2010 TAX CASES

CASE TITLE FACTS OF THE CASE ISSUE/S RULING

1. Fishwealth Canning Corporation Whether or not the filing of a motion for NO. A Motion for Reconsideration of the
Vs. Commissioner Of Internal reconsideration tolls the running of the denial of the administrative protest does
Revenue (G.R. No. 179343; 30-day period to appeal to the Court of not toll the 30-day period to appeal to the
January 21, 2010) Tax Appeals Court of Tax Appeals.

(Macanang, Domer)
2. Panasonic Communications
Imaging Corporation Of The
PhilippinesVs.Commissioner
Internal Revenue(G.R No. 178090
February 8, 2010)
(Guim, Amiel)
Whether or not Panasonic qualifies for The petition is DENIED. NO.
zero-rated sales and can refund its
of unutilized input VAT
VAT is a tax on consumption, an indirect
tax that the provider of goods or services
may pass on to his customers. Under the
VAT method of taxation, which is invoice-
based, an entity can subtract from the
VAT charged on its sales or outputs the
VAT it paid on its purchases, inputs and
imports. Under the 1997 NIRC, if at the
end of a taxable quarter the seller
charges output taxes equal to the input
taxes that his suppliers passed on to
him, no payment is required of him. It is
when his output taxes exceed his input
taxes that he has to pay the excess to
the BIR. If the input taxes exceed the
output taxes, however, the excess
payment shall be carried over to the
succeeding quarter or quarters. Should
the input taxes result from zero-rated or
effectively zero-rated transactions or
from the acquisition of capital goods, any
excess over the output taxes shall
instead be refunded to the taxpayer.
Under RMC 42-2003, failure to comply

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 2010 TAX CASES
3. South African Airways Vs. Petitioner South African Airways is a
Commissioner Of Internal Revenue foreign corporation organized and
G.R NO. 180356; existing under and by virtue of the laws
FEBRUARY 16, 2010 of the Republic of South Africa. Its
principal office is located at Airways
Park, Jones Road, Johannesburg
(Balubal, Eden) 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.
with invoicing requirements will result in
the disallowance of his claim for refund.
Since Section 4.108-1 of RR 7-95 is
effective then, it should comply with word
zero-rated for zero-rated sales covered
by its receipts or invoices. It also became
part of 1997 NIRC on November 1, 2005
not diminishing the binding force of the
prior enactment. The requirement is
reasonable and in accord with efficient
collection of VAT preventing false claims
and helps
Whether or not petitioner’s sourced In the instant case, the general rule is
within the Philippines and is to be taxed that resident foreign corporations shall
at 32% of the Gross Billings 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. To reiterate, the correct
interpretation of the provisions is that, if
an international air carrier maintains
flights to and from the Philippines, it shall
be taxed at the rate of 2 1/2% of its Gross
Philippine Billings, while international air
carriers that do not have flights to and
from the Philippines but nonetheless
earn income from other activities in the
country will be taxed at the rate of 32%
of such income.
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4. TFS Incorporated Vs. Commission Petitioner TFS, Incorporated is a duly Whether Or Not Petitioner Is Subject To
Of Internal Revenue
GR. NO. 166829 APRIL 19, 2010
(Balubal, Eden)
2010 TAX CASES
For the taxable year 2000, petitioner
filed separate quarterly and annual
income tax returns for its off-line flights
in the rate of 32% of it’s GPB. However,
he filed with the BIR for claim for refund
contending that it’s income should be
taxed at the rate of 2 ½ % of it’s GPB.
The Court cited the case of First Planters
organized domestic corporation The 10% VAT. Pawnshop Inc. v. CIR; “Since petitioner
engaged in the pawnshop business. is a non-bank financial intermediary, it is
On January 15, 2002, petitioner subject to 10% VAT for the tax years
received a Preliminary Assessment 1996 to 2002; however, with the levy,
Notice (PAN) for deficiency value assessment and collection of VAT from
added tax (VAT), expanded withholding non-bank financial intermediaries being
tax (EWT) and compromise penalty for specifically deferred by law, then
the taxable year 1998. Insisting that petitioner is not liable for VAT during
there was no basis for the issuance of these tax years”.
PAN, petitioner through a letter
requested the Bureau of Internal Petitioner is not liable for VAT for the
Revenue (BIR) to withdraw and set year 1998. Consequently, the VAT
aside the assessments. Respondent deficiency assessment issued by the
Commissioner of Internal Revenue BIR against petitioner has no legal basis
(CIR) informed petitioner that a Final and must therefore be cancelled. In the
Assessment Notice (FAN) was issued same vein, the imposition of surcharge
on January 25, 2002, and that and interest must be deleted.
petitioner had until February 22, 2002
within which to file a protest letter. On
February 20, 2002, petitioner protested
the Final Assessment Notice (FAN).
There being no action taken by the
CIR, petitioner filed a Petition for
Review] with the CTA.
During trial, petitioner offered to
compromise and to settle the
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 2010 TAX CASES
assessment for deficiency EWT with
the BIR. Hence, on September 24,
2003, it filed a Manifestation and
Motion withdrawing its appeal on the
deficiency EWT, leaving only the issue
of VAT on pawnshops to be threshed
out. Since no opposition was made by
the CIR to the Motion, the same was
granted by the CTA.
5. Miguel J. Osorio Pension Petitioner is a non-stock and nonprofit
Foundation, Inc. vs. CA and corporation – it was organized for the
CIR(GR 162175 June 28, 2010) purpose of holding title to and
administering the employees trust or
( Abella, Khat) retirement funds (Employees Trust
Fund) established for the benefit of the
employees of Victoria’s Milling
Company Inc. (VMC). Petitioner as
trustee claims that the income earned
by the employees Trust Fund is tax
exempt under Sec. 53(b) (now Sec. 60
(b) of the NIRC.
Petitioner as trustee of the employees
fund invested part of said fund to
purchase a lot in Madrigal Business
Park (MBP) located in Muntinlupa.
Since petitioner needed funds to pay
the retirement and pension benefits of
VMC employees and to reimburse
advances made by VMC, petitioner’s
board of trustees authorized the sale of
its share in the MBP lot.
VMC eventually sold the MBP lot to
Metrobank and as withholding agent;
Whether or not petitioner is entitled to
claim a refund for the income tax paid
on the sale of its co-owned MBP lot in
its capacity as trustee of the
Employees Trust Fund.
4
The court ruled that, the tax-exempt
character of petitioner’s Employees
Trust Fund is not an issue in this case
because the tax-exempt character of the
Employees Trust Fund has long been
settled. It is also settled that petitioner
exist for the purpose of holding title to
and administering the tax exempt
Employees Trust Fund which was
established for the benefit of VMC’s
employees. As such, petitioner has the
personality to claim tax refunds due to
the Employees Trust Fund.
As to the proof of co-ownership of the
MBP lot, the law expressly allows a co-
owner (1st co-owner) of a parcel of land
to register his proportionate share in the
name of his co-owner (2nd co-owner) in
whose name the entire land is
registered. The 2nd co-owner serves as
a legal trustee of the 1st co-owner
insofar as the proportionate share of the
1st co-owner is concerned. The 1st co-
owner remains the owner of his
 2010 TAX CASES
Metrobank paid the amount of PHP 6,
125, 625.00 as withholding tax on the
sale of the real property.
Petitioner claims that it is a co-owner of
the MBP lot as trustee of the
Employees Trust Fund. Further, it
contends that the Employees Trust
Fund is exempt from income tax. Since
petitioner as trustee purchased
49.59% of the MBP lot using funds of
the Trust Fund, it asserts that their
49.59% share in the income tax
paid amounting to PHP 3, 037, 697.40
rounded off to PHP 3, 037, 500 should
be refunded. It maintained that the tax
exemption of the Trust Fund rendered
the payment of income tax as illegal or
erroneous – which resulted in filing a
claim for tax refund.
As action, the BIR stated that under
Sec 26 of the Tax Code, petitioner is
not exempt from tax on its income from
the sale of real property. The BIR
asked petitioner to submit documents
to prove its co-ownership of the MBP
lot and its exemption from tax.
proportionate share and not the 2nd co-
owner in whose name the entire land is
registered, as provided in Art. 1452 of
the NCC.
The income from the trust fund
investments is therefore exempt from the
payment of income tax and
consequently from the payment of the
creditable withholding tax on the sale of
their real property. Thus, the Employees
Trust Fund owns 49.59% of the MBP lot.
Since petitioner has proven that the
income from the sale of the MBP lot
came from an investment by the
Employees Trust Fund, petitioner as
trustee is entitled to claim the tax refund
of PHP 3, 037, 500.00 – which was
erroneously paid in the sale of the MBP
lot.

