Tax 1 cases

City Bank vs CA, 280 SCRA 459 1CIR vs Wyeth Laboratories, 202 SCRA 125 2Marcos vs CA, 273 SCRA 47 3CIR vs Hartex, L-136075, March 3, 2005 4Alhambra vs Collector, 105 Phil 1337 5Estate of Maria Lim Vda. de Uy vs Uy, 50 OG5261

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Collector vs Benipayo, 4 SCRA 182 7Behn Meyer vs CIR, 27 Phil 647 8Perez vs CTA, GR L-10507, May 30, 1948 9Collector vs Bohol LTO, GR L-13099 and GR L-13642, April 29, 1960

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Santos vs Nable, 2 SCRA 21 11Republic vs Albert, GR 12996 12Republic vs Mla. Port Svc, GR 18208,November 27, 1964

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Republic vs Lopez, 2 SCRA 566 14Commissioner vs Avelino, GR L-14847,September 19, 1961

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City Trust Banking vs. CAGR 92591, 30 April 1991

Facts:Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doingbusiness in the Philippines. In 1979 and 1980, its tenants withheld and paid tothe Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant toSection 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980,Citibank field its corporate income tax returns for the year and ended December31,1979 showing a net loss of P74,854,916.00 and its tax credits totaledP6,257,780.00, even without including the amounts withheld on rental incomeunder the Expanded Withholding Tax System, the same not having been utilized orapplied for the reason that the year‘s operation resulted in a loss. The taxesthus withheld by the tenants from rentals paid to Citibank in 1979 were notincluded as tax credits although a rental income amounting to P7,796,811.00 wasincluded in its income declared for the year ended December 31, 1979.

For the year ended December 31, 1980, Citibank‘s corporate income tax returns,filed on April 15, 1981,showed a net loss P77,071,790.00 for income taxpurposes. Its available tax credit at the end of 1980amounting toP11,532,855.00 was not utilized or applied. The said available tax credits didnot include the amounts withheld by Citibank‘s tenants from rental payment sin1980 but the rental payments for that year were declared as part of its grossincome included in its annual income tax returns. On October 31, 1981, Citibanksubmitted its claim for refund of the aforesaid amounts of P270,160.56 andP298,829.29, respectively or a total of P568,989.85; and on October 12, 1981filed a petition for review with the Court of Tax Appeals concerning subjectclaim for tax refund. On August 30, 1981, the CTA adjudged Citibank‘sentitlement to the tax refund sought for, representing the 5% tax withheld andpaid on Citibank‘s rental income for 1979 and 1980. The Court of Tax Appeals,rejected Respondent CIR‘s argument that the claim was not seasonably filed. Notsatisfied the Commissioner appealed to the Court of Appeals, CA ruled thatCitibank N.A. Philippine branch, entitled to a tax refund/credit in the amountof P569,989.85, representing the 5% withheld tax in Citibank‘s rentalincome for the years 1979 and 1980 is REVERSED. Motion for Reconsideration ofthe petitioner bank was denied.

Issue:Whether or not income taxes remitted partially on a periodic or quarterly basisshould be credited or refunded to the taxpayer on the basis of the taxpayer‘sfinal adjusted returns.

Ruling:In several cases, we have already ruled that income taxes remitted partially ona periodic or quarterly basis should be credited or refunded to the taxpayer onthe basis of the taxpayer‘s final adjusted returns, not on such periodic orquarterly basis. When applied to taxpayers filing income tax returns on aquarterly basis, the date of payment mentioned in Sec. 230 must be deemed to bequalified by Sec. 68 and 69 of the present. Tax Code. It may be observed thatalthough quarterly taxes due are required to be paid within 60 days from theclose of each quarter, the fact that the amount shall be deducted from the tax

due for the succeeding quarter shows that until a final adjustment returnshallhave been filed, the taxes paid in the preceding quarters are merelypartial taxes due from a corporation. Neither amount can serve as the finalfigure to quantify what is due the government nor what should be refunded to becorporation. This interpretation may be gleaned from the last paragraph of Sec.69 of the Tax Code which provides that the refundable amount, in case are fundis due a corporation, is that amount which is shown on its final adjustmentreturn and not on its quarterly returns.

CIR vs WYETH SUACO LABORATORIES, INC202 SCRA 125

Facts:On December 19, 1974, Wyeth Suaco received notice of assessment from the BIRfor its failure to remit withholding tax at source for the 4th quarter of 1973on accrued royalties, remuneration for technical services paid abroad and cashdividends, including the deduction of non-deductible raw materials from itsreports. The company, thru its tax consultant, SVG & co., sent BIR two lettersdated January 17, 1975 and February 8, 1975 protesting the assessment andrequesting their cancellation or withdrawal on the ground that said assessmentslacked factual or legal basis. Also, there were letters from the company to theBIR to such effect. On September 12, 1975, the CIR offered to compromise butonly resulted to a slight reduction of the tax as per the acting Commissioner’sdecision on December 10,1979. On January 18, 1980, Wyeth Suaco filed petitionfor review with the CTA, praying that CIR been joined from enforcing theassessments by reason of prescription and that assessments be declared null andvoid for lack of legal and factual basis. The CTA decided against the CIRholding that while the assessments for the deficiency taxes were made withinthe five-year period of limitation, the right of CIR to collect the same hasalready prescribed, in accordance with Sec. 319(c) of the NIRC.

Issue:Whether or not the right of CIR to collect has already prescribed

Ruling:No. CTA is wrong. The letters of Wyeth Suaco interrupted the running of thefive-year perspective period to collect the deficiency taxes. Settled is therule that the prescriptive period provided by law to make a collection bydistraint or levy or by a proceeding in court is interrupted once a taxpayerrequests for reinvestigation or reconsideration of the assessment. Wyeth Suacoadmitted that it was seeking reconsideration of the tax assessments as shown ina letter of its president and General Manager. Further, although the protestletters prepared by SGV & Co. did not categorically state or use the wordsreinvestigation and reconsideration, the same are to be treated as letters ofreinvestigation and reconsideration.

As to Wyeth Suaco’s argument that withholding tax at source should only beremitted to the BIR once the incomes subject to withholding tax at source haveactually been paid, the SC cited the life blood doctrine, the express provisionof the law which requires the filing of monthly return and payment of taxeswithheld at source within 10 days after the end of each month. Further, thecompany uses accrual method of accounting and therefore the effect oftransactions and other events on assets and liabilities are recognized andreported in the time periods to which they relate rather than only when cash isreceived or paid.

MARCOS II vs. CA273 SCRA 47, GR No. 120880, June 5, 1997

Facts:Bongbong Marcos sought for the reversal of the ruling of the Court of Appealsto grant CIR's petition to levy the properties of the late Pres. Marcos tocover the payment of his tax delinquencies during the period of his exile inthe US. The Marcos family was assessed by the BIR after it failed to fileestate tax returns. However the assessment were not protested administrativelyby Mrs. Marcos and the heirs of the late president so that they became finaland unappealable after the period for filing of opposition has prescribed.Marcos contends that the properties could not be levied to cover the tax duesbecause they are still pending probate with the court, and settlement of taxdeficiencies could not be had, unless there is an order by the probate court oruntil the probate proceedings are terminated. Petitioner also pointed out that applying Memorandum Circular No. 38-68, theBIR's Notices of Levy on the Marcos properties were issued beyond the allowedperiod, and are therefore null and void.

Issue:Whether or not the contentions of Bongbong Marcos are correct

Ruling:No. The deficiency income tax assessments and estate tax assessment are alreadyfinal and unappealable -and-the subsequent levy of real properties is a taxremedy resorted to by the government, sanctioned by Section 213 and 218 of theNational Internal Revenue Code. This summary tax remedy is distinct andseparate from the other tax remedies (such as Judicial Civil actions andCriminal actions), and is not affected or precluded by the pendency of anyother tax remedies instituted by the government.

The approval of the court, sitting in probate, or as a settlement tribunal overthe deceased's estate is not a mandatory requirement in the collection ofestate taxes. On the contrary, under Section 87 of the NIRC, it is the probateor settlement court which is bidden not to authorize the executor or judicialadministrator of the decedent's estate to deliver any distributive share to anyparty interested in the estate, unless it is shown a Certification by theCommissioner of Internal Revenue that the estate taxes have been paid. Thisprovision disproves the petitioner's contention that it is the probate courtwhich approves the assessment and collection of the estate tax.

On the issue of prescription, the omission to file an estate tax return, andthe subsequent failure to contest or appeal the assessment made by the BIR isfatal to the petitioner's cause, as under Sec.223 of the NIRC, in case offailure to file a return, the tax may be assessed at anytime within 10 yearsafter the omission, and any tax so assessed may be collected by levy upon realproperty within 3 years (now 5 years) following the assessment of the tax.Since the estate tax assessment had become final and unappealable by thepetitioner's default as regards protesting the validity of the said assessment,

there is no reason why the BIR cannot continue with the collection of the saidtax.

COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INCG.R. No. 136975. March 31, 2005

Facts:Hantex Trading Co is a company organized under the Philippines. It is engagedin the sale of plastic products, it imports synthetic resin and other chemicalsfor the manufacture of its products. For this purpose, it is required to filean Import Entry and Internal Revenue Declaration (Consumption Entry) with theBureau of Customs under Section 1301 of the Tariff and Customs Code. Sometimein October 1989, Lt. Vicente Amoto, Acting Chief of Counter-IntelligenceDivision of the Economic Intelligence and Investigation Bureau (EIIB), receivedconfidential information that the respondent had imported synthetic resinamounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hantexreceive a subpoena to present its books of account which it failed to do. Thebureau cannot find any original copies of the products Hantex imported sincethe originals were eaten by termites. Thus, the Bureau relied on the certifiedcopies of the respondent’s Profit and Loss Statement for 1987 and1988 on filewith the SEC, the machine copies of the Consumption Entries, Series of 1987,submitted by the informer, as well as excerpts from the entries certified byTomas and Danganan. The case was submitted to the CTA which ruled that Hantexhave tax deficiency and is ordered to pay, per investigation of the Bureau. TheCA ruled that the income and sales tax deficiency assessments issued by thepetitioner were unlawful and baseless since the copies of the import entriesrelied upon in computing the deficiency tax of the respondent were not dulyauthenticated by the public officer charged with their custody, nor verifiedunder oath by the EIIB and the BIR investigator.

Issue:Whether or not the final assessment of the petitioner against the respondentfor deficiency income tax and sales tax for the latter’s 1987 importation ofresins and calcium bicarbonate is based on competent evidence and the law

Ruling:No. Section 16 of the NIRC of 1977, as amended, provides that the Commissionerof Internal Revenue has the power to make assessments and prescribe additionalrequirements for tax administration and enforcement. Among such powers arethose provided in paragraph (b), which provides that “Failure to submitrequired returns, statements, reports and other documents. – When a reportrequired by law as a basis for the assessment of any national internal revenuetax shall not be forthcoming within the time fixed by law or regulation or whenthere is reason to believe that any such report is false, incomplete orerroneous, the Commissioner shall assess the proper tax on the best evidenceobtainable.” This provision applies when the Commissioner of Internal Revenueundertakes to perform her administrative duty of assessing the proper taxagainst a taxpayer, to make a return in case of a taxpayer’s failure to fileone, or to amend a return already filed in the BIR. The “best evidence”envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporateand accounting records of the taxpayer who is the subject of the assessmentprocess, the accounting records of other taxpayers engaged in the same line ofbusiness, including their gross profit and net profit sales. Such evidence alsoincludes data, record, paper, document or any evidence gathered by internal

revenue officers from other taxpayers who had personal transactions or fromwhom the subject taxpayer received any income; and record, data, document andinformation secured from government offices or agencies, such as the SEC, theCentral Bank of the Philippines, the Bureau of Customs, and the Tariff andCustoms Commission. However, the best evidence obtainable under Section 16 ofthe 1977 NIRC, as amended, does not include mere photocopies ofrecords/documents. The petitioner, in making a preliminary and final taxdeficiency assessment against a taxpayer, cannot anchor the said assessment onmere machine copies of records/documents. Merephotocopies of the ConsumptionEntries have no probative weight if offered as proof of the contents thereof.The reason for this is that such copies are mere scraps of paper and are of noprobative value as basis for any deficiency income or business taxes against ataxpayer.

Alhambra vs Collector of Customs102 SCRA 1337

Facts:Alhambra is a corporation engaged in manufacturing tobaccos. It contends thatthe salaries of its officers Kuenzle and Streiff, who are nonresident and arebeing paid P6,000.00, were reasonable and deductible as ordinary businessexpense as well as their commissions and director’s fees.

Issue:Whether or not the salaries, commissions and director’s fees of Kuenzle andStreiff are deductible as ordinary expense

Ruling:Qualified yes, considering the nature of the work of Kuenzle and Streiff, beingpresident and vice-president of the company, respectively, their salaries aredeductible as ordinary expense of the company. However, the commissions anddirector’s fees are not deductible because there is no evidence of anyparticular service rendered by them so as to warrant payment of commissions andwith regards to director’s fee, it is quite inconceivable to accept that theyare being paid P10,000.00 for a mere visit in their company in the Philippines.Director’s fees are more often a percentage of annual sales of the company.

INTESTATE ESTATE OF MARIA LIM VDA. DE UY. JOSE L. UY vs. PACITA UY, JESUS UY,and JOSEFINA UYG.R. No. L-15386 – April 29, 1961

Facts:Petitioners and respondents, including the Republic as intervernor, had adispute concerning war profit estate and inheritance taxes which started whenJose L. Uy was appointed as administrator of the estate of Maria Lim De Uy in aprobate proceeding. The Courts of First Instance took cognizance of the caseand later remanded it to the Court of Tax Appeals upon motion by the intervenor(the Republic).

Issue:Whether or not the Court of First Instance has jurisdiction over the case

Ruling:Partly yes. The main "action", to which the intervention is said to beancillary is the proceeding (not "action") for the settlement of the estate ofthe deceased Maria Lim Vda. de Uy. Despite the order appealed from, thisspecial proceeding will continue as such under the jurisdiction of the probatecourt. The nature of such special proceeding will not be altered. However, theissue on the nature of the sales or transfers made by Maria Lim Vda. de Uy infavor of her children, and on the obligation to pay the taxes claimed by thegovernment, will be taken out of this proceeding and submitted to the Court ofTax Appeals, for determination pursuant to Republic Act No. 1125. It is nottrue that said claims do not involve a disputed assessment. The complaint inintervention, and its amendments, as well as the proof of debts attachedthereto, partake of the nature of assessments. Appellants herein have deniedthe obligation to pay the amounts therein claimed to be due as taxes. Hence,the controversy refers to disputed assessments of internal revenue taxes and aspecial tax the enforcement and collection of which are entrusted by law to theCommissioner of Internal Revenue. Pursuant to sections 7 and 22 of Republic ActNo. 1125, the Court of Tax Appeals shall have exclusive appellate jurisdictionto review on appeal the decision of said officer thereon.

It is urged by appellants, in support of their second assignment of error, (a)that "estate and inheritance taxes are based on the fact of transmission" ofproperty of the deceased "and receipt" thereof by his heir or legatee, which,appellants claim, cannot possibly take place when the property in question issubject to a claim of ownership adverse to the deceased; and (b) that "thequestion whether or not there was a transfer of property, when denied byalleged recipient, is a question of ownership". Precisely, for these reasons,the probate court has no jurisdiction to settle the issue between the partiesherein in this special proceeding for the settlement of the estate of thedeceased. Upon the other hand, since the determination of the question whetherthe deceased had really or fictitiously transferred properties to her children,and whether or not the transfer had been made in contemplation of death, asprovided in section 88(B) of the Tax Code, are merely incidental to the issueon the validity or legality of the disputed assessments, which is within thejurisdiction of the Court of Tax Appeals, it follows that the latter — not thecourt of first instance, not even as a regular court — is, likewise, competent

to hear and decide said questions concerning the nature of the transfersaforementioned.

Collector vs. BenipayoGR L-13656, 31 January 1962

Facts:Alberto Benipayo is the owner of the Lucena Theater in Lucena, Quezon. In 1953,the internal revenue agent investigated Benipayo’s tax liability for the periodof August 1952 to September 1953. The examiner recommended a deficiency taxassessment in the sum of P11,193.45 inclusive of 25% surcharge plus a suggestedcompromise penalty of P900.00 based on the conclusion that Benipayo sold 2 tax-free 20c ticlets fraudulently in order to avoid payment of amusement taxprescribed by Section 260 of the Tax Code (based on a reverse ratio of adult tochildren; 3:1 in 1949 to 1951, and 1:3 for period in question; and averageattendance for the past years). Benipayo protested, claiming that the findingsof the examiners are mere presumptions and conclusions, devoid of findings offact of alleged fraudulent practices by him.

Issue:Whether there is evidence in the record to show Benipayo committed the allegedact to cheat or defraud the Government

Ruling:No. An assessment fixes and determines the tax liability of a taxpayer. Inorder to stand the test of judicial scrutiny, the assessment must be based onactual facts. The presumption of correctness of assessment, being a merepresumption, cannot be made to rest on another presumption, no matter howreasonable or logical such may be; i.e. that the circumstances in 1952 and 1953are presumed to be the same as those existing in 1949 to 1951, and July 1955.There are no substantial facts to support the assessment in question. Neitherwas there any proof of the fraud allegedly committed. Fraud is a seriouscharge, and to be sustained, it must also be supported by clear and convincingproof.

BEHN, MEYER & CO. (LTD.) vs W. T. NOLTING, Collector of Internal RevenueG.R. No. 10620 – November 8, 1916

Facts:Behn, Meyer & Co. (Behn) was engaged in the business, among other things, ofbuying and selling copra, hemp, and other native products of the Islands, andin such business, it advanced money for the future delivery of copra, hemp, andtook as security for the future delivery of such copra or hemp so contractedfor a mortgage on the land upon which said copra or hemp was produced, andcharging a discount on the future deliveries of said copra or hemp, which wascompensation for the money so advanced. The Collector of Internal Revenue (CIR)demanded that Behn obtain a license as a real-estate broker and pay the sum offive hundred eighty pesos (P580) therefor, covering the years 1906 to 1912,inclusive, and the penalty for delinquency.

Issue:Whether or not the transactions or business which Behn was engaged in, asdisclosed by the agreement, constituted real-estate broker as defined bysection 144 paragraph 2 of Act No. 1189

Ruling:No. The contract which Behn made with their customers was for the purchase ofagricultural products; that the payments were made in advance; that to securethe delivery of said products or a return of the money so paid in advance theplaintiff took a mortgage upon the land upon which the products were to beproduced; that the taking of said mortgage was a mere incident to the businessof the plaintiff in buying and selling agricultural products, and was not abusiness in itself. The business of the plaintiff was not a business "forthemselves or for others, to negotiate the purchase or sale of lands,buildings, or interest therein, or to negotiate loans secured by lands,buildings, or interest therein, or to tent real estate for others, or tocollect rents thereon," but the business was to purchase and sell agriculturalproducts, and that the tasking of said mortgages was a mere incident of theirprincipal business. It could hardly be held that a man who is engaged in thehardware and plumbing business, for example, who took a mortgage upon aresidence in which he had placed extensive plumbing and sanitary apparatus, inorder to secure the price of his labor and material, was engaged "as a real-estate broker."

It may be said that a man's business, or the business of a corporation, is thatwhich busies or occupies his time, attention, or labor, as his principalconcern or occupation. (Territory vs. Harris, 19 Pac. Rep, 286.) Many personsmake an occasional loan of money, secured by a mortgage, in the due course oftheir business. That fact, however, will not constitute such a person a real-estate broker.

Perez vs CTAGR L-10507 – May 30, 1958

Facts:Petitioner was assessed by the Collector with deficiency tax due to itsincrease in net worth. In making the deficiency assessments, the Collectoremployed what is known as the "net worth" technique and started by determiningthe opening net worth of petitioner at the start of the year 1947 which hefixed at P936.72. The Court of Tax Appeals declared the "net worth" method ofdetermining understated income to have been validly and properly applied; foundthat the consistent under declaration of income, unexplained acquisition ofproperties, and the fact of petitioner's having claimed fictitious lossesevidenced fraudulent intent, and ordered him to pay deficiency income taxes andsurcharges in the sum of P241,547.77.

Issue:(1) Whether the Collector of Internal Revenue is empowered by law to

investigate appellant's (petitioner) income tax returns for 1947, 1948,and 1949 and to enforce collection of the alleged deficiency income taxesfor said years by summary proceedings of distraint and levy more thanthree years after the income tax returns covering them were filed

(2) Whether the use of the "net worth" method by the respondent incomputing appellant's net income is valid

Ruling:(1) No. Reiteratirg a long line of decisions to the effect that the

three-year prescriptive period under section 51 (d) of the NationalInternal Revenue Code constituted a limitation to the right of thegovernment to enforce the collection of income taxes by summaryproceedings of distraint and levy, though, it could proceed to recoverthe taxes due by the institution of the corresponding civil action.Nevertheless, the appeal of the taxpayer vested jurisdiction on the Courtof Tax Appeals to review and determine his tax liability for theaforesaid period.

(2) Yes. This method of proving unreported income, according to theCourt of Tax Appeals, is based upon the general theory that money andother assets in excess of liabilities of a taxpayer (after an accurateand proper adjustment of non-deductible items) not accounted for by hisincome tax returns, leads to the inference that part of his income hasnot been reported (p. 6, B.T.A. 189). There is no question that theapplication of the "net worth" method of determining the taxable incomeof a taxpayer has been an accepted practice.

In fine, we hold:

That section 38 of our National Internal Revenue Code authorizes theapplication of the Net Worth Method in this jurisdiction (Baiter, FraudUnder Fed.Tax Law, sec. 224; Vol. 2, 1951 CCH 386. Oil, Byer Net WorthTechnique for Determining Income, supra: Holland vs. U.S., supra; Estate

of Bartley, 22 U.S.Tax Ct. lep. 1230; Hurley, 22 U. S. Tax Ct. Rep. 1264;S B.T.A. 169).

