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G.R. No.

203514

COMMISSIONER OF INTERNAL REVENUE, Petitioner


vs.
ST. LUKE’S MEDICAL CENTER, INC., Respondent

Facts :

On December 14, 2007, respondent St. Luke’s Medical Center, Inc. (SLMC) received from the Large
Taxpayers Service-Documents Processing and Quality Assurance Division of the Bureau of Internal
Revenue (BIR) Audit Results/Assessment Notice Nos. QA-07-0000965 and QA-07-000097,6 assessing
respondent SLMC deficiency income tax under Section 27(B) 7 of the 1997 National Internal Revenue
Code (NIRC), as amended, for taxable year 2005 in the amount of ₱78,617,434.54 and for taxable year
2006 in the amount of ₱57,119,867.33.

On January 14, 2008, SLMC filed with petitioner Commissioner of Internal Revenue (CIR) an
administrative protest8assailing the assessments. SLMC claimed that as a non-stock, non-profit
charitable and social welfare organization under Section 30(E) and (G)9 of the 1997 NIRC, as
amended, it is exempt from paying income tax.

On April 25, 2008, SLMC received petitioner CIR's Final Decision on the Disputed Assessment10 dated
April 9, 2008 increasing the deficiency income for the taxable year 2005 tax to ₱82,419,522.21 and for
the taxable year 2006 to ₱60,259,885.94.

Issue: Whether or not SLMC is liable in Income Tax under 27(b) of the 1997 NIRC?

Held:

Yes.
There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution.
However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the
organization of St. Luke's. 'Non-profit' does not necessarily mean 'charitable.'

The Court cannot expand the meaning of the words 'operated exclusively' without violating the NIRC.
Services to paying patients are activities conducted for profit. They cannot be considered any other
way. There is a 'purpose to make profit over and above the cost' of services. The ₱l.73 billion total
revenues from paying patients is not even incidental to St. Luke's charity expenditure of ₱2l8,187,498
for non-paying patients.

St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of its operating income in
1998. However, if a part of the remaining 34.80% of the operating income is reinvested in property,
equipment or facilities used for services to paying and non-paying patients, then it cannot be said that
the income is 'devoted or used altogether to the charitable object which it is intended to achieve.' The
income is plowed back to the corporation not entirely for charitable purposes, but for profit as well. In
any case, the last paragraph of Section 30 of the NIRC expressly qualifies that income from activities
for profit is taxable 'regardless of the disposition made of such income.'
G.R. No. 166387 January 19, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioners,


vs.
ENRON SUBIC POWERCORPORATION, Respondents.

Facts :

Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport
enterprise,2 filed its annual income tax return for the year 1996 on April 12, 1997. It indicated a net loss
of P7,684,948. Subsequently, the Bureau of Internal Revenue, through a preliminary five-day
letter,3 informed it of a proposed assessment of an alleged P2,880,817.25 deficiency income
tax.4 Enron disputed the proposed deficiency assessment in its first protest letter. 5

On May 26, 1999, Enron received from the CIR a formal assessment notice6 requiring it to pay the
alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this
deficiency tax assessment.7

Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in
the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the
provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended, 8and Section
3.1.4 of Revenue Regulations (RR) No. 12-999by not providing the legal and factual bases of the
assessment. Enron likewise questioned the substantive validity of the assessment.10

Issue: whether or not the assessment of the BIR did not comply with the requirement of valid written
notice under Sec 228 of the NIRC and RR No. 12-99?

Held:
The BIR did not comply to Section 228 of the NIRC which provides that the taxpayer shall be
informed in writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
enacted. It is clear from the foregoing that a taxpayer must be informed in writing of the legal and
factual bases of the tax assessment made against him. The use of the word “shall” in these legal
provisions indicates the mandatory nature of the requirements laid down therein.

In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in the
issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and
facts on which the subject assessment is based. [The CIR] did not bother to explain how it arrived at
such an assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and
regulations which were not complied with by Enron.

The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of
Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory.
COMMISSIONER OF INTERNAL REVENUE, vs. DE LA SALLE UNIVERSITY, INC.

G.R. No. 196596, November 09, 2016

The Commissioner submits the following arguments:


DLSU's rental income is taxable regardless of how such income is derived, used or disposed
of. DLSU's operations of canteens and bookstores within its campus even though exclusively serving
the university community do not negate income tax liability.

Article XIV, Section 4 (3) of the Constitution and Section 30 (H) of the Tax Code
“the income of whatever kind and character of [a non-stock and non-profit educational
institution] from any of [its] properties, real or personal, or from any of (its] activities conducted for
profit regardless of the disposition made of such income, shall be subject to tax imposed by this Code.”

