad (GR L-19627 June 27, 1968)

Republic is doing business under name of Republic Alcohol distillery, manufacturer

and seller of denatured alcohol. Domestic alcohol when denatured and used for
industrial purposes are exempt from payment of specific tax. It applied for
denaturation of certain gauge liters of rectified alcohol, BIR denaturing committee
supervised the denaturing process and thereafter certified that the alcohol has been
suitably denatured and therefore exempt from specific tax. On subsequent surprise
inspection however, BIR found out that such alcohol were not completely denatured
and some of them which can still be used to produce liquors were sold. BIR then
assessed the respondent for the specific tax of the portion not denatures and
sold.Respondent invokes the earlier certification by denaturing committee, is the
position sustainable?

Held: No. The said earlier findings and certification maybe disregarded by the
subsequent inspection team. It is a settled rule that in the performance of its
governmental functions, the state cannot be estopped by the neglect of its agents
and officers. Nowhere is this more true than in the filed of taxation. Estoppel does not
apply to preclude subsequent findings of taxability

Power to make final assessments can not be delegated

City Lumber vs Domingo 10 SCRA 39

Petitioner seeks a review of the decision of the CTA upholding the deficiency income
tax of the BIR wherein the deductions claimed consisting of the value of the plywood
and GI sheets allegedly lost in the fire were denied and the disallowance of the cash
balance of P8,000 as a loan . Taxpayer also contends that by issuing the deficiency
assessment , the Commissioner violated Memorandum Order No-V634 dated July 3,
1956 granting the authority to the Regional directors to close tax cases involving
deficiency assessments not exceeding P10,000. Can the authority to make
assessment be delegated?

Held; No. The Commissioner cannot delegate the power to make a final assessment
to his subordinate and consequently despite an order of said commissioner granting
regional directors authority to close tax cases, said order is applicable to his
subordinate officers only and could not bind the Commissioner himself, who has been
entrusted by law to make final assessments.

HOWEVER, Commissioner may delegate the actual task of assessment to his

subordinate officers

Villamin vs Collector 109 Phil 896

Provincial revenue agent of Oriental Mindoro made an assessment to Villamin, who

requested reconsideration. Commissioner thru the acting chief of the Assessment
Department denied the request. Villmain then sought to settle the case amicably but
then again denied. He sought another reconsideration but eventually denied. He then
filed an appeal with the CTA. Can the commissioner validly delegate actual task of
assessment to his acting commissioner?

Held: Yes. Considering the memorandum order No V-603 of the BIR, which authorizes
the said official to sign the letters of demand involving assessments in behalf of the
collector. Moreover, the subsequent letters signed by the collector affirming and
upholding the correctness of the assessment made by his assessment Department
constitute evident proof that the official who signed the letter was duly authorized to
do so.

To be valid assessment , must be directed to the proper party

Republic vs heirs of de la Rama (18 SCRA 861)

Commissioner assessed a deficiency income tax against the estate of de la Rama for
dividends received and undeclared in the return made by its administrator Eliseo
Hervas. The assessment of deficiency income tax with surcharge was sent to Lourdes
de la Rama the latter’s counsel advised that the same should be sent to the
administratrix, Leonor as his client had no authority to represent the estate. Deputy
Collector sent a letter of demand to Leonor as administratrix, not having paid sent
another demand to Lourdes as heir, the latter’s counsel reiterating its stand. Unpaid,
the Republic filed with the DFI Manila complaint against the heirs to collect their
proportionate share in the tax liability of the estate. Was there was there effective

Held: No. An assessment is deemed made when the notice to that effect is released ,
mailed or sent to the taxpayer for the purpose of giving effect to the assessment .
where an estate is under administration, the notice of assessment must be sent to
the administrator. In this case, notices were sent to persons other than the
administrator, hence they could not produce any legal effect. The administrator is the
representative of the estate whose duty is to pay and discharge all debts and
charges on the estate and to perform all orders of the court by him to be performed
and to pay the taxes and assessments due to the government of any branch or
subdivision thereof.


1 Prescription of right to assess.

(a) in case of absence of fraud or absence of omission to file return.

Effect of assessment notice mailed and release within prescriptive peiord but
received afterwards.

