EMILIO Y. HILADO, PETITIONER, VS. THE COLLECTOR OF
In the circumstance, said
INTERNAL REVENUE AND THE COURT OF TAX APPEALS,
RESPONDENTS;
Facts:
On March 31, 1952, petitioner filed his income tax return for 1951
with the treasurer of Bacolod City wherein he claimed, among other
things, the amount of P12,837.65 as a deductible item from his
gross income pursuant to General Circular No. V-123 issued by the
Collector of Internal Revenue. On the basis of said return, an
assessment notice demanding the payment of P9,419 was sent to
petitioner, who paid the tax in monthly installments, the last
payment having been made on January 2, 1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through
the Collector of Internal Revenue, issued General Circular No. V-
139 which not only revoked and declared void his general Circular
No. V-123 but laid down the rule that losses of property which
occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or
destruction of said property. The deduction was disallowed and
the CIR demanded from him P3,546 as deficiency income tax for
said year. The petition for reconsideration filed by petitioner was
denied so he filed a petition for review with the CTA. The SC
affirmed the assessment made by the CIR. Hence, this appeal.
Issue:
1. Whether Hilado can claim compensation during the war; 2.
Whether the internal revenue laws can been enforced during the
war
Ruling:
1. No. Assuming that said amount represents a portion of the 75%
of his war damage claim which was not paid, the same would not
be deductible as a loss in 1951 because, according to petitioner,
the last installment he received from the War Damage
Commission, together with the notice that no further payment
would be made on his claim, was in 1950.
amount would at most be a proper deduction from his 1950 gross
income. In the second place, said amount cannot be considered
as a "business asset" which can be deducted as a loss in
contemplation of law because its collection is not enforceable as a
matter of right, but is dependent merely upon the generosity and
magnanimity of the U. S. government. As of the end of 1945, there
was absolutely no law under which petitioner could claim
compensation for the destruction of his properties during the battle
for the liberation of the Philippines. And under the Philippine
Rehabilitation Act of 1946, the payments of claims by the War
Damage Commission merely depended upon its discretion to be
exercised in the manner it may see lit, but the non-payment of
which cannot give rise to any enforceable right.
2. Yes. It is well known that our internal revenue laws are not
political in nature and as such were continued in force during the
period of enemy occupation and in effect were actually enforced by
the occupation government. As a matter of fact, income tax returns
were filed during that period and income tax payment were effected
and considered valid and legal. Such tax laws are deemed to be
the laws of the occupied territory and not of the occupying enemy.
CIR v. CA, CTA, Ateneo De Manila University
Facts: Ateneo de Manila University, is a non-stock, non-profit
educational institution with auxiliary units and branches all over the
Philippines. One auxiliary unit is the Institute of Philippine Culture
(IPC), which has no legal personality separate and distinct from
that of private respondent. The IPC is a Philippine unit engaged in
social science studies of Philippine society and culture.
Occasionally, it accepts sponsorships for its research activities
from international organizations, private foundations and
government agencies. On 8 July 1983, private respondent received
from Commissioner of Internal Revenue (CIR) a demand letter
dated 3 June 1983, assessing private respondent the sum of
P174,043.97 for alleged deficiency contractor’s tax, and an
assessment dated 27 June 1983 in the sum of P1,141,837 for
alleged deficiency income tax, both for the fiscal year ended 31
March 1978. Denying said tax liabilities, private respondent sent
petitioner a letter-protest and subsequently filed with the latter a
memorandum contesting the validity of the assessments. On 17
March 1988, petitioner rendered a letter-decision cancelling the
assessment for deficiency income tax but modifying the
assessment for deficiency contractor’s tax by increasing the
amount due to P193,475.55. Unsatisfied, private respondent
requested for a reconsideration or reinvestigation of the modified
assessment.
At the same time, it filed in the respondent court a petition for review
of the said letter-decision of the petitioner. While the petition was
pending before the respondent court, petitioner issued a final
decision dated 3 August 1988 reducing the assessment for
deficiency contractor’s tax from P193,475.55 to P46,516.41,
exclusive of surcharge and interest. On 12 July 1993, the
respondent court set aside respondent’s decision, and cancelling
the deficiency contractor’s tax assessment in the amount of
P46,516.41 exclusive of surcharge and interest for the fiscal year
ended 31 March 1978. No pronouncement as to cost. On 27 April
1994, Court of Appeals, in CA-GR SP 31790, affirmed the decision
of the Court of Tax Appeals. Not in accord with said decision,
petitioner came to Supreme Court via a petition for review.
Issue:
Whether the private respondent is taxable as an
independent contractor.
Held: The Commissioner erred in applying the principles of tax
exemption without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is obviously both illogical
and impractical to determine who are exempted without first
determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent
was covered by Section 205, applying the rule of strict
interpretation of laws imposing taxes and other burdens on the
populace, before asking Ateneo to prove its exemption therefrom,
following the rule of construction where “the tax exemptions are to
be strictly construed against the taxpayer”.
The doctrine in the interpretation of tax laws is that a statute will not
be construed as imposing a tax unless it does so clearly, expressly,
and unambiguously. Tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with
peculiar strictness to tax laws and the provisions of a taxing act are
not to be extended by implication.” In case of doubt, such statutes
are to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. In the present case, Ateneo’s Institute
of Philippine Culture never sold its services for a fee to anyone or
was ever engaged in a business apart from and independently of
the academic purposes of the university. Funds received by the
Ateneo de Manila University are technically not a fee. They may
however fall as gifts or donations which are “tax-exempt” as shown
by private respondent’s compliance with the requirement of Section
123 of the National Internal Revenue Code providing for the
exemption of such gifts to an educational institution.