Petitioner in reply said that the

applicable provision granting its claim
for tax exemption is not Sec. 26 but
Sec. 53 (b) of the Tax Code and that its
co-ownership of the MBP lot is
evidenced by Board Resolution #s 92-
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 2010 TAX CASES
34 and 96-46 and the MOA among
petitioner, VMC and its subsidiaries.

Since the BIR failed to act on

petitioner’s claim, it was elevated to
CIR - again no action was taken hence,
a petition for tax refund before the CTA
was filed.

The CTA ruled that Sec. 53 (b) of the

Tax Code talks about exemption from
income tax on the income or earnings
of the Employees trust Fund. Also, that
the petitioner is not the pension trust
itself but is a separate and distinct
entity whose function is to administer
the pension plan for some VMC
employees.

As to the co-ownership of the lot, the

CTA ruled that the evidences are self-
serving and cannot themselves prove
the co-ownership of the petitioner of
the MBP lot. Further, petitioner failed to
present any evidence to prove that the
money used to purchase the MBP lot
came from the Employees Trust Fund.
Thus, petitioner is estopped from
claiming a tax exemption.

When the claim was filed before the

CA, the CA agreed that the pieces of
documentary evidence submitted are
largely self-serving and can be
contrived easily and that the
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 2010 TAX CASES
documents failed to show that the
funds used to purchase the MBP lot
came from the Employees Trust Fund.
Hence this petition.
6. Lepanto Consolidated Mining Whether or not a mining corporation is The Court ruled in affirmative. Sand and
Company Vs Hon. Mauricio B. liable for taxes imposed by a province gravel taxes may be imposed even on
Ambanloc, in his capacity as the for the extraction of sand and gravel non-commercial extractions. Since
Provincial Treasurer of Benguet from areas covered by its mining lease Section 138 of the Local Government
(G.R. No. 180639 with the national government and used Code (Republic Act 7160) authorized
June 29, 2010) exclusively in its mining operations. provinces to impose a tax on the
extraction of sand and gravel from public
(Maramag, Jocelyn) lands, without distinguishing between
personal and commercial uses, then the
tax should be deemed to cover
extractions for both purposes.