Basilan estates vs Commissioner (21 SCRA 173)

Basilan estate inc., a corporation engaged in coconut industry filed an income tax
return and paid income tax on 1954 for period 1953. upon examination however the
Commissioner assessed Basilan estates for deficiency estate tax and surcharge. On

non-payment a warrant of distraint and levy was issued but not executed when the
deputy commissioner ordered the District Director to hold execution and maintain
construction embargo instead. Because of its refusal to execute waiver of
prescription , Basilan’s request for reinvestigation was not given due course. Notice
was served that the warrant would be executed. Basilan filed petition for review with
CTA alleging prescription of the period of assessment and collection considering that
the assessment was made on February 26, 1959 but Basilan claims it never received
the same or if it did it was received beyond the five-year period. To prove it the
notice had an annotation stating ‘no accompanying letter 11/25/” indicative that the
notice was after March 24, 1959, the last date of the five year period within which to
assess deficiency tax, since the original returns were filed on March 24, 1954. Was
the assessment made within the prescriptive period?\

Held: Yes. Under Sec. 331 of the Tax Code requiring five years within which to assess
deficiency taxes, the assessment is deemed made when the notice to his effect is
released, mailed or sent by the collector of internal revenueto the taxpayer and it is
not required that the notice be received y the taxpayer within the aforementioned 5-
year period.

Effect of omission of substantial portion of decedents taxable property

Commissioner v. Lilia Yusay Gonzales 18 SCRA 757

(As if no return is filed)

Matias Yusay died intestate leaving two heirs legitimate child Jose and acknowledged
natural child Lilia. Jose filed with the BIR an estate and inheritance tax return
declaring certain properties. Upon investigation the BIR found out several other
properties and thereafter assessed estate and inheritance taxes which were
increased subsequently. Jose requested extension of time within which to pay the tax
but was denied by the commissioner who issued warrant of distraint and levy. Matias
then died and substituted by his wife as administrator of the 2/3 of the estate and
Lilia 1/3 thereof. Lilia assailed the assessment to on the ground of prescription since
it was issued more than five years had elapsed since the filing of return. Was the
power to issue the assessment prescribed already?

Held: No. The return filed by Jose was not sufficient to commence the running of the
prescriptive period. The tax code lists the requirements for the filing of returns
among others the setting forth of the gross estate value. A return need not be
complete in all particulars. It is sufficient if it complies with the law, there is
substantial compliance when return is made in good faith; it covers the entire period
involved and it contains information as to various items of income deduction and
credit and with such definiteness as to permit the computation and assessment of
the tax. The estate and inheritance tax return filed by Jose was substantially
defective because it was incomplete such huge under-declaration could not be a
result of oversight as he very well knew of the existence of the omitted properties.
The return then is 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 the data obtained , not from
the return but from the other sources. We therefore hold the view that the return in
question was no return at all as required in Section 93 of tax code.

Effect of filing wrong return- income instead of sales tax filed .

Butuan sawmill, Inc. vs. CTA L-20601

The BIR assessed sales tax with surcharge and compromise penalty on Butuan
Sawmill for it sale of logs “FOB Agusan” to Japanese firms. Petitioner contends that
the said assessment having made outside the five year period when it filed its
income tax returns wherein the proceeds of the sale was declared, the assessment
should not be given effect considering that the income tax return was a substantial
compliance with the requirement of filing a sales tax return. If there should be return
filed the fiv year prescriptive period should be applied. What is the effect of the filing
of wrong return?

Held: No prescription runs yet. The income tax return cannot be considered as a
return for compensating tax for purposes of computing the period of prescription
under Se. 331 of Tax code and that the taxpayer must file a return for the particular
tax required by law in order to avail himself of the benefits said of Sec. 331.,
otherwise , if he does not file a return, the assessment may be made within ten years
from discovery of the omission to file the return.

Prescriptive period-recovery of erroneously paid tax.

Guagua electric vs Collector 19 SCRA 790

Guagua electric Light Plant engaged in supplying electricity . It had paid pursuant to
its franchise 1 percent of gross income for the first 20 years and subsequent 15 years
two percent of gross income. Upon demand by Commissioner it paid 5% based on
said misrepresentation by the Commissioner . More than two years thereafter, it filed
for refund with the commissioner which denied. Petition for review with the CTA, the
latter granted the Motion to dismiss of BIR. Petitioner contended that the motion to
dismiss would have not been granted because it was the Commissioner who induced
the petitioner to believe that he was to pay 5%. Was the action for refund brought

Held: No, Sec. 306 of the tax code, which provides that no suit or proceeding for
refund or credit or any national internal revenue tax erroneously or illegally assesses
or collected shall be begun after the expiration of two years from date of payment, is
mandatory and is not subject to any qualification, and hence, applies regardless of
conditions under which the payment has been made.