The Supreme Court denied the petition and affirmed the assailed
Decision of the Court of Appeals. The Court ruled that the private
respondent is not a contractor selling its services for a fee but an
academic institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service. For the
institute to have tenaciously continued operating for so long despite
its accumulation of significant losses, we can only agree with both
the Court of Tax Appeals and the Court of Appeals that “education
and not profit is motive for undertaking the research projects.
MELECIO R. DOMINGO vs.HON. LORENZO C. GARLITOS
FACTS:
In a prior case of Domingo vs. Moscoso, the Supreme Court declared as final
and executory the order of the lower court for the payment of estate
and inheritance taxes, charges and penalties amounting to Php
40,058.55 by the estate of the late Walter Price, which was under
the administration of the latter’s wife, Simeona Price. In pursuance
to such order, the fiscal then filed a petition for execution; however
such petition was denied by the lower court presided by Judge
Garlitos. The latter held that the execution is unjustified as the
Government is indebted to the estate for Php 262,200, as payment for
the cadastral survey of Leyte performed by Price. He ordered instead that the
amount of inheritance taxes can be deducted from the Government’s
indebtedness to the estate based on the provisions of Articles 1279
and 1290 of the Civil Code; that both the government and the estate
are at the same time creditors of the other. Thus, both debts are to
be extinguished to the concurrent amount in accordance with law.
Hence, this petition for certiorari and mandamus against Judge
Garlitos, seeking to annul certain orders of the lower court and for
an order in this Court directing the respondent court below to
execute the judgment in favor of the Government against the estate
of Walter Scott Price for internal revenue taxes.
ISSUE: Whether or not a tax and a debt may be compensated.
RULING: The court having jurisdiction of the Estate had found that
the claim of the Estate against the government has been
recognized and the amount has already been appropriated by a
corresponding law, Rep. Act No. 2700. Both the claim of the Government
for inheritance taxes and the claim of the intestate for services
rendered have already become overdue and demandable as well
as fully liquidated. Compensation takes place by operation of law
and both debts are extinguished to the concurrent amount. Therefore the
petitioner has no clear right to execute the judgment for taxes against the
estate of the deceased Walter Price.
FRANCIA VS IAC
FACTS:
Engracio Francia was the owner of a 328 square meter land in
Pasay City. In October 1977, a portion of his land (125 square
meter) was expropriated by the government for P4,116.00. The
expropriation was made to give way to the expansion of a nearby
road.
It also appears that Francia failed to pay his real estate taxes since
1963 amounting to P2,400.00. So in December 1977, the
remaining 203 square meters of his land was sold at a public
auction (after due notice was given him). The highest bidder was a
certain Ho Fernandez who paid the purchase price of P2,400.00
(which was lesser than the price of the portion of his land that was
expropriated).
Later, Francia filed a complaint to annul the auction sale on the
ground that the selling price was grossly inadequate. He further
argued that his land should have never been auctioned because
the P2,400.00 he owed the government in taxes should have been
set-off by the debt the government owed him (legal compensation).
He alleged that he was not paid by the government for the
expropriated portion of his land because though he knew that the
payment therefor was deposited in the Philippine National Bank, he
never withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off
by the “debt” owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed. There is no
legal basis for the contention. By legal compensation, obligations
of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code).
This is not applicable in taxes. There can be no off-setting of taxes
against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government.
The Supreme Court emphasized: A claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the
light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the
state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or
transaction sued on.
Further, the government already Francia. All he has to do was to
withdraw the money. Had he done that, he could have paid his tax
obligations even before the auction sale or could have exercised
his right to redeem – which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly
inadequate, the same is not tenable. The Supreme Court said:
“alleged gross inadequacy of price is not material when the law
gives the owner the right to redeem as when a sale is made at
public auction, upon the theory that the lesser the price, the easier
it is for the owner to effect redemption.” If mere inadequacy of price
is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered
altogether impracticable. “Where land is sold for taxes, the
inadequacy of the price given is not a valid objection to the sale.”
This rule arises from necessity, for, if a fair price for the land were
essential to the sale, it would be useless to offer the property.
Indeed, it is notorious that the prices habitually paid by purchasers
at tax sales are grossly out of proportion to the value of the land.
Philex Mining Corporation v. CIR
FACTS:
On August 5, 1992, the BIR sent a letter to Philex asking it to settle
its excise tax liabilities amounting to P123,821,982.52. Philex
protested the demand for payment of the tax liabilities stating that
it has pending claims for VAT input credit/refund for the taxes it paid
for the years 1989 to 1991 in the amount of P119,977,037.02 plus
interest. Therefore, these claims for tax credit/refund should be
applied against the tax liabilities. In reply, the BIR held that since
these pending claims have not yet been established or determined
with certainty, it follows that no legal compensation can take place.