The provincial revenue code provides

that the subject tax had to be paid prior
to the issuance of the permit to extract
sand and gravel. Its Article D, Section 2,
enumerates four kinds of permits:
commercial, industrial, special, and
gratuitous. Special permits covered only
personal use of the extracted materials
and did not allow the permitees to sell
materials coming from his concession.
Among applicants for permits, however,
only gratuitous permits were exempt
from the sand and gravel tax. It follows
that persons who applied for special
permits needed to pay the tax, even
though they did not extract materials for
commercial purposes. Thus, the tax
needed to be paid regardless of the
applicability of the administrative and
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 2010 TAX CASES
7. Commissioner Of Internal Eastern filed with the CIR a written
Revenue, Petitioner, Vs. Eastern application for refund or credit of
Telecommunications Philippines, unapplied input taxes it paid on the
Inc., Respondent.(G.R. No. 163835 imported equipment purchased during
July 7, 2010) 1995 and 1996 amounting
toP22,013,134.00. To toll the
(Ferrer, Elena Marie) running of the two-year prescriptive
period under the same provision,
Eastern filed an appeal with the CTA.
The CTA found that Eastern has a valid
claim for the refund/credit of the
unapplied input taxes, declaring it
entitled to a tax refund of
P16,229,100.00.The CIR filed a motion
for reconsideration of the CTA’s
decision. Subsequently, it filed a
Whether or not the rule in Section
104(A) of the Tax Code on the Section 104(A) of the Tax Code was
apportionment of tax credits can
be applied in appreciating Eastern’s
claim for tax refund, considering that against the CIR.
the matter was raised by the CIR only
when he sought reconsideration of the The mere declaration of exempt sales in
CTA ruling
8
reportorial requirements of that revenue
code.
Lepanto’s extraction and use of mineral
deposits bears the consent of the
national government, in line with the
principle that exploration of natural
resources can only be done under the
control and supervision of the State. The
contract makes no mention of any
exemption from securing government
permits.
An exemption from the requirements of
the provincial government should have a
clear basis, whether in law, ordinance, or
even from the contract itself.
Unfortunately for Lepanto, it failed to
show its entitlement to such exemption.
Yes. The question of the applicability of
already raised but the tax court did not
rule on it. This failure should not be taken
the VAT returns, whether based on
Section 103 of the Tax Code or some
other special law, should have prompted
for the application of Section 104 (A) of
the Tax Code to Eastern’s claim. The
general rule is that appeals can only
raise questions of law or fact that (a)
were raised in the court below, and
(b)are within the issues framed by the
 2010 TAX CASES
supplemental motion for
reconsideration. The CTA denied the
CIR’s motion for reconsideration.
The CIR then elevated the case to the
CA, who affirmed the CTA ruling
and likewise denied the subsequent
motion for reconsideration. Hence, the
present petition. The CIR posits that,
applying Section 104(A) of the Tax
Code on apportionment of tax credits,
Eastern is entitled to a tax refund of
only a portion of the amount claimed.
Since the VAT returns clearly reflected
income from exempt sales, the CIR
asserts that this constitutes as an
admission on Eastern’s part that it
engaged in transactions not subject to
VAT.
Hence, the proportionate allocation of
the tax credit to VAT and non-VAT
transactions provided in Section
104(A)of the Tax Code should apply.
Eastern objects to the arguments
raised in the petition, alleging that
these have not been raised in the
Answer filed by the CIR before the CTA
and was only raised. In fact, theCIR
only raised the applicability of Section
104(A) of the Tax Code in his
supplemental motion for
reconsideration of the CTA’s ruling.
Eastern claims that for the CIR to raise
such an issue now would constitute a
9
parties therein (People v. Echegaray,
G.R. No. 117472). An issue which was
neither averred in the pleadings nor
raised during trial in the court below
cannot be raised for the first time on
appeal.
The rule against raising new issues on
appeal is not without exceptions; it is a
procedural rule that the Court may relax
when compelling reasons so warrant
or when justice requires it. What
constitutes good and sufficient cause
that would merit suspension of the rules
is discretionary upon the courts (CIR v.
Mirant Pagbilao Corporation, G.R.
No.159593). Another exception is when
the question involves matters of public
importance. “Taxes are the lifeblood
of the government.” For this reason,
the right of taxation cannot easily be
surrendered; statutes granting tax
exemptions are considered as a
derogation of the sovereign authority
and are strictly construed against the
person or entity claiming the
exemption. Claims for tax refunds, when
based on statutes granting tax
exemption or tax refund, partake of the
nature of an exemption; thus, the rule of
strict interpretation against the
taxpayer-claimant similarly applies
(CIR v. Fortune Tobacco Corporation,
G.R. Nos. 167274-75)
 2010 TAX CASES
violation of its right to due process;
following settled rules of procedure and
fair play, the CIR should not be allowed
at the appeal level to change his theory
of the case. Eastern further argues that
there is no evidence on record that
would evidently show that respondent
is also engaged in other transactions
that are not subject to VAT.
8. CIR vs Smart Communications Respondent Smart Communication
Inc.(G.R. Nos. 179045-46; August Inc, is a corporation organized and
25, 2010) existing under Philippine Law. It is an
enterprise duly registered with the
(Taguinod, Jelyne) Board of Investments. On May 25,
2001, respondent entered into three
agreements for Programming and
Consultancy Services with Prism
Transactive, a non-resident
corporation duly organized and
existing under the laws of Malaysia.
Under the agreements, Prism was to
provide programming and consultancy
services for installation and
implementation of Smart Money and
Mobile Banking Service Sim
Applications and private Text Platform.
The taxpayer is charged with the heavy
burden of proving that he has complied
with and satisfied all the statutory and
administrative requirements to be
entitled to the tax refund. This burden
cannot be offset by the non-
observance of procedural technicalities
by the government’s tax agents when
the non-observance of the remedial
measure addressing it does not in
any manner prejudice the taxpayer’s
due process rights. Lapses in the literal
observance of a rule of procedure
maybe overlooked when they have not
prejudiced the adverse party and
especially when they are more
consistent with upholding settled
principles in taxation.
Whether or not the respondent has the Yes. Under Sec. 204 (c) and 229 of
right to file the claim for refund. NIRC. The person entitled to claim a tax
is the taxpayer. However, in case the
taxpayer does not file a claim for refund,
the withholding agent may file the claim.
In CIR vs Procter and Gamble
Philippines Manufacturing Corp., a
withholding agent was considered a
proper party to file a claim for refund of
withheld taxes of its foreign parent
company.
The petitioner submits that the ruling
applies only when the withholding agent
and the taxpayer are related parties, the
court do not agree. Although such
relationship between taxpayer and
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 2010 TAX CASES
On June 25, 2001, Prism billed the
respondent in the amount of US $
547,822.45. thinking that these
payments constitute royalties,
respondent withheld the amount of
US$136,955.61 representing the 25%
royalty tax under the RP-Malaysia Tax
Treaty. On September 25, 2001,
respondent filed its monthly remittance
return of final income taxes withheld for
the month of August 2001.
On September 24, 2003 or within the 2-
year period to claim a refund,
respondent filed with the BIR, through
the International Tax Affairs Division an
Administrative claim for refund of the
amount P7,008,840.43. Due the failure
of the CIR to act on the claim for
refund, respondent filed a petition for
review with the CTA. Respondent
claimed that it is entitled to a refund
because the payments made to Prism
are not royalties but business profits,
pursuant to the definition of royalties
under the RP-MalaysiaTax Treaty.
Respondent further avered that since
under Art. 7 of the RP-Malayasia Tax
Treaty, business profits are taxable in
Philippines only if attributable to a
permanent establishment in the
Philippines the payments made to
Prism, a Malaysian company with no
11
withholding agent is a factor, there is
nothing in the decision to suggest that
such relationship is required or that lack
of such relationship deprives the
withholding agent of the right to file a
claim for refund.
Rather, what is clear in the decision is
that a withholding agent has the legal
right to file a claim for refund: 2 reasons-
(1) he is a taxpayer, as he is personally
liable for the withholding tax as well as
for deficiency assessments, surcharges
and penalties should the amount of the
withheld taxes be finally found to be less
than the amount that should have been
withheld under law;
(2) as an agent of the taxpayer, his
authority to file the necessary income tax
return and to remit the tax withheld to the
government impliedly includes the
authority to file a claim for refund and to
bring an action for recovery of such
claim.
It is however significant to add that while
the withholding agent has the right to
recover the taxes erroneously or illegally
collected, he nevertheless has the
obligation to remit the same to the
principal taxpayer. As an agent of the
taxpayer, it is his duty to return what he
has recovered, otherwise, he would be
unjustly enriching himself at the expense
 2010 TAX CASES
permanent establishment in the
Philippines should not be taxed.
On December 1, 2003, petitioner filed
its answer arguing that respondent, as
withholding agent, is not a party-in-
interest to file the claim for refund, and
that assuming for the sake of argument
that it is the proper party, there is no
showing that the payments made to
Prism constitute profits.
The CTA upheld the respondent’s right
to file the claim for refund. However, as
to the claim for refund, it found out that
respondent is entitled only to a partial
refund. Although it agreed that the
payments for the CM and Sim
Application agreement are business
profits, and therefore not subject to tax
under the RP-Malaysia Tax Treaty, the
second division found the payments for
the SDM agreement a royalty subject
to withholding tax. Both parties moved
for partial reconsideration which was
denied. Both parties appealed to CTA
en Banc, the decision of the second
division was affirmed.
Petitioner sought for reconsideration,
denied. Hence this petition. It contends
that the cases relied upon by the CTA
in upholding the respondent’s right to
claim the refund are inapplicable since
the withholding agents therein are
of the principal taxpayer from whom the
taxes were withheld and from whom he
derives his legal right to file a claim for
refund.
Whether or not the payments made to It is a Business Profit. Under the RP-
Prism constitute business profits or Malaysia Tax Treaty, the term royalties is
royalties. defined as payment of any kind received
as consideration for :
(1) use of, or the right to use any patent,
trademark, design or model, plan, secret
formula or process, any copyright of
literary, artistic or scientific work, or the
use of or the right to use, industrial,
commercial or scientific equipment or for
information concerning industrial,
commercial or scientific experience;
(2) the use of or the right to use
cinematograph films, or tapes for radio
or television broadcasting, these are
taxed at the rate of 25% of the gross
amount.
The business profits of an enterprise of
a contracting state is taxable only in that
state through a permanent
establishment. The term permanent
establishment is defined as a fixed place
of business, an enterprise of a
contracting state if it carries on
supervisory activities in that other state
for more than 6 months in connection
with a construction, installation or
assembly project which is being
undertaken in that other state. In the
instant case, it was established that
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 2010 TAX CASES
wholly owned subsidiaries of the
principal taxpayer, unlike in the instant
case, the withholding agent and
taxpayer are unrelated entities.
It further claims that since respondent
did not file the claim on behalf of Prism,
it has no legal standing to claim the
refund assuming that respondent is the
proper party, petitioner contends that it
is still not entitled to any refund
because the payments made to prism
are taxable as royalties having been
made in consideration for the use of
programs owned by Prism.
Respondent on the other hand
maintains that it is the proper party to
file a claim for refund as it has the
statutory and primary responsibility
and liability to withhold and remit the
taxes to the BIR. It points out that
under the withholding tax system, the
agent-payor becomes a payee by
fiction of law because the law makes
the agent personally liable for the tax
arising from the breach of its duty to
withhold. Thus, the fact that
respondent is not in any way related to
Prism is immaterial. Moreover,
respondent asserts that the payments
made to Prism do not fall under the
definition of royalties since the
agreements are for programming and
consultancy services only.
13
Prism does not have a permanent
establishment in the Philippines, hence,
business profits derived from Prisms
dealings with respondent are not
taxable. The question whether the
payments made to Prism are business
profits and not royalties. It was clear in
the provision in the agreement. Prism
has intellectual property right over the
SDM program but not over the CM & Sim
application programs as the proprietary
rights of these program belong to
respondent. In other words, out of the
payments made to Prism, only the
payment for the SDM program is not a
royalty subject to a 25% withholding tax.
A refund of the erroneously withheld
royalties taxes for the payments
pertaining to the CM and Sim application
the government has no right to retain
what does not belong to it.
The petition is denied.