Prescriptive Period- Where the law does not require the filing of any return

Bisaya Land Transportatation Co.,Inc. vs Collector 105 Phil 1338

When there is no provision in the law requiring the filing of return but the tax is such
that its amount cannot be ascertained without the date that is pertinent thereto, the
Commissioner may, by appropriate regulations, require the filing of the necessary
returns. In any event, with or without such regulations, it is to the interest of the
taxpayer to file said return if he wishes to avail himself of the benefits of the three-
year prescriptive period. If this notwithstanding, he does not file return at all, then an
assessment may be made at anytime within the ten-year prescriptive period.

(b) In case of Fraud or omission to file return.

Nature of Fraud: it is serious charge to be alleged and to be proved.

Commissioner vs Ayala Securities L-29485

Respondent filed for its income tax return for fiscal year which ended Sept. 30, 1955,
attaching therewith its audited financial statements showing surplus 2M. Tax due
thereon was paid. Subsequently it was assessed be petitioner on its accumulate
surplus. It protested and sought reconsideration claiming that the accumulation was
for a bonafide business purpose and not to avoid the imposition of income tax on the
individual stockholders and that the said assessment was issued beyond the five-
year prescriptive period. It later received from the chief Manila Examiner –office of
the commissioner a letter calling its attention on the outstanding and unpaid tax
requesting it be paid in five days. Believing that said letter constituted a denial of its
protest, respondent filed petition for review with CTA. CTA rendered decision
cancelling and declaring of no force and effect the assessment of petitioner.
Respondent claims that the assessment prescribed, petitioner opposed claiming that
there was fraud and thus the 10 yer prescription period should apply (Sec 332) Did
prescription set in?

Held: Yes. The assessment is not binding as it was made beyond the prescriptive
period of five years (Sec.331) Petitioner presupposes only the existence of fraud by
claiming respondent as there is no iota of evidence presented that respondent
intended to avoid payment of tax based on the return. Fraud is a question of fact and
the circumstances constituting fraud must be alleged and proved in court below. The
finding of trial court as to its existence and non-existence is final and cannot be
reviewed unless clearly shown to be erroneous. Fraud is never to be lightly presumed
as it is a serious charge.


Aznar vs Commisioner 58 SCRA 519

The Commissioner thru the office of the City treasurer of Cebu demanded from
Aznar payment of income tax deficiencies and place the properties of Azar under
constructive distraint on the ground of false return . Communication ensued and the
deficiency was reduced. Aznar was correspondingly informed of the correction. Aznar
assailed the administrative method of distraint and levy of his property for the
collection of his alleged tax deficiency as the same were issued beyond the three
year prescriptive period. Whether the Collector could enforce collection of the alleged
deficiency income taxes through the summary methods of distraint and levy?

Held: No. The collection of income taxes , after the lapse of three years from the date
of income tax return said to be false, fraudulent or erroneous had been filed, may no
longer be effected by means of administrative methods but only through judicial
proceedings .

2. Prescription of right to collect-period applies to both summary and judicial
action to collect

3. Suspension of Prescriptive Period (Sec. 271)

Commisioner vs Wyeth Suaco. 202 SCRA 125

Wyeth is domestic corporation engaged in manufacture and sale of assorted

pharmaceutical and nutritional products.

Investigation by BIR. Company Paying royalties to its foreign licensors. Paying

remuneration to Technical services to Wyeth London. Paid cash dividends Oct. 31
1973. Unauthorized deductions/short payment of advance sales tax. But allegedly
failed to remit withholding tax at source for 4th quarter of 1973 resulting in deficiency
income tax.and compromise penalty. BIR assessed Wyeth in to notices Dec. 16 1974
and dc. 17 1974- both received by wyeth on Dec. 19-1974. Wyeth then sent letters of
protest dated jan 17-75 and February 8-75 for lack of legal and factual basis,
contending that the withholding taxes are due only upon their atual payment and
remittance. Commissioner rendered decision reducing assessment of the withholding
tax but deficiency sales tax remained the same. Wyeth filed petition for review with
CTA on jaun 18, 1980 prying BIR enjoined from enforcing assessments by reason of
prescription and assessment be declared null and void for lack of factual/legal basis.
BIr issued warrant of distraint/levy of real properties served on mar 12-80 . Upon
motion CTA enjoined the same.