Hence, the BIR reiterated its demand that Philex settle the amount
plus interest within 30 days from the receipt of the letter. Philex
raised the issue to the Court of Tax Appeals and in the course of
the proceedings, the BIR issued a Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to the total
tax liabilities of Philex of P123,821,982.52; effectively lowered the
latter’s tax obligation of P110,677,688.52. Despite the reduction of
its tax liabilities, the CTA still ordered Philex to pay the remaining
balance of P110,677,688.52 plus interest, elucidating its reason
that “taxes cannot be subject to setoff on compensation since claim
for taxes is not a debt or contract. Philex appealed the case before
the Court of Appeals. Nonetheless, the Court of Appeals affirmed
the Court of Tax Appeals observation. Philex filed a motion for
reconsideration which was again denied. However, a few days after
the denial of its motion for reconsideration, Philex was able to
obtain its VAT input credit/refund not only for the taxable year 1989
to 1991 but also for 1992 and 1994, computed amounting to
205,595,289.20. In view of the grant of its VAT input credit/refund,
Philex now contends that the same should, ipso jure, off-set its
excise tax liabilities since both had already become “due and
demandable, as well as fully liquidated;” hence, legal
compensation can properly take place.
ISSUE: Whether or not the petitioner is correct in its contention that
tax liability and VAT input credit/refund can be subjected to legal
compensation
HELD: The Supreme Court has already made the pronouncement
that taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and debtors
of each other. There is a material distinction between a tax and
debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity.
Philex’s claim is an outright disregard of the basic principle in tax
law that taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance. Evidently, to
countenance Philex’s whimsical reason would render ineffective
our tax collection system. Philex is not allowed to refuse the
payment of its tax liabilities on the ground that it has a pending tax
claim for refund or credit against the government which has not yet
been granted. It must be noted that a distinguishing feature of a tax
is that it is compulsory rather than a matter of bargain. Hence, a tax
does not depend upon the consent of the taxpayer.If any payer can
defer the payment of taxes by raising the defense that it still has a
pending claim for refund or credit, this would adversely affect the
government revenue system. A taxpayer cannot refuse to pay his
taxes when they fall due simply because he has a claim against the
government or that the collection of the tax is contingent on the
result of the lawsuit it filed against the government. Moreover,
Philex's theory that would automatically apply its VAT input
credit/refund against its tax liabilities can easily give rise to
confusion and abuse, depriving the government of authority over
the manner by which taxpayers credit and offset their tax liabilities.
"The power of taxation is sometimes called also the power to
destroy. Therefore it should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the 'hen that
lays the golden egg.' And, in the order to maintain the general
public's trust and confidence in the Government this power must
be used justly and not treacherously." The petition is hereby
dismissed.
ABS-CBN Broadcasting Corp. vs. Court of Tax Appeals [G.R.
No. L-52306. October 12, 1981]
Facts: During the period pertinent to this case, petitioner
corporation was engaged in the business of telecasting local as
well as foreign films acquired from foreign corporations
not engaged in trade or business within the Philippines. for which
petitioner paid rentals after withholding income tax of 30%of one-
half of the film rentals. In implementing Section 4(b) of the Tax
Code, the Commissioner issued General Circular V-334. Pursuant
thereto, ABS-CBN Broadcasting Corp. dutifully withheld and
turned over to the BIR 30% of ½ of the film rentals paid by it to
foreign corporations not engaged in trade or business in the
Philippines. The last year that the company withheld taxes
pursuant to the Circular was in 1968. On 27 June 1908, RA 5431
amended Section 24 (b) of the Tax Code increasing the tax
rate from 30% to 35% and revising the tax basis from “such
amount” referring to rents, etc. to “gross income.” In 1971, the
Commissioner issued a letter of assessment and demand for
deficiency withholding income tax for years 1965 to 1968. The
company requested for reconsideration; where the Commissioner
did not act upon.
Issue: Whether Revenue Memorandum Circular 4-71, revoking
General Circular V-334, may be retroactively applied.
Held: Rulings or circulars promulgated by the Commissioner have
no retroactive application where to so apply them would be
prejudicial to taxpayers. Herein ,the prejudice the company of the
retroactive application of Memorandum Circular 4-71 is beyond
question. It was issued only in 1971, or three years after 1968, the
last year that petitioner had withheld taxes under General Circular
No. V-334. The assessment and demand on petitioner to pay
deficiency withholding income tax was also made three years
after 1968 for a period of time commencing in 1965. The company
was no longer in a position to withhold taxes due from
foreign corporations because it had already remitted all film
rentals and had no longer control over them when the new
circular was issued. Insofar as the enumerated exceptions are
concerned, the company does not fall under any of them.
CIR vs Procter & Gamble and CTA
FACTS:
Private respondent, Procter and Gamble Philippine Manufacturing
Corporation (hereinafter referred to as PMC-PhiL), a corporation
duly organized and existing under and by virtue of the Philippine
laws, is engaged in business in the Philippines and is a wholly
owned subsidiary of Procter and Gamble, U.S.A. herein referred
to as PMC-USA), a non-resident foreign corporation in the
Philippines, not engaged in trade and business therein.
As such PMC-U.s.A. is the sole shareholder or stockholder of
PMC Phil., as PMC-U.S.A. owns wholly or by 100% the voting
stock of PMC Phil. and is entitled to receive income from PMC-
Phil. in the form of dividends, if not rents orroyalties. In addition,
PMC-Phil has a legal personality separate and distinct from PMC-
U.S.A.After taxation it declared a dividend in favor of its sole
corporate stockholder and parent corporation PMC-U.S.A. in the
total sum of P17,707,460.00 which latter amount was subjected to
Philippine taxation of 35% or P6,197,611.23 as provided for in
Section 24(b) of the Philippine Tax Code which reads in full:
SECTION 1. The first paragraph of subsection (b) of Section 24 of
the National Bureau Internal Revenue Code, asamended, is hereby
further amended to read as follows: (b) Tax on foreign corporations.