9. United Airlines,Inc., Petitioner,
Vs.Commissioner Of internal
Revenue, Respondent.(G.R. No.
178788. September 29, 2010)
(Ferrer, Elena Marie)
2010 TAX CASES
Petitioner used to be an online carrier
but ceased operating cargo flights from
the Philippines starting 2001. It is now
an offline international air carrier but
has a general sales agent in the
Philippines which sells passage
documents for its off-line flights for
carriage of passengers and cargo. It
filed a claim for refund on the Gross
Philippine Billings (GPB) tax it paid.
The CTA ruled that Petitioner was not
liable for the GBP but was liable to pay
32% tax on its net income derived from
the sales of passage documents in the
Philippines.
Petitioner elevated the case to the CTA
En Banc which affirmed the decision of
the First Division.
Whether or not the petitioner is entitled No. The petition has no merit.
to a refund of the amount of
₱5,028,813.23 it paid as income tax on Under Section 72 of the NIRC, the CTA
its passenger revenues in 1999.
14
can make a valid finding that petitioner
made erroneous deductions on its gross
cargo revenue; that because of the
erroneous deductions, petitioner
reported a lower cargo revenue and paid
a lower income tax thereon; and that
petitioner's underpayment of the income
tax on cargo revenue is even higher than
the income tax it paid on passenger
revenue subject of the claim for refund,
such that the refund cannot be granted.
The grant of a refund is founded on the
assumption that the tax return is valid,
that is, the facts stated therein are true
and correct. The deficiency assessment,
although not yet final, created a doubt as
to and constitutes a challenge against
the truth and accuracy of the facts stated
in said return which, by itself and without
unquestionable evidence, cannot be the
basis for the grant of the refund.
Moreover, to grant the refund without
determination of the proper assessment
and the tax due would inevitably result in
multiplicity of proceedings or suits. If the
deficiency assessment should
subsequently be upheld, the
Government will be forced to institute
anew a proceeding for the recovery of
erroneously refunded taxes which
recourse must be filed within the
2010 TAX CASES
prescriptive period of ten years after
discovery of the falsity, fraud or omission
in the false or fraudulent return involved.

