Republic of the Philippines second letter, dated June 22, 2001, was a manifestation indicating the submission
SUPREME COURT of various documents supporting respondent's dissolution, among which was BIR
Manila
THIRD DIVISION
G.R. No. 198677 November 26, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
BASF COATING + INKS PHILS., INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision1 of the
Court of Tax Appeals (CTA) En Banc, dated June 16, 2011, and Resolution2 dated
September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125).
The pertinent factual and procedural antecedents of the case are as follows:
Respondent was a corporation which was duly organized under and by virtue of
the laws of the Republic of the Philippines on August 1, 1990 with a term of
existence of fifty (50) years. Its BIR-registered address was at 101 Marcos Alvarez
Avenue, Barrio Talon, Las Piñas City. In a joint special meeting held on March 19,
2001, majorityof the members of the Board of Directors and the stockholders
representing more than two-thirds (2/3) of the entire subscribed and outstanding
capital stock of herein respondent corporation, resolved to dissolve the
corporation by shortening its corporate term to March 31, 2001.3 Subsequently,
respondent moved out of its address in Las Piñas City and transferred to
Carmelray Industrial Park, Canlubang, Calamba, Laguna.
On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal
Revenue (BIR) Revenue District Officer of Revenue District Office (RDO) No. 53,
Region 8, in Alabang, Muntinlupa City. The first letter, dated April 26, 2001, was a
notice of respondent's dissolution, in compliance with the requirements of
Section 52(c) of the National Internal Revenue Code.4 On the other hand, the
Form No. 1905, which refers to an update of information contained in its tax
registration.5
Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003,
petitioner assessed respondent the aggregate amount of ₱18,671,343.14
representing deficiencies in income tax, value added tax, withholding tax on
compensation, expanded withholding tax and documentary stamp tax, including
increments, for the taxable year 1999.6 The FAN was sent by registered mail on
January 24, 2003 to respondent's former address in Las Piñas City.
On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No.
7, RDO No. 39, South Quezon City, issued a First Notice Before Issuance of
Warrant of Distraint and Levy, which was sent to the residence of one of
respondent's directors.7
On March 19, 2004, respondent filed a protest letter citing lack of due process
and prescription as grounds.8 On April 16, 2004, respondent filed a supplemental
letter of protest.9 Subsequently, on June 14, 2004, respondent submitted a letter
wherein it attached documents to prove the defenses raised in its protest
letters.10
On January 10, 2005, after 180 dayshad lapsed without action on the part of
petitioner on respondent's protest, the latter filed a Petition for Review11 with the
CTA.
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division promulgated its
Decision,12 the dispositive portion of which reads, thus:
WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for
deficiency income tax in the amount of ₱14,227,425.39, deficiency value-added
tax of ₱3,981,245.66, deficiency withholding tax on compensation of ₱49,977.21,
deficiency expanded withholding tax of ₱156,261.97 and deficiency documentary
stamp tax of ₱256,432.91, including increments, in the aggregate amount of
₱18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET ASIDE.
SO ORDERED.13
The CTA Special First Division ruled that since petitioner was actually aware of
respondent's new address, the former's failure to send the Preliminary
Assessment Notice and FAN to the said address should not be taken against the
latter. Consequently, since there are no valid notices sent to respondent, the
subsequent assessments against it are considered void. Aggrieved by the
Decision, petitioner filed a Motion for Reconsideration, but the CTA Special First
Division denied it in its Resolution14 dated July 13, 2010.
Petitioner then filed a Petition for Review with the CTA En Banc.15
On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying
petitioner's Petition for Review for lack of merit. The CTA En Banc held that
petitioner's right to assess respondent for deficiency taxes for the taxable year
1999 has already prescribed and that the FAN issued to respondent never
attained finality because respondent did not receive it.
Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its
Resolution dated September 16, 2011.
Hence, the present petition with the following Assignment of Errors:
I
THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF
PETITIONER TO ASSESS HEREIN RESPONDENT FOR DEFICIENCY INCOME TAX,
VALUEADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED
WITHHOLDING TAX AND DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR 1999 IS
BARRED BY PRESCRIPTION.
II
THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE
FORMAL ASSESSMENT NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME
TAX, VALUE-ADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED
WITHHOLDING TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999
HAS NOT YET BECOME FINAL, EXECUTORY AND DEMANDABLE.16
The petition lacks merit.
Petitioner contends that, insofar as respondent's alleged deficiency taxes for the
taxable year1999 are concerned, the running of the three-year prescriptive period
to assess, under Sections 203 and 222 of the National Internal Revenue Act of
1997 (Tax Reform Act of 1997) was suspended when respondent failed to notify
petitioner, in writing, of its change of address, pursuant to the provisions of
Section 223 of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.
Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:
Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as
provided in Section 222,internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (emphasis supplied)
Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. -
(a) In the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed without assessment, at
any time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon.
 The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed
upon.
(c) Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by
distraint or levy or by a proceeding in court within five (5) years following
the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove, may be collected
bydistraint or levy or by a proceeding in court within the period agreed
upon in writing before the expiration of the five (5) -year period. The
period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed
upon.
(e) Provided, however, That nothing in the immediately preceding and
paragraph (a) hereof shall be construed to authorize the examination and
investigation or inquiry into any tax return filed in accordance with the
provisions of any tax amnesty law or decree.
Sec. 223. Suspension of Running of Statute of Limitations. - The running of the
Statute of Limitations provided in Sections 203 and 222 on the making of
assessment and the beginning of distraint or levy a proceeding in court for
collection, in respect of any deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty (60) days thereafter; when
the taxpayer requests for a reinvestigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return
filed upon which a tax is being assessed or collected: Provided, that, if the
taxpayer informs the Commissioner of any change in address, the running of the
Statute of Limitations will not be suspended; when the warrant of distraint or levy
is duly served upon the taxpayer, his authorized representative, or a member of
his household with sufficient discretion, and no property could be located; and
when the taxpayer is out of the Philippines. (emphasis supplied)
In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:
Sec. 11. Change of Address. – In case of change of address, the taxpayer must give
a written notice thereof to the Revenue District Officer or the district having
jurisdiction over his formerlegal residence and/or place of business, copy
furnished the Revenue District Officer having jurisdiction over his new legal
residence or place of business, the Revenue Computer Center and the Receivable
Accounts Division, BIR, National Office, Quezon City, and in case of failure to do
so, any communication referred to in these regulations previously sent to his
former legal residence or business address as appear in is tax return for the
period involved shall be considered valid and binding for purposes of the period
within which to reply.
It is true that, under Section 223 of the Tax Reform Act of 1997, the running of
the Statute of Limitations provided under the provisions of Sections 203 and 222
of the same Act shall be suspended when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or
collected. In addition, Section 11 of Revenue Regulation No. 12-85 states that, in
case of change of address, the taxpayer is required to give a written notice
thereof to the Revenue District Officer or the district having jurisdiction over his
former legal residence and/or place of business. However, this Court agrees with
both the CTA Special First Division and the CTA En Banc in their ruling that the
above mentioned provisions on the suspension of the three-year period to assess
apply only if the BIR Commissioner is not aware of the whereabouts of the
taxpayer.
In the present case, petitioner, by all indications, is well aware that respondent
had moved to its new address in Calamba, Laguna, as shown by the following
documents which form partof respondent's records with the BIR:
1) Checklist on Income Tax/Withholding Tax/Documentary Stamp
Tax/Value-Added Tax and Other Percentage Taxes;17
2) General Information (BIR Form No. 23-02);18
3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;19
4) Activity Report, dated October 17, 2002;20
5) Memorandum Report of Examiner, dated June 27, 2002;21
 6) Revenue Officer's Audit Report on Income Tax;22
7) Revenue Officer's Audit Report on Value-Added Tax;23
24
8) Revenue Officer's Audit Report on Compensation Withholding Taxes;
9) Revenue Officer's Audit Report on Expanded Withholding Taxes;25
10) Revenue Officer's Audit Report on Documentary Stamp Taxes.26
The above documents, all of which were accomplished and signed by officers of
the BIR, clearly show that respondent's address is at Carmelray Industrial Park,
Canlubang, Calamba, Laguna. The CTA also found that BIR officers, at various
times prior to the issuance of the subject FAN, conducted examination and
investigation of respondent's tax liabilities for 1999 at the latter's new address in
Laguna as evidenced by the following, in addition to the above mentioned
records:
1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene
R. Garcia;27
2) Final Request for Presentation of Records Before Subpoena Duces
Tecum, dated March 20, 2002, signed by Revenue Officer I Eugene R.
Garcia.28
Moreover, the CTA found that, based on records, the RDO sent respondent a
letter dated April 24, 2002 informing the latter of the results of their investigation
and inviting it to an informal conference.29 Subsequently, the RDO also sent
respondent another letter dated May 30, 2002, acknowledging receipt of the
latter's reply to his April 24, 2002 letter.30 These two letters were sent to
respondent's new address in Laguna. Had the RDO not been informed or was not
aware of respondent's new address, he could not have sent the said letters to the
said address.
Furthermore, petitioner should have been alerted by the fact that prior to mailing
the FAN, petitioner sent to respondent's old address a Preliminary Assessment
Notice but it was "returned to sender." This was testified to by petitioner's
Revenue Officer II at its Revenue District Office 39 in Quezon City.31 Yet, despite
this occurrence, petitioner still insisted in mailing the FAN to respondent's old
address.
Hence, despite the absence of a formal written notice of respondent's change of
address, the fact remains that petitioner became aware of respondent's new
address as shown by documents replete in its records. As a consequence, the
running of the three-year period to assess respondent was not suspended and
has already prescribed.
It bears stressing that, in a number of cases, this Court has explained that the
statute of limitations on the collection of taxes primarily benefits the taxpayer. In
these cases, the Court exemplified the detrimental effects that the delay in the
assessment and collection of taxes inflicts upon the taxpayers. Thus, in
Commissioner of Internal Revenue v. Philippine Global Communication, Inc.,32 this
Court echoed Justice Montemayor's disquisition in his dissenting opinion in
Collector of Internal Revenue v. Suyoc Consolidated Mining Company,33 regarding
the potential loss to the taxpayer if the assessment and collection of taxes are not
promptly made, thus:
Prescription in the assessment and in the collection of taxes is provided by the
Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the
agency charged with the assessment and collection may not tarry too long or
indefinitely tothe prejudice of the interests of the Government, which needs
taxes to run it; and for the taxpayer so that within a reasonable time after filing
his return, hemay know the amount of the assessment he is required to pay,
whether or not such assessment is well founded and reasonable so that he may
either pay the amount of the assessment or contest its validity incourt x x x. It
would surely be prejudicial to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the collection because by
the time the collecting agency finally gets around to making the assessment or
making the collection, the taxpayer may then have lost his papers and books to
support his claim and contest that of the Government, and what is more, the tax
is in the meantime accumulating interest which the taxpayer eventually has to
pay.34
Likewise, in Republic of the Philippines v. Ablaza,35 this Court elucidated that the
prescriptive period for the filing of actions for collection of taxes is justified by the
need to protect law-abiding citizens from possible harassment. Also, in Bank of
the Philippine Islands v. Commissioner of Internal Revenue,36 it was held that the
statute of limitations on the assessment and collection of taxes is principally
intended to afford protection to the taxpayer against unreasonable investigations
as the indefinite extension of the period for assessment deprives the taxpayer of
the assurance that he will no longer be subjected to further investigation for
taxes after the expiration of a reasonable period of time. Thus, in Commissioner
of Internal Revenue v. B.F. Goodrich Phils., Inc.,37 this Court ruled that the legal
provisions on prescription should be liberally construed to protect taxpayers and
that, as a corollary, the exceptions to the rule on prescription should be strictly
construed.
It might not also be amiss to point out that petitioner's issuance of the First
Notice Before Issuance of Warrant of Distraint and Levy38 violated respondent's
right to due process because no valid notice of assessment was sent to it. An
invalid assessment bears no valid fruit. The law imposes a substantive, not merely
a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle
inadministrative investigations: that taxpayers should be able to present their
case and adduce supporting evidence.39 In the instant case, respondent has not
properly been informed of the basis of its tax liabilities. Without complying with
the unequivocal mandate of first informing the taxpayer of the government’s
claim, there can be no deprivation of property, because no effective protest can
be made.
It is true that taxes are the lifeblood of the government. However, in spite of all
its plenitude, the power to tax has its limits.40 Thus, in Commissioner of Internal
Revenue v. Algue, Inc.,41 this Court held:
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance.1âwphi1 On the other hand, such collection should be
made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.
xxxx
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one’s hard-
earned income to taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for its partis
expected torespond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous
notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate x x x that the law has not been observed.42
It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law. In balancing the scales between
the power of the State to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional rights of a citizen
todue process of law and the equal protection of the laws on the other, the scales
must tilt in favor of the individual, for a citizen’s right is amply protected by the
Bill of Rights under the Constitution.43
As to the second assigned error, petitioner's reliance on the provisions of Section
3.1.7 of BIR Revenue Regulation No. 12-9944 as well as on the case of Nava v.
Commissioner of Internal Revenue45 is misplaced, because in the said case, one of
the requirements ofa valid assessment notice is that the letter or notice must be
properly addressed. It is not enough that the notice is sent by registered mail as
provided under the said Revenue Regulation. In the instant case, the FAN was
sent tothe wrong address. Thus, the CTA is correct in holding that the FAN never
attained finality because respondent never received it, either actually or
constructively.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax
Appeals En Banc, dated June 16, 2011, and its Resolution dated September 16,
2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125), are AFFIRMED.
 FIRST DIVISION Petitioner Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.) is a
corporation engaged in the trading of securities. On 14 April 1988, petitioner filed
its Annual Income Tax Return for taxable year 1987. After an audit investigation
BARCELON, ROXAS SECURITIES, G. R. No. 157064
conducted by the Bureau of Internal Revenue (BIR), respondent Commissioner of
INC. (now known as UBP
Securities, Inc.) Present: Internal Revenue (CIR) issued an assessment for deficiency income tax in the
Petitioner, amount of P826,698.31 arising from the disallowance of the item on salaries,
PANGANIBAN, C.J., bonuses and allowances in the amount of P1,219,093,93 as part of the deductible
Chairman, business expense since petitioner failed to subject the salaries, bonuses and
YNARES-SANTIAGO allowances to withholding taxes. This assessment was covered by Formal
- versus - AUSTRIA-MARTINEZ, Assessment Notice No. FAN-1-87-91-000649 dated 1 February 1991, which,
CALLEJO, SR., and respondent alleges, was sent to petitioner through registered mail on 6 February
CHICO -NAZARIO, JJ. 1991. However, petitioner denies receiving the formal assessment notice.[3]
COMMISSIONER OF INTERNAL Promulgated:
REVENUE, On 17 March 1992, petitioner was served with a Warrant of Distraint and/or Levy
Respondent. August 7, 2006 to enforce collection of the deficiency income tax for the year 1987. Petitioner
filed a formal protest, dated 25 March 1992, against the Warrant
of Distraint and/or Levy, requesting for its cancellation. On 3 July 1998, petitioner
received a letter dated 30 April 1998 from the respondent denying the protest
x--------------------------------------------------x with finality.[4]

DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court,
seeking to set aside the Decision of the Court of Appeals in CA-G.R. SP No. 60209
dated 11 July 2002,[1] ordering the petitioner to pay the Government the amount
of P826,698.31 as deficiency income tax for the year 1987 plus 25% surcharge and
20% interest per annum. The Court of Appeals, in its assailed Decision, reversed
the Decision of the Court of Tax Appeals (CTA) dated 17 May 2000[2] in C.T.A. Case
No. 5662.
On 31 July 1998, petitioner filed a petition for review with the CTA. After
due notice and hearing, the CTA rendered a decision in favor of petitioner on 17
May 2000. The CTA ruled on the primary issue of prescription and found it
unnecessary to decide the issues on the validity and propriety of the
assessment. It maintained that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable presumption. It
reasoned that the direct denial of the petitioner shifts the burden of proof to the
respondent that the mailed letter was actually received by the petitioner. The
CTA found the BIR records submitted by the respondent immaterial, self-serving,
and therefore insufficient to prove that the assessment notice was mailed and
duly received by the petitioner.[5] The dispositive portion of this decision reads: Hence, this Petition for Review on Certiorari raising the following issues:

WHEREFORE, in view of the foregoing, I

the 1988 deficiency tax assessment against petitioner is hereby
CANCELLED. Respondent is hereby ORDERED TO DESIST from WHETHER OR NOT LEGAL BASES EX IST FOR THE COURT
collecting said deficiency tax. No pronouncement as to costs.[6] OF APPEALS FINDING THAT THE COURT OF TAX
APPEALS COMMITTED GROSS ERROR IN THE
APPRECIATION OF FACTS.
On 6 June 2000, respondent moved for reconsideration of the aforesaid
II
decision but was denied by the CTA in a Resolution dated 25 July
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN
2000. Thereafter, respondent appealed to the Court of Appeals on 31 August REVERSING THE SUBJECT DECISION OF THE COURT OF TAX
2001. In reversing the CTA decision, the Court of Appeals found the evidence APPEALS.

presented by the respondent to be sufficient proof that the tax assessment notice III
was mailed to the petitioner,therefore the legal presumption that it was received
WHETHER OR NOT THE RIGHT OF THE BUREAU OF INTERNAL
should apply.[7] Thus, the Court of Appeals ruled that: REVENUE TO ASSESS PETITIONER FOR ALLEGED DEFICIENCY
INCOME TAX FOR 1987 HAS PRESCRIBED.
WHEREFORE, the petition is hereby
IV
GRANTED. The decision dated May 17, 2000 as well as
the Resolution dated July 25, 2000 are hereby REVERSED
WHETHER OR NOT THE RIGHT OF THE BUREAU OF INTERNAL
and SET ASIDE, and a new on entered ordering the
REVENUE TO COLLECT THE SUBJECT ALLEGED DEFICIENCY
respondent to pay the amount of P826,698.31 as
INCOME TAX FOR 1987 HAS PRESCRIBED.
deficiency income tax for the year 1987 plus 25%
surcharge and 20% interest per annum from February 6,
V
1991 until fully paid pursuant to Sections 248 and 249 of
the Tax Code.[8]
WHETHER OR NOT PETITIONER IS LIABLE FOR THE ALLEGED
DEFICIENCY INCOME TAX ASSESSMENT FOR 1987.
Petitioner moved for reconsideration of the said decision but the same
VI
was denied by the Court of Appeals in its assailed Resolution dated 30 January
WHETHER OR NOT THE SUBJECT ASSESSMENT IS VIOLATIVE OF
2003.[9] THE RIGHT OF PETITIONER TO DUE PROCESS.[10]

This Court finds the instant Petition meritorious.
The core issue in this case is whether or not respondents right to assess
petitioners alleged deficiency income tax is barred by prescription, the resolution
of which depends on reviewing the findings of fact of the Court of Appeals and
the CTA.
While the general rule is that factual findings of the Court of Appeals are
binding on this Court, there are, however, recognized exceptions[11] thereto, such
as when the findings are contrary to those of the trial court or, in this case, the
CTA.[12]
In its Decision, the CTA resolved the issues raised by the parties thus:
Jurisprudence is replete with cases holding that if the
taxpayer denies ever having received an assessment from the
BIR, it is incumbent upon the latter to prove by competent
evidence that such notice was indeed received by the
addressee. The onus probandi was shifted to respondent to prove
by contrary evidence that the Petitioner received the assessment
in the due course of mail. The Supreme Court has consistently
held that while a mailed letter is deemed received by the
addressee in the course of mail, this is merely a disputable
presumption subject to controversion and a direct denial thereof
shifts the burden to the party favored by the presumption to
prove that the mailed letter was indeed received by the
addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as
held by the Supreme Court in Gonzalo P. Nava vs. Commissioner
of Internal Revenue, 13 SCRA 104, January 30, 1965:
The facts to be proved to raise this
presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it
was mailed. Once these facts are proved, the
presumption is that the letter was received by
the addressee as soon as it could have been
transmitted to him in the ordinary course of the
mail. But if one of the said facts fails to appear,
the presumption does not lie. (VI, Moran,
Comments on the Rules of Court, 1963 ed, 56-57
citing Enriquez vs. Sunlife Assurance of Canada,
41 Phil 269).
In the instant case, Respondent utterly failed to discharge
this duty. No substantial evidence was ever presented to prove
that the assessment notice No. FAN-1-87-91-000649 or other
supposed notices subsequent thereto were in fact issued or sent
to the taxpayer. As a matter of fact, it only submitted the BIR
record book which allegedly contains the list of taxpayers names,
the reference number, the year, the nature of tax, the
city/municipality and the amount (see Exh. 5-a for the
Respondent). Purportedly, Respondent intended to show to this
Court that all assessments made are entered into a record book
in chronological order outlining the details of the assessment and
the taxpayer liable thereon. However, as can be gleaned from the
face of the exhibit, all entries thereon appears to be immaterial
and impertinent in proving that the assessment notice was
mailed and duly received by Petitioner.Nothing indicates therein
all essential facts that could sustain the burden of proof being
shifted to the Respondent. What is essential to prove the fact of
mailing is the registry receipt issued by the Bureau of Posts or the
Registry return card which would have been signed by the
Petitioner or its authorized representative. And if said documents
cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of
Posts and any other pertinent document which is executed with
the intervention of the Bureau of Posts. This Court does not put
much credence to the self serving documentations made by the
BIR personnel especially if they are unsupported by substantial
evidence establishing the fact of mailing. Thus:
 While we have held that an assessment is
made when sent within the prescribed period,
even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-12250
and L-12259, May 27, 1959), this ruling makes it
the more imperative that the release, mailing or
sending of the notice be clearly and satisfactorily
proved. Mere notations made without the
taxpayers intervention, notice or control, without
adequate supporting evidence cannot suffice;
otherwise, the taxpayer would be at the mercy of
the revenue offices, without adequate protection
or defense. (Nava vs. CIR, 13 SCRA 104, January
30, 1965).
xxxx
The failure of the respondent to prove receipt of the
assessment by the Petitioner leads to the conclusion that no
assessment was issued. Consequently, the governments right to
issue an assessment for the said period has already
prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc.
vs. CIR CTA Case 4885, August 22, 1996).[13]
Jurisprudence has consistently shown that this Court accords the findings
of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of
Appeals[14] this Court recognizes that the Court of Tax Appeals, which by the very
nature of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and its
conclusions will not be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal if they are
not supported by substantial evidence or there is a showing of gross error or
abuse on the part of the Tax Court.[15] In the absence of any clear and convincing
proof to the contrary, this Court must presume that the CTA rendered a decision
which is valid in every respect.
Under Section 203[16] of the National Internal Revenue Code (NIRC),
respondent had three (3) years from the last day for the filing of the return to
send an assessment notice to petitioner. In the case of Collector of Internal
Revenue v. Bautista,[17] this Court held that an assessment is made within the
prescriptive period if notice to this effect is released, mailed or sent by the CIR to
the taxpayer within said period. Receipt thereof by the taxpayer within the
prescriptive period is not necessary. At this point, it should be clarified that the
rule does not dispense with the requirement that the taxpayer should actually
receive, even beyond the prescriptive period, the assessment notice which was
timely released, mailed and sent.
In the present case, records show that petitioner filed its Annual Income
Tax Return for taxable year 1987 on 14 April 1988.[18] The last day for filing by
petitioner of its return was on 15 April 1988,[19]thus, giving respondent until 15
April 1991 within which to send an assessment notice. While respondent avers
that it sent the assessment notice dated 1 February 1991 on 6 February 1991,
within the three (3)-year period prescribed by law, petitioner denies having
received an assessment notice from respondent. Petitioner alleges that it came to
know of the deficiency tax assessment only on 17 March 1992 when it was served
with the Warrant of Distraint and Levy.[20]
In Protectors Services, Inc. v. Court of Appeals,[21] this Court ruled that
when a mail matter is sent by registered mail, there exists a presumption, set
forth under Section 3(v), Rule 131 of the Rules of Court, [22] that it was received in
the regular course of mail. The facts to be proved in order to raise this
presumption are: (a) that the letter was properly addressed with postage prepaid;
and (b) that it was mailed. While a mailed letter is deemed received by the
addressee in the ordinary course of mail, this is still merely a disputable
presumption subject to controversion, and a direct denial of the receipt thereof
shifts the burden upon the party favored by the presumption to prove that the
mailed letter was indeed received by the addressee.[23]
In the present case, petitioner denies receiving the assessment notice,
and the respondent was unable to present substantial evidence that such notice
was, indeed, mailed or sent by the respondent before the BIRs right to assess had
prescribed and that said notice was received by the petitioner. The respondent
presented the BIR record book where the name of the taxpayer, the kind of tax
assessed, the registry receipt number and the date of mailing were noted. The BIR
records custodian, Ingrid Versola, also testified that she made the entries
therein. Respondent offered the entry in the BIR record book and the testimony
of its record custodian as entries in official records in accordance with Section 44,
Rule 130 of the Rules of Court,[24] which states that:
Section 44. Entries in official records. - Entries in official records
made in the performance of his duty by a public officer of
the Philippines, or by a person in the performance of a duty
specially enjoined by law, are prima facieevidence of the facts
therein stated.
The foregoing rule on evidence, however, must be read in accordance
with this Courts pronouncement in Africa v. Caltex (Phil.), Inc.,[25] where it has
been held that an entrant must have personal knowledge of the facts stated by
him or such facts were acquired by him from reports made by persons under a
legal duty to submit the same.
There are three requisites for admissibility under the rule just
mentioned: (a) that the entry was made by a public officer, or by
another person specially enjoined by law to do so; (b) that it was
made by the public officer in the performance of his duties, or by
such other person in the performance of a duty specially enjoined
by law; and (c) that the public officer or other person had
sufficient knowledge of the facts by him stated, which must have
been acquired by him personally or through official information
x x x.
In this case, the entries made by Ingrid Versola were not based on her
personal knowledge as she did not attest to the fact that she personally prepared
and mailed the assessment notice. Nor was it stated in the transcript of
stenographic notes[26] how and from whom she obtained the pertinent
information. Moreover, she did not attest to the fact that she acquired the
reports from persons under a legal duty to submit the same. Hence, Rule 130,
Section 44 finds no application in the present case. Thus, the evidence offered by
respondent does not qualify as an exception to the rule against hearsay evidence.
Furthermore, independent evidence, such as the registry receipt of the
assessment notice, or a certification from the Bureau of Posts, could have easily
been obtained. Yet respondent failed to present such evidence.
In the case of Nava v. Commissioner of Internal Revenue, [27] this Court
stressed on the importance of proving the release, mailing or sending of the
notice.
While we have held that an assessment is made when sent within
the prescribed period, even if received by the taxpayer after its
expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259,
May 27, 1959), this ruling makes it the more imperative that the
release, mailing, or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayers
intervention, notice, or control, without adequate supporting
evidence, cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or
defense.
In the present case, the evidence offered by the respondent fails to
convince this Court that Formal Assessment Notice No. FAN-1-87-91-000649 was
released, mailed, or sent before 15 April 1991, or before the lapse of the period
of limitation upon assessment and collection prescribed by Section 203 of the
NIRC. Such evidence, therefore, is insufficient to give rise to the presumption that
the assessment notice was received in the regular course of mail. Consequently,
the right of the government to assess and collect the alleged deficiency tax is
barred by prescription.

IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. The

assailed Decision of the Court of Appeals in CA-G.R. SP No. 60209 dated 11 July
2002, is hereby REVERSED and SET ASIDE, and the Decision of the Court of Tax
Appeals in C.T.A. Case No. 5662, dated 17 May 2000, cancelling the 1988
Deficiency Tax Assessment against Barcelon, Roxas Securitites, Inc. (now known
as UPB Securities, Inc.) for being barred by prescription, is hereby
REINSTATED. No costs.
G.R. No. 208731
PHILIPPINE AMUSEMENT AND GAMING CORPORATION, Petitioner,
vs.
BUREAU OF INTERNAL REVENUE, COMMISSIONER OF INTERNAL REVENUE, and
REGIONAL DIRECTOR, REVENUE REGION No. 6, Respondents.
DECISION
CARPIO, J.:
The Case
G.R. No. 208731 is a petition for review1 assailing the Decision2 promulgated on
18 February 2013 as well as the Resolution3 promulgated on 23 July 2013 by the
Court of Tax Appeals En Banc (CTA En Banc) in CTA EB No. 844. The CTA EB
affirmed the Decision dated 6 July 20114 and Resolution5 dated 13 October 2011
of the Court of Tax Appeals' First Division (CTA 1st Division) in CTA Case No. 7880.
In its 6 July 2011 Decision, the CTA 1st Division ruled in favor of the Bureau of
Internal Revenue (BIR), Commissioner of Internal Revenue (CIR), and the Regional
Director of Revenue Region No. 6 (collectively, respondents) and against
petitioner Philippine Amusement and Gaming Corporation (PAGCOR). The CTA 1st
Division dismissed PAGCOR's petition for review seeking the cancellation of the
Final Assessment Notice (FAN) dated 14 January 2008 which respondents issued
for alleged deficiency fringe benefits tax in 2004. The CTA 1st Division ruled that
PAGCOR's petition was filed out of time.
The Facts
The CTA 1st Division recited the facts as follows:
[PAGCOR] claims that it is a duly organized government-owned and controlled
corporation existing under and by virtue of Presidential Decree No. 1869, as
amended, with business address at the 6th Floor, Hyatt Hotel and Casino, Pedro
Gil comer M.H. Del Pilar Streets, Malate, Manila. It was created to regulate,
establish and operate clubs and casinos for amusement and recreation, including
sports gaming pools, and such other forms of amusement and recreation.
Respondent [CIR], on the other hand, is the Head of the [BIR] with authority,
among others, to resolve protests on assessments issued by her office or her
authorized representatives. She holds office at the BIR National Office Building,
Agham Road, Diliman, Quezon City.
[PAGCOR] provides a car plan program to its qualified officers under which sixty
percent (60%) of the car plan availment is shouldered by PAGCOR and the
remaining forty percent (40%) for the account of the officer, payable in five (5)
years.
On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated
September 28, 2007 from BIR Regional Director Alfredo Misajon [RD Misajon] of
Revenue Region 6, Revenue District No. 33, for an informal conference to discuss
the result of its investigation on [PAGCOR's] internal revenue taxes in 2004. The
Post Reporting Notice shows that [PAGCOR] has deficiencies on Value Added Tax
(VAT), Withholding Tax on VAT (WTV), Expanded Withholding Tax (EWT), and
Fringe Benefits Tax (FBI).
Subsequently, the BIR abandoned the claim for deficiency assessments on VAT,
WTV and EWT in the Letter to [PAGCOR] dated November 23, 2007 in view of the
principles laid down in Commissioner of Internal Revenue vs. Acesite Hotel
Corporation [G.R. No. 147295] exempting [PAGCOR] and its contractors from VAT.
However, the assessment on deficiency FBT subsists and remains due to date.
On January 17, 2008, [PAGCOR] received a Final Assessment Notice [FAN] dated
January 14, 2008, with demand for payment of deficiency FBT for taxable year
2004 in the amount of P48,589,507.65.
On January 24, 2008, [PAGCOR] filed a protest to the FAN addressed to [RD
Misajon] of Revenue Region No. 6 of the BIR.
On August 14, 2008, [PAGCOR] elevated its protest to respondent CIR in a Letter
dated August 13, 2008, there being no action taken thereon as of that date.
In a Letter dated September 23, 2008 received on September 25, 2008, [PAGCOR]
was informed that the Legal Division of Revenue Region No. 6 sustained Revenue
Officer Ma. Elena Llantada on the imposition of FBT against it based on the
provisions of Revenue Regulations (RR) No. 3-98 and that its protest was
forwarded to the Assessment Division for further action.
On November 19, 2008, [PAGCOR] received a letter from the OIC-Regional
Director, Revenue Region No. 6 (Manila), stating that its letter protest was
referred to Revenue District Office No. 33 for appropriate action.
On March 11, 2009, [PAGCOR] filed the instant Petition for Review alleging
respondents' inaction in its protest on the disputed deficiency FBT.6
The CTA 1st Division's Ruling
The CTA 1st Division issued the assailed decision dated 6 July 2011 and ruled in
favor of respondents. The CTA 1st Division ruled that RD Misajon's issuance of the
FAN was a valid delegation of authority, and PAGCOR's administrative protest was
validly and seasonably filed on 24 January 2008. The petition for review filed with
the CTA 1st Division, however, was filed out of time. The CTA 1st Division stated:
As earlier stated, [PAGCOR] timely filed its administrative protest on January 24,
2008. In accordance with Section 228 of the Tax Code, respondent CIR or her duly
authorized representative had 180 days or until July 22, 2008 to act on the
protest. After the expiration of the 180-day period without action on the protest,
as in the instant case, the taxpayer, specifically [PAGCOR], had 30 days or until
August 21, 2008 to assail the non-determination of its protest.
Clearly, the conclusion that the instant Petition for Review was filed beyond the
reglementary period for appeal on March 11, 2009, effectively depriving the
Court of jurisdiction over the petition, is inescapable.
And as provided in Section 228 of the NIRC, the failure of [PAGCOR] to appeal
from an assessment on time rendered the same final, executory and demandable.
Consequently, [PAGCOR] is already precluded from disputing the correctness of
the assessment. The failure to comply with the 30-day statutory period would bar
the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain
and determine the correctness of the assessment.
Even assuming in gratia argumenti that the [CTA] has jurisdiction over the case as
claimed by [PAGCOR], the petition must still fail on the ground that [PAGCOR] is
not exempt from payment of the assessed FBT under its charter.
xxxx
Since the car plan provided by [PAGCOR] partakes of the nature of a personal
expense attributable to its employees, it shall be treated as taxable fringe benefit
of its employees, whether or not the same is duly receipted in the name of the
employer. Therefore, [PAGCOR's] obligation as an agent of the government to
withhold and remit the final tax on the fringe benefit received by its employees is
personal and direct. The government's cause of action against [PAGCOR] is not for
the collection of income tax, for which [PAGCOR] is exempted, but for the
enforcement of the withholding provision of the 1997 NIRC, compliance of which
is imposed on [PAGCOR] as, the withholding agent, and not upon its employees.
Consequently, [PAGCOR's] non-compliance with said obligation to withhold
makes it personally liable for the tax arising from the breach of its legal duty.7
PAGCOR filed a motion for reconsideration, dated 26 July 2011, of the 6 July 2011
Decision of the CTA 1st Division. The CIR filed a comment,8 and asked that
PAGCOR be ordered to pay P48,589,507.65 representing deficiency fringe
benefits tax for taxable year 2004 plus 25% surcharge and 20% delinquency
interest from late payment beyond 15 February 2008 until fully paid, pursuant to
Sections 248 and 249 of the National Internal Revenue Code (NIRC) of 1997.
In the meantime, the CIR sent PAGCOR a letter dated 18 July 2011.9 The letter
stated that PAGCOR should be subjected to the issuance of a Warrant of Distraint
and/or Levy and a Warrant of Garnishment because of its failure to pay its
outstanding delinquent account in the amount of P46,589,507.65, which included
surcharge and interest. Settlement of the tax liability is necessary to obviate the
issuance of a Warrant of Distraint and/or Levy and a Warrant of Garnishment.
Subsequently, PAGCOR filed a reply dated 28 September 2011 to ask that an
order be issued directing respondents to hold in abeyance the execution of the
Warrant of Distraint and/or Levy and the Warrant of Garnishment, as well as to
suspend the collection of tax insofar as the 2004 assessment is concerned.
PAGCOR also asked for exemption from filing a bond or depositing the amount
claimed by respondents.10
PAGCOR filed a petition for review with urgent motion to suspend tax
collection11 with the CTA En Banc on 23 November 2011.
The CTA En Banc's Ruling
The CTA En Banc dismissed PAGCOR's petition for review and affirmed the CTA
1st Division's Decision and Resolution. The CTA En Banc ruled that the protest
filed before the RD is a valid protest; hence, it was superfluous for PAGCOR to
raise the protest before the CIR. When PAGCOR filed its administrative protest on
24 January 2008, the CIR or her duly authorized representative had 180 days or
until 22 July 2008 to act on the protest. After the expiration of the 180 days,
PAGCOR had 30 days or until 21 August 2008 to assail before the CTA the non-
determination of its protest.
Moreover, Section 223 of the NIRC merely suspends the period within which the
BIR can make assessments on a certain taxpayer. A taxpayer's request for
reinvestigation only happens upon the BIR's issuance of an assessment within the
three-year prescriptive period. The reinvestigation of the assessment suspends
the prescriptive period for either a revised assessment or a retained assessment.
PAGCOR filed its Motion for Reconsideration on 22 March 2013, while
respondents filed their Comment/Opposition on 3 June 2013.
The CTA En Banc denied PAGCOR's motion in a Resolution12 dated 23 July 2013.
PAGCOR filed the present petition for review on 14 October 2013. Respondents
filed their comment through the Office of the Solicitor General on 20 March 2014.
On 23 April 2014, this Court required PAGCOR to file a reply to the comment
within 10 days from notice. This period expired on 26 June 2014. On 15
September 2014, this Court issued another resolution denying PAGCOR's petition
for failure to comply with its lawful order without any valid cause. On 31 October
2014, PAGCOR filed a motion for reconsideration of the Court's 15 September
2014 Resolution. We granted PAGCOR's motion in a Resolution dated 10
December 2014.
The Issues
PAGCOR presented the following issues in its petition:
1. Whether or not the CTA En Banc gravely erred in affirming the CTA 1st
Division's Decision dismissing the Petition for Review for having been filed
out of time.
2. Whether or not the CTA En Banc seriously erred when it affirmed the
CTA 1st Division's failure to decide the case on substantive matters, i.e.,
the full import of PAGCOR's tax exemption under its charter which
necessarily includes its exemption from the fringe benefits tax (FBT).
2.1 Assuming that PAGCOR is not exempt from the FBT, whether
or not the car plan extended to its officers inured to its benefit
and it is required or necessary in the conduct of its business.
2.2 Assuming that PAGCOR is subject to the alleged deficiency
FBT, whether or not it is only liable for the basic tax, i.e.,
excluding surcharge and interest.13
In their Comment,14 respondents argue that the CTA properly dismissed
PAGCOR's petition because it was filed beyond the periods provided by law.
The Court's Ruling
The petition has no merit. The CTA En Banc and 1st Division were correct in
dismissing PAGCOR's petition. However, as we shall explain below, the dismissal
should be on the ground of premature, rather than late, filing.
Timeliness of PAGCOR's Petition before the CTA
The CTA 1st Division and CTA En Banc both established that PAGCOR received a
FAN on 17 January 2008, filed its protest to the FAN addressed to RD Misajon on
24 January 2008, filed yet another protest addressed to the CIR on 14 August
2008, and then filed a petition before the CTA on 11 March 2009. There was no
action on PAGCOR's protests filed on 24 January 2008 and 14 August 2008.
PAGCOR would like this Court to rule that its protest before the CIR starts a new
period from which to determine the last day to file its petition before the CTA.
The CIR, on the other hand, denied PAGCOR's claims of exemption with the
issuance of its 18 July 2011 letter. The letter asked PAGCOR to settle its obligation
of P46,589,507.65, which consisted of tax, surcharge and interest. PAGCOR's
failure to settle its obligation would result in the issuance of a Warrant of
Distraint and/or Levy and a Warrant of Garnishment.
The relevant portions of Section 228 of the NIRC of 1997 provide:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings: x x x.
xxxx
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules
and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the Court of Tax Appeals within
thirty (30) days from receipt of the said decision, or from the lapse of one
hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable.
Section 3.1.5 of Revenue Regulations No. 12-99, implementing Section 228 above,
provides:
3.1.5. Disputed Assessment. - The taxpayer or his duly authorized representative
may protest administratively against the aforesaid formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof.xx x.
xxxx
If the taxpayer fails to file a valid protest against the formal letter of demand and
assessment notice within thirty (30) days from date of receipt thereof, the
assessment shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer
may appeal to the Court of Tax Appeals within thirty (30) days from the date of
receipt of the said decision, otherwise, the assessment shall become final,
executory and demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his
duly authorized representative, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from date of receipt of the said decision,
otherwise, the assessment shall become final executory and demandable:
Provided, however, that if the taxpayer elevates his protest to the Commissioner
within thirty (30) days from date of receipt of the final decision of the
Commissioner's duly authorized representative, the latter's decision shall not be
considered final, executory and demandable, in which case, the protest shall be
decided by the Commissioner.
If the Commissioner or his duly authorized representative fails to act on the
taxpayer's protest within one hundred eighty (180) days from date of submission,
by the taxpayer, of the required documents in support of his protest, the taxpayer
may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of
the said 180-day period, otherwise the assessment shall become final, executory
and demandable.
Following the verba legis doctrine, the law must be applied exactly as worded
since it is clear, plain, and unequivocal.15 A textual reading of Section 3.1.5 gives a
protesting taxpayer like PAGCOR only three options:
 1. If the protest is wholly or partially denied by the CIR or his authorized
representative, then the taxpayer may appeal to the CTA within 30 days
from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR's authorized
representative, then the taxpayer may appeal to the CIR within 30 days
from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the
protest within 180 days from submission of the required supporting
documents, then the taxpayer may appeal to the CTA within 30 days from
the lapse of the 180-day period.
To further clarify the three options: A whole or partial denial by the CIR's
authorized representative may be appealed to the CIR or the CTA. A whole or
partial denial by the CIR may be appealed to the CTA. The CIR or the CIR's
authorized representative's failure to act may be appealed to the CTA. There is no
mention of an appeal to the CIR from the failure to act by the CIR's authorized
representative.
PAGCOR did not wait for the RD or the CIR's decision on its protest. PAGCOR
made separate and successive filings before the RD and the CIR before it filed its
petition with the CTA. We shall illustrate below how PAGCOR failed to follow the
clear directive of Section 228 and Section 3.1.5.
PAGCOR's protest to the RD on 24 January 2008 was filed within the 30-day
period prescribed in Section 228 and Section 3.1.5. The RD did not release any
decision on PAGCOR's protest; thus, PAGCOR was unable to make use of the first
option as described above to justify an appeal to the CTA. The effect of the lack of
decision from the RD is the same, whether we consider PAGCOR's April 2008
submission of documents16 or not.
Under the third option described above, even if we grant leeway to PAGCOR and
consider its unspecified April 2008 submission, PAGCOR still should have waited
for the RD's decision until 27 October 2008, or 180 days from 30 April 2008.
PAGCOR then had 30 days from 27 October 2008, or until 26 November 2008, to
file its petition before the CTA. PAGCOR, however, did not make use of the third
option. PAGCOR did not file a petition before the CTA on or before 26 November
2008.
Under the second option, PAGCOR ought to have waited for the RD's whole or
partial denial of its protest before it filed an appeal before the CIR. PAGCOR
rendered the second option moot when it formulated its own rule and chose to
ignore the clear text of Section 3.1.5. PAGCOR "elevated an appeal" to the CIR on
13 August 2008 without any decision from the RD, then filed a petition before the
CTA on 11 March 2009. A textual reading of Section 228 and Section 3 .1.5 will
readily show that neither Section 228 nor Section 3 .1.5 provides for the remedy
of an appeal to the CIR in case of the RD's failure to act. The third option states
that the remedy for failure to act by the CIR or his authorized representative is to
file an appeal to the CTA within 30 days after the lapse of 180 days from the
submission of the required supporting documents. PAGCOR clearly failed to do
this.1âwphi1
If we consider, for the sake of argument, PAGCOR's submission before the CIR as
a separate protest and not as an appeal, then such protest should be denied for
having been filed out of time. PAGCOR only had 30 days from 17 January 2008
within which to file its protest. This period ended on 16 February 2008. PAGCOR
filed its submission before the CIR on 13 August 2008.
When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to
make use of any of the three options described above. A petition before the CTA
may only be made after a whole or partial denial of the protest by the CIR or the
CIR's authorized representative. When PAGCOR filed its petition before the CTA
on 11 March 2009, there was still no denial of PAGCOR's protest by either the RD
or the CIR. Therefore, under the first option, PAGCOR's petition before the CTA
had no cause of action because it was prematurely filed. The CIR made an
unequivocal denial of PAGCOR's protest only on 18 July 2011, when the CIR
sought to collect from PAGCOR the amount of P46,589,507.65. The CIR's denial
further puts PAGCOR in a bind, because it can no longer amend its petition before
the CTA.17
It thus follows that a complaint whose cause of action has not yet accrued cannot
be cured or remedied by an amended or supplemental pleading alleging the
existence or accrual of a cause of action while the case is pending. Such an action
is prematurely brought and is, therefore, a groundless suit, which should be
dismissed by the court upon proper motion seasonably filed by the defendant. is pending, and a supplemental complaint or an amendment setting up such after-
The underlying reason for this rule is that a person should not be summoned accrued cause of action is not permissible. (Italics ours)18
before the public tribunals to answer for complaints which are [premature]. As
this Court eloquently said in Surigao Mine Exploration Co., Inc. v. Harris: PAGCOR has clearly failed to comply with the requisites in disputing an
assessment as provided by Section 228 and Section 3.1.5. Indeed, PAGCOR's
It is a rule of law to which there is, perhaps, no exception, either at law or in lapses in procedure have made the BIR's assessment final, executory and
equity, that to recover at all there must be some cause of action at the demandable, thus obviating the need to further discuss the issue of the propriety
commencement of the suit. As observed by counsel for appellees, there are of imposition of fringe benefits tax.
reasons of public policy why there should be no needless haste in bringing up
litigation, and why people who are in no default and against whom there is yet no WHEREFORE, we DENY the petition. The Decision promulgated on 18 February
cause of action should not be summoned before the public tribunals to answer 2013 and the Resolution promulgated on 23 July 2013 by the Court of Tax Appeals
complaints which are groundless. We say groundless because if the action is - En Banc in CTA EB No. 844 are AFFIRMED with the MODIFICATION that the
[premature], it should not be entertained, and an action prematurely brought is a denial of Philippine Amusement and Gaming Corporation's petition is due to lack
groundless suit. of jurisdiction because of premature filing. We REMAND the case to the Court of
Tax Appeals for the determination of the final amount to be paid by PAGCOR
It is true that an amended complaint and the answer thereto take the place of the after the imposition of surcharge and delinquency interest.
originals which are thereby regarded as abandoned (Reynes vs. Compañia General
de Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916],
34 Phil. 428) and that "the complaint and answer having been superseded by the
amended complaint and answer thereto, and the answer to the original
complaint not having been presented in evidence as an exhibit, the trial court was
not authorized to take it into account." (Bastida vs. Menzi & Co. [1933], 58 Phil.
188.) But in none of these cases or in any other case have we held that if a right of
action did not exist when the original complaint was filed, one could be created
by filing an amended complaint. In some jurisdictions in the United States what
was termed an "imperfect cause of action" could be perfected by suitable
amendment (Brown vs. Galena Mining & Smelting Co., 32 Kan., 528; Hooper vs.
City of Atlanta, 26 Ga. App., 221) and this is virtually permitted in Banzon and
Rosaura vs. Sellner ([1933], 58 Phil. 453); Asiatic Potroleum [sic] Co. vs.
Veloso ([1935], 62 Phil. 683); and recently in Ramos vs. Gibbon (38 Off. Gaz.
241). That, however, which is no cause of action whatsoever cannot by
amendment or supplemental pleading be converted into a cause of action: Nihil
de re accrescit ei qui nihil in re quando jus accresceret habet.