- 41) Non-residentcorporation. – A foreign corporation not engaged
in trade
or business in the Philippines, including a foreign life insurance
company not engaged in the life insurance business in the
Philippines, shall pay a tax equal to 35% of the gross income
received during its taxable year from all sources within the
Philippines, as interest (except interest on foreign loans which shall
be subject to 15% tax), dividends, rents, royalties, salaries,wages,
premiums, annuities, compensations, remunerations fortechnical
services or otherwise, emoluments or other fixed or determinable,
annual, periodical or casual gains, profits, and income, and capital
gains: Provided, however, That premiums shall not include re-
insurance premium Provided, further, That cinematograpy film
owners, lessors, or distributors, shall pay a tax of 15% on their
gross income from sources within the Philippines: Provided, still
further That on dividends received from a domestic corporation subject
to tax under this Chapter, the tax shall be 15% of the dividends
received, which shall be collected and paid as provided in Section 53(d)
of this Code,subject to the condition that the country in which the non-
resident foreign corporation is domiciled shall allow a credit against
the tax due from the non-resident foreign corporation,taxes
deemed to have been paid in the Philippines equivalent to 20%
which represents the difference between the regular tax (35%) on
corporations and the tax (15%) on dividends asprovided in this
section: Provided, finally That regional or area headquarters
established in the Philippines by multinational corporations and
which headquarters do not earn or derive income from the Philippines
and which act as supervisory,communications and coordinating centers
for their affiliates,subsidiaries or branches in the Asia-Pacific Region
shall not be subject to tax.
For the taxable year ending June 30, 1975 PMC-Phil. realized a
taxable net income of P8,735,125.00 which was subjected to
Philippine taxation at the rate of 25%- 35% or P2,952,159.00,
thereafter leaving a net profit of P5,782,966.00. As in the 2nd
quarter of 1975, PMC-Phil. again declared a dividend in favor of
PMC-U.S.A. at the tax rate of 35% or P6,457,485.00.
In July, 1977 PMC-Phil., invoking the tax-sparing credit
provision in Section 24(b) as afore quoted, as the withholding agent
of the Philippine government, with respect to the dividend taxes
paid by PMC-U.S.A., filed a claim with the herein petitioner,
Commissioner of Internal Revenue, for the refund ofthe 20
percentage-point portion of the 35 percentage-point whole tax paid,
arising allegedly from the alleged "overpaid withholding tax at
source or overpaid withholding tax in theamount of P 4,832,989.00.
There being no immediate action by the BIR on PMC-
Philippines' letter-claim the latter sought the intervention of the
CTA. On January 31,1974 the Court of Tax Appeals in its
decisionruled in favor of the PMC.
Issue :
Whether or not private respondent isentitled to the preferential
15% tax rate on dividends declared andremitted to its parent
corporation.
Held:
The law pertinent to the issue is Section 902 of the U.S.Internal
Revenue Code,as amended by Public Law 87-834, the law
governing tax credits granted to U.S. corporations on dividends
received from foreign corporations, which to the extent applicable
reads:
SEC. 902-CREDIT FOR CORPORATE STOCKHOLDERS
IN FOREIGN CORPORATION.
(a) Treatment of Taxes Paid by Foreign Corporation
- For purposes of this subject, a domestic corporation which owns
at least 10 percent of the voting stock of a foreign corporation
from which it receives dividends in any taxable year shall-
(1) to the extent such dividends are paid by such foreign
corporation out of accumulated profits [as defined in subsection
(c) (1) (a)] of a year for which such foreign corporation is not a
less developed country corporation, be deemed to have paid the
same proportion of any income, war profits, or excess profits
taxes paid or deemed to be paid by such foreign corporation to any
foreign country or to any possession of the United States on or
with respect to such accumulated profits, which the amount of
such dividends (determined without regard to Section 78) bears to the
amount of such accumulated profits in excess of such income, war
profits, and excess profits taxes (other than those deemed paid);
and
(2) to the extent such dividends are paid by such foreign corporation out
of accumulated profits [as defined in subsection (c) (1) (b)] of a
year for which such foreign corporation is a less-developed
country corporation, be deemed to have paid the same proportion
of any income, war profits, or excess profits taxes paid or deemed to be
paid by such foreign corporation to any foreign country or to
any possession of the United States on or with respect to such
accumulated profits, which the amount of such dividends bears to the
amount of such accumulated profits.
Xxxxxxxxx
(c) Applicable Rules
(1) Accumulated profits defined
- For purpose of this section, the term 'accumulated profits' means
with respect to any foreign corporation.
(A) for purposes of subsections (a) (1) and (b)(1), the amount of its
gains, profits, or income computed without reduction by the
amount of the income, war profits, and excess profits taxes
imposed on or with respect to such profits or income by any foreign
country .... ; and
(B) for purposes of subsections (a) (2) and (b)(2), the amount of its
gains, profits, or income in excess of the income, was profits, and
excess profits taxes imposed on or with respect to such profits or
income. The Secretary or his delegate shall have full power to
determine from the accumulated profits of what year or years
such dividends were paid, treating dividends paid in the first 20
days of any year as having been paid from the accumulated
profits of the preceding year or years (unless to his satisfaction
shows otherwise), and in other respects treating dividends as
having been paid from the most recently accumulated
gains,profits, or earnings.