That no civil cases, the Government need not prove the specific source ofincome (this is reasonable on the basic assumption that most assets arederived from a taxable source and that when this is not true the taxpayeris in a position to explain the discrepancy, {see Holland case, supra);

That the determination of the tax deficiency by the Government has primafacie validity and the burden rests upon the taxpayer to overcome thispresumption and to show to the satisfaction of the Tax Court that thedetermination was not correct (Archer vs. Commissioner, supra; Thomas vs.Commissioner, supra; Laughinghouse vs. Commissioner, sutra: William Lias,24 T.C. No. 23,May 26, 1955, Virginia Law Review, 41 p. 7; Halle, 7 T.C.245, aff'd 175 F. 2d 500, 339 U.S. 949; Byer, "Net Worth Technique forDetermining Income").

And finally, that no sufficient grounds exist to warrant a reversal ofthe findings of fraud of the lower court as being "clearly erroneous"; onthe contrary, we find them supported by reason.

CIR vs Bohol Land Transportation Co.GR L-13099 – April 28, 1960

Facts:The Bohol Land Transportation Co. is a domestic corporation engaged in the landtransportation business with main office at Tagbilaran, Bohol. The followingdeficiency assessments were issued against, it on August 4 and 5 1953: for 1945the deficiency income tax assess P15,275.31; for 1946, P15,768.20; for 1947,P11,732.90; for 1948, P20,711.09; for 1949, 18,728.21; for 1950, P30,155.09,and for 1951, P30,189.00. The company filed with the Court of Tax Appeals anurgent motion for mandatory injunction. At the hearing on the injunction, theCollector admitted that pursuant to several decisions of the Supreme Court hehas no authority to collect by summary methods the income taxes assessedagainst the company for the years 1945 to 1950, inclusive, it appearing thatthe warrant of distraint and levy and the warrant of garnishment were issuedbeyond the period of three years from the time the income tax returns werefiled.

The Collector of Internal Revenue is appealing from that portion of thedecision which holds that the right of the Government to assess and collect byjudicial action the income taxes for the years 1945 to 1947, inclusive, hasalready prescribed because Sections 331 and 332 of the National InternalRevenue Code apply to internal revenue taxes in general and not to income taxesthe collection of which is specifically provided for under a different title ofthe same Code, particularly Title II which refers exclusively to income tax,the Collector concludes that the right of the Government to assess and collectincome taxes by judicial action has no definite period of limitation and so thedeficiency income taxes for 1945, 1946 and 1947 which the Government is seekingto collect has not as yet prescribed.

Issue:Whether or not the right of the government to collect has already prescribed

Ruling:Yes. Section 51 (d) of the National Internal Revenue Code, which refers to thecollection of income tax, by judicial action is concerned the prescriptiveperiod therein mentioned being merely applicable to collection by summarymethods, as interpreted by this Court. Considering this void in the lawapplicable to income tax, and bearing in mind that, Section 331 of the Codewhich provides for the limitation upon assessment and collection by judicialaction comes under Title IX, Chapter II, which refers to "CIVIL", REMEDIES FORCOLLECTION OF TAXES", we may conclude that the provisions of said Section 331are general in character which may be considered suppletory with regard tomatter not covered by the title covering income tax. In other words, Title 11of the Code is a special provision which governs exclusively all matterspertaining to income tax, whereas Title IX, Chapter II, is a general provisionwhich governs all internal revenue taxes in general, which cannot apply insofaras it may conflict with the provisions of Title II as to which the latter shallprevail, but that in the absence of any provision in said Title, III relativeto the period and method of collection of the tax, the provisions of Title 1X,Chapter II, may be deemed to be suppletory in, character. Hence, in our

opinion, the Court of Tax Appeals did not err in holding that the right of theGovernment to collect the deficiency income taxes for the years 1945, 1946 and1947 has already prescribed under Section 331 of the National Internal RevenueCode.

HOWEVER, the proceeding for review instituted by the company is equivalent to ajudicial action within the purview of Section 332 (c) of the Tax Code. Indeed,had the company not taken the matter to the Court of Tax Appeals, the Collectorwould have reasonably taken a similar action for, as it should be noted, he hasalready taken the preliminary step, which is the collection by distraint andlevy, to insure the effective collection of the tax assessed against thecompany. And when the company appealed the Collector's decision, the Collectorwas placed in the alternative of sustaining his decision, which is tantamountto a judicial action. As the Court of Tax Appeals well observed, "The objectivein both cases is the same — the validity and correctness of the determinationand collection of the tax." Indeed, the action of the Collector cannot be takenin any other light. It is a judicial action pure and simple.

Ricardo Santos vs Mariano NobleGR L-12073 – May 3, 1961

Facts:Collector of Internal Revenue issued against Ricardo S. Santos, as owner andoperator of the Ace Theatre located in San Juan, Rizal, a deficiency assessmentof P3,234.26, plus a compromise penalty of P850.00, or a total of P4,084.26.In a letter dated December 10, 1948 appellant requested a reinvestigation ofthe matter, alleging that the report of Agent Cosare "may have overlooked allthe receipts paid by him on the amusement tax basing all from his grossreceipts." The reinvestigation was made but the result was that appellee issuedan amended assessment dated July 28, 1949 for the slightly bigger total sum ofP4,242.04. So, petitioner again asked for another investigation since his booksduring the original investigation was not presented as the Bureau of InternalRevenue failed to return his books, hence, petitioner failed to show hisallegation of inaccuracy in the deficiency assessment. The lower court decidedin favor of the government considering that the burden of proof to show thatthere is inaccuracy concerning deficiency assessment lies with the taxpayer andhaving failed to prove such inaccuracy, the judgment should properly be againstthe latter.

Issue:Whether or not the petitioner’s failure to prove the inaccuracy of thedeficiency assessment due to BIR’s failure to return the books to him shouldresult to the finality of the deficiency assessment

Ruling:No. It is true — as appellee says in his brief — that a taxpayer who conteststhe correctness of an assessment has the burden of proving his contention.This, appellant was willing to do but, as already stated, he was deprived ofthe best means of doing it with the loss of his books. His only error, perhaps,was in not producing secondary evidence of their contents during the hearingbefore the Conference Staff. In view of the circumstances disclosed by therecord, we believe that, in equity, appellant should be given a lastopportunity to prove — even with secondary evidence — his contention that, insome respects, the assessment against him is incorrect.

Republic vs AlbertGR L-12996 – December 28, 1961

Facts:This is an appeal taken by Antonio Albert from the decision of the Court ofFirst Instance of Manila sentencing him to pay the Republic of the Philippinesthe sum of P6,889.00 as deficiency income tax for the year 1951, with 5%surcharge, and 1% monthly interest thereon from October 16, 1953 until fullpayment, plus costs. After due trial, the lower court tendered the appealeddecision on the ground principally that appellant was already estopped fromquestioning the assessment which had become final and executory because he didnot appeal therefrom to the Court of Tax Appeals.

Issue:Whether or not Albert was indeed estopped from questioning the deficiencyconsidering that he did not appeal the same to the Court of Tax Appeals

Ruling:Yes. The facts involved in the present case are very similar to, if not on allfours with those involved in the case of Republic of the Philippines vs.Enrique Magalona, Jr., et al., G.R. No. L-15802, promulgated on September 30,1960, where we held that upon the facts before the Court, the income taxassessment in question therein was a final assessment of the income taxliability of the Magalonas for the calendar year 1950; that they had 30 days todispute said assessment by appealing to the Court of Tax Appeals in accordancewith the provisions of Section 11, Republic Act No. 1125; that having failed todo so, the assessment became final, executory and demandable.

In the present case, therefore, after receiving the denial of his protest(Exhibit D) against the deficiency tax assessment made against him, appellantshould have appealed therefrom within 30 days from June 21, 1955, his failureto do so having caused said assessment to become final, executory anddemandable. Therefore, when on February 4, 1957 the action for collection wascommenced, appellant was already barred from invoking any defense that wouldreopen the question of his tax liability on the merits.

Republic of the Philippines vs. The Manila Port ServiceGR L-18208 – November 27, 1964

Facts:The Manila Port Service as a subsidiary of the Manila Railroad Company, enteredon February 29, 1956 into a management contract with the Bureau of Customswherein it was granted the exclusive right or privilege to receive, handle,care for and deliver all merchandise, imported or exported, passing over thePhilippine government wharves and piers in the Port of Manila, and to chargeand collect the arrastre charge. The Commissioner of Internal Revenue on June10, 1957, sent to the respondent an assessment letter demanding payment of theamount of P138,909.93 as fixed tax for 1956 and 1957 and percentage tax on itsgross receipts for the period from August 24, 1956 to February 28, 1957, plusthe additional amount of P300.00 as compromise penalty allowed in extrajudicialsettlement of violations of penal provisions of the National internal RevenueCode.

On July 17, 1957, the Manila Port Service wrote the Commissioner of InternalRevenue denying its liability for the taxes in question on the ground that itsmother company, the Manila Railroad Company, is exempt therefrom. Noting thatthe Manila Port Service had no intention of paying the taxes assessed againstit notwithstanding the fact that the assessment had already become final andexecutory, the Commissioner of Internal Revenue commenced the present action onNovember 22, 1960 before the Court of First Instance of Manila. After trial,the court a quo rendered decision dismissing the complaint on the ground thatthe assessment of the taxes which plaintiff seeks to recover is erroneous, evenif such assessment had become final and executory in view of defendant'sfailure to appeal within the reglementary period. In due time, plaintiff hasappealed.

Issue:Whether or not the dismissal of the complaint was proper

Ruling:No. Under Section 7 of Republic Act No. 1125, the Court of Tax Appeals is givenexclusive appellate jurisdiction to review by appeal decisions of theCommissioner of Internal Revenue in cases involving disputed assessments,refunds of internal revenue taxes, fees or other charges, or other mattersarising under the National Internal Revenue Code. And pursuant to Section 11 ofthe same Act, any person or entity adversely affected by the decision of theCommissioner of Internal Revenue shall appeal to the same court within 30 daysafter the receipt thereof, and if the assessment of the Commissioner, or hisdecision thereon, is not appealed to the Court of Tax Appeals within theaforesaid period, such assessment becomes final, demandable and executory.

Here the assessment has already become final precisely because appellee hasfailed to appeal as required by law thereby making indisputable the decision ofthe Commissioner of Internal Revenue. Thus, the original assessment of thetaxes in question was contained in a letter sent to the Manila Port Service onJune 10, 1957 which was refuted by said entity on July 17, 1957. On February10, 1958, the Commissioner reiterated his previous assessment and demand. On

July 9, 1958, the Manila Railroad Company appealed the assessment to theSecretary of Finance who in turn referred it to the Commissioner for comment.And on February 13, 1959, the Commissioner wrote the Manila Railroad Companyreiterating once more his decision and demanding payment of the taxes within 10days from receipt with the warning that if payment is not made within theaforesaid period judicial action would immediately be taken. However, neitherthe Manila Port Service, nor the Manila Railroad Company, took any step toappeal to the Court of Tax Appeals as required by law. It is evident that theassessment has already become final and, therefore, it can no longer bedisputed in the present case.

Republic v. LopezG.R. No. L-18007 – March 30, 1963

Facts:Lopez filed his ITR and was assessed by the BIR demanding payment of P200k.Lopez requested for reconsideration which resulted in a reduction of theassessment to P20k. Without settling his liability, Lopez asked for anotherreinvestigation. BIR assessed an additional P6k deficiency income tax. Again,Lopez did not pay and ask for another reinvestigation. BIR acceded to hisrequest provided he executed a waiver of statute of limitations. Lopez executedan unconditional waiver imposing a deadline (Dec 1957) within which thegovernment should finish its reinvestigation. BIR ignored the deadline imposedand instead issued an assessment on March 1960. Due to non-payment, BIR filed acollection suit before the CFI. Lopez filed a motion to dismiss on the groundof prescription. CFI granted the motion to dismiss.

Issue:Whether or not the deadline is binding and operative, and ultimately, whetheror not the action to collect has already prescribed

Ruling:No. The action has not yet prescribed since under the NIRC the government has5-year prescriptive period within which it may sue to collect an assessed taxto be counted from the last revised assessment resulting from thereinvestigation AND the time employed in reinvestigation should be deductedfrom the total period of limitation. Regarding the December 1957 deadline, SCseriously doubts that the CIR could validly agree to reduce the prescriptiveperiod to less than what was granted by law to the detriment of the State,since it diminishes the opportunities of collecting taxes due to the Republic.

Commissioner vs AvelinoGR L-14847 – September 19, 1961

Facts:The petitioner made an assessment of P22,123.55 on respondent. This was made onthe networth method, which was based upon an investment in the sum of P60,000made by Enrique Avelino in the National Livestock Produce Corporation,organized in June 1947. He having filed no income tax return for such year,said amount was considered as his unreported income therefor. Upon the otherhand, Enrique Avelino maintained that said sum of P60,000 had been lent to himby a naturalized Filipino, named Severino Sayque, who returned to China in 1948or 1949 and has not been heard from since then.

Issue:Whether or not such defense of respondent has been sufficiently established

Ruling:No. In the present case, the prima facie correctness of the assessment inquestion is bolstered up by the undisputed fact that Enrique Avelino hadinvested P60,000 in the National Livestock Produce Corporation in 1947. It was,therefore, incumbent upon him to establish that said sum had been merelyborrowed by him. His evidence thereon is, however, far from satisfactory.

Another reason relied upon by the Court of Tax Appeals in reversing thedecision of the Commissioner of Internal Revenue is that, in making thequestioned assessment, the latter had failed to establish either the openingnet worth of Enrique Avelino in 1947 or the source of the income in question(P60,000.00). However, Avelino's net worth at the beginning of 1947 was nil,for it is an undisputed fact that he then had no money or property of any kindwhatsoever. Besides, we have already ruled that:

“In civil cases, as the one at bar, it has been held that theapplication of the net worth method does not requireidentification of the sources of the alleged unreported incomeand that the determination of the tax deficiency by thegovernment is prima facie correct. (Eugenio Perez v. CIR, G.R.No. L-10507, May 30, 1958.)”

Olsen vs. Rafferty

Facts:Walter E. Olsen & Co is a manufacturer and exporter of cigars composed oftobacco grown in the Philippine Islands. Olsen applied to the Collector ofInternal Revenue for a certificate covering the origin of a certain consignmentof cigars presented to the Collector. The cigars were duly packed according tothe regulations. Plaintiff produced the statement required by the rules of theBIR. The Collector refused and still refuses to issue a certificate coveringthe origin of the cigars on the ground, not that the material composing thecigars was not the product of the Philippine Islands, but that the cigars inquestion did not conform to a certain regulation relating to the exportation.On the refusal of the Collector of Internal Revenue to issue the certificateprayed for, application was made to the Insular Collector of Customs. Theapplication was refused on the ground that the certificate of the Collector ofInternal Revenue covering the origin of the cigars had not been issued andpresented with the application as required by the customs regulations.Plaintiff Olsen thus filed a petition for mandamus under that claim that suchrefusal to grant the certificate was arbitrary, illegal and void. A demurrerwas filed on the ground that "the facts stated do not entitle Olsen to therelief since it does not appear that respondents failed or refused to performany duty incumbent upon either of said officers.

Issue:1. WON there rests on the Collector of Internal Revenue and the Insular

Collector of Customs a duty the performance of which the courts willenforce by Mandamus

2. WON Executive Order No. 41 and the regulations of the Insular Collectorof Customs and the Collector of Internal Revenue may be considered aslaws within the meaning of the section of the Code of Civil Procedureauthorizing the issuance of writs of mandamus

Ruling:1. No. Our Code of Civil Procedure authorizes the issuance of a writ of

mandamus in two classes of cases only, "(a) where an official unlawfullyneglects the performance of an act which the law specially enjoins as aduty resulting from his office," and "(b) where he unlawfully excludedthe plaintiff from the use and enjoyment of a right to which he isentitled and from which he is unlawfully precluded by such official."Olsen failed to show that it was entitled to the benefits of either ofthese provisions. No statute requires either the Insular Collector ofCustoms or the Collector of Internal Revenue to issue a certificate oforigin of the materials composing any class of cigars, or of any otherPhilippine product for that matter. The custom of issuing certificates oforigin of Philippine products about to be exported to the United Statesis based on no statute of the United States or of the Philippine Islands.

2. No. Executive Order No. 41 confers no legal rights on anyone. It requiresthe adoption by the Insular Collector of Customs and the Collector ofInternal Revenue of such rules and regulations as will insure that theGovernment of the United States will not be defrauded by a Philippine

exporter who, by manufactured evidence or otherwise, may attempt tointroduce into the United States free of duty articles which are not theproduct of the Philippine Islands and which do not fall within theprovisions of the Tariff Act of 1913. While it protects the United Statesagainst fraud, it does not confer a legal right, a right on which anaction in a court of law may be predicated, or one which may be enforcedagainst the officials charged with the formulation of the requiredevidence by any process known to the law. It is nothing more or less thana command from a superior to an inferior. It is administrative in theirnature and do not pass beyond the limits of the department to which theyare directed or in which they are published, and, therefore, create norights in third persons.

US vs Molina, Anderson vs collector, lim hoa ting vs commissioner (lacking)

Castro vs HechanovaL-23635 – August 15, 1966

Facts:Petitioner, whose request for reconsideration of the travel assignment orderwas denied by both the respondents Commissioner of Internal Revenue andSecretary of Finance, contends, among other things, that his assignment from"field" to "desk" work without the corresponding appointment to the latterposition, amounts to removal without just cause; and that, if he were to begiven another assignment at all, it should properly be as Regional Director ofQuezon City, which would actually be a promotion for him.

For their part, respondents allege that the assignment was merely temporary andwas effected pursuant to Section 12 of the National Internal Revenue Code; thatsuch temporary transfer of petitioner (whose position as Regional Directorcarries Wapco Range 53) to discharge the functions of Revenue Operations headwith Wapco Range 57) in the central office is actually a promotion in rank,because the latter position has higher duties classification under the Wapcorating. Thus, the temporary designation is not violative of the Constitution orof the Civil Service Law and rules.

Issue:Whether or not the travel assignment order in question, issued pursuant toSection 12 of the National Internal Revenue Code and in the lawful exercise ofrespondents' administrative authority, amounts to removal without just cause

Ruling:No. Under the law, respondents, as the administrative heads of the Bureau ofInternal Revenue, not only have administrative supervision and control over thesame, but are also specifically empowered to assign revenue personnel to otherduties, thus:

SEC. 12. Assignment of Internal Revenue agents and otheremployees to other duties. — The Collector of Internal Revenuemay, with the approval of the Secretary of Finance, assigninternal revenue agents and other officers and employees of theBureau of Internal Revenue without change in their officialcharacter or salary to such special duties connected with theadministration of the revenue laws as the best interest of theservice may require. (National Internal Revenue Code.)

Petitioner, however, contends that for the exercise of the foregoing authorityto be valid, the assignment of personnel should involve the performance of some"special duties" and should not result in any change in the official characterof their positions and salaries. In assailing the validity of the travelassignment order in question, petitioner claims that being a regional director,to discharge the functions of Revenue Operations-head cannot be considered asperformance of a special duty.

The term "special duties" mentioned in the law, evidently is here being equatedby the petitioner with work requiring the use of some special talent or

knowledge. It may be pointed out, however, that the title of Section 12 of theRevenue Law mentions the assignment of revenue employees to "other duties", andthe body thereof refers to "such special duties connected with theadministration of the revenue law." To our mind, the "special duties" mentionedin the law refer not to a "special" or extraordinary or different undertaking,but to functions or work other than, or not related to, those regularlydischarged by the employee concerned. In other words, to the employeereassigned or detailed to another post, the performance of work other thanthose he was regularly doing, constitutes the doing of "special duties", whichsupports the view that the designation is not permanent but merely temporary.And, there is nothing wrong, legally or personnel-wise, in the aforequotedprovision, giving to the office administrator or supervisor, the authority toformulate personnel program designed to improve the service and to carry outthe same, utilizing approved techniques or methods in personnel management, tothe end that the abilities of the employees may be harnessed to promote optimumpublic service. Of course, it must be realized that the exercise of thisauthority may be abused or carried out to serve some other purposes, as socharged in this case. But, as it was once said, "the possibility of abuse isnot an argument against the concession of power, as there is no power that isnot susceptible of abuse."

Floreza vs OngpinGR 81356 – February 26, 1990

Facts:Petitioner Reynoso B. Floreza joined the government service in May, 1955 as aclerk (action attorney) in the Administrative Division of the Department ofFinance. In December, 1959, he transferred to the Bureau of Internal Revenue(BIR) where he was appointed Senior Revenue Examiner. In recognition of hiscompetence and perseverance, he received regular promotions in the BIR over theyears. Two years later or on October 6, 1982, Floreza was given a regularappointment as Revenue Service Chief.

On April 4, 1986, pursuant to the reorganization program, BIR CommissionerBienvenido A. Tan, Jr. issued a memorandum exhorting all Revenue Service Chiefsand their Assistants, and all Revenue Regional Directors and their Assistantsto "tender their resignations to give the authorities concerned the widestlatitude in effecting a reorganization of the Bureau." Petitioner refused totender his resignation. On April 28, 1986, Commissioner Tan issued TravelAssignment Order No. 11-86 assigning Floreza to the Office of the Commissioneras Consultant due to "the exigencies of the service." Feeling that he had beenplaced in a "freezer" and having been confidentially advised that he would beremoved from the position of Revenue Service Chief (Legal) as he was not amongthose recommended for reappointment, Floreza filed in the Court of Appeals onJune 4, 1987 a petition for prohibition with prayer for a writ of preliminaryinjunction which was denied.

Issue:Whether or not Floreza was denied security of tenure

Ruling:Yes. A careful reading of Section 59 of Executive Order No. 127 shows that itis a device intended to overcome the lapse of the power to reorganize under theinterim or "Freedom Constitution" with the effectivity of the 1987Constitution. Thus, an incumbent retained in a hold-over capacity is not yetformally terminated in his government employment. At the same time, he has losthis right to security of tenure because if he is not reappointed when hisformer item is filled, then he is deemed separated. The same paragraph,however, mandates that separation under Executive Order No. 127 should followthe provisions of Article III of the interim Constitution and the procedureunder Executive Order No. 17. This means that separation or replacement ofofficers or employees should be "only for justifiable reasons" or for any ofthe grounds enumerated in Section 3 of the latter executive order.