We are therefore of the opinion, and so hold, that unless the plaintiff has a valid
and subsisting cause of action at the time his action is commenced, the defect
cannot be cured or remedied by the acquisition or accrual of one while the action
 Republic of the Philippines chosen in order to avoid any confusion that could adversely affect the rights and interest
Supreme Court
Manila of the taxpayer.
Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic
Act (RA) No. 9282,[3] in relation to Rule 45 of the Rules of Court, are the August 23, 2006
SECOND DIVISION
Decision[4] of the Court of Tax Appeals (CTA) and its October 17, 2006
Resolution[5] denying petitioners Motion for Reconsideration.
ALLIED BANKING G.R. No. 175097
CORPORATION,
Petitioner, Factual Antecedents
Present:
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary
CARPIO, J., Chairperson,
- versus - BRION, Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency
DEL CASTILLO, Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax
ABAD, and
(GRT) in the amount of P38,995,296.76 on industry issue for the taxable year
PEREZ, JJ.
COMMISSIONER OF 2001.[6] Petitioner received the PAN on May 18, 2004 and filed a protest against it on May
INTERNAL REVENUE, Promulgated: 27, 2004.[7]
Respondent. February 5, 2010
x--------------------------------------------------------x
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment
Notices to petitioner, which partly reads as follows:[8]

DECISION It is requested that the above deficiency tax be paid immediately upon
receipt hereof, inclusive of penalties incident to delinquency. This is our
final decision based on investigation. If you disagree, you may appeal
the final decision within thirty (30) days from receipt hereof, otherwise
DEL CASTILLO, J.: said deficiency tax assessment shall become final, executory and
demandable.
Petitioner received the Formal Letter of Demand with Assessment Notices on August 30,
The key to effective communication is clarity.
2004.[9]

The Commissioner of Internal Revenue (CIR) as well as his duly authorized

representative must indicate clearly and unequivocally to the taxpayer whether an action
Proceedings before the CTA First Division
constitutes a final determination on a disputed assessment.[1] Words must be carefully
 Proceedings before the CTA En Banc
On September 29, 2004, petitioner filed a Petition for Review[10] with the CTA
which was raffled to its First Division and docketed as CTA Case No. 7062.[11] On February 22, 2006, petitioner appealed the dismissal to the CTA En
Banc.[18] The case was docketed as CTA EB No. 167.
On December 7, 2004, respondent CIR filed his Answer.[12] On July 28, 2005, he
filed a Motion to Dismiss[13] on the ground that petitioner failed to file an administrative Finding no reversible error in the Resolutions dated October 12,
protest on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the 2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition
Motion to Dismiss on August 18, 2005.[14] for Review[19]as well as petitioners Motion for Reconsideration.[20]