To Our mind there is nothing in the aforecited provision that would justify
tax return of the disputed 15% to the private respondent.
Furthermore, as ably argued by the petitioner, the private
respondent failed to meet certain conditions necessary in order
that the dividends received by the non-resident parent company in
the United States may be subject to the preferential 15% tax
instead of 35%. Among other things, the private respondent
failed: (1) to show the actual amount credited by the U.S.
government against the income tax due from PMC-U.S.A. on the
dividends received from private respondent; (2) to present the
income tax return of its mother company for 1975 when the
dividends were received;and (3) to submit any duly authenticated
document showing that the U.S. government credited the 20% tax
deemed paid in the Philippines.
Republic v Ker & Co.G.R. No. L-21609 September 29, 1966
FACTS:
In 1953 the Bureau of Internal Revenue examined and
audited Ker & Co., Ltd.'s returns and books of accounts for the
years 1947-1950 and issued corresponding assessments for
deficient amounts. The assessments included 50% surcharges
authorized under Sec. 2 of the Tax Code for filing fraudulent
returns.Ker & Co., Ltd. filed with the Court of Tax Appeals a
petition for review with preliminary injunction. No preliminary
injunction was issued, for said court dismissed the appeal for
having been instituted beyond the 30-day period. The BIR sent
demand letters for the collection of the amounts but the
respondent refused and put up the defense of prescription of peri
od for collection. So, the BIR filed a complaint for the collection of
payment for taxes. The lower court dismissed the BIR’s claim for
the year 1947 but ordered the respondent to pay the deficiency
taxes from year 1948-1950.Hence, this petition. The petitioner
contends that the Republic of the Philippines filed a motion for
reconsideration contending that the right of the Commissioner of
Internal Revenue to collect the deficiency assessment for 1947
has not prescribed by a lapse of merely five years and three
months, because the taxpayer's income tax return was fraudulent
in which case prescription sets in ten years from October31,
1951, the date of discovery of the fraud, pursuant to Section 332
(a) of the Tax Code.The respondent counters by contesting that
since the complaint was filed nine years, one month and eleven
days after the deficiency assessments for 1948, 1949 and 1950
were made and since the filing of its petition for review inthe Court
of Tax Appeals did not stop the running of the period of
limitations,the right of the Commissioner of Internal Revenue to
collect the tax in question has prescribed.
ISSUE: Whether or not the BIR was barred by prescription?
HELD:
No. Under Sec. 333, the running of the statute of limitations
provided in Section 331 or three hundred thirty-two on the making
of assessments and the beginning, of distraint or levy or a
proceeding in court for collection, in respect of any deficiency,
shall be suspended for the period during which the Collector
of Internal Revenue is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court,
and for sixty days thereafter. When the respondent filed its
petition for review with the CTA the petitioner BIR was prohibited
from filing an action for the collection of the deficiency, hence,
from that time until such petition for review was dismissed, there
was a suspension
of the prescription period. To rule in the otherwise would
be encouraging taxpayers to resort to delay the payment of taxes
in order to ultimately avoid the paying of the same.
MAMBA, ET AL. VS. LARA, ET AL.
G.R. No. 165109, December 14,2009
Doctrine:
Decision to entertain a taxpayer’s suit is discretionary
upon the Court. When the issue hinges on the illegal
disbursement of public funds, a liberal approach should be
preferred as it is more in keeping with truth and justice.
Facts:
The Sangguniang Panlalawigan of Cagayan passed a
resolution authorizing Governor Edgar R. Lara to engage the
services of and appoint Preferred Ventures Corporation as
financial advisor or consultant for the issuance and flotation of
bonds to fund the priority projects of the governor without cost
and commitment. It also ratified the Memorandum of Agreement
(MOA) entered into by Gov. Lara and Preferred Ventures
Corporation which provides that the provincial government of
Cagayan shall pay Preferred Ventures Corporation a one-time fee
of 3% of the amount of bonds floated. In addition, the
Sangguniang Panlalawigan, authorized Gov. Lara to negotiate,
sign and execute contracts or agreements pertinent to the
flotation of the bonds of the provincial government in an amount
not to exceed P500 million for the construction and improvement
of his priority projects, including the construction of the New
Cagayan Town Center, to be approved by the Sangguniang
Panlalawigan. Subsequently, Lara issued the Notice of Award to
Asset Builders Corporation, giving to the latter the planning,
design, construction and site development of the town center
project.
Petitioners Manuel N. Mamba, Raymund P. Guzman and
Leonides N. Fausto filed a Petition for Annulment of Contracts
and Injunction with prayer for a Temporary Restraining Order/Writ
of Preliminary Injunction against the respondents (Gov. Lara et
al.). The RTC, however, dismissed their petition on the grounds
that the (1) petitioners have no locus standi to file a case as they
are not party to the contract and (2) that the controversy is in the
nature of a political question, thus, the court can’t take cognizance
of it.
Issues:
 Whether or not the petitioners have locus standi to sue as
taxpayers
  Whether or not the controversy is in the nature of a political
question
Ruling:
 Yes, the petitioners have legal standing to sue as taxpayers.
 No, the controversy is not a political question but a justiciable
one.
Ratio Decidendi:
 A taxpayer is allowed to sue where there is a claim that
public funds are illegally disbursed, or that the public money
is being deflected to any improper purpose, or that there is
wastage of public funds through the enforcement of an invalid
or unconstitutional law.