None of these justifiable reasons or grounds exists in this case of Floreza. Asstated in the decision of the Civil Service Commission, there is nocontroversion of the fact that Floreza's 32 (now 34) years of service areunblemished by any administrative or disciplinary complaint. There is noshowing that his competence or integrity was ever in question. He went upgradually in the ladder of promotions at the BIR under different Commissionersthroughout those 32 years. The only reasons he can find for his non-reappointment are the sworn statements he filed as Chief of the BIR Legal

Office with the Tanodbayan regarding a multi-billion peso tax case involvingmultinational gas companies with which the Secretary and Commissioner wereearlier connected before their appointments to top government positions. Thenumber of the item to which Floreza was appointed belongs to the Policy andPlanning Service. However, from the time he was appointed Revenue ServiceChief, he served as head of the Legal Service. Under the authority given to theCommissioner, he switches the Service Chiefs from one service to another in thebest interests of their agency especially in order to maximize BIR collections.Moreover, the appointments extended to heads of services at the time were as"Revenue Service Chiefs" with no indication of what particular service theywere going to administer.

Moreover, Floreza's assignment as consultant in the Office of the Commissionerwas undertaken through the usual issuance of a travel assignment order asdictated by the "exigencies of the service." Floreza's movement may not beconsidered as a transfer within the contemplation of Section 27(c) ofPresidential Decree No. 807 (Civil Service Decree) for it was more of thedetail under Section 24(f) than a transfer. Had it been a transfer, Florezawould have been issued an appointment as consultant. Floreza continued holdingthe position of Revenue Service Chief until Commissioner Tan went to thePresident for the appointments of Jaime M. Masa as Assistant Commissioner forthe Legal Service and Rizalina S. Magalona as Assistant Commissioner for thePlanning and Research Service on March 7, 1988. 35 Since both the Planning andPolicy (or Research) Service and the Legal Service were given new Chiefs,Floreza was in effect terminated in his employment even as he was offered ademotion in rank to replace it. It should be emphasized that by that time, the1987 Constitution had long been in full force and effect.

Rep. vs PatanaoL-22317 – July 21, 1967

Facts:In the complaint filed by the Republic of the Philippines, through theSolicitor General, against Pedro B. Patanao, it is alleged that defendant wasthe holder of an ordinary timber license with concession at Esperanza, Agusan,and as such was engaged in the business of producing logs and lumber for saleduring the years 1951-1955; that defendant failed to file income tax returnsfor 1953 and 1954, and although he filed income tax returns for 1951, 1952 and1955, the same were false and fraudulent because he did not report substantialincome earned by him from his business; that in an examination conducted by theBureau of Internal Revenue on defendant's income and expenses for 1951-1955, itwas ascertained that the sum of P79,892.75, representing deficiency.

Defendant moved to dismiss the complaint on two grounds, namely: (1) that theaction is barred by prior judgment, defendant having been acquitted in criminalcases Nos. 2089 and 2090 of the same court, which were prosecutions for failureto file income tax returns and for non-payment of income taxes; and (2) thatthe action has prescribed.

Issue:1. Whether or not the action is barred by prior judgment in criminal cases

nos. 2089 and 20902. Whether or not the action has prescribed

Ruling:1. No. The two cases are circumscribed by factual premises which are

diametrically opposed to each other, and are founded on entirelydifferent philosophies. Under the Penal Code, the civil liability isincurred by reason of the offender's criminal act. Stated differently,the criminal liability gives birth to the civil obligation such thatgenerally, if one is not criminally liable under the Penal Code, hecannot become civilly liable thereunder. The situation under the incometax law is the exact opposite. Civil liability to pay taxes arises fromthe fact, for instance, that one has engaged himself in business, and notbecause of any criminal act committed by him. The criminal liabilityarises upon failure of the debtor to satisfy his civil obligation. Theincongruity of the factual premises and foundation principles of the twocases is one of the reasons for not imposing civil indemnity on thecriminal infractor of the income tax law. Another reason, of course, isfound in the fact that while section 73 of the National Internal RevenueCode has provided the imposition of the penalty of imprisonment or fine,or both, for refusal or neglect to pay income tax or to make a returnthereof, it failed to provide the collection of said tax in criminalproceedings. The only civil remedies provided, for the collection ofincome tax, in Chapters I and II, Title IX of the Code and section 316thereof, are distraint of goods, chattels, etc. or by judicial action,which remedies are generally exclusive in the absence of a contraryintent from the legislator. (People vs. Arnault, G.R. No. L-4288,November 20, 1952; People vs. Tierra, G.R. Nos. L-17177-17180, December

28, 1964) Considering that the Government cannot seek satisfaction of thetaxpayer's civil liability in a criminal proceeding under the tax law or,otherwise stated, since the said civil liability is not deemed includedin the criminal action, acquittal of the taxpayer in the criminalproceeding does not necessarily entail exoneration from his liability topay the taxes. It is error to hold, as the lower court has held, that thejudgment in the criminal cases Nos. 2089 and 2090 bars the action in thepresent case. The acquittal in the said criminal cases cannot operate todischarge defendant appellee from the duty of paying the taxes which thelaw requires to be paid, since that duty is imposed by statute prior toand independently of any attempts by the taxpayer to evade payment. Saidobligation is not a consequence of the felonious acts charged in thecriminal proceeding, nor is it a mere civil liability arising from crimethat could be wiped out by the judicial declaration of non-existence ofthe criminal acts charged. (Castro vs. The Collector of Internal Revenue,G.R. No. L-12174, April 20, 1962).

2. No. Regarding prescription of action, the lower court held that the causeof action on the deficiency income tax and residence tax for 1951 isbarred because appellee's income tax return for 1951 was assessed by theBureau of Internal Revenue only on February 14, 1958, or beyond the fiveyear period of limitation for assessment as provided in section 331 ofthe National Internal Revenue Code. Appellant contends that theapplicable law is section 332 (a) of the same Code under which aproceeding in court for the collection of the tax may be commencedwithout assessment at any time within 10 years from the discovery of thefalsity, fraud or omission.

The complaint filed on December 7, 1962, alleges that the fraud in theappellee's income tax return for 1951, was discovered on February 14,1958. By filing a motion to dismiss, appellee hypothetically admittedthis allegation as all the other averments in the complaint were soadmitted. Hence, section 332 (a) and not section 331 of the NationalInternal Revenue Code should determine whether or not the cause of actionof deficiency income tax and residence tax for 1951 has prescribed.Applying the provision of section 332 (a), the appellant's actioninstituted in court on December 7, 1962 has not prescribed.

Collector vs Batangas Transpo and Laguna-Tayabas bus102 Phil 822

Facts:This case is an appeal of the CTA decision which reversed the assessment anddecision of the Collector of Internal Revenue (CIR) assessing and demandingfrom respondents Batangas Transpo and Laguna Bus the amount of Php54,143.54which represent deficiency income tax and compromise for the year 1946-1949.Pending then appeal to the CTA, the assessment was increased to P148,890.14Respondent bus companies are 2 distinct and separate corporations, engaged inthe business of land transportation by means of motor busses and operatingdistinct and separate lines.

During the war, the two companies lost their respective businesses. Post-war,they were able to acquire 56 auto busses from the US Army which they dividedequally. Two years later, Martin Olsen resigned as manager and Joseph Benedictwas appointed as Manager of both companies by their respective Board ofDirectors. According to Benedict, the purpose of the joint management called“Joint Emergency Operation” was to economize in overhead expenses. At the endof each calendar year, all gross receipts and expenses of both companies aredetermined and the net profit were divided 50-50 then transferred to the bookof accounts of each company, and each company prepares its own income taxreturn from their 50% share. The CIR theorizes that the 2 companies pooledtheir resources in the establishment of the Joint Emergency Operation therebyforming a joint venture. He believes that a corporation exists, distinct fromthe 2 respondent companies. The CTA held that the Joint Emergency Operation isnot a corporation within the contemplation of the NIRC, much less apartnership, association or insurance company, and therefore was not subject toincome tax separately and independently of respondent companies.

Issue:Whether or not the two transportation companies involved are liable to thepayment of income tax as acorporation on the theory that the joint emergencyoperation organized and operated by them is a corporation within the meaning ofSec 84 of the Revised Internal Revenue Code

Ruling:Yes. although no legal personality may have been created by the Joint EmergencyOperation, nevertheless said joint venture or joint management operated thebusiness affairs of the 2 companies as though they constituted a single entity,company or partnership, thereby obtaining substantial economy and profits inthe operation.

The Court ruled on this issue by citing the case of Eufemia Evangelista, et. alv. CIR – agency case. This involved the 3 sisters who borrowed from theirfather money which they invested inland and then improved upon and later sold.The sisters also hired their brother to oversee the buy-and-sell of land.Contrary to their claim that said operation was merely a co-ownership, theCourt ruled that considering the facts and circumstances surrounding the saidcase, the 3 sisters had purpose to engage in real estate transactions formonetary gain and then divide the profits among themselves, making them co-

partners. When the Tax Code included “partnerships” among the entities subjectto the tax on corporations, it must refer to organizations which are notnecessarily partnerships in the technical sense of the term, and thatfurthermore, said law defined the term "corporation" as including partnershipsno matter how created or organized.

Further, from the standpoint of income tax law, the procedure and practice ofthe 2 bus companies in determining the net income of each was arbitrary andunwarranted. After all, the 2 companies operates in 2 different lines, indifferent provinces or territories, with different equipment and personnel itcannot possibly be true and correct to say that the end of each year, the grossreceipts and income in the gross expenses of two companies are exactly the samefor purposes of the payment of income tax. Thus, the Court held that the JointEmergency Operation or sole management or joint venture in this case fallsunder the provisions of section 84 (b) of the Internal Revenue Code, andconsequently, it is liable to income tax provided for in section 24 of the samecode.* But they were exempted from paying 25% surcharge for failure to file atax return, because of their honest belief (based on advice of their attorneysand accountants) that they are not required to do so.

Commissioner of Internal Revenue vs Malayan Insurance21 SCRA 544

Facts:Malayan Insurance Company, Inc. (hereafter referred to as MALAYAN), a domesticcorporation which has reinsurance contract with Orion Insurance Company, Ltd.of London (hereafter referred to as ORION) a non-resident foreign corporation,without previous authorization, filed the latter's income tax return for 1958and paid the tax due thereon, in the sum of P958.00. Finding later that ORIONhad commissioned another domestic entity, Filipinas Compañia de Seguros (to bereferred hereafter as FILIPINAS) to file the income tax return on its behalf,and that the said agent paid the sum of P778.00 as corresponding income tax forthe same year (1958), MALAYAN requested the Commissioner of Internal Revenuefor the refund of the P958.00 it had paid. When no action was taken thereon,MALAYAN filed a petition in the Court of Tax Appeals for the same purpose.

In its answer, the Commissioner of Internal Revenue alleged, inter alia, thatin 1958, MALAYAN had ceded to ORION reinsurance premiums covering risks locatedin the Philippines amounting to P64,327.36; that this amount is subject towithholding tax in the sum of P15,416.96; that demand for payment of thewithholding tax was made upon petitioner on February 16, 1962; and that even ifpetitioner is to be credited with the sum of P958.00 there would still be duefrom the latter the sum of P14,458.96. Respondent, therefore, asked the Courtthat the petition be dismissed and petitioner be ordered to pay P14,458.96,with the penalties incident to late payment.

The Tax Court decided for MALAYAN and ordered the refund of the sum of P958.00it had erroneously paid as income tax of ORION for 1958. And for the reasonthat FILIPINAS is the duly authorized representative of ORION, CIR'scounterclaim for P15,416.96 was dismissed without prejudice.

Issue:1. Whether or not MALAYAN should be refunded the sum of P958.00 it had

erroneously paid as income tax of ORION2. Whether or not, by reason of FILIPINAS being the duly authorized

representative of ORION, MALAYAN is absolved of its legal duty over thewithholding taxes

Ruling:1. Yes. MALAYAN made an erroneous payment of income tax since it was

FILIPINAS who was the duly authorized representative to file ORION’sincome tax and to which FILIPINAS did file and pay for.

2. No. The cause of action of the Commissioner against MALAYAN is not forcollection of income tax, but for the enforcement of the withholdingprovision of Section 53 of the Tax Code — the compliance with whichobligation is imposed on the withholding agent, not upon the taxpayer.Whether or not the taxpayer, ORION, has a duly authorized representativein this country is, consequently, beside the point. There is no showingthat any of the reinsurance premiums ceded by MALAYAN to ORION everpassed to the hands of FILIPINAS, the representative of ORION.

There is no evidence here that MALAYAN withheld a certain percentage ofthe reinsurance premiums transmitted to ORION and that it (MALAYAN) hadfiled a return thereon, as required by Section 53 (c) of the Tax Code.What is actually material is whether that obligation of the withholdingagent is affected by the payment by FILIPINAS of the income tax of ORIONfor 1958.

The payment by FILIPINAS of the alleged tax on the incomes of ORION didnot relieve the withholding agent of its legal duty. Firstly, the filingof the tax return and payment of the amount of P778.00 as income taxcannot be considered in this case as final. Not only is there no proofthat the return made by FlLIPINAS for ORION included the reinsurancepremiums ceded by MALAYAN, but the great difference between the amountpaid and that which should have been withheld and transmitted to thePhilippine Government, to take care of the taxes that may be due on thatincome (P15,416.96), is sufficient to put one in expectancy of furtherproceedings on that return. In fact, an investigation of the tax returnfiled by FILIPINAS was already conducted, and in April, 1962, theexaminers recommended the assessment against the taxpayer of deficiencyincome tax in the sum of P6,442.00 (p. 67, B.I.R. Record).

In the second place, this is as appropriate an instance as any for theoperation of the provision of Section 53 (b). Because, in the event thetaxpayer is finally found liable for deficiency tax on its incomes fromthe Philippines in 1958, the Government would have no way of collectingwhat is still due from said taxpayer, which is a foreign corporation notengaged in trade or business and without office or place of business inthe Philippines. FILIPINAS cannot be considered the authorized agentthrough which any deficiency tax against ORION may be collectible. Asspecified from the letter of appointment of FILIPINAS, hereinbeforequoted, the filing of the tax return by the agent, which was thereinauthorized, would not even bind the principal to pay the tax basedthereon. The right to appeal or claim for refund is also withheld fromthe agent. In the circumstances, the importance of the withholding underSection 53 is clearly underscored.

Tanada vs Tuvera146 SCRA 446

Facts:Petitioner is Invoking the people's right to be informed on matters ofpublic concern, a right recognized in Section 6, Article IV of the 1973Philippine Constitution, as well as the principle that laws to be validand enforceable must be published in the Official Gazette or otherwiseeffectively promulgated, petitioners seek a writ of mandamus to compelrespondent public officials to publish, and/or cause the publication inthe Official Gazette of various presidential decrees, letters ofinstructions, general orders, proclamations, executive orders, letter ofimplementation and administrative orders.

Issue:Whether or not publication of the law is a requirement for itseffectivity

Ruling:Yes. The clear object of the publication is to give the general publicadequate notice of the various laws which are to regulate their actionsand conduct as citizens. Without such notice and publication, there wouldbe no basis for the application of the maxim "ignorantia legis nonexcusat." It would be the height of injustice to punish or otherwiseburden a citizen for the transgression of a law of which he had no noticewhatsoever, not even a constructive one.

CONWI vs CTA213 SCRA 83

Facts:Petitioners are employees of Procter and Gamble (Philippine ManufacturingCorporation, subsidiary of Procter & Gamble, a foreign corporation).During theyears 1970 and 1971, petitioners were assigned to other subsidiaries of Procter& Gamble outside the Philippines, for which petitioners were paid US dollars ascompensation.

Petitioners filed their ITRs for 1970 and 1971, computing tax due by applyingthe dollar-to-peso conversion based on the floating rate under BIR Ruling No.70-027. In 1973, petitioners filed amened ITRs for 1970 and 1971, this timeusing the par value of the peso as basis. This resulted in the allegedoverpayments, refund and/or tax credit, for which claims for refund were filed.

CTA held that the proper conversion rate for the purpose of reporting andpaying the Philippine income tax on the dollar earnings of petitioners are therates prescribed under Revenue Memorandum Circulars Nos. 7-71 and 41-71. Therefund claims were denied.

Issue:Whether or not petitioners' dollar earnings are receipts derived from foreignexchange transactions

Ruling:No. For the proper resolution of income tax cases, income may be defined as anamount of money coming to a person or corporation within a specified time,whether as payment for services, interest or profit from investment. Unlessotherwise specified, it means cash or its equivalent. Income can also bethought of as flow of the fruits of one's labor.

Petitioners are correct as to their claim that their dollar earnings are notreceipts derived from foreign exchange transactions. For a foreign exchangetransaction is simply that — a transaction in foreign exchange, foreignexchange being "the conversion of an amount of money or currency of one countryinto an equivalent amount of money or currency of another." When petitionerswere assigned to the foreign subsidiaries of Procter & Gamble, they wereearning in their assigned nation's currency and were ALSO spending in saidcurrency. There was no conversion, therefore, from one currency to another.

The dollar earnings of petitioners are the fruits of their labors in theforeign subsidiaries of Procter & Gamble. It was a definite amount of moneywhich came to them within a specified period of time of two years as paymentfor their services.

CIR vs CA and A. Soriano Corp.GR L-108576

Facts:Don Andres Soriano, a citizen and resident of the United States, formed thecorporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00capitalization divided into 10,000 common shares at a par value of P100/share.ANSCOR is wholly owned and controlled by the family of Don Andres, who are allnonresident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000shares originally issued. In 1945, ANSCOR's authorized capital stock wasincreased to P2,500,000.00 divided into 25,000 common shares with the same parvalue. Don Andres' increased his subscription to 14,963 common shares. A monthlater, Don Andres transferred 1,250 shares each to his two sons, Jose andAndres, Jr., as their initial investments in ANSCOR. Both sons are foreigners.From 1947-1963, ANSCOR declared stock dividends. On December 30, 1964 DonAndres died. As of that date, the records revealed that he has a totalshareholdings of 185,154 shares. Correspondingly, one-half of thatshareholdings or 92,577 shares were transferred to his wife, Doña CarmenSoriano, as her conjugal share. The other half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in1966 further increased it to P30M. Stock dividends worth 46,290 and 46,287shares were respectively received by the Don Andres estate and Doña Carmen fromANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and138,864 common shares each. On June 30, 1968, pursuant to a Board Resolution,ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November1968, the Board further increased ANSCOR's capital stock to P75M. About a yearlater, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate.As stated in the Board Resolutions, ANSCOR's business purpose for bothredemptions of stocks is to partially retire said stocks as treasury shares inorder to reduce the company's foreign exchange remittances in case cashdividends are declared. In 1973, after examining ANSCOR's books of account andrecords, Revenue examiners issued a report proposing that ANSCOR be assessedfor deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the1939 Revenue Code for the year 1968 and the second quarter of 1969 based on thetransactions of exchange and redemption of stocks.

Issue:Whether or not ANSCOR's redemption of stocks from its stockholder as well asthe exchange of common with preferred shares can be considered as "essentiallyequivalent to the distribution of taxable dividend" making the proceeds thereoftaxable.

Ruling:YES. Stock dividends, strictly speaking, represent capital and do notconstitute income to its recipient. So that the mere issuance thereof is notyet subject to income tax as they are nothing but an "enrichment throughincrease in value of capital investment." The exception provides that theredemption or cancellation of stock dividends, depending on the "time" and"manner" it was made, is essentially equivalent to a distribution of taxable

dividends," making the proceeds thereof "taxable income" "to the extent itrepresents profits".

The exception was designed to prevent the issuance and cancellation orredemption of stock dividends, which is fundamentally not taxable, from beingmade use of as a device for the actual distribution of cash dividends, which istaxable. Simply put, depending on the circumstances, the proceeds of redemptionof stock dividends are essentially distribution of cash dividends, which whenpaid becomes the absolute property of the stockholder. Thereafter, the latterbecomes the exclusive owner thereof and can exercise the freedom of choice.Having realized gain from that redemption, the income earner cannot escapeincome tax. For the exempting clause of Section, 83(b) to apply, it isindispensable that:

(a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalentto a distribution of taxable dividends."

Redemption is repurchase, a reacquisition of stock by a corporation whichissued the stock 89 in exchange for property, whether or not the acquired stockis cancelled, retired or held in the treasury. Essentially, the corporationgets back some of its stock, distributes cash or property to the shareholder inpayment for the stock, and continues in business as before. In the case, ANSCORredeemed shares twice. But where did the shares redeemed come from? If itssource is the original capital subscriptions upon establishment of thecorporation or from initial capital investment in an existing enterprise, itsredemption to the concurrent value of acquisition may not invite theapplication of Sec. 83(b) under the 1939 Tax Code, as it is not income but amere return of capital.

On the contrary, if the redeemed shares are from stock dividend declarationsother than as initial capital investment, the proceeds of the redemption isadditional wealth, for it is not merely a return of capital but a gain thereon.It is not the stock dividends but the proceeds of its redemption that may bedeemed as taxable dividends. At the time of the last redemption, the originalcommon shares owned by the estate were only 25,247.5 This means that from thetotal of 108,000 shares redeemed from the estate, the balance of 82,752.5(108,000 less 25,247.5) must have come from stock dividends. In the absence ofevidence to the contrary, the Tax Code presumes that every distribution ofcorporate property, in whole or in part, is made out of corporate profits suchas stock dividends. The capital cannot be distributed in the form of redemptionof stock dividends without violating the trust fund doctrine. With respect tothe third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 yearsearlier.

The time alone that lapsed from the issuance to the redemption is not asufficient indicator to determine taxability. It is a must to consider thefactual circumstances as to the manner of both the issuance and the redemption.The issuance of stock dividends and its subsequent redemption must be separate,

distinct, and not related, for the redemption to be considered a legitimate taxscheme. Redemption cannot be used as a cloak to distribute corporate earnings.