The Commissioner posits that a tax-exempt organization like DLSU is exempt only from property
tax but not from income tax on the rentals earned from property. Thus, DLSU's income from the
leases of its real properties is not exempt from taxation even if the income would be used for
educational purposes.41

DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all assets and
revenues of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes are exempt from taxes and duties.

ISSUE: Whether DLSU's income and revenues proved to have been used actually, directly
and exclusively for educational purposes are exempt from duties and taxes.

RULING: YES.
The requisites for availing the tax exemption under Article XIV, Section 4 (3),
namely: (1) the taxpayer falls under the classification non-stock, non-profit educational institution;
and (2) the income it seeks to be exempted from taxation is used actually, directly and exclusively
for educational purposes.
A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not
require that the revenues and income must have also been sourced from educational activities or
activities related to the purposes of an educational institution. The phrase all revenues is unqualified by
any reference to the source of revenues. Thus, so long as the revenues and income are used actually,
directly and exclusively for educational purposes, then said revenues and income shall be exempt from
taxes and duties.
Thus, when a non-stock, non-profit educational institution proves that it uses
its revenues actually, directly, and exclusively for educational purposes, it shall be exempted from
income tax, VAT, and LBT. On the other hand, when it also shows that it uses its assets in the form of
real property for educational purposes, it shall be exempted from RPT.
We further declare that the last paragraph of Section 30 of the Tax Code is without force and
effect for being contrary to the Constitution insofar as it subjects to tax the income and revenues of
non-stock, non-profit educational institutions used actually, directly and exclusively for educational
purpose. We make this declaration in the exercise of and consistent with our duty to uphold the
primacy of the Constitution. We stress that our holding here pertains only to non-stock, non-profit
educational institutions and does not cover the other exempt organizations under Section 30 of the Tax
Code.
For all these reasons, we hold that the income and revenues of DLSU proven to have been
used actually, directly and exclusively for educational purposes are exempt from duties and
taxes.
G.R. No. 224327, June 11, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. BANK OF THE PHILIPPINE


ISLANDS, Respondent.

Facts :

April 15, 1987: Citytrust Banking Corporation (CBC) filed its Annual Income Tax Returns (ITR) for
its Regular Banking Unit (RBU), and Foreign Currency Deposit Unit (FCDU) for taxable year (TY)
1986.

August 11, 1989; July 12 and November 8, 1990: CBC executed Waivers of the Statute of Limitations
under NIRC.

March 7, 1991: CIR issued a Pre-Assessment Notice (PAN) against CBC for deficiency taxes, among
which is for Income Tax for TY 1986 for P19,202,589.97.

April 22, 1991: CBC filed its protest against the PAN.

But CIR instead issued a letter (dated May 6, 1991) demanding payment for the deficiency within 30
days. Again, CBC protested but again CIR only demanded payment on February 5, 1992, now within
10 days. Another protest was made and in 1994, CBC requested a compromise settlement for the said
deficiency under RMO 45-93 by paying P1,721,503.40, or 20% of the assessment. This compromise
was received on March 30, 1994 by the CIR. On October 12, CIR approved it but they said that
P8,607,517.00 should be paid. Reconsideration was asked by CBC and offered to pay P1,600,000, but
to no avail. Hence, CBC again offered to pay P3,200,000 instead. This offer was sent twice. On this
point, CIR disapproved the Application for Compromise Settlement this time. Due to this, CBC
requested again for reconsideration and offered to pay the increased amount of P4,303,758.50.

Meanwhile, on October 4, 1996, SEC approved the Articles of Merger between BPI and CBC, with
BPI as the surviving corporation.

In July 2011, CIR issued a Notice of Denial to BPI and issued another Letter to BPI, denying the offer
of compromise and requesting for the payment of P19,202,589.97, plus all increments incident to
delinquency.

September 21, 2011: CIR issued a Warrant of Distraint and/or Levy against BPI. October 7, 2011:
Warrant prompted BPI to file a Petition for Review with the CTA.

CTA Special Third Division: Decided in favor or BPI. Warrant of Distraint and/or Levy was cancelled.
It ruled that the Assessment Notices, being issued only on May 6, 1991, were already issued beyond
the three-year period to assess, counting from April 15, 1987. It also held that Waivers of Statute of
Limitations executed on July 12, 1990 and November 8, 1990 were not in accordance with the proper
form, thus, the waivers failed to extend the period given to petitioner to assess.