For a taxpayer’s suit to prosper, two requisites must be met: (1)
public funds derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law is violated or
some irregularity is committed and (2) the petitioner is directly
affected by the alleged act.
In the case at bar, although the construction of the town center
would be primarily sourced from the proceeds of the bonds, which
respondents insist are not taxpayers’ money, a government
support in the amount of P187 million would still be spent for
paying the interest of the bonds. The governor requested the
Sangguniang Panlalawigan to appropriate an amount of P25
million for the interest of the bond. So clearly, the first requisite
has been met.
As to the second requisite, the Supreme Court explained that the
court, in recent cases, has relaxed the stringent direct injury test
bearing in mind that locus standi is a procedural technicality. By
invoking transcendental importance, paramount public interest, or
far-reaching implications, ordinary citizens and taxpayers were
allowed to sue even if they failed to show direct injury. In cases
where serious legal issues were raised or where public
expenditures of millions of pesos were involved, the court did not
hesitate to give standing to taxpayers.
It argued that, to protect the interest of the people and to prevent
taxes from being squandered or wasted under the guise of
government projects, a liberal approach must be adopted in
determining locus standi in public suits.
A political question is a question of policy, which is to be decided
by the people in their sovereign capacity or by the legislative or
the executive branch of the government to which full discretionary
authority has been delegated. A justiciable question on the other
hand, calls upon the duty of the courts to settle actual
controversies wherein there are rights involved which are legally
demandable and enforceable. It is one which is proper to be
examined or decided in courts of justice because its determination
would not involve an encroachment upon the legislative or
executive power. In simple terms, a political question refers to the
wisdom, while a justiciable question refers to the legality of the
acts complained of.
In the case at bar, the issues raised in the petition do not refer to
the wisdom but to the legality of the acts complained of. Thus, the
Supreme Court found the instant controversy within the ambit of
judicial review.
Also, in the present case, petitioners alleged grave abuse of
discretion and clear violations of law by public respondents. They
put in issue the overpriced construction of the town center; the
grossly disadvantageous bond flotation; the irrevocable
assignment of the provincial governments annual regular income,
including the IRA, to respondent RCBC to cover and secure the
payment of the bonds floated; and the lack of consultation and
discussion with the community regarding the proposed project, as
well as a proper and legitimate bidding for the construction of the
town center.
Thus, the high court said that, even if the issues were political in
nature, it would still come within their powers of review under the
expanded jurisdiction conferred upon them by Section 1, Article
VIII of the Constitution, which includes the authority to determine
whether grave abuse of discretion amounting to excess or lack of
jurisdiction has been committed by any branch or instrumentality
of the government.
Land Bank of the Philippines
vs Eduardo M. Cacayuran
Ponente: Perlas-Bernabe
Facts:
This is a petition for Review on Certiorari of the CA affirming the
RTC in declaring the nullity of the loan agreements entered into
by Land Bank and the Municipality of Agoo, La Union.
Agoo SB passed a certain resolution to implement a
redevelopment plan to redevelop the Agoo Public Plaza. To
finance the plan, SB passed a resolution authorizing then Maor
Eriguel to obtain a loan from Land Bank, incidental to it,
mortgaged a portion of the plaza as collateral. It has also
authorized the assignment of a portion if the IRA and monthly
income in favor of Land Bank to secure the payment. 10 Kiosks
were made at the plaza, then were rented out. Later, a
commercial center on the Plaza lot was built too, with a loan from
Land Bank, posting the same securities as the first loan.
The commercial loan was opposed by some residents of the
municipality embodied in a manifesto launched through a
signature campaign by the residents and Cacayuran. Invoking his
right as taxpayer, Cacayuran filed a complaint against the officials
and Land bank assailing the validity of the loans on the ground
that the Plaza lot used as collateral is property of public dominion
and therefore beyond the commerce of man.
RTC Ruling: declared the nullity of the subject loans, saying that
the oans were passed in a highly irregular manner, as such, the
Municipality is not bound by the same.
Aggrieved, Land Bank filed notice of appeal.
Ruling of CA: affirmed with modification the RTC's ruling,
excluding the Vice Mayor from any personal liability arising from
the subject loans. Cacayuran has locus standi as resident and
taxpayer in the municipality and the issue involves public interest.
The plaza cannot be a valid collateral to a loans for it is of public
dominion.
Land Bank filed this instant petition.
Issues:
(1) whether Cacayuran has locus standi (2) whether the subject
resolutions were validly passed and (3) whether the subject loans
are ultra vires. [The doctrine in the law of corporations that holds
that if a corporation enters into a contract that is beyond the
scope of its corporate powers, the contract is illegal.]
SC Ruling:
(1) Taxpayer is allowed to sue if: (1) public funds derived from
taxation are disbursed by a political subdivision or instrumentality
and in doing so, a law is violated or some irregularity is
committed; and (2) the petitioner is directly affected by the alleged
act.
In the case, the proceeds from the Subject Loans had already
been converted into public funds by the Municipality’s receipt
thereof. Funds coming from private sources become impressed
with the characteristics of public funds when they are under
official custody. Public plaza belongs to public dominion,
Cacayuran need not to be a privy to the loans, as long as taxes
are involved, people have a right to question the contracts
entered into by the government.