On October 12, 2005, the First Division of the CTA rendered a The CTA En Banc declared that it is absolutely necessary for the taxpayer to file
[15]
Resolution granting respondents Motion to Dismiss. It ruled: an administrative protest in order for the CTA to acquire jurisdiction. It emphasized that
an administrative protest is an integral part of the remedies given to a taxpayer in
Clearly, it is neither the assessment nor the formal demand
letter itself that is appealable to this Court. It is the decision of the challenging the legality or validity of an assessment. According to the CTA En
Commissioner of Internal Revenue on the disputed assessment that can Banc, although there are exceptions to the doctrine of exhaustion of administrative
be appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 remedies, the instant case does not fall in any of the exceptions.
SCRA 3). As correctly pointed out by respondent, a disputed assessment
is one wherein the taxpayer or his duly authorized representative filed
an administrative protest against the formal letter of demand and Issue
assessment notice within thirty (30) days from date [of] receipt
thereof. In this case, petitioner failed to file an administrative protest on
the formal letter of demand with the corresponding assessment Hence, the present recourse, where petitioner raises the lone issue of whether
notices. Hence, the assessments did not become disputed assessments the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of
as subject to the Courts review under Republic Act No. 9282. (See the CIR appealable to the CTA under RA 9282.
also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)

WHEREFORE, the Motion to Dismiss is GRANTED. The Petition Our Ruling

for Review is hereby DISMISSED for lack of jurisdiction.
The petition is meritorious.
SO ORDERED.[16]

Section 7 of RA 9282
Aggrieved, petitioner moved for reconsideration but the motion was denied by expressly provides that the
the First Division in its Resolution dated February 1, 2006.[17] CTA exercises exclusive
appellate jurisdiction to
review by appeal decisions
of the CIR in cases involving
disputed assessments
The CTA, being a court of special jurisdiction, can take cognizance only of
matters that are clearly within its jurisdiction.[21] Section 7 of RA 9282 provides:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as
herein provided:
(1) Decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of
internal revenue taxes, fees or other
charges, penalties in relation
thereto, or other matters arising
under the National Internal Revenue
Code or other laws administered by
the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or
other matters arising under the
National Internal Revenue Code or
other laws administered by the
Bureau of Internal Revenue, where
the National Internal Revenue Code
provides a specific period of action,
in which case the inaction shall be
deemed a denial; (Emphasis
supplied)
xxxx
The word decisions in the above quoted provision of RA 9282 has been
interpreted to mean the decisions of the CIR on the protest of the taxpayer against the
assessments.[22] Corollary thereto, Section 228 of the National Internal Revenue Code
(NIRC) provides for the procedure for protesting an assessment. It states:
SECTION 228. Protesting of Assessment. When the
Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be
required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on the
face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit
of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been
paid; or
(e) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to
non-exempt persons.
The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the assessment shall
be void.
 Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60) days
from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred eighty (180) days from submission of documents,
the taxpayer adversely affected by the decision or inaction may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of the one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and
demandable.
In the instant case, petitioner timely filed a protest after receiving the PAN. In
response thereto, the BIR issued a Formal Letter of Demand with Assessment
Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to
dispute the assessments by filing an administrative protest within 30 days from receipt
thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed
a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the
Petition for Review by the CTA was proper.
The case is an exception to t
he
rule on exhaustion of
administrative remedies
However, a careful reading of the Formal Letter of Demand with Assessment
Notices leads us to agree with petitioner that the instant case is an exception to the rule
on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative
agency concerned.
In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent
contended that before filing a petition with the court, petitioner should have first
exhausted all administrative remedies by appealing to the Office of the
President. However, we ruled that respondent was estopped from invoking the rule on
exhaustion of administrative remedies considering that in its Resolution, it said, The
opinions promulgated by the Secretary of Justice are advisory in nature, which may either
be accepted or ignored by the office seeking the opinion, and any aggrieved party has the
court for recourse. The statement of the respondent in said case led the petitioner to
conclude that only a final judicial ruling in her favor would be accepted by the
Commission.
Similarly, in this case, we find the CIR estopped from claiming that the filing of
the Petition for Review was premature because petitioner failed to exhaust all
administrative remedies.
The Formal Letter of Demand with Assessment Notices reads:
Based on your letter-protest dated May 26, 2004, you alleged the
following:
1. That the said assessment has already prescribed in
accordance with the provisions of Section 203 of the Tax
Code.
2. That since the exemption of FCDUs from all taxes
found in the Old Tax Code has been deleted, the wording
 of Section 28(A)(7)(b) discloses that there are no other
taxes imposable upon FCDUs aside from the 10% Final
Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for
taxable year 2001 has not prescribed for [sic] simply because no returns
were filed, thus, the three year prescriptive period has not lapsed.
With the implementation of the CTRP, the phrase exempt from all taxes
was deleted. Please refer to Section 27(D)(3) and 28(A)(7) of the new
Tax Code. Accordingly, you were assessed for deficiency gross receipts
tax on onshore income from foreign currency transactions in
accordance with the rates provided under Section 121 of the said Tax
Code. Likewise, deficiency documentary stamp taxes was [sic] also
assessed on Loan Agreements, Bills Purchased, Certificate of Deposits
and related transactions pursuant to Sections 180 and 181 of NIRC, as
amended.
The 25% surcharge and 20% interest have been imposed pursuant to
the provision of Section 248(A) and 249(b), respectively, of the National
Internal Revenue Code, as amended.
It is requested that the above deficiency tax be paid immediately upon
receipt hereof, inclusive of penalties incident to delinquency. This is our
final decision based on investigation. If you disagree, you may appeal
this final decision within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment shall become final,
executory and demandable.[24] (Emphasis supplied)
It appears from the foregoing demand letter that the CIR has already made a
final decision on the matter and that the remedy of petitioner is to appeal the final
decision within 30 days.
In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we
considered the language used and the tenor of the letter sent to the taxpayer as the final
decision of the CIR.
In this case, records show that petitioner disputed the PAN but not the Formal
Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for
not filing a protest against the Formal Letter of Demand with Assessment Notices since
the language used and the tenor of the demand letter indicate that it is the final decision
of the respondent on the matter. We have time and again reminded the CIR to indicate,
in a clear and unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer concerned to
determine when his or her right to appeal to the tax court accrues.[26]Viewed in the light
of the foregoing, respondent is now estopped from claiming that he did not intend the
Formal Letter of Demand with Assessment Notices to be a final decision.
Moreover, we cannot ignore the fact that in the Formal Letter of Demand with
Assessment Notices, respondent used the word appeal instead of protest, reinvestigation,
or reconsideration. Although there was no direct reference for petitioner to bring the
matter directly to the CTA, it cannot be denied that the word appeal under prevailing tax
laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out by
petitioner, under Section 228 of the NIRC, the terms protest, reinvestigation and
reconsideration refer to the administrative remedies a taxpayer may take before the CIR,
while the term appeal refers to the remedy available to the taxpayer before the CTA.
Section 9 of RA 9282, amending Section 11 of RA 1125,[27] likewise uses the term appeal
when referring to the action a taxpayer must take when adversely affected by a decision,
ruling, or inaction of the CIR. As we see it then, petitioner in appealing the Formal Letter
of Demand with Assessment Notices to the CTA merely took the cue from respondent.
Besides, any doubt in the interpretation or use of the word appeal in the Formal Letter of
Demand with Assessment Notices should be resolved in favor of petitioner, and not the
respondent who caused the confusion.
To be clear, we are not disregarding the rules of procedure under Section 228 of
the NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99.[28] It is the
Formal Letter of Demand and Assessment Notice that must be administratively protested
or disputed within 30 days, and not the PAN. Neither are we deviating from our
pronouncement in St. Stephens Chinese Girls School v. Collector of Internal
Revenue,[29] that the counting of the 30 days within which to institute an appeal in the CTA
commences from the date of receipt of the decision of the CIR on the disputed
assessment, not from the date the assessment was issued.

What we are saying in this particular case is that, the Formal Letter of Demand
with Assessment Notices which was not administratively protested by the petitioner can
be considered a final decision of the CIR appealable to the CTA because the words used,
specifically the words final decision and appeal, taken together led petitioner to believe
that the Formal Letter of Demand with Assessment Notices was in fact the final decision
of the CIR on the letter-protest it filed and that the available remedy was to appeal the
same to the CTA.

We note, however, that during the pendency of the instant case, petitioner
availed of the provisions of Revenue Regulations No. 30-2002 and its implementing
Revenue Memorandum Order by submitting an offer of compromise for the settlement
of the GRT, DST and VAT for the period 1998-2003, as evidenced by a Certificate of
Availment dated November 21, 2007.[30] Accordingly, there is no reason to reinstate the
Petition for Review in CTA Case No. 7062.

WHEREFORE, the petition is hereby GRANTED. The assailed August 23,

2006 Decision and the October 17, 2006 Resolution of the Court of Tax Appeals
are REVERSED and SET ASIDE. The Petition for Review in CTA Case No. 7062 is hereby
DISMISSED based solely on the Bureau of Internal Revenues acceptance of petitioners
offer of compromise for the settlement of the gross receipts tax, documentary stamp tax
and value added tax, for the years 1998-2003.
FIRST DIVISION of which it issued a subpoena duces tecum requiring petitioner to submit its

FISHWEALTH CANNING CORPORATION, G.R. No. 179343 records and books of accounts. Petitioner requested the cancellation of the
Petitioner, subpoena on the ground that the same set of documents had previously been
Present: examined.
PUNO, C.J., Chairperson,
CARPIO MORALES, As petitioner did not heed the subpoena, respondent thereafter filed a
- versus - LEONARDO-DE CASTRO, criminal complaint against petitioner for violation of Sections 5 (c) and 266 of the
BERSAMIN, and
VILLARAMA, JR., JJ. 1997 Internal Revenue Code, which complaint was dismissed for insufficiency of
evidence.[3]

COMMISSIONER OF INTERNAL REVENUE, Promulgated:

Respondent. January 21, 2010 Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice
of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year
x--------------------------------------------------x
1999,[4] which assessment petitioner contested by letter of September 23, 2003.[5]

Respondent thereafter issued a Final Decision on Disputed Assessment

DECISION
dated August 2, 2005, which petitioner received on August 4, 2005, denying its
letter of protest, apprising it of its income tax and VAT liabilities in the amounts
of P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year
CARPIO MORALES, J.:
1999,[6] and requesting the immediate payment thereof, inclusive of penalties
The Commissioner of Internal Revenue (respondent), by Letter of
incident to delinquency. Respondent added that if petitioner disagreed, it may
Authority dated May 16, 2000,[1] ordered the examination of the internal revenue
appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of
taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The
receipt hereof, otherwise our said deficiency income and value-added taxes
investigation disclosed that petitioner was liable in the amount of P2,395,826.88
assessments shall become final, executory, and demandable.[7]
representing income tax, value added tax (VAT), withholding tax deficiencies and
other miscellaneous deficiencies. Petitioner eventually settled these obligations
Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a
on August 30, 2000.[2]
Letter of Reconsideration dated August 31, 2005.[8]

On August 25, 2000, respondent reinvestigated petitioners books of accounts and

other records of internal revenue taxes covering the same period for the purpose
 By a Preliminary Collection Letter dated September 6, 2005, respondent
demanded payment of petitioners tax liabilities,[9] drawing petitioner to file
on October 20, 2005 a Petition for Review[10] before the CTA.
In his Answer,[11] respondent argued, among other things, that the petition
was filed out of time which argument the First Division of the CTA upheld and
accordingly dismissed the petition.[12]
Petitioner filed a Motion for Reconsideration[13] which was denied.[14] The
Resolution denying its motion for reconsideration was received by petitioner
on October 31, 2006.[15]
On November 21, 2006, petitioner filed a petition for review before the
[16] [17]
CTA En Banc which, by Decision of July 5, 2007, held that the petition before
the First Division, as well as that before it, was filed out of time.
Hence, the present petition,[18] petitioner arguing that the CTA En Banc
erred in holding that the petition it filed before the CTA First Division as well as
that filed before it (CTA En Banc) was filed out of time.
The petition is bereft of merit.
Section 228 of the 1997 Tax Code provides that an assessment
x x x may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from
receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty
(60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the
assessment shall become final.
If the protest is denied in whole or in part, or is not
acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of the one hundred eighty (180)-
day period; otherwise, the decision shall become final,
executory and demandable. (underscoring supplied)
In the case at bar, petitioners administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by respondent and
which petitioner received on August 4, 2005.Under the above-quoted Section 228
of the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its
protest to the CTA.
Since petitioner received the denial of its administrative protest on August
4, 2005, it had until September 3, 2005 to file a petition for review before the CTA
Division. It filed one, however, on October 20, 2005, hence, it was filed out of
time. For a motion for reconsideration of the denial of the administrative
protest does not toll the 30-day period to appeal to the CTA.
On petitioners final contention that it has a meritorious case in view of the
dismissal of the above-mentioned criminal case filed against it for violation of the
1997 Internal Revenue Code,[19] the same fails. For the criminal complaint was
instituted not to demand payment, but to penalize the taxpayer for violation of
the Tax Code.[20]
WHEREFORE, the petition is DISMISSED.
Costs against petitioner.
 FIRST DIVISION Special Savings Deposit ₱5,041,882,798.03 ₱9,579,733,184.65