CTA En Banc: affirmed CTA Division.

Hence, this petition.

Issue:

1. Whether or not BPI is not estopped from claiming prescription as a defense against CIR (in relation
to 
the invalid Waivers)?

2. Whether or not the Right of CIR to assess and collect deficiency income tax for TY 1986 had
already 
prescribed?

.
Ruling:
SC held that the release, mailing, or sending of the notice should be clearly and satisfactorily proved.
Mere notations made without the taxpayer's 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.

Estoppel in raising Prescription defense against CIR in relation to the Invalid Waivers

This contention was misplaced. CIR cannot implore the doctrine of estoppel just to compensate its
failure to follow the proper procedure.

It is well established that issues raised for the first time on appeal are barred by estoppel. However, it
cannot be applied in case where it gives validity to an act that is prohibited by law or one that is against
public policy. Hence, BPI is not estopped from raising the invalidity of the Waivers as the BIR in this
case caused the defects thereof. As such, the invalid Waivers did not operate to toll or extend the period
of prescription.

Prescription on CIR’s assessment and collection of deficiency taxes

Under the NIRC, assessment must be made within 3 years from the last day of filing of ITR or from the
day ITR was filed if it is filed late. Since PAN was sent by the BIR almost 4 years (March 1991) after
the April 15, 1987 and waivers executed were invalid, it is clear that the right of CIR to assess has
already prescribed.

For the period of collection, it also prescribed. If it will be reckoned, the period to collect from May 6,
1991, or the alleged Final Demand Letter on February 5, 1992, counting the three-year period therein
to collect, the mode of collection through the issuance of Warrant of Distraint and/or Levy on October
05, 2011 was made beyond the prescriptive period.
It must be remembered that 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 in administrative investigations: that taxpayers should be able to
present their case and adduce supporting evidence. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as any arbitrariness

will negate the very reason for government itself."


General Foods (Phils.), Inc. v. CIR

CTA CASE NUMBER: 4386 February 8, 1994

Facts:
Petitioner General Foods, Inc. is a domestic corporation engaged in the manufacture and sale of various
consumer products such as “Tang”, “Calumet”, and “Kool-Aid”.

On June 14, 1985, it filed its Corporate Annual Income Tax Return for fiscal year ended February 28,
1985 and claimed P9,461,246.00 as deduction under “Marketing Expenses”, (Media Advertising).

Respondent CIR disallowed fifty percent (50%) thereof or P4,730,623.00 on the ground that said
expenses are in the nature of capital expenditures which should be amortized for two (2) years.

The disallowance resulted to an alleged deficiency income tax of P2,635,141.42.

In the present appeal, petitioner averred that the amount being claimed is reasonable considering the
grave economic situation that took place after the Aquino assassination characterized by capital flight,
strong deterioration of the purchasing power of the Philippine peso and the slackening demand for
consumer products.

Issue:
Whether or not THE MEDIA ADVERTISING EXPENSES PAID OR INCURRED BY PETITIONER
CONSTITUTE ORDINARY AND NECESSARY EXPENSES FULLY DEDUCTIBLE UNDER THE
TAX CODE ?

Ruling:

Before an expense is allowed as deduction from gross income, it must satisfy the following
requirements:

3. It must be both ordinary and necessary; 


4. It must be paid or incurred within the taxable year; 


5. It must be incurred in carrying on a trade or business. 


The CTA held in Visayan Cebu Terminal Co., Inc. v. Collector of Internal Revenue that an expense is
necessary when the expenditure is appropriate or helpful in the development of the taxpayer’s business
or that the same is proper for the purpose of realizing a profit or minimizing a loss, as distinguished
from one not pertinent to the business of the taxpayer.
General Rule: Advertising expenses are deductible in the year when paid or incurred. Limitations:

1. The reasonableness of the amount.
2. Whether or not the questioned advertising expenses are
actually capital outlays to

create “goodwill” to the product and/or business, and hence, considered as capital expenditure to be
spread over the life of the asset.

Here, petitioner General Foods, Inc. failed to comply with the two aforementioned limitations. The
advertising expenses incurred by petitioner constitute almost 1⁄2 of petitioner’s claim for “Marketing
Expenses”. Such amount is almost twice over General and Administrative Expenses, and it excludes
the amount of P2,678,328 being claimed under “Other advertising and promotions” expense.