This would necessarily require and entail

additional efforts and expenses on the
part of the Government, impose a
burden on and a drain of government
funds, and impede or delay the collection
of much-needed revenue for
governmental operations.
Here, the subject of claim for tax refund
is the tax paid on passenger revenue for
taxable year 1999 at the time when
petitioner was still operating cargo flights
originating from the Philippines although
it had ceased passenger flight
operations. The CTA found that
petitioner had underpaid its GPB tax for
1999 because petitioner had made
deductions from its gross cargo
revenues in the income tax return it filed
for the taxable year 1999, the amount of
underpayment even greater than the
refund sought for erroneously paid GPB
tax on passenger revenues for the same
taxable period. Hence, the CTA ruled
petitioner is not entitled to a tax refund.

We must emphasize that tax refunds,

like tax exemptions, are construed
strictly against the taxpayer and liberally
in favor of the taxing authority. In any
event, petitioner has not discharged its
burden of proof in establishing the
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 2010 TAX CASES
10. Commissioner of Internal Revenue On September 30, 2004, Aichi Forging
vs Aichi Forging Company of Asia, filed a claim for refund/credit of input
Inc., (GR No. 184823, October 6, VAT attributable to its zero-rated sales
2010) for the period July 1, 2002 to
September 30, 2002 with the CIR
(Azurin, Jastise) through the DOF One-Stop Shop. On
the same day, Aichi Forging filed a
Petition for Review with the CTA for the
same action. The BIR disputed the
claim and alleged that the same was
filed beyond the two-year period given
that 2004 was a leap year and thus the
claim should have been filed on
September 29, 2004. The CIR also
raised issues related to the reckoning
of the 2-year period and the
simultaneous filing of the
administrative and judicial claims.
Whether or not the Petitioner’s NO. The right to claim the refund must
administrative claim filed out of time
Whether or not the filing of the judicial YES. Section 112 mandates that the
claim was premature
factual basis for its claim for a refund and
we find no reason to disturb the ruling of
the CTA. It has been a long-standing
policy and practice of the Court to
respect the conclusions of quasi-judicial
agencies such as the CTA, a highly
specialized body specifically created for
the purpose of reviewing tax cases.
be reckoned from the “close of the
taxable quarter when the sales were
made” – in this case September 30,
2004. The Court added that the rules
under Sections 204 (C) and 229 as
cross-referred to Section 114 do not
apply as they only cover erroneous
payments or illegal collections of taxes
which is not the case for refund of
unutilized input VAT. Thus, the claim
was filed on time even if 2004 was a leap
year since the sanctioned method of
counting is the number of months.
taxpayer filing the refund must either
wait for the decision of the CIR or the
lapse of the 120-day period provided
therein before filing its judicial claim.
Failure to observe this rule is fatal to a
claim. Thus, Section 112 (A) was
interpreted to refer only to claims filed
with the CIR and not appeals to the CTA
given that the word used is “application”.

Finally, the Court said that applying the

2-year period even to judicial claims
16
 2010 TAX CASES
11. H. Tambunting Pawnshop, Inc vs. Petitioner, H.Tambunting Pawnshop,
CIR (GR No. 172394 October 13, Inc. (petitioner), a domestic corporation
2010) duly licensed to engage in the
pawnshop business received an
(Abella, Khat) assessment notice from BIR
demanding payment of deficiency VAT
and compromise penalty for taxable
year 2000 in the amounts of PHP 5,
212, 404.52 and PHP 25, 000.00,
respectively. Petitioner disclaiming its
liability protested the assessment with
the respondent CIR, arguing that a
pawnshop business was not subject to
VAT and compromise penalty.
Due to the inaction of CIR to the
protest, petitioner elevated the case
with the CTA – the petition was partially
granted by the deletion of the
compromise penalty but petitioner was
ordered to pay the taxes due plus
surcharge and delinquency interest.
Aggrieved by the decision of the CTA,
petitioner filed a motion for partial
reconsideration with the CTA Second
Division, submitted a written
manifestation attaching a copy of BIR
tax payment deposit slip and the
would render nugatory Section 112 (D)
which already provides for a specific
period to appeal to the CTA --- i.e., (a)
within 30 days after a decision within the
120-day period and (b) upon expiry of
the 120-day without a decision.
Whether or not a pawnshop operator is The court ruled petitioner’s main
liable for VAT and the compromise argument that pawnshops are not within
penalty. the concept of all services and similar
services as provided in Section 108(A) of
the NIRC and that the enumeration
under Section 108(A) of the NIRC of
services subject to VAT is exclusive has
merit.Moreover, it is settled that for
purposes of determining their tax liability,
pawnshops are treated as non-bank
financial intermediaries.
Accordingly, the consecutive deferments
of the effectivity date of the application of
VAT on non-bank financial
intermediaries like pawnshops resulted
in their non-liability for VAT during the
affected taxable years. Thus, the VAT
deficiency assessment and the
surcharge served on the petitioner by
BIR lacked legal basis and must be
canceled and petitioner is entitled to
refund of any amount paid pursuant to
the settlement agreement corresponding
to taxable year 2000 only.
17
 2010 TAX CASES
corresponding schedule evidencing its
payment for the years from 2000 to
2002 pursuant to a settlement
agreement with BIR allowing petitioner
to pay 25% of its VAT due – but the
same was denied.