ANSCOR invoked two reasons to justify the redemptions — (1) the alleged"filipinization" program and (2) the reduction of foreign exchange remittancesin case cash dividends are declared. The Court is not concerned with the wisdomof these purposes but on their relevance to the whole transaction which can beinferred from the outcome thereof. It is the "net effect rather than themotives and plans of the taxpayer or his corporation". The test of taxabilityunder the exempting clause, when it provides "such time and manner" as wouldmake the redemption "essentially equivalent to the distribution of a taxabledividend", is whether the redemption resulted into a flow of wealth. If nowealth is realized from the redemption, there may not be a dividend equivalencetreatment. The test of taxability under the exempting clause of Section 83(b)is, whether income was realized through the redemption of stock dividends. Theredemption converts into money the stock dividends which become a realizedprofit or gain and consequently, the stockholder's separate property. Profitsderived from the capital invested cannot escape income tax. As realized income,the proceeds of the redeemed stock dividends can be reached by income taxationregardless of the existence of any business purpose for the redemption.Otherwise, to rule that the said proceeds are exempt from income tax when theredemption is supported by legitimate business reasons would defeat the verypurpose of imposing tax on income. The issuance and the redemption of stocksare two different transactions.

Although the existence of legitimate corporate purposes may justify acorporation's acquisition of its own shares under Section 41 of the CorporationCode, such purposes cannot excuse the stockholder from the effects of taxationarising from the redemption. Even if the said purposes support the redemptionand justify the issuance of stock dividends, the same has no bearing whatsoeveron the imposition of the tax herein assessed because the proceeds of theredemption are deemed taxable dividends since it was shown that income wasgenerated therefrom. The proceeds thereof are essentially considered equivalentto a distribution of taxable dividends. As "taxable dividend" under Section83(b), it is part of the "entire income" subject to tax under Section 22 inrelation to Section 21 120 of the 1939 Code. Moreover, under Section 29(a) ofsaid Code, dividends are included in "gross income". As income, it is subjectto income tax which is required to be withheld at source.

RE: REQUEST OF ATTY. BERNARDO ZIALCITA, 190 SCRA 851 (TAX)

Since terminal leave is applied for by an officer or employee who has alreadysevered his connection with his employer ans who is no longer working, then itfollows that TERMINAL LEAVE PAY, which is the cash value of his accumulatedleave credits, should not be treated as compensation for services rendered atthat time. It cannot be viewed as salary for purposes which would reduce it.There can be no "commutation of salary" when a government retiree applies forterminal leave because he is not receiving it as salary. what applies for is acommutation of leave credits. It is an accumulation of credits intended for oldage or separation from the service. Hence, Section 286 of the RevisedAdministrative Code is not applicable. It cannot be construed as limiting thebasis of the computation of terminal pay to monthly salary only.

CIR vs CA203 SCRA 1991 (lacking)

CIR vs MitsubishiGR 54908 – January 22, 1990

Facts:The records reflect that on April 17, 1970, Atlas Consolidated Mining andDevelopment Corporation(hereinafter, Atlas) entered into a Loan and SalesContract with Mitsubishi Metal Corporation(Mitsubishi, for brevity), a Japanesecorporation licensed to engage in business in the Philippines, for purposes ofthe projected expansion of the productive capacity of the former's mines inToledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas'in the amount of $20,000,000.00, United States currency, for the installationof a new concentrator for copper production. Atlas, in turn undertook to sellto Mitsubishi all the copper concentrates produced from said machine for aperiod of fifteen (15) years. It was contemplated that $9,000,000.00 of saidloan was to be used for the purchase of the concentrator machinery from Japan.

Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan(Eximbank for short)obviously for purposes of its obligation under saidcontract. Its loan application was approved on May 26, 1970 in the sum of¥4,320,000,000.00, at about the same time as the approval of its loan for¥2,880,000,000.00 from a consortium of Japanese banks. The total amount of bothloans is equivalent to $20,000,000.00 in United States currency at the thenprevailing exchange rate. The records in the Bureau of Internal Revenue showthat the approval of the loan by Eximbank to Mitsubishi was subject to thecondition that Mitsubishi would use the amount as a loan to Atlas and as aconsideration for importing copper concentrates from Atlas, and that Mitsubishihad to payback the total amount of loan by September 30, 1981.

Pursuant to the contract between Atlas and Mitsubishi, interest payments weremade by the former to the latter totalling P13,143,966.79 for the years 1974and 1975. The corresponding 15%tax thereon in the amount of P1,971,595.01 waswithheld pursuant to Section 24 (b) (1) and Section 53 (b) (2) of the NationalInternal Revenue Code, as amended by Presidential Decree No.131, and dulyremitted to the Government.

On March 5, 1976, private respondents filed a claim for tax credit requestingthat the sum of P1,971,595.01 be applied against their existing and future taxliabilities. Parenthetically, it was later noted by respondent Court of TaxAppeals in its decision that on August 27, 1976, Mitsubishi executed a waiverand disclaimer of its interest in the claim for tax credit in favor of Atlas.

Issues:1. Whether or not the interest income from the loans extended to Atlas by

Mitsubishi is excludible from gross income taxation pursuant to Section29 b) (7) (A) of the tax code and, therefore, exempt from withholdingtax.

2. Whether or not Mitsubishi is a mere conduit of Eximbank which will thenbe considered as the creditor whose investments in the Philippines onloans are exempt from taxes under the code.

Ruling:

The loan and sales contract between Mitsubishi and Atlas does not contain anydirect or inferential reference to Eximbank whatsoever. The agreement isstrictly between Mitsubishi as creditor in the contract of loan and Atlas asthe seller of the copper concentrates. From the categorical language used inthe document, one prestation was in consideration of the other. The specificterms and the reciprocal nature of their obligations make it implausible, ifnot vacuous to give credit to the cavalier assertion that Mitsubishi was a mereagent in said transaction. The contract between Eximbank and Mitsubishi isentirely different. It is complete in itself, does not appear to be suppletoryor collateral to another contract and is, therefore, not to be distorted byother considerations aliunde. The application for the loan was approved on May20, 1970, or more than a month after the contract between Mitsubishi and Atlaswas entered into on April 17,1970. It is true that under the contract of loanwith Eximbank, Mitsubishi agreed to use the amount as a loan to and inconsideration for importing copper concentrates from Atlas, but all that thisproves is the justification for the loan as represented by Mitsubishi, astandard banking practice for evaluating the prospects of due repayment. Thereis nothing wrong with such stipulation as the parties in a contract are free toagree on such lawful terms and conditions as they see fit. Limitingthedisbursement of the amount borrowed to a certain person or to a certain purposeis notunusual, especially in the case of Eximbank which, aside from protectingits financial exposure, must see to it that the same are in line with theprovisions and objectives of its charter. Respondents postulate that Mitsubishihad to be a conduit because Eximbank's charter prevents it from making loansexcept to Japanese individuals and corporations. We are not impressed. Theallegation that the interest paid by Atlas was remitted in full by Mitsubishito Eximbank, assuming the truth thereof, is too tenuous and conjectural tosupport the proposition that Mitsubishi is a mere conduit. Furthermore, theremittance of the interest payments may also belogically viewed as anarrangement in paying Mitsubishi's obligation to Eximbank. Whatever arrangementwas agreed upon by Eximbank and Mitsubishi as to the manner or procedure forthe payment of the latter's obligation is their own concern. It should also benoted that Eximbank's loan to Mitsubishi imposes interest at the rate of 75%per annum, while Mitsubishis contract withAtlas merely states that the"interest on the amount of the loan shall be the actual cost beginning from andincluding other dates of releases against loan." It is too settled a rule inthis jurisdiction, as to dispense with the need for citations, that lawsgranting exemption from tax are construed strictissimi juris against thetaxpayer and liberally in favor of the taxing power. Taxation is the rule andexemption is the exception. The burden of proof rests upon the party claimingexemption to prove that it is in fact covered by the exemption so claimed,which onus petitioners have failed to discharge.CIR vs CTA203 SCRA 72 (lacking)

CIR vs P&G204 SCRA 377

Facts:Procter and Gamble Philippines declared dividends payable to its parent companyand sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Philpaid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M Itsubsequently filed a claim with the Commissioner of Internal Revenue for arefund or tax credit, claiming that pursuant to Section 24(b)(1) of theNational Internal Revenue Code, as amended by Presidential Decree No. 369, theapplicable rate of withholding tax on the dividends remitted was only 15%.

Issue:Whether or not P&G Philippines is entitled to the refund or tax credit

Ruling:YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that anordinary 35% tax rate will be applied to dividend remittances to non-residentcorporate stockholders of a Philippine corporation. This rate goes down to 15%ONLY IF he country of domicile of the foreign stockholder corporation “shallallow” such foreign corporation a tax credit for “taxes deemed paid in thePhilippines,” applicable against the tax payable to the domiciliary country bythe foreign stockholder corporation. However, such tax credit for “taxes deemedpaid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20percentage points which represents the difference between the regular 35%dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA “shallallow” P&G USA a tax credit for ”taxes deemed paid in the Philippines”applicable against the US taxes of P&G USA, and such tax credit must reach atleast 20 percentage points. Requirements were met.

Since the US Congress desires to avoid or reduce double taxation of the sameincome stream, it allows a tax credit of both (i) the Philippine dividend taxactually withheld, and (ii) the tax credit for the Philippine corporate incometax actually paid by P&G Philippines but “deemed paid” by P&G USA.

Moreover, under the Philippines-United States Convention “With Respect to Taxeson Income,” the Philippines, by treaty commitment, reduced the regular rate ofdividend tax to a maximum of 20% of he gross amount of dividends paid to USparent corporations, and established a treaty obligation on the part of theUnited States that it “shall allow” to a US parent corporation receivingdividends from its Philippine subsidiary “a [tax] credit for the appropriateamount of taxes paid or accrued to the Philippines by the Philippine[subsidiary].

Note:The NIRC does not require that the US tax law deem the parent corporation tohave paid the 20 percentage points of dividend tax waived by the Philippines.It only requires that the US “shall allow” P&G-USA a “deemed paid” tax creditin an amount equivalent to the 20 percentage points waived by the Philippines.Section 24(b)(1) does not create a tax exemption nor does it provide a tax

credit; it is a provision which specifies when a particular (reduced) tax rateis legally applicable.

Section 24(b)(1) of the NIRC seeks to promote the in-flow of foreign equityinvestment in the Philippines by reducing the tax cost of earning profits hereand thereby increasing the net dividends remittable to the investor. Theforeign investor, however, would not benefit from the reduction of thePhilippine dividend tax rate unless its home country gives it some relief fromdouble taxation by allowing the investor additional tax credits which would beapplicable against the tax payable to such home country. Accordingly Section24(b)(1) of the NIRC requires the home or domiciliary country to give theinvestor corporation a “deemed paid” tax credit at least equal in amount to the20 percentage points of dividend tax foregone by the Philippines, in theassumption that a positive incentive effect would thereby be felt by theinvestor.

CIR vs WanderG.R. NO. L-68275 – April 15, 1988

Facts:Private respondents Wander Philippines, Inc. (wander) is a domestic corporationorganized under Philippine laws. It is wholly-owned subsidiary of the GlaroS.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for business in thePhilippines.

Wander filed it's witholding tax return for 1975 and 1976 and remitted to itsparent company Glaro dividends from which 35% withholding tax was withheld andpaid to the BIR.

In 1977, Wander filed with the Appellate Division of the Internal Revenue aclaim for reimbursement, contending that it is liable only to 15% withholdingtax in accordance with sec. 24 (b) (1) of the Tax code, as amended by PD nos.369 and 778, and not on the basis of 35% which was withheld ad paid to andcollected by the government. petitioner failed to act on the said claim forrefund, hence Wander filed a petition with Court of Tax Appeals who in turnordered to grant a refund and/or tax credit. CIR's petition for reconsiderationwas denied hence the instant petition to the Supreme Court.

Issue:Whether or not Wander is entitled to the preferential rate of 15% withholdingtax on dividends declared and to remitted to its parent corporation

Ruling:Yes. Section 24 (b) (1) of the Tax code, as amended by PD 369 and 778, the lawinvolved in this case, reads:

“Sec. 1. The first paragraph of subsection (b) of section 24 ofthe NIRC, as amended is hereby further amended to read asfollows:

(b) Tax on foreign corporations - (1) Non resident corporation --A foreign corporation not engaged in trade or business in thePhilippines, including a foreign life insurance company notengaged in life insurance business in the Philippines, shall paya tax equal to 35% of the gross income received during itstaxable year from all sources within the Philippines, as interest(except interest on a foreign loans which shall be subject to 15%tax), dividends, premiums, annuities, compensation, remunerationfor technical services or otherwise emolument, or other fixeddeterminable annual, periodical ot casual gains, profits andincome, and capital gains: xxx Provided, still further that ondividends received from a domestic corporation liable to taxunder this chapter, the tax shall be 15% of the dividendsreceived, which shall be collected and paid as provided in sec 53(d) of this code, subject to the condition that the country inwhich the non-resident foreign corporation is domiciled shallallow a credit against tax due from the non-resident foreign

corporation taxes deemed to have been paid in the Philippinesequivalent to 20% which represents the difference between theregular tax (35%) on corporation and the tax (15%) dividends asprovided in this section: xxx."

From the above-quoted provision, the dividends received from a domesticcorporation liable to tax, the tax shall be 15% of the dividends received,subject to the condition that the country in which the non-resident foreigncorporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippinesequivalent to 20% which represents the difference between the regular tax(35%) on corpoorations and the tax (15%) on dividends.

While it may be true that claims for refund construed strictly against theclaimant, nevertheless, the fact that Switzerland did not impose any tax on thedividends received by Glaro from the Philippines should be considered as afull satisfaction if the given condition. For, as aptly stated by respondentCourt, to deny private respondent the privilege to withhold only 15% taxprovided for under PD No. 369 amending section 24 (b) (1) of the Tax Code,would run counter to the very spirit and intent of said law and definitely willadversely affect foreign corporations interest here and discourage them forinvesting capital in our country.

Pareno vs Sandigan256 SCRA 242

Facts:(Skipped)

Philippine Refining Corp vs CA256 SCRA 667

Facts:Philippine Refining Corp (PRC) was assessed deficiency tax payments for theyear 1985 in the amount of around 1.8M. This figure was computed based on thedisallowance of the claim of bad debts by PRC. PRC duly protested theassessment claiming that under the law, bad debts and interest expense areallowable deductions.

When the BIR subsequently garnished some of PRC’s properties, the latterconsidered the protest as being denied and filed an appeal to the CTA which setaside the disallowance of the interest expense and modified the disallowance ofthe bad debts by allowing 3 accounts to be claimed as deductions. However, 13supposed “bad debts” were disallowed as the CTA claimed that these were notsubstantiated and did not satisfy the jurisprudential requirement of“worthlessness of a debt” The CA denied the petition for review.

Issue:Whether or not the CA was correct in disallowing the 13 accounts as bad debts

Ruling:YES. Both the CTA and CA relied on the case of Collector vs. GoodrichInternational, which laid down the requisites for “worthlessness of a debt” towit:

In said case, we held that for debts to be considered as "worthless," andthereby qualify as "bad debts" making them deductible, the taxpayer should showthat:

(1) there is a valid and subsisting debt; (2) the debt must be actually ascertained to be worthless and

uncollectible during the taxable year; (3) the debt must be charged off during the taxable year; and (4) the debt must arise from the business or trade of the taxpayer.

Additionally, before a debt can be considered worthless, the taxpayermust also show that it is indeed uncollectible even in the future.

Furthermore, there are steps outlined to be undertaken by the taxpayer to provethat he exerted diligent efforts to collect the debts, viz.:

(1) sending of statement of accounts; (2) sending of collection letters; (3) giving the account to a lawyer for collection; and (4) filing a collection case in court.

PRC only used the testimony of its accountant Ms. Masagana in order to provethat these accounts were bad debts. This was considered by all 3 courts to beself-serving. The SC said that PRC failed to exercise due diligence in order toascertain that these debts were uncollectible. In fact, PRC did not even showthe demand letters they allegedly gave to some of their debtors.

Basilan Estates vs CIRGR L-22492 – September 5, 1967

Facts:Basilan Estates, Inc. claimed deductions for the depreciation of its assets onthe basis of their acquisition cost. As of January 1, 1950 it changed thedepreciable value of said assets by increasing it to conform with the increasein cost for their replacement. Accordingly, from 1950 to 1953 it deducted fromgross income the value of depreciation computed on the reappraised value.

CIR disallowed the deductions claimed by petitioner, consequently assessing thelatter of deficiency income taxes.

Issue:Whether or not the depreciation shall be determined on the acquisition costrather than the reappraised value of the assets

Ruling:Yes. The following tax law provision allows a deduction from gross income fordepreciation but limits the recovery to the capital invested in the asset beingdepreciated:

(1) In general. — A reasonable allowance for deterioration ofproperty arising out of its use or employment in the business ortrade, or out of its not being used: Provided, That when theallowance authorized under this subsection shall equal thecapital invested by the taxpayer . . . no further allowance shallbe made. . . .

The income tax law does not authorize the depreciation of an asset beyond itsacquisition cost. Hence, a deduction over and above such cost cannot be claimedand allowed. The reason is that deductions from gross income are privileges,not matters of right. They are not created by implication but upon clearexpression in the law [Gutierrez v. Collector of Internal Revenue, L-19537, May20, 1965].

Depreciation is the gradual diminution in the useful value of tangible propertyresulting from wear and tear and normal obsolescense. It commences with theacquisition of the property and its owner is not bound to see his propertygradually waste, without making provision out of earnings for its replacement.

The recovery, free of income tax, of an amount more than the invested capitalin an asset will transgress the underlying purpose of a depreciation allowance.For then what the taxpayer would recover will be, not only the acquisitioncost, but also some profit. Recovery in due time thru depreciation ofinvestment made is the philosophy behind depreciation allowance; the idea ofprofit on the investment made has never been the underlying reason for theallowance of a deduction for depreciation.

Umali vs Estanislao209 SCRA 446

Facts:Congress enacted Republic Act 7167 amending the NIRC (adjusting the basic andadditional exemptions allowable to individuals for income tax purposes to thepoverty threshold level). The said Act was signed and approved by the Presidenton 19 December 1991 and published on 14 January 1992 in "Malaya" a newspaper ofgeneral circulation. On 26 December 1991, the CIR promulgated RevenueRegulations No. 1-92 stating that the regulations shall take effect oncompensation income from January 1, 1992. Petitioners filed a petition formandamus to compel the CIR to implement RA 7167 in regard to income earned orreceived in 1991, and prohibition to enjoin the CIR from implementing therevenue regulation.

Issue:Assuming that Rep. Act 7167 took effect on 30 January 1992 (15 days after itspublication in “Malaya”), whether or not the said law nonetheless covers orapplies to compensation income earned or received during calendar year 1991.

Ruling:Yes. The Court is of the considered view that Rep. Act 7167 should cover orextend to compensation income earned or received during calendar year 1991.Sec. 29, par. [L], Item No. 4 of the National Internal Revenue Code, asamended, provides: Upon the recommendation of the Secretary of Finance, the President shallautomatically adjust not more often than once every three years, the personaland additional exemptions taking into account, among others, the movement inconsumer price indices, levels of minimum wages, and bare subsistence levels.

The exemptions were last adjusted in 1986. The president could have adjusted itin 1989 but did not do so. The poverty threshold level refers to the level atthe time Rep. Act 7167 was enacted by Congress. The Act is a social legislationintended to alleviate in part the present economic plight of the lower incometaxpayers.

Rep. Act 7167 says that the increased personal exemptions shall be availableafter the law shall have become effective. These exemptions are available uponthe filing of personal income tax returns, done not later than the 15th day ofApril after the end of a calendar year. Thus, under Rep. Act 7167, which becameeffective, on 30 January 1992, the increased exemptions are literally availableon or before 15 April 1992 [though not before 30 January 1992]. But theseincreased exemptions can be available on 15 April 1992 only in respect ofcompensation income earned or received during the calendar year 1991. Thepersonal exemptions as increased by Rep. Act 7167 are not available in respectof compensation income received during the 1990 calendar year; the tax due inrespect of said income had already accrued, and been presumably paid (The lawdoes not state retroactive application). The personal exemptions as increasedby Rep. Act 7167 cannot be regarded as available as to compensation incomereceived during 1992 because it would in effect postpone the availability ofthe increased exemptions to 1 January-15 April 1993. The implementing

regulations collide with Section 3 of Rep. Act 7167 which states that thestatute "shall take effect upon its approval”.The revenue regulation should take effect on compensation income earned orreceived from 1 January 1991. Since this decision is promulgated after 15 April1992, those taxpayers who have already paid are entitled to refunds or credits.

Calasanz vs CIR144 SCRA 664

Facts:Ursula Calasanz inherited from her father an agricultural land. Improvementswere introduced to make such land saleable and later in it was sold to thepublic at a profit. The Revenue examiner adjudged Ursula and her spouse asengaged in business as real estate dealers and required them to pay the realestate dealer’s tax.

Issue:Whether or not the gains realized from the sale of the lots are taxable in fullas ordinary income or capital gains taxable at capital gain rates

Ruling:They are taxable as ordinary income. The activities of Calasanz areindistinguishable from those invariably employed by one engaged in the businessof selling real estate. One strong factor is the business element ofdevelopment which is very much in evidence. They did not sell the land in thecondition in which they acquired it. Inherited land which an heir subdividesand makes improvements several times higher than the original cost of the landis not a capital asset but an ordinary asses. Thus, in the course of sellingthe subdivided lots, they engaged in the real estate business and accordinglythe gains from the sale of the lots are ordinary income taxable in full.

NDC vs CIR151 SCRA 473

Facts:The National Development Co. (NDC) entered into contracts in Tokyo with severalJapanese shipbuilding companies for the construction of 12 ocean-going vessels.Initial payments were made in cash and through irrevocable letters of credit.When the vessels were completed and delivered to the NDC in Tokyo, the latterremitted to the shipbilders the amount of US$ 4,066,580.70 as interest on thebalance of the purchase price. No tax was withheld. The Commissioner then heldNDC liable on such tax in the total amount of P5,115,234.74. The Bureau ofInternal Revenue served upon the NDC a warrant of distraint and levy afternegotiations failed.

Issue:Whether the NDC is liable for deficiency tax

Ruling:Yes. The Japanese shipbuilders were liable on the interest remitted to themunder Section 37 of the Tax Code. The NDC is not the one taxed. The impositionof the deficiency taxes on the NDS is a penalty for its failure to withhold thesame from the Japanese shipbuilders. Such liability is imposed by Section 53(c)of the Tax Code. NDC was remiss in the discharge of its obligation of itsobligation as the withholding agent of the government and so should be liablefor its omission.