CTA decision enjoined BIR. While the assessments were made within 5 year peiod of
limitation, the right of commissioner to collect the same has already prescribed- Sec.
(319 © Tax Code 77)- An assessment of any tax within the five year period of
limitation maybe collected by distraint/levy of by proceeding in court- but
only if begun within Five years after the assessment of the TAX.

Commissioner – the five year period for distraint/levy not yet prescribed

Settled is the rule that the prescriptive period provided by law to make a collection
by distraint or levy or by a proceeding in court in interrupted once a taxpayer
requests for reinvestigation of reconsideration of assessment, and starts to run again
when the request is denied. The court also stated that the statutory period of
limitation for collection maybe interrupted if by the taxpayer’s repeated requests of
positive acts, the Government has been , for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the government. Did Wyeth sought
reinvestigation or reconsideration of the efficiency tax assessment issued by BIR that
could have suspended the prescriptive period?

Held: Wyeth by admission sought reconsideration. Although the protest letters

prepared by SGV in behalf of wyeth did not categorically state reinvestigation and
reconsideration the same are to be treated as letters of reinvestigation and
reconsideration. By said letters BIR ordered the review of the assessments made.
Furthermore denial by wyeth that it did not seek reconsideration is belied by the
correspondence. These letters interrupted the running of the five-year prescription.
The BIR after reviewing the records in accordance with the request for reinvestigation
rendered final assessment. When the original assessments were received by Wyeth it
protested the assessment and sought reconsideration in two letters, the prescriptive
period was interrupted. The period started to run again when BIR served the final

assessment on jan. 2 1980. since the warrant of levy and distraint were served on
Wyeth on Mar. 12 1980 only about four months was used.

BPI vs Commissioner 473 SCRA 205

Deficiency DST on cabled instructions to foreign correspondence.

Commissioner issued PAN Nov. 26, 86. BPI sent letter dated Nov. 29-86 requested for
details. April 7, 1989 assessment demand notices for DST withholding tx (Swap)/
DST. April 20-89 BPI filed protest on the demand /assessment notice. May 8, 1989-BPI
filed a supplemental protest. March 12 1993 PI requested for opportunity to
present /submit additional documentation June 17, 1994 for reinvestigation –
attached swap contracts.
BPI executed several waivers of the statutes of limitations the last /Dec. 31-94 . Aug.
9-2002 Commissioner decision cancelling ass. For withholding (SWAP) . But
reitereated DST deficiency. BPI ordered to pay in 30 days. Jan 15-03 received
decision Jan 24 -03 petition with CTA.

CTA denied petition applying the Wyeth Suaco doctrine that letters should be
considered request for reinvestigation which tolled the prescription . MR denied by.SC
court en banc

BPI contends that its request for reinvestigation was not replied. It was only 13 years
when the decision ordering BPI to pay DST that Commissioner acted on the decision.

Held: internal revenue shall be assessed within five years after filing of return and no
proceeding in court shall be begun without assessment after the expiration of the five
year period.(shortened for three years by BP 700). CIR has 3 years to assess and or
commence court proceedings for collection thereof without assessment. When it
validly issues assessment w/in the 3 year period it has another 3 years within w/c to
collect by distraint/levy or court proceeding. Assessment deemed made and
prescription begins to run on the date notice is released.

In order to suspend the running of prescription for assessment and collection, request
for reinvestigation must be granted by commissioner. If not granted prescription shall
not toll. Burden of proof showing action thereto is on commissioner.

In this case the letter of protest and submission of additional documents wich where
never acted upon much less granted cannot be said to have persuaded commissioner
to postpone the collection of DST. The inordinate delay of the CIR in axting upon and
resolving the request for reinvestigation filed by BPI and in collecting the DST had
resulted in the prescription of the government.’ Right to collect the deficiency.

CIR vs. Suyoc -104 Phil 819

Already estopped from raising defense of prescription in view of its repeated
requests for reinvestigation which allegedly induced CIR to delay the collection of the
assessed tax.