The CTA held that the said amount was incurred to create some form of goodwill for petitioner’s trade
or business, and thus, is not a deductible business expense but rather a capital expenditure.
SOUTH AFRICAN AIRWAYS v. CIR

G.R. No. 180356 February 16, 2010

Facts:

Petitioner South African Airways is a foreign corporation organized and existing under and by virtue of
the laws of the Republic of South Africa. Its principal office is located at Airways Park, Jones Road,
Johannesburg International Airport, South Africa. In the Philippines, it is an internal air carrier having
no landing rights in the country.

Petitioner has a general sales agent in the Philippines, Aerotel Limited Corporation (Aerotel). Aerotel
sells passage documents for compensation or commission for petitioners off-line flights for the carriage
of passengers and cargo between ports or points outside the territorial jurisdiction of the Philippines.
Petitioner is not registered with the Securities and Exchange Commission as a corporation, branch
office, or partnership. It is not licensed to do business in the Philippines.

For the taxable year 2000, petitioner filed separate quarterly and annual income tax returns for its off-
line flights. Thereafter, on February 5, 2003, petitioner filed with the Bureau of Internal Revenue,
Revenue District Office No. 47, a claim for the refund of the amount of PhP 1,727,766.38 as
erroneously paid tax on Gross Philippine Billings (GPB) for the taxable year 2000. Such claim was
unheeded. Thus, on April 14, 2003, petitioner filed a Petition for Review with the CTA for the refund
of the abovementioned amount.

They further argue that the CIR v. British Overseas Airways (see notes) is inapplicable to them because
the same was decided under the 1939 NIRC, not the 1997 one. Petitioner alleges that the 1939 NIRC
taxes resident foreign corporations, such as itself, on all income from sources within the Philippines.
Petitioners interpretation of Sec. 28(A)(3)(a) of the 1997 NIRC is that, since it is an international
carrier that does not maintain flights to or from the Philippines, thereby having no GPB as defined, it is
exempt from paying any income tax at all.

Issue:

Whether or not petitioner, as an off-line international carrier selling passage documents through an
independent sales agent in the Philippines, is engaged in trade or business in the Philippines subject to
the 32% income tax imposed by Section 28 (A)(1) of the 1997 NIRC?

Ruling:

Yes. Petitioner Is Subject to Income Tax at the Rate of 32% of Its Taxable Income. An action for a tax
refund partakes of the nature of an exemption, which cannot be allowed unless granted in the most
explicit and categorical language, it is strictly construed against the claimant who must discharge such
burden convincingly. Petitioner has failed to overcome such burden.

Essentially, prior to the 1997 NIRC, GPB referred to revenues from uplifts anywhere in the world,
provided that the passage documents were sold in the Philippines. Legislature departed from such
concept in the 1997 NIRC. Now, it is the place of sale that is irrelevant; as long as the uplifts of
passengers and cargo occur to or from the Philippines, income is included in GPB.

As correctly pointed out by petitioner, inasmuch as it does not maintain flights to or from the
Philippines, it is not taxable under Sec. 28(A)(3)(a) of the 1997 NIRC. This much was also found by
the CTA. But petitioner further posits the view that due to the non-applicability of Sec. 28(A)(3)(a) to
it, it is precluded from paying any other income tax for its sale of passage documents in the Philippines.
THIS IS UNTENABLE.

Sec. 28(A)(1) of the 1997 NIRC is a general rule that resident foreign corporations are liable for 32%
tax on all income from sources within the Philippines. Sec. 28(A)(3) is an exception to this general
rule. 


In the instant case, the general rule is that resident foreign corporations shall be liable for a 32%
income tax on their income from within the Philippines, except for resident foreign corporations that
are international carriers that derive income from carriage of persons, excess baggage, cargo and mail
originating from the Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings.

Petitioner, being an international carrier with no flights originating from the Philippines, does not
fall under the exception. As such, petitioner must fall under the general rule. This principle is embodied
in the Latin maxim, exception firmat regulam 
 in casibus non exceptis, which means, a thing not
being excepted must be regarded as coming within the purview of the general rule. As to REFUND:
Here, petitioners similar tax refund claim assumes that the tax return that it filed was correct. Given,
however, the finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997
NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in
doubt. As such, we cannot grant the prayer for a refund. 


It must be remembered that the tax under Sec. 28(A)(3)(a) is based on GPB, while Sec. 28(A)(1) is
based on taxable income, that is, gross income less deductions and exemptions, if any. It cannot be
assumed that petitioners liabilities under the two provisions would be the same. There is a need to
make a determination of petitioners liability under Sec. 28(A)(1) to establish whether a tax refund is
forthcoming or that a tax deficiency exists. The assailed decision fails to mention having computed for
the tax due under Sec. 28(A)(1) and the records are bereft of any evidence sufficient to establish
petitioners taxable income. There is a necessity to receive evidence to establish such amount vis--vis
the claim for refund. It is only after such amount is established that a tax refund or deficiency may be
correctly pronounced .
Case No. 15: CIR vs Phil. Global Communications, G.R. No. 167146, October 31, 2006 Chico-
Nzario, J.