An appeal to the CTA en Banc was filed

thereafter but still, the same was
denied. Hence, this petition.
12. Commissioner Of Internal Revenue Whether LMCEC and its corporate The court grant the petition. There is no
Vs. Hon. Raul M. Gonzalez, officers may be prosecuted for violation dispute that prior to the filing of the
Secretary Of Justice, L. M. Camus of Sections 254 (Attempt to Evade or complaint with the DOJ, the report on the
Engineering Corporation Defeat Tax) and 255 (Willful Failure to tax fraud investigation conducted on
(Represented By Luis M. Camus Supply Correct and Accurate LMCEC disclosed that it made
And Lino D. Mendoza) (G.R. No. Information and Pay Tax) substantial under declarations in its
177279 October 13, 2010) income tax returns for 1997, 1998 and
1999. Pursuant to RR No. 12-99, a PAN
was sent to and received by LMCEC on
(Balubal, Eden) February 22, 2001 wherein it was
notified of the proposed assessment of
deficiency taxes amounting to
P430,958,005.90 (income tax -
P318,606,380.19 and VAT -
P112,351,625.71) covering taxable
years 1997, 1998 and 1999. In response
to said PAN, LMCEC sent a letter-protest
to the TFD, which denied the same on
April 12, 2001 for lack of legal and
factual basis and also for having been
filed beyond the 15-day reglementary
period.

As mentioned in the PAN, the revenue

officers were not given the opportunity to
18
2010 TAX CASES
examine LMCECs books of accounts
and other accounting records because
its officers failed to comply with the
subpoena duces tecum earlier issued, to
verify its alleged under declarations of
income reported by the Bureaus
informant under Section 282 of the
NIRC.

Respondent Secretary concurred with

the Chief State Prosecutors conclusion
that there is insufficient evidence to
establish probable cause to charge
private respondents under the above
provisions, based on the following
findings: (
1) the tax deficiencies of LMCEC for
taxable years 1997, 1998 and 1999 have
all been settled or terminated, as in fact
LMCEC was issued a Certificate of
Immunity and Letter of Termination, and
availed of the ERAP and VAP programs;
(2) there was no prior determination of
the existence of fraud;
(3) the assessment notices are
unnumbered, hence irregular and
suspect;
(4) the books of accounts and other
accounting records may be subject to
audit examination only once in a given
taxable year and there is no proof that
the case falls under the exceptions
provided in Section 235 of the NIRC; and
(5) petitioner committed forum shopping
when it filed the instant case even as the
19
 2010 TAX CASES
earlier criminal complaint (I.S. No. 00-
956) dismissed.
13. Commission of Internal Whether the existing Revised Zonal The Revised Zonal Values of Real
RevenueVs.Aquafresh Seafoods, Values of Real Properties in the City of Properties in the City of Roxas must be
Inc.,(G.R. No. 170389 October 20, Roxas or The fair market value as followed for purposes of computing the
2010) determined by BIR will be used as CGT and DST. It is undisputed that at the
basis for the capital gains tax and time of the sale of the subject properties
(Guim, Amiel) Documentary tax found in Barrio Banica, Roxas City, the
same were classified as “RR,” or
residential, based on the 1995 Revised
Zonal Value of Real Properties. CIR,
thus, cannot unilaterally change the
zonal valuation of such properties to
“commercial” without first conducting a
re-evaluation of the zonal values as
mandated under Section 6(E) of the
NIRC.