Several requests for reinvestigation and reconsideration were filed by Suyoc mining
Co. purporting to question the correctness of tax assessment against it . As a result
the collector refrained from collecting the tax by distraint levy or court proceeding in
order to give the company every opportunity to prove its claim. The collector also

conducted several investigations which eventually led to reduced assessment. The
company however filed a petition with the CTA claiming the right of government to
collect the tax ha already prescribed. Prescribed?

Held: No. The taxpayer after being assessed requested for extension of one year to
pay its liability, after failing to pay requested it asked for reconsideration and
reinvestigation of the assessment. This is aside from the negotiations at the BIR
requested by the taxpayer and in the appellate division. These repeated requests or
positive acts on the part of the taxpayer justify the suspension of the prescriptive
period for collection. After inducing the Commissioner, as in fact in did, it is most
unfair for the taxpayer to elude his tax liability to the prejudice of the Government by
invoking the technical ground of prescription. Suyoc is prevented from setting up the
defense of prescription even if it has not previously waived it in writing as when by
his repeated or positive acts, the Government has been, for good reasons, persuaded
to postpone collection to make him feel that the demand was not unreasonable or
that the harassment of injustice meant by the government.

RCBC vs Commissioner OF Internal Revenue 522 SCRA 144

RCBC received a Formal Demand Letter dated May 25, 2001 from Commissioner of
Internal Revenue on July 5, 2001 for its tax liabilities on Gross Onshore Tax and
Documentary Stamp Tax for the Taxable year 1997. On July 20, 2001 RCBC filed a
protest letter/Request for Reconsideration/Reinvestigation pursuant to 228 of Tax
Code. Protest was not acted upon so petitioner filed on April 30, 2002 a petition
with CTA for cancellation of the Assessments. Petition was dismissed on the ground
that it was filed beyond the thirty (30) day period following the lapse of 180 days
from petitioner’s submission of documents pursuant to Sec. 228 of NIRC and RA 1125
(CTA Law). Prescribed?

Held: Yes. From July 20 2001 filing of protest with BIR, RCBC had 60 days or until
Sept. 18, 2001 to submit relevant documents, and Commissioner had 180 days to
issue decision. If protest is denied or unacted , RCBC had 30 days from receipt of the
decision or from lapse of 180 days inaction to elevate the case to CTA. From lapse of
180 days inaction, RCBC has until April 16. 2001 to file petition for review, however it
filed only on April 30, 2009. Thus, Prescribed. While the right to appeal a decision of
commissioner is merely statutory remedy, nevertheless the requirement that it must
be brought within 30 days is jurisdictional. If a statutory remedy provides as
condition precedent that the action to enforce it must be commenced within the
prescribed time, such requirement is jurisdictional and failure to comply therewith
maybe raised in motion to dismiss.

Diluangco vs Commission 4 SCRA 263

Diluanco died and testate proceedings were filed with the CFI manila for her estate
settlement and distribution. Upon discovering that the executor failed to file the
return required by law. Commissioner of Internal Revenue required him to do so and
on March 27, 1951 he filed the requested estate and inheritance tax return. The
estate was tentatively assessed estate and inheritance taxes in the total sum of
P9,705.61 including 25% surcharge for failure to file the return on time. The executor
of the estate requested for Reconsideration of the imposition of 25% surcharge but

was denied. Subsequently another request for reconsideration was made. The
revenue examiner on Aug. 25, 1951 found the value of the estate higher so that she
caused the assessment of higher tax due. The executor requested a reconsideration
but the same was agin denied. March 5, 1952, Commissioner issued a warrant of
distraint and levy for satisfaction of the deficiency estate/inheritance tax. Levy not
served as Executor asked for Reinvestigation. Request was granted and the
assessment was reduced considering the appraisal of an independent appraiser. A
new warrant of distraint and levy was issued for the new amount. The executor
refused to receive the warrant of distraint and instead requested for suspension on
the ground of some discrepancies. Another warrant was issued but Executor
requested that the heirs be informed of their respective tax dues and undertook that
upon receipt of the information, the heirs wouyld immediately settle the tax
deficiencies. The Commissioner obliged and sent a letter with the breakdoen of tax
dues . Executor requested another reconsideration but the same weas denied. On
Sept. 23, 1957, the heirs requested for another revaluation of the properties with
assurance the if granted they are willing to file surety bond and waiver of limitations.
However , before the Commissioner could act on the request , the heirs through their
counsel executor raised the defense of prescription alleging that the right of the
government to collect by summary method had already prescribed. Prescribed?