Lim vs CA190 SCRA 616

Facts:Spouses Lim were engaged in the dealership of various household appliances.

The NBI conducted a raid on Oct. 5, 1959 on their Business Address: No. 336Nueva Street, Manila and 111-12th Street, Quezon City. Seized from the Limcouple were business and accounting records which served as bases for aninvestigation undertaken by the BIR. On Sept. 30, 1964, Senior Revenue ExaminerRaphael S. Daet submitted a memorandum that the income tax returns filed by thespouses Lim for 1958 and 1959 were false or fraudulent. The assessment shouldbe: P835, 127. Acting Commissioner Benjamin M. Tabios informed the couple thatthere deficiency income taxes are P922, 913.04.

On April 10, 1965, spouses requested an re-investigation. BIR expressedwillingness on the following conditions:1.) written waiver of the defense of prescription under the statute oflimitations;2.) depositing ½ of the assessment and securing the other ½ with a suretybond.

Spouses Lim refused to comply with the conditions and reiterated his request.BIR rendered a final decision holding that there was no cause for reversal ofthe assessment against the Lim couple. The final notice and demand for paymentwas served through their daughter in law on July 3, 1968 for the amount ofP1,237,190.55 including interest, surcharges and penalty for late payment. BIRreferred the matter to the Manila’s Fiscal’s Office for investigation andprosecution. RTC Manila found petitioners guilty

Issues:1. WON the offenses prescribe after 5 years (Lim) or10 years (government’s

position)2. WON the prescriptive period commenced to runfrom 1965 date of 1st

assessment or discovery(accdg to Lim spouses) or from final notice on1968(government)

3. WON the RTC had jurisdiction over the tax collection case4. WON the death of Emilio S. Lim, Sr. extinguished his civil liabilities

Ruling:1. 5 years – but the government instituted the case within the prescriptive

period

2. Commenced from the date of the final notice. In criminal cases, statutesof limitations are acts of grace, a surrendering by the sovereign of itsright to prosecute. They receive strict construction in favor of theGovernment and limitations in such cases will not be presumed in theabsence of clear legislation.

3. No, because the criminal case was instituted on June 23, 1970 and PD 69which mandates RTC to order payment of the taxes took effect only on Jan.

1, 1973. It has no retroactive application. The law applicable wasSECTION 316 which does not sanction such imposition.

4. Yes. The liability of Emilio S. Lim, Sr. is extinguished by his death inaccordance with SECTION 89 of the RPC; but the fine imposed in the 4criminal cases is affirmed in the case of petitioner Antonia Sun Lim inaccordance with NIRC SECTION 73.

PICOP vs CA250 SCRA 434

Facts:On various years (1969, 1972 and 1977), Picop obtained loans from foreigncreditors in order to finance the purchase of machinery and equipment neededfor its operations. In its 1977 Income Tax Return, Picop claimed interestpayments made in 1977, amounting to P42,840,131.00, on these loans as adeduction from its 1977 gross income.

The CIR disallowed this deduction upon the ground that, because the loans hadbeen incurred for the purchase of machinery and equipment, the interestpayments on those loans should have been capitalized instead and claimed as adepreciation deduction taking into account the adjusted basis of the machineryand equipment (original acquisition cost plus interest charges) over the usefullife of such assets.

Both the CTA and the Court of Appeals sustained the position of Picop andheld that the interest deduction claimed by Picop was proper and allowable. Inthe instant Petition, the CIR insists on its original position.

Issue:Whether Picop is entitled to deductions against income of interest payments onloans for the purchase of machinery and equipment

Ruling:YES. Interest payments on loans incurred by a taxpayer (whether BOI-registeredor not) are allowed by the NIRC as deductions against the taxpayer's grossincome. The basis is 1977 Tax Code Sec. 30 (b). Thus, the general rule is thatinterest expenses are deductible against gross income and this certainlyincludes interest paid under loans incurred in connection with the carrying onof the business of the taxpayer. In the instant case, the CIR does not disputethat the interest payments were made by Picop on loans incurred in connectionwith the carrying on of the registered operations of Picop, i.e., the financingof the purchase of machinery and equipment actually used in the registeredoperations of Picop. Neither does the CIR deny that such interest payments werelegally due and demandable under the terms of such loans, and in fact paid byPicop during the tax year 1977.

The contention of CIR does not spring of the 1977 Tax Code but from RevenueRegulations 2 Sec. 79. However, the Court said that the term “interest” hereshould be construed as the so-called "theoretical interest," that is to say,interest "calculated" or computed (and not incurred or paid) for the purpose ofdetermining the "opportunity cost" of investing funds in a given business. Such"theoretical" or imputed interest does not arise from a legally demandableinterest-bearing obligation incurred by the taxpayer who however wishes to findout, e.g., whether he would have been better off by lending out his funds andearning interest rather than investing such funds in his business.

Commissioner vs BA149 SCRA 395

Facts:British Overseas Airways Corp. (BOAC) is a 100% Britis Government-ownedcorporation engaged ininternational airline business and is a member of theInterline Air Transport Association, and thus, it operates air transportationservice and sells transportation tickets over the routes of the other airlinemembers. From1959 to 1972, BOAC had no landing rights for traffic purposes inthe Philippines and thus did not carry passengers and/or cargo to or from thePhilippines but maintained a general sales agent in the Philippines --WarnerBarnes & Co. Ltd., and later, Qantas Airway us -- which was responsible forselling BOAC tickets covering passengers and cargoes. The Commissioner ofInternal Revenue assessed deficiency income taxes against BOAC.

Issue:Whether the revenue derived by BOAC from ticket sales in the Philippines forair transportation, while having no landing rights in the Philippines,constitute income of BOAC from Philippine sources, and accordingly, taxable

Ruling:Yes. The source of an income is the property, activity or service that producedthe income. For the source of income to be considered as coming from thePhilippines, it is sufficient that the income is derived from activity withinthe Philippines. Herein, the sale of tickets in the Philippines is the activitythat produced the income. The tickets exchanged hands here and payments forfares were also made here in Philippine currency. The situs of the source ofpayments is the Philippines. The flow of wealth proceeded from, and occurredwithin, Philippine territory, enjoying the protection accorded by thePhilippine Government. In consideration of such protection, the flow of wealthshould share the burden of supporting the government. PD 68, in relation to PD1355, ensures that international airlines are taxed on their income fromPhilippine sources. The2 1/2 %tax on gross billings is an income tax. If it hadbeen intended as an excise or percentage tax, it would have been placed underTitle V of the Tax Code covering taxes on business.

CIR vs P&G (repeated)Ropali vs NLRC (lacking)

Citibank vs CA280 SCRA 459

Facts:Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doingbusiness in the Philippines. In 1979 and 1980, its tenants withheld and paid tothe Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant toSection 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980,Citibank field its corporate income tax returns for the year and ended December31, 1979 showing a net loss of P74,854,916.00 and its tax credits totaledP6,257,780.00, even without including the amounts withheld on rental incomeunder the Expanded Withholding Tax System, the same not having been utilized orapplied for the reason that the year’s operation resulted in a loss. The taxesthus withheld by the tenants from rentals paid to Citibank in 1979 were notincluded as tax credits although a rental income amounting to P7,796,811.00 wasincluded in its income declared for the year ended December 31, 1979.

For the year ended December 31, 1980, Citibank’s corporate income tax returns,filed on April 15, 1981, showed a net loss P77,071,790.00 for income taxpurposes. Its available tax credit at the end of 1980 amounting toP11,532,855.00 was not utilized or applied. The said available tax credits didnot include the amounts withheld by Citibank’s tenants from rental payment sin1980 but the rental payments for that year were declared as part of its grossincome included in its annual income tax returns. On October 31, 1981, Citibanksubmitted its claim for refund of the aforesaid amounts of P270,160.56 andP298,829.29, respectively or a total of P568,989.85; and on October 12, 1981filed a petition for review with the Court of Tax Appeals concerning subjectclaim for tax refund. On August 30, 1981, the CTA adjudged Citibank’sentitlement to the tax refund sought for, representing the 5% tax withheld andpaid on Citibank’s rental income for 1979 and 1980. The Court of Tax Appeals,rejected Respondent CIR’s argument that the claim was not seasonably filed. Notsatisfied the Commissioner appealed to the Court of Appeals, CA ruled thatCitibank N.A. Philippine branch, entitled to a tax refund/credit in the amountof P569,989.85, representing the 5% withheld tax in Citibank’s rental incomefor the years 1979 and 1980 is REVERSED. Motion for Reconsideration of thepetitioner bank was denied. Hence, this petition.

Issue:Whether or not income taxes remitted partially on a periodic or quarterly basisshould be credited or refunded to the taxpayer on the basis of the taxpayer’sfinal adjusted returns

Ruling:Yes. In several cases, we have already ruled that income taxes remittedpartially on a periodic or quarterly basis should be credited or refunded tothe taxpayer on the basis of the taxpayer’s final adjusted returns, not on suchperiodic or quarterly basis. When applied to taxpayers filing income taxreturns on a quarterly basis, the date of payment mentioned in Sec. 230 must bedeemed to be qualified by Sec. 68 and 69 of the present. Tax Code. It may beobserved that although quarterly taxes due are required to be paid within 60days from the close of each quarter, the fact that the amount shall be deducted

from the tax due for the succeeding quarter shows that until a final adjustmentreturn shall have been filed, the taxes paid in the preceding quarters aremerely partial taxes due from a corporation. Neither amount can serve as thefinal figure to quantify what is due the government nor what should be refundedto be corporation. This interpretation may be gleaned from the last paragraphof Sec. 69 of the Tax Code which provides that the refundable amount, in case arefund is due a corporation, is that amount which is shown on its finaladjustment return and not on its quarterly returns.

CIR vs Lucio TanGR 119322

Facts:The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representingdeficiency income, ad valorem and value-added taxes for the year 1992 to whichFortune moved for reconsideration of the assessments. Later, the CIR filed acomplaint with the Department of Justice against the respondent Fortune, itscorporate officers, nine (9) other corporations and their respective corporateofficers for alleged fraudulent tax evasion for supposed non-payment by Fortuneof the correct amount of taxes, alleging among others the fraudulent scheme ofmaking simulated sales to fictitious buyers declaring lower wholesale prices,as allegedly shown by the great disparity on the declared wholesale pricesregistered in the "Daily Manufacturer's Sworn Statements" submitted by therespondents to the BIR. Such documents when requested by the court were nothowever presented by the BIR, prompting the trial court to grant the prayer forpreliminary injuction sought by the respondent upon the reason that taxliabiliity must be duly proven before any criminal prosecution be had. Thepetitioner relying on the Ungab Doctrine sought the lifting of the writ ofpreliminary mandatory injuction issued by the trial court.

Issue:Whose contention is correct?

Ruling:In view of the foregoing reasons, misplaced is the petitioners' thesis citingUngab v. Cusi, that the lack of a final determination of Fortune's exact orcorrect tax liability is not a bar to criminal prosecution, and that while aprecise computation and assessment is required for a civil action to collecttax deficiencies, the Tax Code does not require such computation and assessmentprior to criminal prosecution.

Reading Ungab carefully, the pronouncement therein that deficiency assessmentis not necessary prior to prosecution is pointedly and deliberately qualifiedby the Court with following statement quoted from Guzik v. U.S.: "The crime iscomplete when the violator has knowingly and wilfully filed a fraudulent returnwith intent to evade and defeat a part or all of the tax." In plain words, forcriminal prosecution to proceed before assessment, there must be a prima facieshowing of a wilful attempt to evade taxes. There was a wilful attempt to evadetax in Ungab because of the taxpayer's failure to declare in his income taxreturn "his income derived from banana sapplings." In the mind of the trialcourt and the Court of Appeals, Fortune's situation is quite apart factuallysince the registered wholesale price of the goods, approved by the BIR, ispresumed to be the actual wholesale price, therefore, not fraudulent and unlessand until the BIR has made a final determination of what is supposed to be thecorrect taxes, the taxpayer should not be placed in the crucible of criminalprosecution. Herein lies a whale of difference between Ungab and the case atbar.

Rep. vs. De Guzman5 SCRA 990

Facts:In 1946, Limaco & De Guzman Co. was engaged in the importation of cigarettes.To guarantee payment of revenue taxes, the company and the Visayan Surety andInsurance Corp. as surety, executed 2 importer bonds. On 27 June 1946, thecompany filed with the Bureau of Customs entry papers covering shipment of 2million “Spud” cigarettes it had imported from New York. the specific tax duethereon amounted to P6,000. The company, through its agent/broker J. O.Hiponia, paid the Bureau of Customs the tax with P1000 in cash and P5,000 in aPNB Check on 15 July1946. The cigarettes were released to the company but thecheck bounced. On 17 June 1948, the Collector of Internal Revenue demanded thepayment of the deficiency specific tax. The amount remained unpaid. On 15 April1951, the company requested that action be deferred as it intends to settle thematter amicably with the BIR. The Republic filed a complaint for the forfeitureof the bonds, and the payment of the sum of P5,000 plus interest. The companyinvoked the defense of estoppel and prescription has the action prescribed onthe ground that the assessment was made in beyond 5 years from July 15 1946.

Issue:Whether or not the power of assessment prescribed

Ruling:No. The assessment in question has not yet prescribed. It was not issued onJuly 14, 1946, but on June 17, 1948. When the Collector of Internal Revenuereceived information from the Bureau of Customs that the said sum of P5,000.00was not paid (for lack of funds), he immediately issued a letter dated June 17,1948 addressed to the defendant assessing and demanding from the latter thepayment of the saidP5,000.00. It was then that the unpaid specific tax ofP5,000.00 was deemed to have been assessed. When the tax was paid in cash andin check on July 15, 1946, the Collector had a right to rely, as it, in fact,relied that said payment fully settled the specific taxes due on the importedcigarettes. The cigarettes would not have been released, had Collector beenaware that the payment did not fully settle the said specific taxes. It can notbe said that July 15, 1946 (the date of payment) was the date of assessmentfrom which the period of collection should start. July 15, 1946was simply thedate of tender of payment. The right to collect the amount of P5,000.00 beganonly after the P5,000.00 — rubber check was dishonored. The action to assessand collect the unpaid tax commenced anew on June 14, 1948, when a letter ofdemand for the amount of said rubber-check had been sent to the defendant. Thisletter should be deemed to be an assessment because it declared and fixed a taxto be payable against the party liable thereto, and demanded the settlementthereof. Judicial action having been instituted on February 18, 1953, the five-year period for collection had not then elapsed.

Even assuming that July 15, 1946 is the date of assessment, still the action tocollect is not barred by the statute of limitations, because the statute wassuspended when the rubber-check was dishonored and demand letters were sent bythe commissioner. The defendant likewise wrote two letters to the SolicitorGeneral on April 15, and 25, 1951, respectively, requesting for the deferment

of the judicial action to be taken by the latter towards the collection of theobligation, so that the former could make representations with the Collector tosettle the matter amicably. This being the case, the prescriptive period toeffect the collection of the tax whichallegedly commenced on July 15, 1946, wasinterrupted. "The prescription of actions is interrupted when they are filedbefore the court, when there is any written extrajudicial demand by thecreditors and when there is any written acknowledgment of the debt by thedebtor " (Art. 1155, New Civil Code). "Taxpayers seeking to recover overpaymentin income could not claim that collection by Commissioner was barred bylimitations where procedure carried out which result in postponement ofcollection was that requested by taxpayers". Having acknowledged the debt inwriting in April1951, and the complaint was filed in 1953, prescription had notset in. The full time for the prescription must be reckoned from the cessationof the interruption (Sagucio v. Bulos, G.R. Nos. L-17608-09, July 31, 1962, andcases cited therein). Had it notbeen for the filing of the complaint in 1953,the interruption would have ceased in April 1956.

Ungab vs Cusi97 SCRA 877

Facts:The BIR filed six criminal charges against Quirico Ungab, a banana saplingsproducer, for allegedly evading payment of taxes and other violations of theNIRC. Ungab, subsequently filed a motion to quash on the ground that (1) theinformation are null and void for want of authority on the part of the StateProsecutor to initiate and prosecute the said cases; and (2)that the trialcourt has no jurisdiction to take cognizance of the case in view of his pendingprotest against the assessment made by the BIR examiner. The trial court deniedthe motion prompting the petitioner to file a petition for certiorari andprohibition with preliminary injunction and restraining order to annul and setaside the information filed.

Issue:Whether or not the contention that the criminal prosecution is premature sincethe CIR has not yet resolved the protest against the tax assessment is tenable

Ruling:No. The contention is without merit. What is involved here is not thecollection of taxes where the assessment of the Commissioner of InternalRevenue may be reviewed by the Court of Tax Appeals, but a criminal prosecutionfor violations of the National Internal Revenue Code which is within thecognizance of courts of first instance. While there can be no civil action toenforce collection before the assessment procedures provided in the Code havebeen followed, there is no requirement for the precise computation andassessment of the tax before there can be a criminal prosecution under theCode.

An assessment of a deficiency is not necessary to a criminal prosecution forwilful attempt to defeat and evade the income tax. A crime is complete when theviolator has knowingly and wilfully filed a fraudulent return with intent toevade and defeat the tax. The perpetration of the crime is grounded uponknowledge on the part of the taxpayer that he has made an inaccurate return,and the government's failure to discover the error and promptly to assess hasno connections with the commission of the crime.

Commissioner vs PhoenixL-19127

Facts:Phoenix assurance is a foreign insurance corporation organized under the lawsof Great Britain, licensed to do business in the Philippines. Through its headoffice in London, it entered into worldwide reinsurance treaties with variousforeign insurance companies. It agreed to cede a portion of premiums receivedon original insurances underwritten by its head office, subsidiaries, andbranch offices around the world, in consideration for assumption by the foreigninsurance companies of equivalent portion of the liability form such originalinsurances. Pursuant to such treaties, the company ceded portions of itspremiums it earned from its underwriting business in the Philippines, uponwhich assessed withholding tax. The company thereafter amended its tax returns(1950-1954) excluding reinsurance premium and items of deduction attributableto such premium. The Commissioner assessed deficiency income tax against thecompany.

Issue:Whether the Commissioner is justified in the assessment of deficiency tax

Ruling:Yes. The changes and alteration embodied in the amended tax return consisted ofthe exclusion of reinsurance premium received from domestic insurance companiesby the company’s head office, reinsurance premium ceded to foreign insurers notdoing business in the Philippines and various items of deductions attributableto such excluded reinsurance premiums, thereby substantially modifying theoriginal return. As amended return is substantially different from the originalreturn, the period of limitation of the right to issue the same should becounted from the filing of the amended income tax return. The right of theCommissioner to assess the deficiency tax on the amended return has notprescribed. To hold otherwise would pave the way for taxpayer to evade thepayment of taxes simply reporting in their original return heavy losses andamending the same more than 5 years later when the Commissioner has lost hisauthority to assess the proper tax there under. The object of the tax code isto impose taxes for the needs of the government, not to enhance tax avoidanceto its prejudice.

REPUBLIC vs. CA, and NIELSON & CO.,INC.149 SCRA 351

Facts:The petitioner sought the review on certiorari of the decision of therespondent Court of Appeals reversing the decision of the then Court of FirstInstance of Manila which ordered private respondent Nielson & Co., Inc. to paythe Government the amount of P11,496.00 as ad valorem tax, occupation fees,additional residence tax and 25% surcharge for late payment, for the years 1949to 1952. Petitioner claims that the demand letter of 16 July 1955 showed animprint indicating that the original thereof was released and mailed on 4August 1955 by the Chief, Records Section of the Bureau of Internal Revenue,and that the original letter was not returned to said Bureau; thus, said demandletter must be considered to have been received by the private respondent.According to petitioner, if service is made by ordinary mail, unless the actualdate of receipt is shown, service is deemed complete and effective upon theexpiration of five (5) days after mailing. As the letter of demand dated 16July 1955 was actually mailed to private respondent, there arises thepresumption that the letter was received by private respondent in the absenceof evidence to the contrary. More so, where private respondent did not offerany evidence, except the self-serving testimony of its witness, that it had notreceived the original copy of the demand letter dated 16 July 1955.

Issue:1. Whether or not the notice of assessment or demand was properly served to

the respondent 2. Whether the receipt by the respondent of the succeeding follow-up demand

notices be construed as receipt of the original demand

Ruling:1. No. As correctly observed by the respondent court in its appealed

decision, while the contention of petitioner is correct that a mailedletter is deemed received by the addressee in the ordinary course ofmail, still this is merely a disputable presumption, subject tocontroversion, and a direct denial of the receipt thereof shifts theburden upon the party favored by the presumption to prove that the mailedletter was indeed received by the addressee. Since petitioner has notadduced proof that private respondent had in fact received the demandletter of 16 July 1955, it can not be assumed that private respondentreceived said letter.

2. Yes. Records show that petitioner wrote private respondent a follow-upletter dated 19 September 1956, reiterating its demand for the payment oftaxes as originally demanded in petitioner's letter dated 16 July 1955.This follow-up letter is considered a notice of assessment in itselfwhich was duly received by private respondent in accordance with its ownadmission. And consequently, under Section 7 of Republic Act No. 1125,the assessment is appealable to the Court of Tax Appeals within thirty(30) days from receipt of the letter. The taxpayer's failure to appeal indue time, as in the case at bar, makes the assessment in question final,executory and demandable. Thus, private respondent is now barred from

disputing the correctness of the assessment or from invoking any defensethat would reopen the question of its liability on the merits.

CIR vs Western PacificL-18804 – May 27, 1965

Facts:On March 2, 1959, respondent Western Pacific Corp was assessed deficiencyincome tax for the year 1953. The assessmentwas brought about by the disallowance listed in respondent‘s return as baddebts. The assessment was received by respondent on the same date (March 2,1959). On March 5, 1959, CIR wrote a demand letter with the final breakdown ofthe assessment. However, on June 29, 1959, Western Pacific Corp requested fornon-assessment, claiming that the claim had prescribed and that said itemsshould be considered as allowable deductions. On July 30, 1959, CIR denied therequest and demanded payment of the same within 30 days from receipt of demand.

Respondent corporation, on September 19, 1959, requested that it be alloweduntil September 25 to submit its formal objections to the assessment. Theformal objections submitted by Western Pacific were identical to its formerobjections and as such, CIR denied the request. The CIR, then, sent on October28, 1959 a letter demanding payment within 10 days. On appeal, CA absolved therespondent from the assessment however it ruled out that the assessment letterdated March 2, 1959 was within 5-year prescriptive period.