Zonal value is determined for the

purpose of establishing a more realistic
basis for real property valuation. Since
internal revenue taxes, such as CGT and
DST, are assessed on the basis of
valuation, the zonal valuation existing at
the time of the sale should be taken into
account.
14. Commissioner Of Internal Revenue In a letter dated February 15, 1993, Whether or not the Court of Tax The jurisdiction of the CTA is governed
Vs. Hambrecht & Quist Philippines, respondent informed the BIR of its Appeals has jurisdiction to rule that the by section 7 of Republic Act No. 1125, as
Inc.- (GR NO. 169225, November change of business address. governments right to collect the tax has amended, and the term other matters
17, 2010) prescribed. referred to by the CIR in its argument
On November 4, 1993, respondent can be found in number (1) of the
(Taguinod, Jelyn) received a tracer-letter or follow up aforementioned provision, to wit:
letter dated October 11, 1993
demanding for payment of alleged Section 7. Jurisdiction. - The Court of Tax
deficiency income and expanded Appeals shall exercise exclusive
20
 2010 TAX CASES
withholding taxes for taxable year
1989. On December 3, 1993,
respondent filed its protest letter
against the alleged deficiency tax
assessments for 1989.
On November 7, 2001, nearly eight (8)
years later, respondents external
auditors received a letter from herein
petitioner Commissioner of Internal
Revenue dated October 20, 2001' the
letter advised the respondent that
petitioner had rendered a final decision
denying its protest on the ground that
the protest against the disputed tax
assessment has allegedly filed beyond
the 30 day reglementary period
prescribed in then section 229 of the
National Internal Revenue Code
Respondent filed petition for review
before the Court of Tax Appeals to
appeal the final decision of the
Commissioner of Internal Revenue
denying its protest against the
deficiency income and withholding tax
assessments issued for taxable year
1989. The original division held that the
subject assessment notice sent by
registered mail on January 8, 1993 to
respondents former place of business
was valid and binding since
respondent only gave formal notice of
its change of address on February 18,
1993 thus, the assessment had
21
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 imposed in relation
thereto, or other matters arising under
the National Internal Revenue Code or
other law as part of law administered by
the Bureau of Internal Revenue.
The appellate jurisdiction of the CTA is
not limited to cases which involve
decisions of the CIR on matters relating
to assessments or refunds. The CTA law
clearly bestows jurisdiction to the CTA
even on “other matters arising under the
National Internal Revenue Code”. Thus,
the issue of whether the right of the CIR
to collect has prescribed, collection
being one of the duties of the BIR, is
considered covered by the term “other
matters”. The fact that assessment has
become final for failure to protest only
means that the validity or correctness of
the assessment may no longer be
questioned on appeal. However, this
issue is entirely distinct from the issue of
whether the right to collect has in fact
prescribed.
In connection therewith, the NIRC also
states that the collection of taxes is one
of the duties of the BIR. Thus, from the
 2010 TAX CASES
become final and unappealable for
failure of respondent to file a protest
within the 30 day period provided by
law However, the CTA held that the CIR
failed to collect the assessed taxes
within the prescriptive period'
The assessment against Hambrecht &
Quist had become final and
unappelable since there was a failure
to protest the same within the 30-day
period provided by law. However, the
CTA held that the BIR failed to collect
within the prescribed time and thus
ordered the cancellation of the
assessment notice. The CIR disputed
the jurisdiction of the CTA arguing that
since the assessment had become
final and unappealable, the taxpayer
can no longer dispute the correctness
of the assessment even before the
CTA.
22
Whether or not the period to collect the
assessment has prescribed.
foregoing, the issue of prescription of the
BIR’s right to collect taxes may be
considered as covered by the term
“other matters” over which the CTA has
appellate jurisdiction.
Yes, it already prescribed.
Section 224 of the 1986 NIRC provides
that: Suspension of running of statute.
The running of the statute of limitations
provided in Sections 203 and 223 on the
making of assessment and the
beginning of distraint or levy or a
proceeding in court for collection, in
respect of any deficiency, shall be
suspended for the period during which
the Commissioner is prohibited from
making the assessment or beginning
distraint or levy or a proceeding in court
and for sixty days thereafter; when the
taxpayer requests for a re-investigation
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 statute will not be
suspended; when the warrant of distraint
and levy is duly served upon the
taxpayer, his authorized representative,
or a member of his household with
sufficient discretion, and no property
2010 TAX CASES
could be located; and when the taxpayer
is out of the Philippines. (Emphasis
supplied.)

The plain and unambiguous wording of

the said provision dictates that two
requisites must concur before the period
to enforce collection may be suspended:
(a) that the taxpayer requests for
reinvestigation, and (b) that petitioner
grants such request

Consequently, the mere filing of a protest

letter which is not granted does not
operate to suspend the running of the
period to collect taxes. In the case at bar,
the records show that respondent filed a
request for reinvestigation on December
3, 1993, however, there is no indication
that petitioner acted upon respondents
protest.

As the CTA Original Division in C.T.A.

Case No. 6362 succinctly pointed out in
its Decision, to wit:

It is evident that the respondent did not

conduct a reinvestigation, the protest
having been dismissed on the ground
that the assessment has become final
and executory. There is nothing in the
record that would show what action was
taken in connection with the protest of
the petitioner. In fact, petitioner did not
hear anything from the respondent nor
23