G.R. No. 167134 March 18, 2015 Trust Fund 567,500,927.00 55,783,860.92
Mega Savings Deposit 77,911.32 150,872,997.87
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
TRADERS ROYAL BANK, Respondent. Total 5,609,461,636.35 9,786,390,043.44
Tax Rate .30/200 .30/200
DECISION

LEONARDO-DE CASTRO, J.: Basic 8,414,192.45 14,679,645.07

Before this Court is a Petition for Review on Certiorari filed by petitioner
Commissioner of Internal Revenue (CIR) assailing the Decision1 dated February
14, 2005 of the Court of Tax: Appeals (CTA) en bane in C.T.A. EB No. 32, which
denied the CIR's appeal of the Decision2 dated April 28, 2004 and
Resolution3 dated September 10, 2004 of the CT A Division in C.T.A. Case No.
6392. The CTA Division cancelled the assessments issued by the CIR against
respondent Traders Royal Bank (TRB) for deficiency documentary stamp taxes
(DST) on the latter's Trust Indenture Agreements for taxable years 1996 and 1997,
in the amounts of ₱10,517,740.57and1!18,349,556.33, respectively.4
TRB is a domestic corporation duly registered with the Securities and Exchange
Commission and authorized by the Bangko Sentral ng Pilipinas (BSP) to engage in
commercial banking.5 On the strength of the Letter of Authority (L.A.) No.
000018565 dated July 27, 1998, the Bureau of Internal Revenue (BIR) conducted
an investigation concerning all national internal revenue tax liabilities of TRB for
taxable years 1996-1997. Following the investigation, the BIR issued a Pre-
Assessment Notice dated November 10, 1999 against TRB. Subsequently, the BIR
issued a Formal Letter of Demand and Assessment Notice Nos. ST-DST-96-0234-
996 and ST-DST-97-0233-99,7 all dated December 27, 1999, against TRB for
deficiency DST for 1996 and 1997, in the total amount of ₱28,867,296.90, broken
down as follows:
DEFICIENCY DOCUMENTARY STAMP TAX
Industry Issues on: 1996 1997
Add: Surcharge 2,103,548.11 3,669,911.27
8
TOTAL P 10,517,740.57 P 18,349,556.33
=============== ===============
TRB Vice President Bayani R. Navarro (Navarro) wrote a letter dated January 7,
20009 protesting the foregoing assessments of the BIR on the following grounds:
In response, we would like to point out that Special Savings Deposits being
savings deposit accounts are not subject to the documentary stamp tax. Likewise,
Trust Indenture Agreement[s] are not subject to documentary stamp tax for the
reason that relationship established between parties is that of the trustor and
trustee, wherein the funds and/or properties of the trustor are given to the
Trustee Bank not as a deposit but under a Common Trust Fund maintained and to
be managed by the Trustee.
The same arguments are being invoked by other banks using similar instruments
and the imposition of the DST is considered as an industry problem and is being
contested by the entire banking community.
In his Decision dated December 20, 2001,10 the CIR denied the protest of TRB. The
CIR adopted the position of the BIR examiners that the Special Savings Deposit
should be deemed a time deposit account subject to DST under Section 180 of the
Tax Code of 1977. The CIR reasoned:
[T]his Office believes and so holds that the Special Savings Deposit and Time
Deposit are just one and the same banking transaction. To evade payment of the
DST, efforts were made by banks to place a superficial distinction between the
two (2) deposit accounts by introducing an innovation using a regular passbook to
document the Special Savings Deposit and by claiming that the said special
deposit has no specific maturity date. At first glance, the innovative scheme may
have accomplished in putting a semblance of difference between the aforesaid
two (2) deposit accounts, but an analytical look at the passbook issued clearly
reveals that although it does not have the form of a certificate nor labelled as
such, it has a fixed maturity date and for all intents and purposes, it has the same
nature and substance as a "certificate of deposit bearing interest." In fact, it could
be said that the passbook is in itself a "certificate of deposit."11
As for the Trust Indenture Agreements, the CIR opined that they were but a form
of deposit, likewise subject to DST. According to the CIR:
In an earlier case involving the same industry issue, We ruled that the essential
features/characteristics of a Trust Agreement are as follows:
A) The required minimum deposit is ₱50,000.00;
B) The shortest maturity date is 30 days;
C) It is not payable on sight or demand, in case of pretermination, prior
written notice is required; D) It is automatically renewed in case the
depositor fails to withdraw the deposit at maturity date; E) The bank used
confirmation of participation to evidence the acceptance of the funds
from the trustor.
Based on the foregoing features, it is evident that the contention of the bank is
misplaced. Although the contract is termed as "trust agreement," it can be
considered as a misnomer because the relationship existing between the parties
in the subject contract is actually not a trustor-trustee relationship but that of a
creditor-debtor relationship, the same relationship governing deposits of money
in banks.
xxxx
In the said contract of trust under the Civil Code, there is only an equitable
transfer of ownership by the trustor to the trustee, the trustor retains his legal
title to the subject property. On the other hand, in the bank’s "trust agreement,"
once the specific funds or properties of the trustor are placed under the common
trust fund, there is a complete transfer of ownership from the trustor to the
trustee-bank. It is manifested by the fact that said funds or properties may be
invested by the bank in whatever manner it may deem necessary, the trustor has
no control whatsoever over his funds. Another point of distinction between the
two contracts is that, in the contract of trust every transaction involving the trust
property must be entered into by the trustee for the benefit of the trustor or his
designated beneficiary; while in the bank’s "trust agreement," all benefits from
the transactions involving properties from the common trust fund will be received
solely by the trustee-bank, the trustor’s only consolation is limited to receiving
higher rate of interest from his property. In effect, the subject "trust agreement"
although termed as such is but a form of a deposit.
The fact that the subject trust agreement is evidenced by a "confirmation of
participation" and not by a certificate of deposit is immaterial. As discussed
above, what is important and controlling is the nature or meaning conveyed by
the document and not the particular label or nomenclature attached to it,
inasmuch as its substance is paramount than its form. Therefore, the examiners
are correct in imposing documentary stamp tax on the bank’s "trust
agreements."12
The CIR ruled in the end:
IN VIEW WHEREOF, this Office has resolved to DENY the protest of herein
protestant-bank. Assessment Notice Nos. ST-DST-96-0234-99 and ST-DST-97-
0233-99 demanding payment of the respective amounts of ₱10,517,740.57 and
₱18,349,556.33 as documentary stamp taxes for the taxable years 1996 and 1997
are hereby AFFIRMED in all respects. Consequently, the protestant-bank is hereby
ordered to pay the above-stated amounts plus interest that may have accrued
thereon until actual payment, to the Collection Service, BIR National Office,
Diliman, Quezon City, within thirty (30) days from receipt hereof, otherwise,
collection shall be effected through the summary remedies provided by law.
This constitutes the final decision of this Office on the matter.13
TRB filed a Petition for Review14 with the CTA, which was docketed as C.T.A. Case
No. 6392. The parties stipulated the following issues to be resolved by the CTA
Division:
A. Whether or not Special Saving Deposits and Mega Savings Deposits
[both are Special Savings Accounts (SSA)] are subject to documentary
stamp tax (DST) under Section 180 of the Tax Code.
B. Whether or not the ordinary saving account passbook issued by [TRB] x
x x can be considered a certificate of deposit subject to documentary
stamp tax (DST).
C. Whether or not the Trust Indenture Agreements are subject to
documentary stamp tax (DST) under Section 180 of the Tax Code.15
On April 28, 2004, the CTA Division rendered a Decision, resolving the first two
issues in favor of the CIR and the last one in favor of TRB.
The CTA Division agreed with the CIR that the Special Savings Deposits and Time
Deposits were akin to each other in that the bank would acknowledge the receipt
of money on deposit which the bank promised to pay to the depositor, bearer, or
to the order of the bearer after a specified period of time. In both cases, the
deposits could be withdrawn anytime but the depositor would earn a lower rate
of interest. The only difference was the evidence of the deposits: a passbook for
Special Savings Deposits and a certificate of deposit for Time Deposits.
Considering that the passbook and the certificate of time deposit were evidence
of transactions, then both should be subject to DST, an excise tax on transactions.
The CTA Division, however, concurred with TRB that the Trust Indenture
Agreements were different from the certificate of deposit, thus:
A Trust Indenture Agreement has a different feature and concept from a
certificate of deposit. When a depositor enters into a trust agreement, what is
created is a trustor-trustee relationship. The money deposited is placed in trust to
a common fund and then invested by the Trust Department into a profitable
venture. The yield or return of investment is higher and varies depending on the
actual profit earned. In some trust agreements, a depositor may even get a
negative return of investment. The fact that there is an "expected rate of return"
does not necessarily convert a trust agreement into a time deposit. Under Section
X407 of the Manual of Regulations for Banks it is provided that "the basic
characteristic of trust, other fiduciary and investment management relationship is
the absolute non-existence of a debtor-creditor relationship, thus, there is no
obligation on the part of the trustee, fiduciary or investment manager to
guarantee returns on the funds or properties regardless of the results of the
investment."16
The CTA Division ultimately decreed:
WHEREFORE, the assessments for deficiency documentary stamp taxes on trust
fund against [TRB] for taxable years 1996 and 1997 are hereby CANCELLED.
However, the assessments for deficiency documentary stamp taxes on special
savings deposit and mega savings deposit for same taxable years 1996 and 1997
are hereby AFFIRMED.
ACCORDINGLY, [TRB] is ORDERED TO PAY the [CIR] the deficiency documentary
stamp taxes for the years 1996 and 1997 in the respective amounts of
₱9,453,676.33 and ₱18,244,886.69 (all inclusive of 25% surcharge) totaling
₱27,698,562.92 x x x.
xxxx
In addition, [TRB] is ORDERED TO PAY the [CIR] 20% delinquency interest on
₱27,698,562.92 computed from February 14, 2002 until fully paid pursuant to
Section 249 of the Tax Code, as amended.17
The parties each filed motions relative to the aforementioned judgment of the
CTA Division, to wit:
1. "Omnibus Motion for Substitution of Parties and Motion for
Reconsideration (Re: Decision dated April 28, 2004)"filed on May 28,
2004 by [TRB] seeking for the:
a. Substitution of parties from Traders Royal Bank to Bank of
Commerce;
 b. Reconsideration and reversal of this court’s Decision
promulgated on April 28, 2004 finding [TRB] liable for deficiency
documentary stamp taxes for the taxable years 1996 and 1997 in
the amounts of ₱9,453,676.33 and ₱18,244,886.69, respectively
(all inclusive of the 25% surcharge), plus 20% delinquency interest
computed from February 14, 2002 until fully paid; and c.
Cancellation of the subject deficiency tax assessments.
2. "Motion for Partial Reconsideration" filed on May 24, 2004 by [CIR]
seeking for a partial reversal of this court’s Decision promulgated on April
28, 2004 with regard to the cancellation by this court of [CIR’s]
assessment for deficiency documentary stamp taxes on the trust fund
against [TRB] for the taxable years 1996 and 1997.18
The CTA Division issued a Resolution dated September 10, 2004 denying the
motions of the parties:
Based on the allegations of [TRB], the Purchase and Sale Agreement [between
TRB and the Bank of Commerce (BOC)] was executed on November 9, 2001. Upon
the execution of the said agreement, the BOC assumed the deposit liabilities of
[TRB] for the taxable years covering 1996 and 1997. However, it is noteworthy to
emphasize that the Petition for Review was filed by [TRB] only on February 15,
2002 after the alleged transfer of right happened. To adopt the view of [TRB] and
pursuant to the quoted Section 19,Rule 3 of the 1997 Rules of Court, it should
have been the BOC that should have filed the Petition for Review instead of [TRB].
Yet, this was not the case. The petition was filed by petitioner Traders Royal Bank,
notwithstanding the alleged transfer of rights to Bank of Commerce prior to the
commencement of the action. Failure of[TRB] to show justifiable reasons for such
negligence and blunder, this court cannot then allow the substitution of parties.
xxxx
There being no other new issues raised by [TRB] which this court has not yet
passed upon in its Decision of April 28, 2004, this court hereby RESOLVES to
DENY[TRB’s] motion.
xxxx
Finding that the issue raised by the [CIR] had been thoroughly discussed in the
Decision of April 28, 2004, this court finds no compelling reason to modify or alter
the same and thereby RESOLVES to DENY [CIR’s] Motion for Partial
Reconsideration.
WHEREFORE, both motions are hereby DENIED for lack of merit. Accordingly, this
court’s Decision promulgated on April 28, 2004 is AFFIRMED in all respects.19
The CIR and TRB filed with the CTA en banc separate Petitions for Review,
docketed as C.T.A. EB Nos. 32 and 34, respectively, partially appealing the
Decision dated April 28, 2004 and Resolution dated September 10, 2004 of the
CTA Division.
The CTA en banc promulgated its Decision in C.T.A. EB No. 32 on February 14,
2005, dismissing the Petition of the CIR and affirming the cancellation by the CTA
Division of the assessments against TRB for DST on its Trust Indenture
Agreements for 1996 to 1997. According to the CTA en banc:
[A]n examination of the Petition for Review revealed that the issues raised