Held: No. The deficiency taxes were finally assessed in 1952 and the warrant of
distraint and levy was issued in 1955 within the Five year prescriptive period. The
right of the government to collect the taxes in question has not yet prescribed
because the warrant of distraint and levy for the collection was begun within the 5-
year period prescribed by law from the assessment of said taxes. Where the
assessment or any internal revenue has been made within the period of limitation
prescribed by the tax code, such tax maybe collected by distraint or levy of by
proceeding in court, but only of begun within FIVE YEARS after the assessment of tax.
All that is required to stop the running of the period of limitation is to distraint or levy
or institute a proceeding in court within FIVE years after the assessment of tax. A
Judicial action for the collection is begun by the filing of a complaint with the proper
court of first instance or where the assessment if appealed to the CTA, by filing an
answer to the taxpayer’s petition for review wherein payment of tax is preyed for.
The summary remedy of distraint and levy on the other hand is begun by the
issuance of a warrant of distraint and levy. The right of commissioner to collect by
summary method has the effect of stopping the running of prescription once a
warrant of distraint and levy is issued. The fact that the warrant was not executed is
of no moment what commences the summary method is the mere issuance thereof,
moreover the non-service of the warrant was not due to the voluntary act of the
commissioner but by the request of the taxpayer, which thus resulted in the
suspension of the running of the prescription period.

Republic vs Ker & Company, Ltd. L-21609, Sept. 27, 1966

Ker & Co. filed income tax returns for the year 1947, among others covered taxable
periods, on April 12 1948 . Upon examination, BIR assessed it for deficiency income
tax for said taxable period. BIR thus issued an Assessment on July 25, 1953. Upon

request of Taxpayer the assessments were reduced for 1947 but with 50% fraud
surcharge. Taxpayer filed petition for review with CTA but was dismissed having been
filed beyond thirty days. Dismissal affirmed by Supreme Court, Hence on May 15,
1962 BIR demanded the payment of the assessments. Taxpayer refused to pay
setting up defense of prescription. It contends that under Section 331 of Tax Code
the right of the commissioner to assess against it a deficiency income tax for the
year 1947 has prescribed because the assessment was issued on July 25, 1953 after
lapse of over Five years from the date it filed its return (April 12, 1948). BIR filed a
complaint with the Court of First Instance, however it did not alleged Fraud. However,
BIR insists that the taxpayer’s income tax return was fraudulent, therefore the
commissioner may assess the tax within TEN years from discovery of the fraud or on
Oct. 31, 1951. / On the other hand Kerk contends that the right to collect the other
assessments in other taxable periods covered have prescribed considering that over
nine years had already elapsed so that CTA did not acquire jurisdiction over it.

Held: Yes. BIR waived its right to the setting up of the defense of prescription. Since
the assessmet for the deficiency income tax for 1947 has become final and
executory, KEr & Co. may not anymore raise defenses which go into the merits of the
assessment, i.e, prescription of the commissioner’s right to assess tax. In this case
however, Ker a& Co.reasied the defense of prescription in the proceedings below and
BIR, instead of questioning the right of the defendant to raise such defense, litigated
on it and submitted the issue for resolution of the court. As regards the deficiencies
in other taxable periods, the right of collection had not yet prescribed because it was
interrupted by the filing of taxpayers petition for review in the CTA. If the taxpayer’s
stand that the pendency of the appeal did not stop the running of the period because
the CTA did not have jurisdiction over the case is upheld, taxpayers would be
encouraged to delay the payment of taxes in the hope of ultimately avoiding the
same. Under the circumstances, the running of the period was suspended.

Republic of the Philippines vs Luis Ablaza 108 Phil 1705

On October 3, 1951 Collector assessed Income Taxes on the returns of Ablaza.

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

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

within 5 years after the filing of return and where it failed to collect within 5 years
from the date of assessment thereof


1. Remedies before payment of the tax

(a) Administrative Protest

Taxpayer has burden of proof in disputed assessments.

Delta Motors Co. vs Commisioner.

CTA Case 3782, May 21, 1986 : Taxpayer has burden of proof in disputed

Assessment can not be disputed in the civil action for collection if the same
has become final, executory and demandable.