(2) While ordinances are laws and possess a general and
permanent character, resolutions are merely declarations of the
sentiment or opinion of a law making body on a specific matter
and are temporary in nature. As opposed to ordinances, "no rights
can be conferred by and be inferred from a resolution." In this
accord, it cannot be denied that the SB violated Section
444(b)(1)(vi) of the LGC altogether. Noticeably, the passage of
the Subject Resolutions was also tainted with other irregularities,
such as (1) the SB’s failure to submit the Subject Resolutions to
the Sangguniang Panlalawigan of La Union for its review contrary
to Section 56 of the LGC; and (2) the lack of publication and
posting in contravention of Section 59 of the LGC.
(3) Generally, an ultra vires act is one committed outside the
object for which a corporation is created as defined by the law of
its organization and therefore beyond the powers conferred upon
it by law.43 There are two (2) types of ultra vires acts. There is a
distinction between an act utterly beyond the jurisdiction of a
municipal corporation and the irregular exercise of a basic power
under the legislative grant in matters not in themselves
jurisdictional. The former are ultra vires in the primary sense and
void; the latter, ultra vires only in a secondary sense which does
not preclude ratification or the application of the doctrine of
estoppel in the interest of equity and essential justice.
Applying these principles to the case at bar, it is clear that the
Subject Loans belong to the first class of ultra vires acts deemed
as void. Records disclose that the said loans were executed by
the Municipality for the purpose of funding the conversion of the
Agoo Plaza into a commercial center pursuant to the
Redevelopment Plan. However, the conversion of the said plaza
is beyond the Municipality’s jurisdiction considering the property’s
nature as one for public use and thereby, forming part of the
public dominion. Accordingly, it cannot be the object of
appropriation either by the State or by private persons. Nor can it
be the subject of lease or any other contractual undertaking.
CIR VS ESTATE OF TODA
FACTS
 March 2, 1989: Cibeles Insurance Corp. (CIC) authorized
Benigno P. Toda Jr., President and Owner of 99.991% of
outstanding capital stock, to sell the Cibeles Building and 2
parcels of land which he sold to Rafael A. Altonaga on August
30, 1987 for P 100M who then sold it on the same day to
Royal Match Inc. for P 200M.
 CIC included gains from sale of real property of P 75,728.021
in its annual income tax return while Altonaga paid a 5%
capital gains tax of P 10M
 July 12, 1990: Toda sold his shares to Le Hun T. Choa for P
12.5M evidenced by a deed of ale of shares of stock which
provides that the buyer is free from all income tax liabilities for
1987, 1988 and 1989.
 Toda Jr. died 3 years later.
 March 29, 1994: BIR sent an assessment notice and demand
letter to CIC for deficiency of income tax of P 79,099, 999.22
 January 27, 1995: BIR sent the same to the estate of Toda Jr.
 Estate filed a protest which was dismissed - fraudulent sale to
evade the 35% corporate income tax for the additional gain of
P 100M and that there is in fact only 1 sale.
 Since it is falsity or fraud, the prescription period is 10 years
from the discovery of the falsity or fraud as prescribed under
Sec. 223 (a) of the NIRC
 CTA: No proof of fraudulent transaction so the applicable
period is 3 years after the last day prescribed by law for filing
the return
 CA: affirmed
 CIR appealed
Issue:
Whether or not the scheme employed by Cibelis Insurance
Company constitutes tax evasion.
Ruling:
Yes! The scheme, explained the Court, resorted to by CIC in
making it appear that there were two sales of the subject
properties, i.e., from CIC to Altonaga, and then from Altonaga to
RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, “is deemed to comprise anything
calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust or
confidence justly reposed, resulting in the damage to another, or
by which an undue and unconscionable advantage is taken of
another.”

It is obvious that the objective of the sale to Altonaga was to
reduce the amount of tax to be paid especially that the transfer
from him to RMI would then subject the income to only 5%
individual capital gains tax, and not the 35% corporate income
tax. Altonaga’s sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy
the normal benefits and burdens of ownership. The sale to him
was merely a tax ploy, a sham, and without business purpose and
economic substance. Doubtless, the execution of the two sales
was calculated to mislead the BIR with the end in view of reducing
the consequent income tax liability.
In a nutshell, the intermediary transaction, i.e., the sale of
Altonaga, which was prompted more on the mitigation of tax
liabilities than for legitimate business purposes constitutes one of
tax evasion.
Generally, a sale or exchange of assets will have an income
tax incidence only when it is consummated. The incidence of
taxation depends upon the substance of a transaction. The tax
consequences arising from gains from a sale of property are not
finally to be determined solely by the means employed to transfer
legal title. Rather, the transaction must be viewed as a whole,
and each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person
cannot be transformed for tax purposes into a sale by another by
using the latter as a conduit through which to pass title. To permit
the true nature of the transaction to be disguised by mere
formalisms, which exist solely to alter tax liabilities, would
seriously impair the effective administration of the tax policies of
Congress.
To allow a taxpayer to deny tax liability on the ground that the
sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to Altonaga should
be disregarded for income tax purposes. The two sale
transactions should be treated as a single direct sale by CIC to
RMI.
DLSU VS CIR
Facts:
The BIR through a Formal Letter of Demand assessed DLSU the
following deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the
campus; (2) value-added tax (VAT) on business income; and (3)
documentary stamp tax (DST) on loans and lease contracts. The
BIR demanded the payment of P17,303,001.12, inclusive of
surcharge, interest and penalty for taxable years 2001, 2002 and
2003.
The CTA Division, in view of the supplemental evidence
submitted, reduced the amount of DLSU's tax deficiencies.