therein by the [CIR] have been discussed at length and directly ruled upon in the
assailed Decision and in the subsequent Resolution. The Court is not convinced by
[CIR’s] arguments on the assigned errors to justify a reversal of the questioned
Decision.
The Manual for Regulations of Banks issued by the Central Bank of the Philippines
has defined the trust business as "xx x any activity resulting from a trustor-trustee
relationship (trusteeship) involving the appointment of a trustee by a trustor for
the administration, holding, management of funds and/or properties of the
trustor by the trustee for use, benefit or advantage of the trustor or others called
beneficiaries (Sec.X403 [a])."
As correctly explained in the questioned Decision, "When a depositor enters into
a trust agreement, what is created is a trustor-trustee relationship. The money
deposited is placed in trust to a common fund and then invested by the Trust
Department into a profitable venture". [CIR’s] contention that there is a complete
transfer of ownership from the trustor to the trustee bank because the funds may
be invested by the bank in whatever manner it may deem necessary and the
trustor having no control whatsoever over his funds runs counter to[CIR’s]
allegation in the Petition that "A contract of trust under the Civil Code is defined
as the legal relationship between one person having an equitable ownership in
property and another person owning [the] legal title to such property, the
equitable ownership of the former entitling him to the performance of duties and
the exercise of certain powers by the latter." (citing Commentaries and
Jurisprudence on the Civil Code of the Philippines, Arturo Tolentino, Volume 4, p.
669). The [CIR], in effect, admits that the trustee bank holds legal title over the
funds (i.e., has legal ownership of the funds), and is entitled to exercise certain
powers such as the investment of the funds in behalf of the trustor (which is the
essence of the trust business).
[TRB] likewise correctly pointed out that the trust funds managed by its Trust
Department cannot be appropriately alleged as time deposits, because the
acceptance of deposits is beyond the realm of the business of the trust
department of banks as implied under Section X407 of the Manual of Regulations
for Banks inasmuch as no debtor-creditor relationship exists between the parties
in the trust agreement.
The trust placement not being a time deposit, it cannot therefore be subject to
documentary stamp tax as a certificate of deposit.20
Hence, the dispositive portion of the Decision dated February 14, 2005 of the CTA
en banc in C.T.A. EB No. 32 reads:
WHEREFORE, finding that the Petition for Review is patently without merit, the
same is denied due course. Accordingly, the same is DISMISSED.21
The CTA en banc, in a Decision dated April 26, 2005 in C.T.A. EB No. 34,22 similarly
dismissed the Petition of TRB and upheld the ruling of the CTA Division that TRB
was liable for DST on its Special Savings Deposits for 1996 to 1997, plus surcharge
and delinquency interest. The CTA en banc concluded:
For all intents and purposes, [TRB’s] Special Savings and Mega Savings Deposit are
deemed to be of the same nature and substance as a certificate of deposit
bearing interest. Therefore, We hold that said Special Savings and Mega Savings
passbooks are in themselves certificates of deposit, subject to documentary
stamp tax in accordance with Section 180, National Internal Revenue Code of
1993, as amended. While the DST is levied on the document itself, it is not
intended to be a tax on the document alone. Rather, the DST is levied on the
exercise of a privilege of conducting a particular business or transaction through
the execution of specific instruments or documents (Phil. Home Assurance Corp.
vs. Court of Appeals, 301 SCRA 435). Lastly, there is likewise no merit to [TRB’s]
contention that the Division erred in denying the "Motion for Substitution of
Parties".
Generally, there is no need of a substitution or joinder of the transferee as a
party-litigant for after all even if the action is continued by or against the original
party, the judgment is binding on all the parties (original party, adverse party and
transferee) (Oria Hnos. v. Gutierrez Hnos., 52 Phil. 156; Correa v. Pascual, 99 Phil.
696;Bustamante v. Azarcon, L-8939, May 28, 1957). This is a settled rule in this
jurisdiction. Indeed, We may say that the transferee is a proper (or necessary)
party, but not an indispensable party to the original case (Fetalino v. Sanz, 44 Phil.
69).
xxxx
Accordingly, no error was committed by the Division when it denied the "Motion
for Substitution of Parties."23
Consequently, in its Decision dated April 26, 2005 in C.T.A. EB No. 34, the CTA en
banc adjudged:
All the foregoing considered, We see no reason to reverse the assailed Decision
and Resolution of the Division of this Court.
WHEREFORE, premises considered, the instant petition is hereby DENIED DUE
COURSE, and accordingly, DISMISSED for lack of merit.24
TRB filed a Motion for Reconsideration of the foregoing Decision, but said Motion
was denied by the CTA en banc in a Resolution dated June 10, 2005.
The CIR filed a Petition for Review before the Court, docketed as G.R. No. 167134,
assailing the Decision dated February 14, 2005 of the CTA en banc in C.T.A. EB No.
32.
TRB initially filed a Motion for Extension of Time to File Petition for Review,
requesting an extension of 30 days (i.e., until August 1, 2005) within which to
appeal the Decision dated April 26, 2005 and Resolution dated June 10, 2005 of
the CTA en banc in C.T.A. EB No. 34. The Motion of TRB was docketed as G.R. No.
168491.
In a Resolution dated August 3, 2005, the Court consolidated the Petitions in G.R.
Nos. 167134 and 168491 considering that they "assail the same decision of the
Court of Tax Appeals, involve the same parties, and raise interrelated issues."
Eventually, the Court issued a Resolution dated June26, 2006, in which it resolved
as follows:
It appearing that [TRB] in G.R. No. 168491 failed to file a petition for review on
certiorari within the extended period which expired on August 1, 2005, the Court
further resolves to CONSIDER G.R. No. 168491 CLOSED and TERMINATED.25
The Resolution dated June 26, 2006 of the Court in G.R. No. 168491 became final
and executory and Entry of Judgment was made in said case on August 24, 2006.
Presently pending resolution by the Court is the Petition for Review of the CIR in
G.R. No. 167134 which appealed the Decision dated February 14, 2005 of the CTA
en banc in C.T.A. EB No. 32 based on the lone assignment of error, viz:
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT A TRUST
INDENTURE AGREEMENT IS NOT A CERTIFICATE OF DEPOSIT, HENCE, NOT
SUBJECT TO DOCUMENTARY STAMP TAX UNDER SECTION 180 OF THE TAX
CODE.26
Section 180 of the National Internal Revenue Code (NIRC) of 1977, as amended by
Republic Act No. 7660 – in force in1996 and 1997 – imposed DST on the following
documents:
Sec. 180. Stamp tax on all loan agreements, promissory notes, bills of exchange,
drafts, instruments and securities issued by the government or any of its
instrumentalities, certificates of deposit bearing interest and others not payable
on sight or demand. – On all loan agreements signed abroad wherein the object
of the contract is located or used in the Philippines; bills of exchange (between
points within the Philippines), drafts, instruments and securities issued by the
Government or any of its instrumentalities or certificates of deposits drawing
interest, or orders for the payment of any sum of money otherwise than at sight
or on demand, or on all promissory notes, whether negotiable or nonnegotiable,
except bank notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on
each two hundred pesos, or fractional part thereof, of the face value of any such
agreement, bill of exchange, draft, certificate of deposit, or note: Provided, That
only one documentary stamp tax shall be imposed on either loan agreement, or
promissory notes issued to secure such loan, whichever will yield a higher tax:
Provided, however, That loan agreements or promissory notes the aggregate of
which does not exceed Two hundred fifty thousand pesos (₱250,000) executed by
an individual for his purchase on installment for his personal use or that of his
family and not for business, resale, barter or hire of a house, lot, motor vehicle,
appliance or furniture shall be exempt from the payment of the documentary
stamp tax provided under this section.
The CIR maintains that the relationship between TRB and its clients under the
Trust Indenture Agreements was debtor-creditors and the said Agreements were
actually certificates of deposit drawing/bearing interest subject to DST under
Section 180 of the NIRC of 1977, as amended. The CIR points out that the only
basis of the CTA en banc in ruling that the relationship between TRB and its
clients under the Trust Indenture Agreements was that of trustee-trustors was
Section X407 of the 1993 Manual of Regulations for Banks (MORB) issued by the
BSP, which identified the basic characteristics of a trust. The CIR argues, however,
that the very same provision, Section X407 of the 1993 MORB, identified
exceptions, that is, instances when the agreement or contract would not
constitute a trust. A trust as defined in Section X407 of the 1993 MORB would be
in the nature of an exemption from the payment of DST. Accordingly, TRB had the
burden of proving the legal and factual bases of its claim that its Trust Indenture
Agreements fell under the definition of "trust" and not among the exceptions in
Section X407 of the 1993 MORB. TRB, though, was unable to discharge such
burden, failing to present evidence, whether testimonial or documentary, to
prove its entitlement to DST exemption. The CIR, for its part, claims that the Trust
Indenture Agreements were akin to certificates of deposit because said
Agreements also stated expected rates of return of the investment or for the use
of the amounts of deposits/trust funds for a certain period, clearly falling under
the exception to what constituted a "trust" in Section X407, paragraph (d) of the
1993 MORB. The CIR also asserts that TRB should not be permitted to
escape/evade the payment of DST by simply labeling its certificates of deposit
drawing/bearing interests as "trust funds." In determining whether a certain
contract/agreement/document/instrument is subject to DST, substance should
control over form and labels.
In addition, the CIR insists that the Trust Indenture Agreements between TRB and
its clients were simple loans governed by Article 1980 of the Civil Code.27 The
trust funds, being generic, could not be segregated from the other funds/deposits
held by TRB. While TRB had the obligation to return the equivalent amount
deposited, it had no obligation to return or deliver the same money deposited.
Legal title to the trust funds was vested/transmitted to TRB upon perfection of
the trust agreement. It then followed that TRB could make use of the
funds/deposits for its banking operations, such as to pay interest on deposits, to
pay withdrawals and dispose of the amount borrowed for any purpose such as
investing the funds/deposits into a profitable venture. Currently, the CIR avers,
the Trust Indenture Agreements may be considered as "loan agreements" or
"debt instruments" subject to DST under Sections 17328 and 17929 of the NIRC of
1997, as amended.
The Petition is meritorious.
Generally, the factual findings of the CTA, a special court exercising expertise on
the subject of tax, are regarded as final, binding and conclusive upon this
Court.30 However, there are well-recognized exceptions to this rule,31 such as
when the conclusion is grounded entirely on speculations, surmises, or
conjectures, as well as when the findings are conclusions without citation of
specific evidence on which they are based.
At the crux of the instant controversy are the Trust Indenture Agreements of TRB.
At issue is whether the said Trust Indenture Agreements constituted deposits or
trusts. The BIR posits that the Agreements were deposits subject to DST, while
TRB proffers that the Agreements were trusts exempt from DST.
Surprisingly, not a single copy of a Trust Indenture Agreement and/or the
Certificate of Participation (issued to the client as evidence of the trust) could be
found in the records of the case.
The conduct by banks, such as TRB, of trusts and other fiduciary business (in 1996
and 1997) was governed by the 1993 MORB, which enumerated the minimum
documentary requirements for trusts, including a written agreement or indenture
and a plan (i.e., written declaration of trust) for common trust funds (CTF).
Relevant provisions of the 1993 MORB are quoted in full below:
Sec. X409 Trust and Other Fiduciary Business. The conduct of trust and other
fiduciary business shall be subject to the following regulations.
§ X409.1 Minimum documentary requirements. Each trust or fiduciary account
shall be covered by a written document establishing such account, as follows:
a. In the case of accounts created by an order of the court or other
competent authority, the written order of said court or authority.
b. In the case of accounts created by corporations, business firms,
organizations or institutions, the voluntary written agreement or
indenture entered into by the parties, accompanied by a copy of the
board resolution or other evidence authorizing the establishment of, and
designating the signatories to, the trust or other fiduciary account.
c. In the case of accounts created by individuals, the voluntary written
agreement or indenture entered into by the parties.
The voluntary written agreement or indenture shall include the following
minimum provisions:
(1) Title or nature of contractual agreement in noticeable print;
(2) Legal capacities, in noticeable print, of parties sought to be covered;
(3) Purposes and objectives;
(4) Funds and/or properties subject of the arrangement;
(5) Distribution of the funds and/or properties;
(6) Duties and powers of trustee or fiduciary;
 (7) Liabilities of the trustee or fiduciary;
(8) Reports to the client;
(9) Termination of contractual arrangement and, in appropriate cases,
provision for successor-trustee or fiduciary;
(10) The amount or rate of the compensation of trustee or fiduciary;