Issue:WON the assessment had prescribed

Ruling:No. February 28, 1959 fell on a Saturday. Pursuant to Republic Act No. 1880,as, implemented by Executive Order No. 25, effective July 1, 1959, all bureausand offices of the government, except schools, court, hospitals and healthclinics, hold office only five days a week or from Monday to Friday. Saturdayand Sunday, are constituted public holidays or days of exemption from labor orwork as far as government offices, including that of respondent Commissioner,are concerned. The offices and bureaus concerned are officially closed on thosedays. So that on February 28, 1959 and March 1, 1959, which were Saturday andSunday, respectively, the office of respondent was officially closed. And wherethe last day for doing an act required by law falls on a holiday, the act maybe done on the next succeeding business day. (Section 31, RevisedAdministrative Code.) Similarly, in computing any period of time prescribed bystatute, the day of the act after which the designated period of time begins torun is not included. But the last day of the period so computed is to beincluded, unless it is a Sunday or a legal holiday, in which event the timeshall run until the end of the next day which is neither a Sunday or a holiday(Section 1, Rule 28, Rules of Court).

Consequently, since February 28, 1959 was a Saturday and the next day, March 1,1959, a Sunday, respondent had until the next succeeding business day, March 2,1959, Monday, within which to issue the deficiency assessment. The assessmentin question having been issued on March 2, 1959, it was, therefore, seasonablymade. However, contrary to the ruling of the CTA, the assessment made by theCommissioner should be maintained, for the simple reason that when the petitionfor review was brought to the CTA by the respondent corporation, the said Court

no longer had jurisdiction to entertain the same. The assessment had longbecome final. A petition for review should be presented, within thereglementary period, as provided for in Section 11, Republic Act No. 1125,which is "thirty (30) days from receipt of the assessment." The thirty (30) dayperiod is jurisdictional. The assessment was received by the respondentcorporation on March 2, 1959. It was only on June 29, 1959, when saidcorporation formally assailed the assessment, on the grounds of prescription inmaking the assessment and the impropriety of the disallowance of the listeddeductions. From March 3 to June 29, 1959, manifestly more than thirty (30)days had lapsed and the assessment became final, executory and demandable.

Citibank vs CAGR 107434 – October 10, 1997

Facts:Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doingbusiness in the Philippines. In 1979 and 1980, its tenants withheld and paid tothe Bureau of Internal Revenue the following taxes on rents due to Citibank,pursuant to Section 1(c) of the Expanded Withholding Tax Regulations (BIRRevenue Regulations No. 13-78, as amended).

On April 15, 1980, Citibank filed its corporate income tax returns for the yearended December 31, 1979 (Exh. "E:), showing a net loss of P74,854,916.00 andits tax credits totalled P6,257,780.00, even without including the amountswithheld on rental income under the Expanded Withholding Tax System, the samenot having been utilized or applied for the reason that the year's operationresulted in a loss. (Exh. & "E-1 & E-2"). The taxes thus withheld by thetenants from rentals paid to Citibank in 1979 were not included as tax creditsalthough a rental income amounting to P7,796,811.00 was included in its incomedeclared for the year ended December 31, 1979 (Exhs. "E-3" & "E-4").

On October 31, 1981, Citibank submitted its claim for refund of the aforesaidamounts of P270,160.56 and P298,829, respectively, or a total of P568,989.85;and on October 12, 1981 filed a petition for review with the Court of TaxAppeals concerning subject claim for tax refund. The CTA adjudged Citibank tobe entitled of the tax refund but the CA reversed said decision of the CTA.

Issue:Whether or not the lessor is entitled to a refund of such withheld amount afterit is determined that the lessor was not, in fact, liable for any income tax atall because its annual operation resulted in a net loss as shown in its incometax return filed at the end of the taxable year

Ruling:Yes. In several cases, we have already ruled that income taxes remittedpartially on a periodic or quarterly basis should be credited or refunded tothe taxpayer on the basis of the taxpayer's final adjusted returns, nor on suchperiodic or quarterly basis.

Petitioner's lessees withheld and remitted to the BIR the amounts now claimedas tax refunds. That they were withheld and remitted pursuant to Rev. Reg. No.13-78 does not derogate from the fact that they were merely partial payments ofprobable taxes. Like the corporate quarterly income tax, creditable withholdingtaxes are subject to adjustment upon determination of the correct income taxliability after the filing of the corporate income tax return, as at the end ofthe taxable year.

The taxes thus withheld and remitted are provisional in nature. We repeat: fiveper cent of the rental income withheld and remitted to the BIR pursuant to Rev.Reg. No. 13-78 is, unlike the withholding of final taxes on passive incomes, acreditable withholding tax; that is, creditable against income tax liability ifany, for that taxable year.

CIR vs Philam204 SCRA 446

Facts:On May 30, 1983, Philamlife paid its 1983 1st Quarter income tax of P3,246,141.On August 29, 1983, it paid P396,874 for the 2nd Quarter and also paid P708,464for the3rd Quarter. In the 4th Quarter however, it suffered loss and therebyhad no income tax liability. It therefore declared refund of the 1st and 2ndQuarter payments. In 198r, Philamlife suffered loss again and applied for taxcredit of its overpaid taxes in 1983 and 1982. ON December 16, 1985, it filedanother claim for refund with the CIR’s appellate division for an amended andincreased amount. On January 2, 1986, it filed petition for review with theCTA.

CIR claims that the running of the prescriptive period commences from theremittance/payment at the end of the first quarter of the tax withheld insteadof from the filing of the Final Adjustment Return. In such a case, Philamlifeis not entitled for refund.

Issue:Whether or not the reckoning date of the two-year prescriptive period providedin Section 230 of the NIRC for the recovery of tax erroneously or illegallycollected commences from the remittance/payment at the end of the first quarterof the tax withheld instead of from the filing of the Final Adjustment Return

Ruling:No. CIR is wrong. The prescriptive period of two years should commence to runonly from the time that the refund is ascertained, which can only be determinedafter a final adjustment return is accomplished. In the present case, this dateis April 16, 1984, and two years from this date would be April 19, 1986. Therecord shows that the claim for refund was field on December 10, 1985 and thepetition for review was brought before the CTA on January 2, 1986. Both datesare within the two-year reglementary period. Even if the two-year prescriptiveperiod had already lapsed, the same is not jurisdictional and may be suspendedfor reasons of equity and other special circumstances.

Palanca vs CIRGR L-16661 – January 31, 1962

Facts:On July 1950, Don Carlos Palanca, Sr., donated to his son Carlos Jr., shares ofstock in La Tondeña, Inc. amounting to 12,500 shares. Carlos Jr. failed to filea return on the donation within the statutory period so Carlos Jr. was assessedP97,691.23 (gift tax), P24,442.81 (25% surcharge), P47,868.70 (interest), whichhe paid on June 22, 1955. On March 1,1956, Carlos Jr. filed with BIR his ITRfor 1955 claiming a deduction for interest of P9,706.45 and reporting a taxableincome of P65,982.12. He was assessed P21,052.01 as income tax. On November1956, Carlos Jr. filed an amended return for 1955, claiming an additionaldeduction of P47,868.70 (allegedly the interest paid on the donee’s gift taxbased on Sec.30(b)(1) of the Tax Code) so taxable income is P18,113.42 (notP65,982.12) and tax due thereon in sum of P3,167.00. He claimed for a refund ofP17,885.01 (P21,052.01 - P3,167.00)– BIR denied. Carlos Jr. reiterated claimfor refund, BIR denied

The BIR considered the donation by Carlos Sr. as a transfer in contemplation ofdeath so Carlos Jr. was assessed P191,591.62 as estate and inheritance taxes.Carlos paid P17,002.74 on June 22, 1955 as gift tax (includes interest andsurcharge) which was applied to his estate and inheritance tax liability.Petitioner paid P60,581.80 as interest for delinquency.

On August 1958, Carlos Jr. filed again an amended ITR for 1955 claiming thefollowing: As interest deductions: P9,706.45 (as in the original ITR) +P60,581.80 (interest on the estate and inheritance taxes); Net Taxable income:P5,400.32; Income tax due: P428.00; claimed a refund of P20,624.01 (P21,052.01– P428) Even before BIR ruled on his claim, Carlos Jr. filed petition forreview before CTA. The CTA ruled that BIR should refund Carlos P20,624.01.

Issue:WON there is a difference between “indebtedness” and “taxes” to determine thedeductible interest

Ruling:NO. The CIR seeks the reversal of the Court of Tax Appeal's ruling on theaforementioned petition for review. Specifically, he takes issue with the saidcourt's determination that the amount paid by respondent Palanca for intereston his delinquent estate and inheritance tax is deductible from the grossincome for that year under Section 30 (b) (1) of the Revenue Code. CIR urgesthat a tax is not an indebtedness. He adopts the view that "debts are due tothe government in its corporate capacity, while taxes are due to the governmentin its sovereign capacity. A debt is a sum of money due upon contract expressor implied or one which is evidenced by a judgment. Taxes are imposts levied bygovernment for its support or some special purpose which the government hasrecognized."

In view of the distinction, then, the Commissioner submits that thedeductibility of "interest on indebtedness" from a person's income tax underSection 30(b) (1) cannot extend to "interest on taxes."

While "taxes" and "debts" are distinguishable legal concepts, in certain casesas in the suit at bar, on account of their nature, the distinction becomesinconsequential. The term "debt" is properly used in a comprehensive sense asembracing not merely money due by contract, but whatever one is bound to renderto another, either for contract or the requirements of the law. (Camden vs.Fink Coule and Coke Co., 61 ALR 584).

Where statutes impose a personal liability for a tax, the tax becomes at leastin a broad sense, a debt.

In our jurisdiction, the rule is settled that although taxes already due havenot, strictly speaking, the same concept as debts, they are, howeverobligations that may be considered as such. (Sambrano vs. Court of Tax Appeals,G.R. no. L-8652, March 30, 1957). In a more recent case Commissioner of Internal Revenue vs. Prieto, G.R. No. L-13912, September 30, 1960, we explicitly announced that while the distinctionbetween "taxes" and "debts" was recognized in this jurisdiction, the variancein their legal conception does not extend to the interests paid on them, atleast insofar as Section 30 (b) (1) of the National Internal Revenue Code isconcerned. Thus, under the law, for interest to be deductible, it must be shownthat there be an indebtedness, that there should be interest upon it, and thatwhat is claimed as an interest deduction should have been paid or accruedwithin the year. It is here conceded that the interest paid by respondent wasin consequence of the late payment of her donor's tax, and the same was paidwithin the year it is sought to be deducted.

In both this and the Prieto case, the taxpayer sought the allowance asdeductible items from the gross income of the amounts paid by them as interestson delinquent tax liabilities. Of course, what was involved in the cited casewas the donor's tax while the present suit pertains to interest paid on theestate and inheritance tax. This difference, however, submits no appreciableconsequence to the rationale of this Court's previous determination thatinterests on taxes should be considered as interests on indebtedness within themeaning of Section 30(b) (1) of the Tax Code. The interpretation we have placedupon the said section was predicated on the congressional intent, not on thenature of the tax for which the interest was paid.

REPUBLIC vs. CA, and NIELSON & CO.,INC.L-38540149 SCRA 351

Facts:The petitioner sought the review on certiorari of the decision of therespondent Court of Appeals reversing the decision of the then Court of FirstInstance of Manila which ordered private respondent Nielson & Co., Inc. to paythe Government the amount of P11,496.00 as ad valorem tax, occupation fees,additional residence tax and 25% surcharge for late payment, for the years 1949to 1952. Petitioner claims that the demand letter of 16 July 1955 showed animprint indicating that the original thereof was released and mailed on 4August 1955 by the Chief, Records Section of the Bureau of Internal Revenue,and that the original letter was not returned to said Bureau; thus, said demandletter must be considered to have been received by the private respondent.According to petitioner, if service is made by ordinary mail, unless the actualdate of receipt is shown, service is deemed complete and effective upon theexpiration of five (5) days after mailing. As the letter of demand dated 16July 1955 was actually mailed to private respondent, there arises thepresumption that the letter was received by private respondent in the absenceof evidence to the contrary. More so, where private respondent did not offerany evidence, except the self-serving testimony of its witness, that it had notreceived the original copy of the demand letter dated 16 July 1955.

Issue:1. Whether or not the notice of assessment or demand properly served to the

respondent 2. Whether or not the receipt by the respondent of the succeeding follow-up

demand notices be construed as receipt of the original demand

Ruling:1. No. As correctly observed by the respondent court in its appealed

decision, while the contention of petitioner is correct that a mailedletter is deemed received by the addressee in the ordinary course ofmail, still this is merely a disputable presumption, subject tocontroversion, and a direct denial of the receipt thereof shifts theburden upon the party favored by the presumption to prove that the mailedletter was indeed received by the addressee. Since petitioner has notadduced proof that private respondent had in fact received the demandletter of 16 July 1955, it can not be assumed that private respondentreceived said letter.

2. Yes. Records show that petitioner wrote private respondent a follow-upletter dated 19 September 1956, reiterating its demand for the payment oftaxes as originally demanded in petitioner's letter dated 16 July 1955.This follow-up letter is considered a notice of assessment in itselfwhich was duly received by private respondent in accordance with its ownadmission. And consequently, under Section 7 of Republic Act No. 1125,the assessment is appealable to the Court of Tax Appeals within thirty(30) days from receipt of the letter. The taxpayer's failure to appeal indue time, as in the case at bar, makes the assessment in question final,

executory and demandable. Thus, private respondent is now barred fromdisputing the correctness of the assessment or from invoking any defensethat would reopen the question of its liability on the merits.

Advertising vs CAGR 59758 – December 26, 1984

Facts:In the instant case, Advertising Associates alleged that it sold in 1949 itsadvertising agency business to Philippine Advertising Counsellors, that itsbusiness is limited to the making, construction and installation of billboardsand electric signs and making and printing of posters, signs, handbills, etc.(101 tsn). It contends that it is a media company, not an advertising company,It paid sales taxes for selling billboards, electric signs, calendars, posters,etc., realty dealer's tax for leasing billboards and electric signs and 3%contractor's tax for repairing electric signs. The billboards and electricsigns manufactured by it are either sold or leased, As already stated, theCommissioner of Internal Revenue subjected to 3% contractor's tax its rentalincome from billboards and electric signs. The Commissioner requiredAdvertising Associates to payP297,927.06 and P84,773.10 as contractor's tax for1967-1971 and 1972, respectively, including25% surcharge (the latter amountincludes interest) on its income from billboards and neon signs. The basis ofthe assessment is the fact that the taxpayer's articles of incorporationprovidet hat its primary purpose is to engage in general advertising business.Its income tax returns indicate that its business was advertising. AdvertisingAssociates contested the assessments in its 'letters of June 25, 1973 (for the1967-71deficiency taxes) and March 7, 1974 (for the 1972 deficiency). TheCommissioner reiterated the assessments in his letters of July 12 and September16,1974 (p. 3, Rollo). The taxpayer requested the cancellation of theassessments in its letters of September 13 and November 21, 1974 (p. 3, Rollo).

Inexplicably, for about four years there was no movement in the case. Then, onMarch 31, 1978, the Commissioner resorted to the summary remedy of issuing twowarrants of distraint, directing the collection enforcement division to levy onthe taxpayer's personal properties as would be sufficient to satisfy thedeficiency taxes (pp. 4, 29 and 30, Rollo). The warrants were served upon thetaxpayer on April 18 and May 25, 1978.More than a year later, ActingCommissioner Efren I. Plana wrote a letter dated May 23, 1979 in answer to therequests of the taxpayer for the cancellation of the assessments and thewithdrawal of the warrants of distraint (Annex C of Petition, pp. 31-32,Rollo).

He justified the assessments by stating that the rental income of AdvertisingAssociates from billboards and neon signs constituted fees or compensation forits advertising services. He requested the taxpayer to pay the deficiency taxeswithin ten days from receipt of the demand; otherwise, the Bureau would enforcethe warrants of distraint. He closed his demand letter with this paragraph:This constitutes our final decision on the matter. If you are not agreeable,you may appeal to the Court of Tax Appeals within 30 days from receipt of thisletter. Advertising Associates received that letter on June 18, 1979. Nineteendays later or on July 7, it filed its petition for review. In its resolution ofAugust 28, 1979, the Tax Court enjoined the enforcement of the warrants ofdistraint. The Tax Court did not resolve the case on the merits. It ruled thatthe warrants of distraint were the Commissioner's appealable decisions. SinceAdvertising Associates appealed from thedecision of May 23, 1979, the petition

for review was filed out of time. It was dismissed. Thetaxpayer appealed tothis Court.

Issues:1. Whether the collection of the tax had already prescribed2. Whether the petition for review was filed within the reglementary period

Ruling:1. No. Section 332 of the 1939 Tax Code, now section 319 of the 1977 Tax

Code, Presidential Decree No. 1158, effective on June 3, 1977, providesthat the tax may be collected by distraint or levy or by a judicialproceeding begun 'within five years after the assessment of the tax".The taxpayer received on June 18, 1973 and March 5, 1974 the deficiencyassessments herein. The warrants of distraint were served upon it onApril 18 and may 25,1978 or within five years after the assessment of thetax. Obviously, the warrants were issued to interrupt the five-yearprescriptive period. Its enforcement was not implemented because of thepending protests of the taxpayer and its requests for withdrawal of thewarrants which were eventually resolved in Commissioner Plana's letter ofMay 23, 1979. It should be noted that the Commissioner did not instituteany judicial proceeding to collect the tax. He relied on the warrants ofdistraint to interrupt the running of the statute of limitations. He gavethe taxpayer ample opportunity to contest the assessments but at the sametime safeguarded the Government's interest by means of the warrants ofdistraint.

2. Yes. The reviewable decision is that contained in Commissioner Plana's letter of May 23, 1979 and not the warrants of distraint. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor shows, embodies the Commissioner's final decision within the meaning of section 7 of Republic Act No.1125. The Commissioner said so. He even directed the taxpayer to appeal it to the Tax Court. That was the same situation in St. Stephen's Association and St. Stephen's Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318. The directive is in consonance with this Court's dictum that the Commissionershould always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. Thatprocedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action.

Calo vs MagnoGR L-18399 – October 28, 1961

Facts:Marcos M. Calo filed the petition for injunction and damages to restrain andprevent respondent Francisco Magno, Acting Treasurer of Butuan City, fromenforcing an order of distraint and levy issued by respondent on petitioner'sproperties for the collection of real property taxes in the sum of P797.91. Itis alleged in the petition that respondent had no authority to collect thetaxes or to issue the order, because respondent's appointment and/ordesignation as acting city treasurer is contrary to the provisions of RepublicAct No. 523, otherwise known as the Charter of the City of Butuan, andtherefore null and void. Petitioner also asks that respondent's appointment bedeclared invalid. The CFI of Agusan denied the injunction for the reason theCommonwealth Act No. 588, the President may appoint in case of a “vacancy inthe position”. On appeal, the CA certified the case to the Supreme Court as oninvolving purely question of law.

Issue:Whether or not the appointment of Magno is appropriate

Ruling:Yes. The designation of Battad to the Department of Finance created a vacancyin the office of city treasurer of Butuan, which vacancy may be filledpermanently or temporarily, by the President under Comm. Act 588. There being avacancy in said office, it may not be considered as a mere absence or inabilityof the incumbent to act where the next ranking officer may perform the dutiesof the absent officer.

In the case of Rodriguez vs. Del Rosario, 49 O.G., p. 5427, Oct. 30, 1953, weheld that the temporary designation of the Mayor of Cebu as technical assistantin Malacañang had the effect of depriving the incumbent mayor of his positionas mayor, which said incumbent mayor could accept or reject; but that when hethereafter demanded back his position as city mayor, this act of his amountedto his renunciation of his position as technical assistant in which he couldnot be compelled to stay. These acts of his therefore did not amount to arenunciation by him of his position as mayor. Conversely, in the case at thebar, as the previous incumbent Battad was designated to the department offinance with the approval of the President and the President thereafterappointed respondent Magno as the acting city treasurer of Butuan, whothereafter took oath of office without any express objection on the part offormer City Treasurer Battad, the former incumbent was deemed to have acceptedthe designation and thus abandoned the position of city treasurer. So that whenthe President appointed the respondent Magno as acting city treasurer of Butuanthe position of said treasurer had become vacant by the renunciation of theposition by former treasurer Battad.

There was, therefore, a vacancy in the office of the city treasurer of Butuanwhen Battad was designated to the Department of Finance by action of thesecretary of finance and of the President. Battad was not merely absent or sickor unable to act for any other reason within the meaning of Sec. 18 of the

Charter of the City of Butuan, and the provision of said Charter authorizingthe officer next in charge in the department to perform the duties of theprevious incumbent is not applicable.

The action may be dismissed also on the ground that no action lies to enjointhe collection of a tax.

CIR vs NLRCGR 74965

Facts:On January 12, 1984 the Commissioner of the Internal Revenue sent two lettersof demand to the respondent Maritime Company of the Philippines for deficiencycommon carrier's tax, fixed tax, 6% Commercial Broker's tax, documentary stamptax, income tax and withholding taxes in the total amount of P17,284,882.45.However, since this was not paid, the CIR placed under constructive distraintsix barges owned by Maritime Company of the Philippines.

Four of the barges placed under constructive distraint were levied uponexecution by respondent deputy sheriff of Manila on July 20, 1985 to satisfy ajudgment for unpaid wages and other benefits of employees of respondentMaritime Company of the Philippines. The four barges were sold by respondentdeputy sheriff at a public auction on August 12, 1985. On September 4, 1985,petitioner asked the Labor Arbiter to annul the sale and to enjoin the sherifffrom disposing of the proceeds of the sale or, in the alternative, to remitthem to the Bureau of Internal Revenue so that the amount could be applied tothe payment of private respondent Maritime Company's tax liabilities. The laborarbiter denied petitioner’s motion. The NLRC affirmed the LA’s denial ofpetitioner’s motion.

Issue:Whether or not the prior constructive distraint is superior to a later levy ofpersonal properties by judgment to pay unpaid wages

Ruling:Yes. The National Internal Revenue Code provides for the collection ofdelinquent taxes by any of the following remedies: (a) distraint of personalproperty or levy of real property of the delinquent taxpayer; and (b) civil orcriminal action.