Dissatisfied with the partial reduction of its tax liabilities, DLSU
filed a separate petition for review with the CTA En Banc (CTA En
Banc Case No. 671) on the ground that the CTA Division should
still have cancelled the entire assessment because DLSU
submitted evidence similar to those submitted by Ateneo De
Manila University (Ateneo) in a separate case where the CTA
cancelled Ateneo 's tax assessment, among others.
Issue: Whether or not DLSU' s income and revenues proved to
have been used actually, directly and exclusively for educational
purposes are exempt from duties and taxes.
Ruling: The revenues and assets of non-stock, non-profit
educational institutions proved to have been used actually,
directly, and exclusively for educational purposes are exempt
from duties and taxes.
Section 30 (H) of the Tax Code provides that a non-stock and
nonprofit educational institution shall be exempt from Tax on
Income. It further provides:
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character of
the foregoing organizations from any of their properties,
real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income
shall be subject to tax imposed under this Code.
However, the 1997 Tax Code does not qualify the tax exemption
constitutionally-granted to non-stock, non-profit educational
institutions. The requisites for availing the tax exemption under
Article XIV, Section 4 (3), namely: (1) the taxpayer falls under the
classification non-stock, non-profit educational institution; and (2)
the income it seeks to be exempted from taxation is used actually,
directly and exclusively for educational purposes. The last
paragraph of Section 30 of the Tax Code is without force and
effect with respect to nonstock, non-profit educational institutions,
provided, that the non-stock, non-profit educational institutions
prove that its assets and revenues are used actually, directly and
exclusively for educational purposes. The tax-exemption
constitutionally-granted to non-stock, non-profit educational
institutions, is not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock,
nonprofit educational institutions is conditioned only on the actual,
direct and exclusive use of their assets, revenues and income for
educational purposes.
Unlike Article VI, Section 28 (3) of the Constitution (pertaining to
charitable institutions, churches, parsonages or convents,
mosques, and non-profit cemeteries), which exempts from tax
only the assets, i.e., "all lands, buildings, and improvements,
actually, directly, and exclusively used for religious, charitable, or
educational purposes ... ," Article XIV, Section 4 (3) categorically
states that "[a]ll revenues and assets ... used actually, directly,
and exclusively for educational purposes shall be exempt from
taxes and duties."
Thus, when a non-stock, non-profit educational institution proves
that it uses its revenues actually, directly, and exclusively for
educational purposes, it shall be exempted from income tax, VAT,
and LBT. On the other hand, when it also shows that it uses its
assets in the form of real property for educational purposes, it
shall be exempted from RPT. The crucial point of inquiry then is
on the use of the assets or on the use of the revenues. These are
two things that must be viewed and treated separately. But so
long as the assets or revenues are used actually, directly and
exclusively for educational purposes, they are exempt from duties
and taxes.
Thus, we declare the last paragraph of Section 30 of the Tax
Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues
of non-stock, non-profit educational institutions used actually,
directly and exclusively tor educational purpose. We make this
declaration in the exercise of and consistent with our duty to
uphold the primacy of the Constitution. For all these reasons, we
hold that the income and revenues of DLSU proven to have been
used actually, directly and exclusively for educational purposes
are exempt from duties and taxes.
Lung Center of the Philippines vs. Quezon City and
Constantino Rosas
G.R. No. 144104 June 29, 2004
FACTS:
The Petitioner is a non-stock, non-profit entity which owns a
parcel of land in Quezon City. Erected in the middle of the
aforesaid lot is a hospital known as the Lung Center of the
Philippines. The ground floor is being leased to a canteen,
medical professionals whom use the same as their private clinics,
as well as to other private parties. The right portion of the lot is
being leased for commercial purposes to the Elliptical Orchids
and Garden Center. The petitioner accepts paying and non-
paying patients. It also renders medical services to out-patients,
both paying and non-paying. Aside from its income from paying
patients, the petitioner receives annual subsidies from the
government.
Petitioner filed a Claim for Exemption from realty taxes amounting
to about Php4.5 million, predicating its claim as a charitable
institution. The city assessor denied the Claim. When appealed
to the QC-Local Board of Assessment, the same was
dismissed. The decision of the QC-LBAA was affirmed by the
Central Board of Assessment Appeals, despite the Petitioners
claim that 60% of its hospital beds are used exclusively for
charity.
2. Partly No. Under PD 1823, the lung center does not enjoy any
property tax exemption privileges for its real properties as well as
the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the
Constitution of the property taxes only. This provision was
implanted by Sec.243 (b) of RA 7160.which provides that in order
to be entitled to the exemption, the lung center must be able to
prove that: it is a charitable institution and; its real properties are
actually, directly and exclusively used for charitable purpose.
Accordingly, the portions occupied by the hospital used for its
patients are exempt from real property taxes while those leased to
private entities are not exempt from such taxes.

ISSUE:
1. Whether or not petitioner is a charitable institution within the
context of PD 1823 and the 1973 and 1987 Constitution and
Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitution. Under PD
1823, the petitioner is a non-profit and non-stock corporation
which, subject to the provisions of the decree, is to be
administered by the Office of the President with the Ministry of
Health and the Ministry of Human Settlements. The purpose for
which it was created was to render medical services to the public
in general including those who are poor and also the rich, and
become a subject of charity. Under PD 1823, petitioner is entitled
to receive donations, even if the gift or donation is in the form of
subsidies granted by the government.