(11) A statement in noticeable print to the effect that trust and other
fiduciary business are not covered by the PDIC and that losses, if any,
shall be for the account of the client; and
(12) Disclosure requirements for transactions requiring prior authority
and/or specific written investment directive from the client, court of
competent jurisdiction or other competent authority. x x x x
Sec. X410 Common Trust Funds.(1) The administration of CTFs shall be subject
to the provisions of Subsecs. X409.1 up to X409.6 and to the following
regulations.
As an alternative compliance with the required prior authority and disclosure
under Subsecs. X409.2 and X409.3, a list which shall be updated quarterly of
prospective and/or outstanding investment outlets may be made available by the
trustee for the review of all CTF clients.
xxxx
(3) Minimum documentary requirements for common trust funds. In addition to
the trust agreement or indenture required under Subsec. X409.1, each CTF shall
be established, administered and maintained in accordance with a written
declaration of trust referred to as the plan, which shall be approved by the board
of directors of the trustee and a copy submitted to the appropriate supervising
and examining department of the BSP within thirty (30) banking days prior to its
implementation.
The plan shall make provisions on the following matters:
a. Title of the plan;
b. Manner in which the plan is to be operated;
c. Investment powers of the trustee with respect to the plan, including
the character and kind of investments which may be purchased;
d. Allocation, apportionment, distribution dates of income, profit and
losses;
e. Terms and conditions governing the admission or withdrawal as well as
expansion or contraction of participation in the plan including the
minimum initial placement and account balance to be maintained by the
trustor;
f. Auditing and settlement of accounts of the trustee with respect to the
plan;
g. Detailed information on the basis, frequency, and method of valuing
and accounting of CTF assets and each participation in the fund;
h. Basis upon which the plan may be terminated;
i. Liability clause of the trustee;
j. Schedule of fees and commissions which shall be uniformly applied to
all participants in a fund and which shall not be changed between
valuation dates; and
k. Such other matters as may be necessary or proper to define clearly the
rights of participants under the plan.
The legal capacity of the bank administering a CTF shall be indicated in the plan
and other related agreements or contracts as trustee of the fund and not in any
other capacity such as fund manager, financial manager, or like terms.
The provisions of the plan shall control all participations in the fund and the rights
and benefits of all parties in interest.
The plan may be amended by resolution of the board of directors of the trustee:
Provided, however, That participants in the fund shall be immediately notified of
such amendments and shall be allowed to withdraw their participation if they are
not in conformity with the amendments made: Provided, further, That
amendments to the plan shall be submitted to the appropriate supervising and
examining department of the BSP within ten (10) banking days from approval of
the amendments by the board of directors.
A copy of the plan shall be available at the principal office of the trustee during
regular office hours for inspection by any person having an interest in a trust
whose funds are invested in the plan or by his authorized representative. Upon
request, a copy of the plan shall be furnished such person.(Emphases supplied.)
The importance of the actual Trust Indenture Agreements cannot be gainsaid. The
only way the Court can determine the actual relationship between TRB and its
clients is through a scrutiny of the terms and conditions embodied in the said
Agreements.
Article 1370 of the Civil Code provides:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall
control.
If the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former.
In the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to
project that intention in their contract, all the words, not just a particular word or
two, and words in context, not words standing alone.32 In Bautista v. Court of
Appeals,33 this Court said:
The rule is that where the language of a contract is plain and unambiguous, its
meaning should be determined without reference to extrinsic facts or aids. The
intention of the parties must be gathered from that language, and from that
language alone. x x x.
Following the rules on interpretation of contracts, Rule 130, Section 9 of the
Revised Rules of Court lays down the parol evidence rule:
Sec. 9. Evidence of written agreements.– When the terms of an agreement have
been reduced to writing, it is considered as containing all the terms agreed upon
and there can be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of
the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written
agreement;
(b) The failure of the written agreement to express the true intent and
agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their
successors in interest after the execution of the written agreement.
The term "agreement" includes wills.
The burden fell upon TRB to produce the Trust Indenture Agreements, not only
because the said Agreements were in its possession, but more importantly,
because its protest against the DST assessments was entirely grounded on the
allegation that said Agreements were trusts. TRB was the petitioner before the
CTA in C.T.A. Case No. 6392 and it was among its affirmative allegations that the
said Trust Indenture Agreements were trusts, thus, TRB had the obligation of
proving this fact. It is a basic rule of evidence that each party must prove its
affirmative allegation.34 As Rule 131, Section 1 of the Revised Rules of Court
states:
Section 1. Burden of proof. — Burden of proof is the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the
amount of evidence required by law.
TRB, in its Formal Offer of Evidence,35 submitted only one document, Exhibit "A,"
which was page 10 of the 1993 MORB containing Section X407 on Non-Trust,
Non-Fiduciary and/or Non-Investment Management Activities.
Section X407 of the 1993 MORB is reproduced hereunder:
Sec. X407Non-Trust, Non-Fiduciary and/or Non-Investment Management
Activities The basic characteristic of trust, other fiduciary and investment
management relationship is the absolute non-existence of a debtor-creditor
relationship, thus, there is no obligation on the part of the trustee, fiduciary or
investment manager to guarantee returns on the funds or properties regardless
of the results of the investment. The trustee, fiduciary or investment manager is
entitled to fees/commissions which shall be stipulated and fixed in the contract or
indenture and the trustor or principal is entitled to all the funds or properties less
fees/commissions, losses and other charges. Any agreement/arrangement that
does not conform to these shall not be considered as trust, other fiduciary and/or
investment management relationship.
The following shall not constitute a trust, other fiduciary and/or investment
management relationship:
a. When there is a preponderance of purpose or of intent that the
arrangement creates or establishes a relationship other than a trust,
fiduciary and/or investment management;
b. When the agreement or contract is itself used as a certificate of
indebtedness in exchange for money placement from clients and/or as
the medium for confirming placements and investment thereof;
c. When the agreement or contract of an account is accepted under the
signature(s) of those other than the trust officer or subordinate officer of
the trust department or those authorized by the board of directors to
represent the trust officer;
d. Where there is a fixed rate or guaranty of interest, income or return in
favor of its client or beneficiary: Provided, however, That where funds are
placed in fixed income-generating investments, a quotation of income
expectation or like terms, shall neither be considered as arrangements
with a fixed rate nor a guaranty of interest, income or return when the
agreement or indenture categorically states in bold letters that the
quoted income expectation or like terms is neither assured nor
guaranteed by the trustee or fiduciary and it does not, therefore, entitle
the client to a fixed interest or return on his investments: Provided,
further, that any of the following practices or practices similar and/or
tantamount thereto shall be construed as fixing or guaranteeing the rate
of interest, income or return:
(1) Issuance of certificates, side agreements, letters of
undertaking, or other similar documents providing for fixed rates
or guaranteeing interest, income or return;
(2) Paying trust earnings based on indicated or expected yield
regardless of the actual investment results;
(3) Increasing or reducing fees in order to meet a quoted or
expected yield;
(4) Entering into any arrangement, scheme or practice which
results in the payment of fixed rates or yield on trust investments
or in the payment of the indicated or expected yield regardless of
the actual investment results; and
e. Where the risk or responsibility is exclusively with the trustee, fiduciary
or investment manager in case of loss in the investment of trust, fiduciary
or investment management funds, when such loss is not due to the
failure of the trustee or fiduciary to exercise the skill, care, prudence and
diligence required by law.
Trust, other fiduciary and investment management activities involving any of the
foregoing which are accepted, renewed or extended after 16 October 1990 shall
be reported as deposit substitutes and shall be subject to the reserve
requirement for deposit substitutes from the time of inception, without prejudice
to the imposition of the applicable sanctions provided for in Sections 36 and 37 of
R.A. No. 7653.
A reading of Section X407 of the 1993 MORB reveals that it merely explained the disturbed. All presumptions are in favor of the correctness of tax assessments.
basic characteristics of a trust or other fiduciary and investment management (Citations omitted.)
relationship, and expressly identified the instances which would not constitute a
trust, fiduciary and/or investment management relationship. Simply put, Section In Marcos II v. Court of Appeals,38 the Court again had the occasion to rule:
X407 of the MORB set the standards in determining whether a contract was one
of trust or some other agreement. It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of
Therefore, it was still necessary for TRB to present the Trust Indenture Internal Revenue, whose determinations and assessments are presumed correct
Agreements to test the terms and conditions thereof against the standards set by and made in good faith. The taxpayer has the duty of proving otherwise. In the
Section X407 of the 1993 MORB. Without the actual Trust Indenture Agreements, absence of proof of any irregularities in the performance of official duties, an
there would be no factual basis for concluding that the same were trusts under assessment will not be disturbed. Even an assessment based on estimates is
Section X407 of the 1993 MORB. TRB called Mr. Navarro, its Vice President, to the prima facie valid and lawful where it does not appear to have been arrived at
witness stand to testify on the terms and conditions of the Trust Indenture arbitrarily or capriciously. The burden of proof is upon the complaining party to
Agreements. Mr. Navarro’s testimony, though, cannot be accorded much weight show clearly that the assessment is erroneous. Failure to present proof of error in
and credence as it is in violation of the parol evidence rule. the assessment will justify the judicial affirmance of said assessment. x x x.
(Citations omitted.)
TRB made no attempt to explain why it did not present the Trust Indenture
Agreements, and it also did not take the effort to establish that any of the Given the failure of TRB to present proof of error in the tax assessments of the
exceptional circumstances under Rule 130, Section 9 of the Revised Rules of BIR, the Court affirms the same.
Court, allowing "a party to modify, explain or add to the terms of written
agreement," was extant in this case. Moreover, Mr. Navarro’s testimony The liabilities of TRB for deficiency DST on its Trust Indenture Agreements for
consisted essentially of conclusions of law and general descriptions of trusts using 1996 and 1997 are computed as follows:
the very same words and terms under Section X407 of the 1993 MORB.
1996 1997
In contrast, records show that the BIR examiners conducted a thorough audit and
investigation of the books of account of TRB. Mr. Alexander D. Martinez, a BIR Trust Fund P 567,500,927.000 P 55,783,860.92
Revenue Officer, testified that it took the BIR team of examiners more than one-
Tax Rate .30/200 .30/200
year to conduct and complete the audit and examination of the documents of
TRB, which consisted of approximately 20,000 pages.36 The audit and
investigation resulted in the issuance of Assessment Notices against TRB for DST Basic Tax 851,251.50 83,676.00
tax liabilities for 1996 and 1997, which were duly received by TRB. The tax
assessments against TRB are presumed valid. In Sy Po v. Court of Tax Add: Surcharge 212,812.88 20,919.00
Appeals,37 the Court pronounced:
39
Total P 1,064,064.38 P 104,595.00
Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a Bureau
In addition, TRB is liable for 20%delinquency interest under Section 249 of the
of Internal Revenue examiner and approved by his superior officers will not be
NIRC of 199340
from February 14, 200241 until full payment of its foregoing tax liabilities.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is

GRANTED. The assailed Decision dated February 14, 2005 of the CTA en bane in
C.T.A. EB No. 32, affirming the Decision dated April 28, 2004 and Resolution dated
September 10, 2004 of the CT A Division in C.T.A. Case No. 6392, is REVERSED and
SET ASIDE. Respondent Traders Royal Bank is ORDERED to pay the deficiency
Documentary Stamp Taxes on its Trust Indenture Agreements for the taxable
years 1996 and 1997, in the amounts of Pl,064,064.38 and "1104, 595.00,
respectively, plus 20% delinquency interest from February 14, 2002 until full
payment thereof.

SO ORDERED.