15. Philippines Fisheries Development Lucena Fishing Port Complex is one of
Authority(PFDA)VS.Central Board
of Assessment Appeals, Local
Board of Assessment Appeals of
Lucena City, City of Lucena,
Lucena City Assessor and Lucena
City Treasurer
(G.R. No. 178030; December 15,
2010)
(Taguinod, Jelyn)
2010 TAX CASES
the fishery infrastructure projects
undertaken by the National
Government under the Nationwide
Fishing Port Package. It is located at
Lucena City, was constructed on a
reclaimed land. The PFDA was created
by virtue of P.D. 977 as amended by
TO 772, with functions and powers to
manage, operate and develop the
Navotas Fishing Port Complex and
such other fishing port complexes that
may be established by the authority.
Pursuant thereto, Petitioner-Appellant
PFDA took over the management and
received any communication from the
respondent relative to its protest, not
until eight years later when the final
decision of the Commissioner was
issued (TSN, March 7, 2002, p. 24). In
other words, the request for
reinvestigation was not granted. x x
x.[10] (Emphasis supplied.)
Since the CIR failed to disprove the
aforementioned findings of fact of the
CTA which are borne by substantial
evidence on record, this Court is
constrained to uphold them as binding
and true. The Court ruled that the right to
collect has indeed prescribed since there
was no proof that the request for
reinvestigation was in fact granted/acted
upon by the CIR. Thus, the period to
collect was never suspended.
Whether or not PFDA is liable for the No.In a case of PFDA vs. CA, a 2007
real property tax assessed on the case, the court resolved that PFDA is an
Lucena Fishing Port Complex instrumentality of the government and is
thus exempt from the payment of real
property tax.
The Authority is not a GOCC but an
instrumentality of the government. The
Authority has a capital stock but it is not
divided into shares of stocks. Also, it has
no Stockholders or voting shares.
Hence, it is not a stock corporation.
Neither is it a non-stock corporation
because it has no members. The
Authority is actually a national
24
 2010 TAX CASES
operation of LFPC in February
1992.On October 26, 1999, in a letter
addressed to PFDA, the City
Government of Lucena demanded
payment of realty taxes on the LFPC
property for the period from 1993 to
1999 which was received by PFDA on
November 24, 1999. bOn October 17,
2000, another demand letter was sent
this time covering the period 1993 to
2000.
On December 18, 2000 Petitioner-
Appellant filed its appeal before the
local Board of Assessment Appeals of
Lucena City, which was dismissed for
lack of merit. MR was filed which was
denied. PFDA appealed to the Central
Board of Assessment Appeals, the
same was dismissed for lack of merit.
The CBAA ruled that: ownership of
LFPC has been handed over to the
pFDA, as provided for under Sec. 11 of
PD 977 as amended and declared
under the MC 199 case (Mactan Cebu
International Airport Authority V.
Marcos) PD 977 provided for the
exemption from income tax under par.
2 Sec 10 thereof “the Authority shall be
exempted from the payment of income
tax. Nothing was said however about
its exemption from payment of real
property tax: PFDA has no basis in
claiming real property exemption on its
Fishing Port Complexes. Reading Sec.
25
government instrumentality which is
defined as an agency of the national
government, not integrated within the
department framework, vested with
special functions or jurisdiction by law,
endowed with some if not all corporate
powers administering special funds, and
enjoying operational autonomy usually
through a charter. When the law vests in
a government instrumentality corporate
powers, the instrumentality is organized
as a stock or non-stock corporation, it
remains a government instrumentality
exercising not only governmental but
also corporate powers.
Confirmed in a subsequent PFDA case-
Navotas Fishing Port Complex
Similarly the court holds that PFDA is a
government instrumentality, the PFDA is
exempt from real property tax imposed
on the LFPC, except those portions
which are leased to private persons or
entities.
The exercise of the taxing power of LGU
is subject to the limitations enumerated
in Section 133 of the LGC: LGU has no
power to tax instrumentalities of the
National Government like the PFDA.
Thus, PFDA is not liable to pay real
property tax assessed by the office of the
City Treasurer of Lucena City on the
 2010 TAX CASES
40 of PD 464 and Sec. 234 of RA 7160 LFPC, except those portions which are
however, provided such ground: LFPC leased to private persons or entities.
is owned by the RP, PFDA is only
tasked to manage, operate and Besides LFPC is a property of public
develop the same. Hence, LFPC is dominion intended for public use and is
exempted from payment of realty tax. therefore exempt from real property tax
The ownership of LFPC as passed by under Section 234 (a) of the LGC.
the RP to PFDA is bourne by Direct
evidence PD 977 as amended.
Therefore Petitioner-Appellant’s claim
is untenable

PFDA moved for reconsideration,

denied. Appealed to CTA, denied. CTA
Ruling: PFDA is a GOCC and is
therefore subject to the real property
tax imposed by the local government.
Pursuant to Sec. 232 in relation to Sec.
193 and 234 of the CGC. Furthermore,
the CTA ruled that PFDA failed to prove
that sit is exempt from real property tax
pursuant to Sec. 234 of LGC. Hence
this petition for review.

16. Asiaworld Properties Phil. Corp. Petitioner is a domestic Corp. engaged Whether the exercise of the option to
vs. CIR, G.R. No. 171766; July 29
(Tayawa, Ma. Esperanza)
in the business of real estate
development. For CY ending Dec. 31,
2001 it filed its annual Income Tax
Return on April 5, 2002 and declared a
corporate income taxod 1.2M but with
refundable amount of 6.4M . In its 2001
ITR it states that the amount of 7.4M
representing prior years excess credits
carry-over the excess income tax
credit, which shall be applied against
the tax due in the succeeding taxable
year, prohibits a claim for refund in the
subsequent taxable years for the
unused portion of the excess tax
credits carried over.
26
Section 76 of the NIRC of 1997 it states
that once the option to carry over and
apply the excess quarterly income tax
against income tax due for the taxable
quarters of the succeeding taxable years
has been made, such option shall be
considered irrevocable for that taxable
period and no application for cash refund
 2010 TAX CASES
was net of year 1999 excess creditable or issuance of a tax credit certificate shall
withholding tax to be refunded in the be allowed.
amount of 18M. Petitioner also
indicated in its ITR its option to carry
over as tax credit next year the
overpayment. Hence they filed with
RDO request to refund the amount of
18.4M allegedly representing partial
excess creditable tax withheld for the
year 2001, therefore they are entitled to
refund and maintained their claim that
the option to carry over and apply the
excess quarterly income taxable in the
succeeding years is irrevocable only
for the next taxable period when the
excess payment was carried over.
Before the RDO could act on
petitioners claim, they filed a Petition
for Review with CTA to toll the running
of the prescriptive period. The CTA
denied the petition for lack of merit.
Filed a Motion for Reconsideration but
it was denied. Appealed to CA but CA
affirmed the decision
17. Chevron Phils. Inc. vs Bases Yes, it is within the limits of the police
Conversion Development Whether or not the act of CDC in power if the State when it imposed
G.R. No. 173863 Sept. 15,2010 imposing royalty fees be considered as royalty fees. In distinguishing tax and
valid exercise of the police power regulation as a form of police power, the
(Ma. Esperanza Tayawa) determining factor is the purpose of the
implemented measure. It the purpose is
primarily to raise revenue then it will be
deemed a tax even though the measure
results in some form of regulation. On
the other hand, police power of the State
even though incidentally, revenue is
27
2010 TAX CASES
generated. In this case it held that the
subject royalty fees form part of the
regulatory framework to ensure free flow
or movement of petroleum fuel to and
from the CSEZ. The fact that the
respondents have the exclusive right to
distribute and market petroleum
products within CSEZ pursuant to its
joint venture agreement with SBMA and
CSBTI does not diminish the regulatory
purpose of the royalty fee for the fuel
products supplied by petitioner to its
client at the CSEZ. Respondent submit
that the increased administrative costs
were triggered by the security risks that
have recently emerged, such as terrorist
strikes. The need for regulation is more
evident in the light of the 9/11 tragedy
considering that what is being moved
from one location to another are highly
combustible fuel products that cause
loss of lives and damage to properties.

28