Facts: This involves a case of prescription so that the narration of specific dates on every action taken
is indispensable for a proper understanding thereof. The relevant dates are as follows:

 April 15, 1991 – respondent filed its ITR for income earned in 1990.

 April 22, 1994 - Formal Assessment Notice was made assessing the taxpayer for deficiency
income tax in the total amount of P118, 271, 672.00.

 May 6, 1994 – filed a formal protest letter against the assessment.

 May 23, 1994 - other protest was filed. The previous and present protest asked for the
cancellation of the assessment for being invalid for lack of factual and legal basis.

 October 16, 2002 (more than eight years after the assessment was issued) – taxpayer received
a Final Decision, dated October 8, 2002, from the Commissioner denying the protest.

 November 15, 2002 – respondent filed a Petition for Review with the CTA invoking
prescription as a defense.

 June 9, 2004 - CTA rendered a decision in favor of the respondent. After the filing a Motion
for Reconsideration the CTA en banc affirmed.

Issue: Will the filing of the timely protest by the taxpayer toll the running of the prescriptive period to
collect the assessed deficiency income tax?

Held: The SC ruled in the negative. The running of the prescriptive period, by express provision of
Section 224 (now 223), can be suspended “When the taxpayer requests for a reinvestigation which is
granted by the Commissioner”.

RR No. 12-85 defined what is a request for reinvestigation on one hand and a request for
reconsideration on the other.

The main difference between these two types of protests lies in the records or evidence to be examined
by internal revenue officers, whether these are existing records or newly discovered or additional
evidence.

A re-evaluation of existing records which results from a request for reconsideration does not toll the
running of the prescription period for the collection of an assessed tax.

 While it is true that the provisions of Section 223 of the NIRC is clear, the ruling of the SC in
the case of Wyeth Suaco (G.R. No. 76281, September 30, 1991, 202 SCRA 125) set a
different tone when the Court ruled that “the prescriptive period provided by law to make a
collection is interrupted once a taxpayer requests for reinvestigation or reconsideration of the
assessment.”
 In the case of BPI vs. CIR, G.R. No. 139736, October 17, 2005, the SC took occasion
to examine carefully the Wyeth decision and found out that there are inconsistencies
with the law. The provision of Section 223 is clear that a request for reinvestigation
(not reconsideration) which is granted by the Commissioner can suspend the running
of the prescriptive period to collect.
Jose P. Obillos Jr., Sarah P. Obillos, Romeo P. Obillos and Remedios P. Obillos,

brothers and sisters, vs. Commisioner of Internal Revenue (CIR) and Court of

FACTS:

Tax Appeals (CTA)

139 SCRA 436 [1985] Aquino, J.:

On March 2, 1973, Jose Sr. completed payment on two lots he bought from Ortigas & Co., Ltd. The
next day he transferred his rights to his children to enable them to build their residences. Presumably,
the Torrens titles issued show petitioners were co-owners of the two lots.

In 1974, petitioners resold the two lots to Walled City Securities Corp. and Olga Cruz Canda. They
derived profit from the sale and treated it as a capital gain and paid income tax thereon.

In April 1980, the CIR required the petitioners to pay corporate income tax on the their total profit in
addition to individual income tax on their shares thereof. Petitioners were also held liable for
deficiency income taxes and penalties in addition to capital gains taxes already paid by them.

The petitioners protested the assessments but the CTA sustained them.

ISSUE:

Whether or not petitioners formed an unregistered partnership or joint venture to be taxable in the same
manner as a corporation.

HELD:

No. Article 1769(3) of the civil Code provides that “the sharing of gross income does not itself
establish a partnership, whether or not the persons sharing them have a joint or common interest in any
property from which returns are derived.” There must be an unmistakable intention to form a
partnership or joint venture. Petitioners had no such intention. They were not

engaged in any joint venture by reason of the isolated transaction of selling their property and dividing
the proceeds among themselves.

The original purpose was to divide the lots for residential purposes. If later on they found it not feasible
to build their residences because of the high cost of construction, then they had no choice but to resell
the same to dissolve the co-ownership. The division of the profit was merely incidental to the
dissolution of the co-ownership, which was in the nature of things a temporary state. It had to be
terminated sooner or later.