Augusto Basa vs Republic -45277 August 5, 1955

Commisionse assessed Basa for deficiency income taxes covering 1957 to 1960
based on the latter’s failure to report in full his capital gains on the sales of land.
Basa did not contest the assessments in the CTA after the decision of the
commissioner dated December 6, 1974. Commissioner sued civil case for collection
in Manila Court of first instance for collection of the amount. Court upheld the
commissioner. As no factual issued was involved he should have filed his appeal
directed with the Supreme Court. However he opted for Court of appeals but he was
not able to file it within the reglementary period for which the trial court dismissed
his appeal.. he filed petition for review on certiorari. Is the instant appeal proper?

Held: No. The petition is devoid of merit. He should have appealed to the Supreme
Court. If he wanted to contest the assessments, he should have appealed to the tax
court. Not having done so, he could not contest the same in the court of first
instance. Prescription has also not yet in because the assessment were predicated on
the fact that his returns , if not fraudulent , were false because he underdeclared his
income. In such case deficiency assessments may be made within ten years after
discovery of the falsity or omission. Court action whould be instituted in 5 uears after
assessnebt but this period is suspended during the time that the commission is
prohibited from instituting a court action. Basa’s requests for reinvestigation tolled
the prescriptive period of 5 years within which court action maybe brought.

2. Taxpayers defenses against the assessments.

a) Defenses on Questions not raised in the Administrative protest cannot be

raised for the first time on appeal in the CTA.

Aguinaldo Industries Co. vs. Commissioner L-29790, Feb. 25 1982

Petitioner is engaged in sales of fishing nets (Fishing Mets Devision). Upon

examination by BIR of its income tax returns it was found out that it deducted
amounts from the gross income as additional remuneration paid to its officers, and
that such amount was taken from the net profit which petitioner derived from
isolated transaction 1.e., sale of parcel of land? Which is not it trade or business.

Examiner recommended disallowance of the deduction but petitioner insisted
otherwise claiming that the payment of the allowance or bonus was pursuant to is by-
laws. Resolving the issue , the Court of Tax Appeals held that petitioner liable for the
deficiency income tax. Petitioner controverted that profit derived from the sa,es of its
land is tax exempt income under RA 901. that bonus given to the officers or
petitioner as share in the profit realized from the sale of the land is deductible
expense for tax purposes; and that it is not liable for payment of surcharge and
interest for late payment of deficiency tax. Is the defense tenable?

Held: No. petitioner may not raise the question of tax exemption for the first time on
review where such question was not raised at the administrative forum.; that
payment of bonus to petitioner’s officers out of the gain realized from the sale of its
land maybe allowed as deduction for tax purposes only if payment was made for
service actually rendered and it is reasonable and necessary.

3. Remedies after payment of tax

a) Claim for Refund

b) Requisite for Valid claim –claim for refund in the BIR is jurisdictional
requirement before recovery of tax in CTA.

Santiago Bermejo vs Collector 87 Phil 96

Bermejo was assessed deficiency taxes for nipa shingles and charcoal. He objected to
the assessment contending that the products subject of tax were mainly agricultural
and as such free from taxation. After exchange correspondences he proposed to pay
by instalment without prejudice to any action he may take on the matter. After
paying first instalment, he sued for recovery. Collector moved for the dismissal of the
complaint on the ground that that plaintiff had not complied with the provision of
Sec. 306 of Tax Code which required, before suing, to file a claim with the collector
first for the refund of the amount he had delivered. Is the direct action in the Court of
Tax Appeals allowed?

Held: No. Sec. 306 of the Internal Revenue Code clearly stipulates that after paying
the tax, the citizen must submit a claim before resorting to the courts, strict
compliance with the conditions imposed for the return of revenue collected is a
doctrine consistently applied here and in the United States

c) TWO YEAR PERIOD, “ No supervening event rule” explained

1) Taxpayer must go to the CTA before the lapse of 2 year period despite BIR’s
inaction on the claim.