With respect to the four barges in question, petitioner resorted toconstructive distraint pursuant to § 303 (now § 206) of the NLRC. Thisprovisions states:

“Constructive distraint of the property of a taxpayer. — To safeguard theinterest of the Government, the Commissioner of Internal Revenuemay place under constructive distraint the property of adelinquent taxpayer or any taxpayer who, in his opinion, isretiring from any business subject to tax, or intends to leavethe Philippines, or remove his property therefrom, or hide orconceal his property, or perform any act tending to obstruct theproceedings, for collecting the tax due or which may be due fromhim.

The constructive distraint of personal property shall be effectedby requiring the taxpayer or any person having possession orcontrol of such property to sign a receipt covering the propertydistrained and obligate himself to preserve the same intact and

unaltered and not to dispose of the same in any manner whateverwithout the express authority of the Commissioner of InternalRevenue.

In case the taxpayer or the person having the possession andcontrol of the property sought to be placed under constructivedistraint refuses or fails to sign the receipt herein referredto, the revenue officer effecting the constructive distraintshall proceed to prepare a list of such property and in thepresence of two witnesses leave a copy thereof in the premiseswhere the property distrained is located, after which the saidproperty shall be deemed to have been placed under constructivedistraint.”

Accordingly, what we said in a prior case upholding the validity of distraintof two of the six barges (MCP Nos. 1 and 4), fully applies in this case:

“It is settled that the claim of the government predicated on atax lien is superior to the claim of a private litigantpredicated on a judgment. The tax lien attaches not only from theservice of the warrant of distraint of personal property but fromthe time the tax became due and payable. Besides, the distrainton the subject properties of the Maritime Company of thePhilippines as well as the notice of their seizure were made bypetitioner, through the Commissioner of the Internal Revenue,long before the writ of the execution was issued by the RegionalTrial Court of Manila, Branch 31. There is no question then thatat the time the writ of execution was issued, the two (2) barges,MPC-1 and MCP-4, were no longer properties of the MaritimeCompany of the Philippines. The power of the court in executionof judgments extends only to properties unquestionably belongingto the judgment debtor. Execution sales affect the rights of thejudgment debtor only, and the purchaser in an auction saleacquires only such right as the judgment debtor had at the timeof sale. It is also well-settled that the sheriff is notauthorized to attach or levy on property not belonging to thejudgment debtor.”

In addition, we have held that Art. 110 of the Labor Code applies only in caseof bankruptcy or judicial liquidation of the employer.

HSBC vs Rafferty39 SCRA 145

Facts:Petitioner HSBC is the owner of 2,000 railroad ties it had acquired fromthefirm of Pujalte & Co. which the latter assigned to it after it was unable topay alarge sum of money it then owed to HSBC.The firm of Pujalte & Co. isengaged in the business of timber, and it wasshown that prior to the assignmentof the railroad ties to HSBC it owed to theBIR forest charges, one of the taxesenumerated in the NIRC, amounting toP8328.93. It executed a bond of P2000 tosecure the payment of the forestcharges and was allowed to remove the timberfrom the public forests.More than a year later, when some of the timber werealready made intorailroad ties and transferred to third parties like HSBC, theCollector institutedcollection proceedings agains Pujalte. To enforcecollection, the CIR wentafter thee property of Pujalte & Co. including thatwhich were already in thepossession of HSBC, who at the time it acquired theproperty had no noticeof the lien nor of the delinquent tax due from Pujalte.

Issue:Whether or not the CIR can still enforce the lien

Ruling:No, the lien does not follow the property subject to the tax into the hands ofa third party when at the time of transfer, no demand for payment had been madeand when the purchaser then had no notice of the existence of the lien. Underthe general rule of the Civil law, possession of movables is not necessary tothe validity of a lien, whether created by contract or by act of law. Such lienwill attach upon movable property even in the hands of a bonafide purchaserwithout notice. Under the law of taxation however, the tax lien does notestablish itself upon property which has been transferred to an innocentpurchaser prior to demand. A demand is necessary to create and bring the lieninto operation. Furthermore, in order that the lien may follow the propertyinto the hands of a third party, it is essential that the latter should havenotice, either actual or constructive. The reason behind this is thebenevolence of our Constitution which prohibits the taking of property withoutdue process of law. The policy of the law is against upholding secret liens andcharges against property of Innocent purchasers or encumbrances for value. Atthe time HSBC acquired the property there was nothing to show that Pujalte &Co. were deliquent taxpayers nor were there any public records that may beconsulted to protect it from loss by reason of the existence of a secret lien.Minor issue on the right of HSBC to recover interest from the undue enforcementof the lien: The reckoning date for the computation of interest should be thedate when the taxpayer lost the income from the funds by payment under protest.In this case, it is not from the filing of the complaint for collection but onthe date HSBC was deprived of the property.

Torres vs Collector (lacking)

CIR vs HizonGR No. 130430 – December 13, 1999

Facts:On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiencyincome tax assessment covering the fiscal year 1981-1982. Respondent not havingcontested the assessment, petitioner BIR, on January 12, 1989, served warrantsof distraint and levy to collect the tax deficiency. However, for reasons notknown, it did not proceed to dispose of the attached properties. More than three years later, the respondent wrote the BIR requesting areconsideration of her tax deficiency assessment. The BIR, in a letter datedAugust 11, 1994, denied the request. On January 1, 1997, it filed a case withthe RTC to collect the tax deficiency. Hizon moved to dismiss the case on twogrounds: (1) that the complaint was not filed upon authority of the BIRCommissioner as required by Sec. 221 of the NIRC, and (2) that the action hadalready prescribed. Over petitioner's objection, the trial court granted themotion and dismissed the complaint.

BIR on the other hand contends that respondent's request for reinvestigation ofher tax deficiency assessment on November 1992 effectively suspended therunning of the period of prescription.

Issue:Whether or not the action has prescribed

Ruling:Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must bemade within 30 days from the taxpayer's receipt of the tax deficiencyassessment, otherwise the assessment becomes final, unappealable and,therefore, demandable. The notice of assessment for respondent's tax deficiencywas issued by petitioner on July 18, 1986. On the other hand, respondent madeher request for reconsideration thereof only on November 3, 1992, withoutstating when she received the notice of tax assessment. Hence, her request forreconsideration did not suspend the running of the prescriptive period providedunder Sec. 223(c). Although the Commissioner acted on her request by eventuallydenying it on August 11, 1994, this is of no moment and does not detract fromthe fact that the assessment had long become demandable.

RP vs Lim Lian Teng SonsL-21731 – March 31, 1966

Facts:Lim Tian Teng Sons & Co., Inc. (LTT), a domestic corporation with principaloffice in Cebu City, engaged in 1951 and 1952, among others, in the exportationof copra. Lim Tian then filed its income tax return for 1952 based on accruedincome and expenses. Its return showed a loss of P56,109.98. CIR assessed LimTian of deficiency income tax and 50% surcharge thereon amounting to P5,037.00and demanded payment thereof not later than February 15, 1957. Lim Tianrequested reinvestigation of its income tax liability. CIR did NOT reply butinstead referred the case to the SolGen for collection by judicial action.SolGen demanded from Lim Tian payment w/in 5 days, stating that otherwisejudicial action would be instituted without further notice. Lim Tian thuswrote CIR and SolGen, reiterating its request for reinvestigation. It requestedthat it be allowed to present its explanation together w/ supporting papersrelative to its income tax liability.

Deputy Collector of CIR informed the taxpayer that its request forreinvestigation would be granted provided it executed within 10 days a WAIVERof the statute of limitations as required in General Circular V-258 datedAugust 20, 1957. The Deputy Collector extended the period within which toexecute and file with him the waiver of the statute of limitations to December31, 1957, but advised that if no waiver is forthcoming on or before said date,judicial action for collection would be instituted without further notice.HOWEVER, Lim Tian failed to file a waiver. CIR thus instituted 8 months after an action in the CFI of Cebu for thecollection of deficiency income tax. CFI declared the CIR's assessment asvalid, final and executory, condemning Lim Tian to pay CIR w/ interest at 1%monthly until fully paid.

Issues:1. WON lower court has jurisdiction to entertain the case given that CIR has

NOT yet issued its final decision on request for reinvestigation2. WON court erred in considering as final and executory the assessment

contained in the letter of the CIR dated January 16, 1957. 3. WON the assessment was correct

Ruling:1. Yes. Nowhere in the Tax Code is the CIR required to rule first on a

taxpayer's request for reinvestigation before he can go to court for thepurpose of collecting the tax assessed. On the contrary, Section 305 ofthe same Code withholds from all courts, except the CTA under Section 11of Republic Act 1125, the authority to restrain the collection of anynational internal-revenue tax, fee or charge, thereby indicating thelegislative policy to allow the CIR much latitude in the speedy andprompt collection of taxes. The reason is obvious. It is upon taxationthat the government chiefly relies to obtain the means the carry on itsoperations, Section 11 of Republic Act 1125 states in part: No appealtaken to the Court of Tax Appeals from the decision of the Collector of

Internal Revenue ... shall suspend the payment, levy, distraint, and/orsale of any property of the taxpayer for the satisfaction of his taxliability as provided by existing law EXCEPT if it may jeopardizeinterest of the gov and/or taxpayer.

2. No. In this case, Lim Tian received said assessment on January 30, 1957and on the following day requested reinvestigation of its tax liability.The CIR however did NOT reply to the request for reinvestigation.Instead, he referred the case to the Solicitor General for collection ofthe tax. The lower court interpreted this action of the Collector ofInternal Revenue as a denial of defendant's request for reinvestigation.Instead of appealing to the Tax Court, however, Lim Tian reiterated itsrequest for reinvestigation. Even if we do not count the period fromOctober 8, 1957 (the date when taxpayer received notice of the denial ofits request for reinvestigation) to December 31, 1957 (the deadline forthe submission of the written waiver of the statute of limitations) inreckoning the 30-day period within which the taxpayer may appeal to theCTA, said period had long lapsed when the CIR filed the complaint in thiscase on September 2, 1958. Taxpayer’s failure to appeal to the CTA in duetime made the assessment in question final, executory and demandable.And when the action was instituted on September 2, 1958 to enforce thedeficiency assessment in question, it was already barred from disputingthe correctness of the assessment or invoking any defense that wouldreopen the question of his tax liability on merits. Otherwise, the periodof 30 days for appeal to the Court of Tax Appeals would make littlesense.

3. Yes. From what appeared in the 1952 return the accounting method used byLTT was the accrual method of accounting. As such the copra outturn inthe amount of P95K should have been treated as accrued income of 1951instead of stock on hand of 1952. There if every indication that the 1952income was fraudulent. That the beginning inventory for 1952 consideredthe copra outturn on hand but as of Dec 31 1951 it was not in its bodegaanymore. It was in transit to a foreign port and they no longer owned thecopra as it was already paid for. They did not follow their own system ofaccounting. This deviation was made to lessen its tax liability.Therefore the surcharge of 50% was correct.

Yabes vs Flojo15 SCRA 278

Facts:Doroteo Yabes of Calamaniugan Cagayan, who was for sometime an exclusive dealerof products of the International Harvester Macleod, Inc., received on or aboutMay 1, 1962, a letter from the Commissioner of Internal Revenue dated March 27,1962, demanding payment of the amount of P15,976.81, as commercial broker'sfixed and percentage taxes plus surcharges and the sum of P2,530 as compromisepenalty alledgely due from Yabes for the years 1956-1960. On May 11, 1962,Doroteo Yabes, through his counsel, filed with the Commissioner's Office hisletter dated May 10, 1962, protesting the assessment of commercial broker'sfixed and percentage taxes plus penalties against him on the ground that hisagreements with the International Harvester Macleod, Inc. were of purchase andsale, and not of agency, hence he claimed he was not able to pay such kind oftaxes. Doroteo Yabes died on March 13, 1963 and no estate proceedings wereinstituted for the settlement of his estate. Hence, an action was broughtagainst the heir of Yabes.

Thereafter, no word was received by the petitioners or their lawyers during theinterim of more than three (3) years, but on January 20, 1971, petitioners asheirs of the deceased Doroteo Yabes received the summons and a copy of thecomplaint filed by the Commissioner on December 4, 1970 with the Court of FirstInstance of Cagayan which seeks to collect from the petitioners the sum of P15,976.82, as deficiency commercial broker's fixed and percentage taxes,including surcharges and interest thereon, due from their predecessor-in-interest, Doroteo Yabes, by reason of the latter's income derived fromtransactions as dealer of the products of the International Harvester Macleod,Inc.

Taking the complaint as the final decision of the Commissioner on the disputedassessment against the deceased taxpayer Doroteo Yabes, petitioners filed onFebruary 12, 1971, a petition for review of said disputed assessment with theCourt of Tax Appeals; 18 later on the same day, February 12, 1971, petitionersfiled their answer to the complaint of the Commissioner before the Court ofFirst Instance of Cagayan; 19 and alleged therein, by way of special defense,that the Court of Tax Appeals has exclusive jurisdiction of the action and thatthere is another action of the same nature between the parties relating to thesame assessment pending before the Court of Tax Appeals.

On the other hand, the Commissioner filed a motion to dismiss dated March 24,1971, with the Court of Tax Appeals in CTA Case No. 2216, and subsequentlyfiled a memorandum in support of said motion to dismiss, on the ground that theassessment against Doroteo Yabes had already become final, executory andincontestable, and the Court of Tax Appeals had no jurisdiction over the case.

Issue:Whether or not the Court of First Instance correctly denied petitioner’s motionto dismiss

Ruling:

No. There is no reason for Us to disagree from or reverse the Court of TaxAppeals' conclusion that under the circumstances of this case, what may beconsidered as final decision or assessment of the Commissioner is the filing ofthe complaint for collection in the respondent Court of First Instance ofCagayan, the summons of which was served on petitioners on January 20, 1971,and that therefore the appeal with the Court of Tax Appeals in CTA Case No.2216 was filed on time. 36 The respondent Court of First Instance of Cagayancan only acquire jurisdiction over this case filed against the heirs of thetaxpayer if the assessment made by the Commissioner of Internal Revenue hadbecome final and incontestable. If the contrary is established, as this Courtholds it to be, considering the aforementioned conclusion of the Court of TaxAppeals on the finality and incontestability of the assessment made by theCommissioner is correct, then the Court of Tax Appeals has exclusivejurisdiction over this case. Petitioners received the summons in Civil Case No.II-7 of the respondent Court of First Instance of Cagayan on January 20, 1971,and petitioners filed their appeal with the Court of Tax Appeals in CTA CaseNo. 2216, on February 12, 1971, well within the thirty-day prescriptive periodunder Section 11 of Republic Act No. 1125. The Court of Tax Appeals hasexclusive appellate jurisdiction to review on appeal any decision of theCollector of Internal Revenue in cases involving disputed assessments and othermatters arising under the National Internal Revenue Code.

For want of jurisdiction over the case, the Court of First Instance of Cagayanshould have dismissed the complaint filed in Civil Case No. II-7.

CIR vs GonzalesGR L-19495

Facts:In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay andLilia Yusay Gonzales. Jose was appointed as administrator. He filed an estateand inheritance tax return in 1949. The Bureau of Internal Revenue (BIR)conducted a tax audit and the BIR found that there was an under-declaration inthe return filed. In 1953 however, a project of partition between the two heirswas submitted to the BIR. The estate was to be divided as follows: 1/3 forGonzales and 2/3 for Jose. The BIR then conducted another investigation in July1957 with the same result – there was a huge under-declaration. In February1958, the Commissioner of Internal Revenue issued a final assessment notice(FAN) against the entire estate. In November 1959, Gonzales questioned thevalidity of the FAN issued in 1958. She averred that it was issued way beyondthe prescriptive period of 5 years (under the old tax code). The return wasfiled by Jose in 1949 and so the CIR’s right to make an assessment has alreadyprescribed in 1958.

Issue:Whether or not Gonzales is correct

Ruling:No. It was found that Jose filed a return which was so defective that the CIRcannot make a correct computation on the taxes due. When a tax return is sodefective, it is as if there is no return filed, hence, it is considered thatthe taxpayer omitted to file a return. As such, the five year prescriptiveperiod to make an assessment (NOTE: Under the National Internal Revenue Code of1997, prescriptive period for normal assessment is 3 years) is extended to 10years. And the counting of the prescriptive period shall run from the discoveryof the omission (or fraud or falsity in appropriate cases). In the case at bar,the omission was deemed to be discovered in the re-investigation conducted inJuly 1957. Hence, the FAN issued in February 1958 was well within the ten yearprescriptive period. Gonzales was adjudged to pay the deficiency tax in theFAN, without prejudice to her right to ask reimbursement from Jose’s estate(Jose already died).

Castro vs CIRGR L-12174

Facts:Petitioner-appellant Maria B. Castro asks for partial reconsideration of thedecision of this court dated April 26, 1962, contending that the one percent(1%) monthly interest on the war profits tax due from her should be limited toa total of thirty-six per centum (36%).

This contention is made to rest on the provisions of the Internal Revenue Codeon Income Tax, Section 51 (e), as amended by Republic Act No. 2343 (approved onJune 29, 1959), to the effect that:

"SEC. 51 (e). Additions to the tax in case of nonpayment. — (1) Tax shown onthe return. — Where the amount determined by the taxpayer as the tax imposed bythis Title or any installment thereof, or any part of such amount orinstallment, is not paid on or before the date prescribed for its payment,there shall be collected as a part of the tax, interest upon such unpaid amountat the rate of one per centum a month from the date prescribed for its paymentuntil it is paid: Provided, That the maximum amount that may be collected asinterest on deficiency shall in no case exceed the amount corresponding to aperiod of three years, the present provisions regarding prescription to thecontrary notwithstanding."

Issue:Whether or not Castro is correct

Ruling:No. Assuming, without deciding, that this particular section is applicable towar profits taxes, we agree with the Solicitor General that there is no legalground for applying retroactively to the delinquencies of the petitioner underthe War Profits Tax Law (and which accrued since September 23, 1950, when thecorresponding tax assessment was issued) the terms of a law (R.A. 2343) enactedalmost nine (9) years later. It is elementary that laws are presumed to operateonly prospectively, and have no retroactive effect in the absence of clearprovision to the purpose. As it stood in 1950, Section 51 (e) of the RevenueCode provided for monthly interest without limitation of the number ofmonths:jgc:chanrobles.com.ph

"SEC. 51 (e). Surcharge and interest in case of delinquency. — To any sum orsums due and unpaid after the dates prescribed in subsections (b), (c) and (d)for the payment of the same, there shall be added the sum of five per centum onthe amount of tax unpaid and interest at the rate of one per centum a monthupon said tax from the time the same became due, except from the estates ofinsane, deceased, or insolvent persons."

Petitioner contends that the imposition of interest amounts to a penalty, andthat laws imposing lighter penalties are given retrospective effect. Wedisagree with the basic assumption, and hold that the imposition of 1% monthlyinterest is but a just compensation to the state for the delay in paying thetax, and for the concomitant use by the taxpayer of funds that rightfully

should be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752; Ross v.U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed. [2d] 488). The fact that theinterest charged is made proportionate to the period of delay constitutes thebest evidence that such interest is not penal but compensatory.

Republic vs Ching LakGR L-10609

Facts:On March 31, 1954, the defendant-appellee was charged with having violatedSection 5 (b) in connection with Section 8 of Republic Act No. 55. After hisarrest, he was arraigned, duly assisted by his attorney, and entered the pleaof not guilty. Thereafter he filed a motion to quash the information on theground that the criminal action or liability charged therein had beenextinguished by prescription, and the court, after proper hearing, sustainedthe motion.

Issue:Whether or not petitioner’s cause of action has been barred by prescription

Ruling:Yes, the accused herein was charged with an offense against a law administeredby the Collector of Internal Revenue, for it clearly appears from theprovisions of Republic Act No. 55, especially from Sec. 9 thereof, that theexecution of all its provisions was entrusted to the Collector of InternalRevenue; and in accordance with Sec. 1 of Act 3585 which amended Act 3326, alloffenses against any law or part of law administered by the Collector ofInternal Revenue shall prescribe after five years.

Acts 3226 and 3585 were not repealed by Act otherwise known as the RevisedPenal Code; their provisions remained intact and in full force. It follows thatArticle 90 of the Revised Penal Code providing for the prescription of crimeswould not apply to prescription of violations of special laws or part of lawsadministered by the Bureau of Internal Revenue.

People vs Rubio (Not found)

Ona vs CIRL-19342

Facts:Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and herfive children. A civil case was instituted for the settlement of her state, inwhich Oña was appointed administrator and later on the guardian of the threeheirs who were still minors when the project for partition was approved. Thisshows that the heirs have undivided ½ interest in 10 parcels of land, 6 housesand money from the War Damage Commission. Although the project of partition wasapproved by the Court, no attempt was made to divide the properties and theyremained under the management of Oña who used said properties in business byleasing or selling them and investing the income derived therefrom and theproceeds from the sales thereof in real properties and securities. As a result,petitioners’ properties and investments gradually increased. Petitionersreturned for income tax purposes their shares in the net income but they didnot actually receive their shares because this left with Oña who invested them.

Based on these facts, CIR decided that petitioners formed an unregisteredpartnership and therefore, subject to the corporate income tax, particularlyfor years 1955 and 1956. Petitioners asked for reconsideration, which wasdenied hence this petition for review from CTA’s decision.

Issues:Whether or not there was a co-ownership or an unregistered partnership

Ruling:Yes. For tax purposes, the co-ownership of inherited properties isautomatically converted into an unregistered partnership the moment the saidcommon properties and/or the incomes derived therefrom are used as a commonfund with intent to produce profits for the heirs in proportion to theirrespective shares in the inheritance as determined in a project partitioneither duly executed in an extrajudicial settlement or approved by the court inthe corresponding testate or intestate proceeding. The reason is simple. Fromthe moment of such partition, the heirs are entitled already to theirrespective definite shares of the estate and the incomes thereof, for each ofthem to manage and dispose of as exclusively his own without the interventionof the other heirs, and, accordingly, he becomes liable individually for alltaxes in connection therewith. If after such partition, he allows his share tobe held in common with his co-heirs under a single management to be used withthe intent of making profit thereby in proportion to his share, there can be nodoubt that, even if no document or instrument were executed, for the purpose,for tax purposes, at least, an unregistered partnership is formed.