Allison J. Gibbs et al. vs Collector of Internal Revenue L-13453, Feb. 29, 1960

Collector in 1956 assessed Gibbs for deficiency income taxes which the latter
protested on the ground that the same was based on a disallowance of bad debts
and losses claimed in their income tax covering 1950. Collector rejected the protest
and reiterated his demand. Gibbs sent check for payment of the principal assessment
exclusive of the surcharge and interests and at the same time demanding immediate
refund of the amount paid. Collector on Oct. 1956 denied the request for refund and
required petitioner to pay the surcharge, interest and penalties. Sept. 1957 petitioner
filed for petition for review and refund with the CTA with motion for suspension of
collection. of penalties. CTA dismissed the case having been filed beyond 30 days.

Petitioners contend that Sec. 306 of Revenue Code provides that judicial proceedings
maybe instituted for recovery of an internal revenue tax within 2 years from the date
of payment although their appeal was filed beyond 30 day period required by Sec. 11
of RA 1125. Which provision should apply?

Held: Sec. 306 of Internal Revenue Code should be construed together with Sec. 11
of RA 1125. A Taxpayer who has paid the tax, whether under protest or not, and who
is claiming a refund of the same, must comply with the requirements of both
sections, that is he must file a claim for refund with the Collector within 2 years from
the date of payment of the tax as required by Sec. 306 of the Internal revenue Code
and appeal to the CTA within 30 days from receipt of the collectors decision or ruling
denying his claim for refund, as required by said section 11 of RA 1125. If however
the collector takes time in deciding the claim, and the period of two years is about to
end, the suit or proceeding must be started in the CTA before the end of the 2 year
period without awaiting the decision of the collector. This is so because the positive
requirement of Sec. 306 and the doctrine that delay of the collector in rendering
decision does not extend the peremptory period fixed by the statute.

2. Refund for Withholding tax- two years counted from end of taxable year.

Finley Gibbs and Dianne Gibbs vs CIR/CTA 15 SCRA 318

In 1956 Commissioner issued against the petitioners Deficiency Income Tax

Assessment covering year 1950. Allison Gibbs as Attorney in fact of brother Finley
acknowledged receipt of the assessment Finley then in America. By letter he
informed his brother of the assessment and in the same letter questioned the
disallowance of the items which gave rise to the deficiency assessment and
requested for a correction of it. On August 28, 1956, Commissioner denied the
request. Having deemed the above reply as final decision of commissioner she made
a letter on Oct. 3, 1956 with turn over of check for payment of the assessment and at
the same time made a demand for refund. Oct. 26 , 1956 Commissioner denied the
demand for refund. Letter of Denial received by Allison on Nov. 14, 1956. On
September 29, 1958, Allison signing as counsel for Finley wrote another letter
reiterating the demand and opining that the letter of denial of the refund was not a
ruling on Finley’s demand. Commissioner never replied. Oct. 1, 1958 petitioner filed
with the CTA Petition for Review and Refund with motion for suspension of collection
of additional taxes. Commissioner filed answer contending that CTA had no
jurisdiction on the ground that the petition for review was filed beyond 30 days from
date of receipt of Commissioner’s decision at the same time not entitled to the
claimed credits because the petition was filed beyond 2 years from dates of payment
of the amounts sought to be credited. Petitioners claim that income tax assessments
against which claims for refund have been lodged and which are covered by taxes
withheld at the source shall be considered paid NOT AT THE TIME such tax
obligations fall due BUT only when the claims for refund against the assessments are
finally resolved by the authorities; That the statute of limitation of 2 years prescribed
in sec. 306 of the NIRC does not run until respondent Commissioner has acted on the
claim for refund or credit by the non-resident taxpayer and so notified the taxpayer
because until then the withholding tax cannot be treated as payment by alien-
resident taxpayer; until then it is a mere deposit held by respondent commissioner
for the account of the non-resident alien taxpayer. When should the prescriptive
period be reckoned.

Held: Payment is a mode of extinguishing obligations and it means not only the
delivery of money but also the performance, in any other manner, of an obligation. A
taxpayer, resident or non-resident, who contributes to the withholding tax system,

does so not really to deposit an amount to the Commissioner of Internal Revenue ,
but in truth , to perform and extinguish his tax obligation for the year concerned. In
other words, he is paying his tax liabilities for that year. Consequently, a taxpayer
whose income is withheld at the source will be deemed to have paid his tax liability
when the same falls due at the end of the tax year. It is from this latter date then, or
when the tax liability falls due, that the two year prescriptive period under Sec. 306
starts to run with respect to payments effected through the withholding tax system.
It is of no consequence whatever that a claim for refund or credit against the amount