Pascual vs CIR166 SCRA 560

Facts:On June 22, 1965, petitioners bought two (2)parcels of land from SantiagoBernardino, et al. and on May 28, 1966, they bought another three (3) parcelsof land from Juan Roque. The first two parcels of land were sold by petitionersin 1968 to Marenir Development Corporation, while the three parcels of landwere sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970.Petitioner realized a net profit in the sale made in 1968 in the amount ofP165, 224.70, while they realized a net profit of P60,000 in the sale made in1970. The corresponding capital gains taxes were paid by petitioners in 1973and 1974 .Respondent Commissioner informed petitioners that in the years 1968and 1970, petitioners as co-owners in the real estate transactions formed anunregistered partnership or joint venture taxable as a corporation underSection 20(b)and its income was subject to the taxes prescribed under Section24, both of the National Internal Revenue Code; that the unregisteredpartnership was subject to corporate income tax as distinguished from profitsderived from the partnership by them which is subject to individual income tax.

Issue:Whether petitioners formed an unregistered partnership subject to corporateincome tax (partnership vs. co-ownership)

Ruling:No. Article 1769 of the new Civil Code lays down the rule for determining whena transaction should be deemed a partnership or a co-ownership. Said articleparagraphs 2 and 3, provides:(2) Co-ownership or co-possession does not itselfestablish a partnership, whether such co-owners or co-possessors do or do notshare any profits made by the use of the property; (3) The sharing of grossreturns does not of itself establish a partnership, whether or not the personssharing them have a joint or common right or interest in any property fromwhich the returns are derived; The sharing of returns does not in itselfestablish a partnership whether or not the persons sharing therein have a jointor common right or interest in the property. There must be a clear intent toform a partnership, the existence of a juridical personality different from theindividual partners, and the freedom of each party to transfer or assign thewhole property. In the present case, there is clear evidence of co-ownershipbetween the petitioners. There is no adequate basis to support the propositionthat they thereby formed an unregistered partnership. The two isolatedtransactions whereby they purchased properties and sold the same a few yearsthereafter did not thereby make them partners. They shared in the gross profitsas co- owners and paid their capital gains taxes on their net profits andavailed of the tax amnesty thereby. Under the circumstances, they cannot beconsidered to have formed an unregistered partnership which is thereby liablefor corporate income tax, as the respondent commissioner proposes. And evenassuming for the sake of argument that such unregistered partnership appears tohave been formed, since there is no such existing unregistered partnership witha distinct personality nor with assets that can be held liable for saiddeficiency corporate income tax, then petitioners can be held individuallyliable as partners for this unpaid obligation of the partnership.

Tan vs Del Rosario237 SCRA 324

Facts:Petitioners challenge the constitutionality of RA 7496 or the simplified incometaxation scheme (SNIT) under Arts (26) and (28) and III (1). The SNIT containedchanges in the tax schedules and different treatment in the professionals whichpetitioners assail as unconstitutional for being isolative of the equalprotection clause in the constitution.

Issue:Whether or not the petition is meritorious

Ruling:No. uniformity of taxation, like the hindered concept of equal protection,merely require that all subjects or objects of taxation similarly situated areto be treated alike both privileges and liabilities. Uniformity, does notoffend classification as long as it rest on substantial distinctions, it isgermane to the purpose of the law. It is not limited to existing only and mustapply equally to all members of the same class.

The legislative intent is to increasingly shift the income tax system towardsthe scheduled approach in taxation of individual taxpayers and maintain thepresent global treatment on taxable corporations. This classification isneither arbitrary nor inappropriate.

Garrison vs CA187 SCRA 585

Facts:Petitioners, John Garrison, Frank Robertson, Robert Cathey, James Robertson,Felicitas de Guzman and Edward McGurk (PETITIONERS) are US Citizens who enteredthe country through the Philippine Immigration Act of 1940 and are employed inthe US Naval Base in Olongapo City. They earn no Philippine source income andit is also their intention to return to the US as soon as their employment hasended. The BIR sent notices to Petitioners stating that they did not file theirIncome Tax Returns (ITR) for 1969. The BIR claimed that they were residentaliens and required them to file their returns. Under then then InternalRevenue Code resident aliens may be taxed regardless of whether the grossincome was derived from Philippine sources. Petitioners refused stating thatthey were not resident aliens but only special temporary visitors. Hence, theywere not required to file ITRs. They also claimed exemption by virtue of theRP-US Military Bases Agreement.

Under Military Bases Agreement, a “national of the United States serving in oremployed in the Philippines in connection with construction, maintenance,operation or defense of the bases and reside in the Philippines by reason onlyof such employment” is only liable for tax on Philippine sources of income. TheCourt of Appeals held that the Bases Agreement “speaks of exemption from thepayment of income tax, not from the filing of the income tax returns . . .”

Issue:1. Whether or not Petitioners can be considered resident aliens2. Whether or not Petitioners are exempt from income tax under the RP-US

Military Bases Agreement3. Whether or not Petitioners must still file ITR notwithstanding the

exemption.

Ruling:1. Yes, Revenue Regulations No. 2 Section 5 provides: “An alien actually

present in the Philippines who is not a mere transient or sojourner is aresident of the Philippines for purposes of income tax.” Whether or notan alian is a transient or not is further determined by his: “intentionswith regards to the length and nature of his stay. A mere floatingintention indefinite as to time, to return to another country is notsufficient to constitute him as transient. If he lives in the Philippinesand has no definite intention as to his stay, he is a resident.” TheSection 5 further provides that if the alien is in the Philippines for adefinite purpose which by its nature may be promptly accomplished, he isconsidered a transient. However, if an extended stay is necessary for himto accomplsh his purpose, he is considered a resident, “though it may behis intention at all times to return to his domicile abroad when thepurpose for which he came has been consummated or abandoned.”

2. Yes, Notwithstanding the fact that the Petitioners are resident alienswho are generally taxable, their class is nonetheless exempt from payingtaxes on income derived from their employment in the naval base by virtue

of the RP-US Military bases agreement. The Bases Agreement identifies thepersons NOT “liable to pay income tax in the Philippines except in regardto income derived from Philippine sources or sources other than the USsources.” They are the persons in whom concur the following requisites,to wit:

1) nationals of the United States serving in or employed in thePhilippines;

2) their service or employment is "in connection withconstruction,maintenance, operation or defense of the bases;

3) they reside in the Philippines by reason only of such employment; and4) their income is derived exclusively from “U.S. Sources.”

3. Yes, even though the petitioners are exempt from paying taxes from theiremployment in the Naval Base, they must nevertheless file an ITR. TheSupreme Court held that the filing of an ITR and the payment of taxes aretwo distinct obligations. While income derived from employment connectedwith the Naval Base is exempt, income from Philippine Sources is not. Therequirement of filing an ITR is so that the BIR can determine whether ornot the US National should be taxed. “The duty rests on the U.S.nationals concerned to invoke and prima facie establish their tax-exemptstatus. It cannot simply be presumed that they earned no income from anyother sources than their employment in the American bases and aretherefore totally exempt from income tax.”

Marubeni vs CIR177 SCRA 500

Facts:Petitioner Marubeni s a foreign corporation duly organized under the existinglaws of Japan and duly licensed to engage in business under Philippine laws.Marubeni of Japan has equity investments in Atlantic Gulf & Pacific Co. ofManila. AG&P declared and directly remitted the cash dividends to Marubeni’shead office in Tokyo net of the final dividend tax and withholding profitremittance tax. Thereafter, Marubeni, through SGV, sought a ruling from the BIRon whether or not the dividends it received from AG&P are effectively connectedwith its business in the Philippines as to be considered branch profits subjectto profit remittance tax. The Acting Commissioner ruled that the dividendsreceived by Marubeni are not income from the business activity in which it isengaged. Thus, the dividend if remitted abroad are not considered branchprofits subject to profit remittance tax. Pursuant to such ruling, petitionerfiled a claim for refund for the profit tax remittance erroneously paid on thedividends remitted by AG& P. Respondent Commissioner denied the claim. Itruled that since Marubeni is a non resident corporation not engaged in trade orbusiness in the Philippines it shall be subject to tax on income earned fromPhilippine sources at the rate of 35% of its gross income.

On the other hand, Marubeni contends that, following the principal-agentrelationship theory, Marubeni Japan is a resident foreign corporation subjectonly to final tax on dividends received from a domestic corporation.

Issue:Whether or not Marubeni Japan is a resident foreign corporation

Ruling:No. The general rule is a foreign corporation is the same juridical entity asits branch office in the Philippines . The rule is based on the premise thatthe business of the foreign corporation is conducted through its branch office,following the principal-agent relationship theory. It is understood that thebranch becomes its agent.

However, when the foreign corporation transacts business in the Philippinesindependently of its branch, the principal-agent relationship is set aside. Thetransaction becomes one of the foreign corporation, not of the branch.Consequently, the taxpayer is the foreign corporation, not the branch or theresident foreign corporation.

Thus, the alleged overpaid taxes were incurred for the remittance of dividendincome to the head office in Japan which is considered as a separate anddistinct income taxpayer from the branch in the Philippines.

CIR vs British Airways Corporation149 SCRA 395

Facts:British Overseas Airways Corp (BOAC) is a 100% British Government-ownedcorporation engaged in international airline business and is a member of theInterline Air Transport Association, and thus, it operates air transportationservices and sells transportation tickets over the routes of the other airlinemembers.

From 1959 to 1972, BOAC had no landing rights for traffic purposes in thePhilippines and thus, did not carry passengers and/or cargo to or from thePhilippines but maintained a general sales agent in the Philippines - WarnerBarnes & Co. Ltd. and later, Qantas Airways - which was responsible for sellingBOAC tickets covering passengers and cargoes. The Commissioner of InternalRevenue assessed deficiency income taxes against BOAC.

Issue:Whether the revenue derived by BOAC from ticket sales in the Philippines,constitute income of BOAC from Philippine sources, and accordingly taxable

Ruling:Yes, the source of an income is the property, activity, or service thatproduced the income. For the source of income to be considered as coming fromthe Philippines, it is sufficient that the income is derived from activitywithin the Philippines. Herein, the sale of tickets in the Philippines is theactivity that produced the income. The tickets exchanged hands here and paymentfor fares were also made here in the Philippine currency.

The situs of the source of payments is the Philippines. The flow of wealthproceeded from, and occurred within Philippine territory, enjoying theprotection accorded by the Philippine government. In consideration of suchprotection, the flow of wealth should share the burden of supporting thegovernment. PD 68, in relation to PD 1355, ensures that international airlinesare taxed on their income from Philippine sources. The 2 1/2% tax on grossbillings is an income tax. If it had been intended as an excise tax orpercentage tax, it would have been placed under Title V of the Tax Codecovering taxes on business.

CIR vs CA and YMCAGR 124043

Facts:The main question in this case is: “is the income derived from rentals of realproperty owned by Young Men’s Christian Association of the Philippines (YMCA) –established as “a welfare, educational and charitable non-profit corporation” –subject to income tax under the NIRC and the Constitution? In 1980, YMCA earnedan income of P676,829 from leasing out a portion of its premises to small shopowners, like restaurants and canteen operators and P44k form parking fees.

Issue:Whether or not the rental income of the YMCA taxable

Ruling:Yes. The exemption claimed by the YMCA is expressly disallowed by the verywording of the last paragraph of then Sec. 27 of the NIRC; court is duty-boundto abide strictly by its literal meaning and to refrain from resorting to anyconvoluted attempt at construction. The said provision mandates that the incomeof exempt organizations (such as YMCA) from any of their properties, real orpersonal, be subject to the tax imposed by the same Code. Private respondent isexempt from the payment of property tax, but nit income tax on rentals from itsproperty.

Pascual vs Secretary of Public Works110 SCRA 381

Facts:Governor Wenceslao Pascual of Rizal instituted this action for declaratoryrelief, with injunction, upon the ground that RA No. 920, which apropriatesfunds for public works particularly for the construction and improvement ofPasig feeder road terminals. Some of the feeder roads, however, as alleged andas contained in the tracings attached to the petition, were nothing butprojected and planned subdivision roads, not yet constructed within the AntonioSubdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal;and which projected feeder roads do not connect any government property or anyimportant premises to the main highway. The respondents' contention is thatthere is public purpose because people living in the subdivision will directlybe benefitted from the construction of the roads, and the government also gainsfrom the donation of the land supposed to be occupied by the streets, made byits owner to the government.

Issue:Whether or not the incidental gains by the public be considered "publicpurpose" for the purpose of justifying an expenditure of the government

Ruling:No. It is a general rule that the legislature is without power to appropriatepublic revenue for anything but a public purpose. It is the essential characterof the direct object of the expenditure which must determine its validity asjustifying a tax, and not the magnitude of the interest to be affected nor thedegree to which the general advantage of the community, and thus the publicwelfare, may be ultimately benefited by their promotion. Incidental to thepublic or to the state, which results from the promotion of private interestand the prosperity of private enterprises or business, does not justify theiraid by the use public money. The test of the constitutionality of a statute requiring the use of publicfunds is whether the statute is designed to promote the public interest, asopposed to the furtherance of the advantage of individuals, although eachadvantage to individuals might incidentally serve the public.

Gonzales vs Marcos65 SCRA 624

Facts:The petitioner questioned the validity of EO No. 30 creating the CulturalCenter of the Philippines, having as its estate the real and personal propertyvested in it as well as donations received, financial commitments that couldthereafter be collected, and gifts that may be forthcoming in the future. Itwas likewise alleged that the Board of Trustees did accept donations from theprivate sector and did secure from the Chemical Bank of New York a loan of $5million guaranteed by the National Investment & Development Corporation as wellas $3.5 million received from President Johnson of the United States in theconcept of war damage funds, all intended for the construction of the CulturalCenter building estimated to cost P48 million. The petition was denied by thetrial court arguing that with not a single centavo raised by taxation, and theabsence of any pecuniary or monetary interest of petitioner that could in anywise be prejudiced distinct from those of the general public.

Issue:Whether or not a taxpayer the capacity to question the validity of the issuancein this case

Ruling:No. It was therein pointed out as "one more valid reason" why such an outcomewas unavoidable that "the funds administered by the President of thePhilippines came from donations [and] contributions [not] by taxation."Accordingly, there was that absence of the "requisite pecuniary or monetaryinterest." The stand of the lower court finds support in judicial precedents.This is not to retreat from the liberal approach followed in Pascual v.Secretary of Public Works, foreshadowed by People v. Vera, where the doctrineof standing was first fully discussed. It is only to make clear thatpetitioner, judged by orthodox legal learning, has not satisfied the elementalrequisite for a taxpayer's suit. Moreover, even on the assumption that publicfunds raised by taxation were involved, it does not necessarily follow thatsuch kind of an action to assail the validity of a legislative or executive acthas to be passed upon. This Court, as held in the recent case of Tan v.Macapagal, "is not devoid of discretion as to whether or not it should beentertained." The lower court thus did not err in so viewing the situation.

Dumlao vs COMELEC95 SCRA 392

Facts:Patricio Dumlao was the former governor of Nueva Vizcaya. He has alreadyretired from his office and he has been receiving retirement benefitstherefrom. In 1980, he filed for reelection to the same office. Meanwhile,Batas Pambansa Blg. 52 was enacted. This law provides, among others, thatretirees from public office like Dumlao are disqualified to run for office.Dumlao assailed the law averring that it is class legislation henceunconstitutional. In general, Dumlao invoked equal protection in the eye of thelaw.

His petition was joined by Atty. Romeo Igot and Alfredo Salapantan, Jr. Thesetwo however have different issues. The suits of Igot and Salapantan are more ofa taxpayer’s suit assailing the other provisions of BP 52 regarding the term ofoffice of the elected officials, the length of the campaign, and the provisionwhich bars persons charged for crimes from running for public office as well asthe provision that provides that the mere filing of complaints against themafter preliminary investigation would already disqualify them from office.

Issue: Whether or not Dumlao, Igot, and Salapantan have a cause of action.

Ruling:No. The SC pointed out the procedural lapses of this case for this case shouldhave never been merged. Dumlao’s issue is different from Igot’s. They haveseparate issues. Further, this case does not meet all the requisites so thatit’d be eligible for judicial review. There are standards that have to befollowed in the exercise of the function of judicial review, namely: (1) theexistence of an appropriate case; (2) an interest personal and substantial bythe party raising the constitutional question; (3) the plea that the functionbe exercised at the earliest opportunity; and (4) the necessity that theconstitutional question be passed upon in order to decide the case. In thiscase, only the 3rd requisite was met.

The SC ruled however that the provision barring persons charged for crimes maynot run for public office and that the filing of complaints against them andafter preliminary investigation would already disqualify them from office asnull and void. The assertion that BP 52 is contrary to the safeguard of equalprotection is neither well taken. The constitutional guarantee of equalprotection of the laws is subject to rational classification. If the groupingsare based on reasonable and real differentiations, one class can be treated andregulated differently from another class. For purposes of public service,employees 65 years of age, have been validly classified differently fromyounger employees. Employees attaining that age are subject to compulsoryretirement, while those of younger ages are not so compulsorily retirable. Inrespect of election to provincial, city, or municipal positions, to requirethat candidates should not be more than 65 years of age at the time they assumeoffice, if applicable to everyone, might or might not be a reasonableclassification although, as the Solicitor General has intimated, a good policy

of the law should be to promote the emergence of younger blood in our politicalelective echelons. On the other hand, it might be that persons more than 65years old may also be good elective local officials.

Retirement from government service may or may not be a reasonabledisqualification for elective local officials. For one thing, there can also beretirees from government service at ages, say below 65. It may neither bereasonable to disqualify retirees, aged 65, for a 65-year old retiree could bea good local official just like one, aged 65, who is not a retiree. But, in thecase of a 65-year old elective local official (Dumalo), who has retired from aprovincial, city or municipal office, there is reason to disqualify him fromrunning for the same office from which he had retired, as provided for in thechallenged provision.

CIR vs American Airlines (not found)

CIR vs Air India157 SCRA 648

Facts:The private respondent Air India is a foreign corporation organized under thelaws of India. It is not licensed to do business in the Philippines as aninternational carrier. Air India's status in the Philippines is that of an off-line international carrier not engaged in the business of air transportation inthe Philippines. Commissioner of Internal Revenue held the private respondentliable for the payment of P142,471.68. The amount represents the 2.5% incometax on the private respondent's gross Philippine billings for the said fiscalyear pursuant to Section 24 (b) (2) of the National Internal Revenue Code, asamended, inclusive of the 50% surcharge and interest for willful neglect tofile a return as provided under Section 72 of the same code.

Issue:Whether or not the revenue derived by an international air carrier from salesof tickets in the Philippines for air transportation, while having no landingrights in the country, constitutes income of the said international air carrierfrom Philippine sources and, accordingly, taxable under Section 24 (b) (2) ofthe National Internal Revenue Code

Ruling:Yes, the source of an income is the property, activity or service that producedthe income. For the source of income to be considered as coming from thePhilippines, it is sufficient that the income is derived from activity withinthe Philippines. The revenue derived by the private respondent Air India from the sales ofairplane tickets through its agent Philippine Air Lines, Inc., here in thePhilippines, must be considered taxable income. As correctly assessed by thepetitioner, such income is subject to a 2.5% tax pursuant to PresidentialDecree No. 1355, amending Section 24 (b) (2) of the tax code. The totalPhilippine billings of the private respondent for the taxable year in questionamounts to P2,968,156.00. 2.5% of this amount or P74,203.90 constitutes theincome tax due from the private respondent. The 50% surcharge or fraud penaltyprovided in Section 72 of the National Internal Revenue Code is imposed on adelinquent taxpayer who willfully neglects to file the required tax returnwithin the period prescribed by the law, or who willfully files a false orfraudulent tax return. On the other hand, the same Section provides that if thefailure to file the required tax return is not due to willful neglect, apenalty of 25% is to be added to the amount of the tax due from the taxpayer.There being no cogent basis to find willful neglect to file the required taxreturn on the part of the private respondent, the 50% surcharge or fraudpenalty imposed upon it is improper. Nonetheless, such failure subjects theprivate respondent to a 25% penalty pursuant to Section 72.

INTERESTAs for the interest which the private respondent is liable to pay, We find the42% interest assessed by the petitioner to be in order. At the time the taxliability of the private respondent accrued, Section 51 (d) of the tax code,before it was amended by Presidential Decree No. 1705 12 prescribed an interest

rate of 4% per annum, provided that the maximum amount that could be collectedas interest on the tax deficiency will not exceed the amount corresponding to aperiod of three years. Thus, the maximum interest rate then was 42%.

DEFICIENCYSection 51 (e) (2) shows that this interest is in addition to the interestprovided in Section 51 (d). This view can be gleaned from the use of the phrase"Where a deficiency, or any interest assessed in connection therewith underparagraph (d) of this section" in Section 51 (e) (2). The additional interestis to be computed upon the entire amount of the tax liability (previousinterest included) which remains unpaid. This is manifested by the use of thephrase "there shall be collected upon the unpaid amount as part of the tax" inSection 51 (e) (2). However, the same Section provides that the maximum amountthat may be collected as interest cannot exceed the amount corresponding to aperiod of three years. In this case, the maximum rate would be 60%.

SURCHARGEAn examination of Section 51 (e) (3) reveals that this surcharge is imposed forthe late payment of the unpaid tax deficiency and/or unpaid interest assessed in connection therewith, in addition to all other charges. This is confirmed bythe use of the words "there shall be collected in addition to the interest prescribed herein [referring to the entire Section 51 (e)] and in paragraph (d)above [referring to Section 51 (d)]." The additional surcharge is computed on the amount of tax unpaid, exclusive of all other impositions. This is confirmedby the phrase "ten per centum of the amount of tax unpaid." The failure to pay the tax deficiency within the required period of time upon demand is penalized by this additional surcharge. Upon such failure to pay, the surcharge is automatically due; its imposition is mandatory. Under the aforementioned provisions of the tax code, the private respondent became liable to pay the additional interest provided in Section 51 (e) (2) and the 10% surcharge provided in Section 51 (e) (3) thirty days after February 20, 1981, the date when the Commissioner of Internal Revenue sought the payment of the deficiency.More than three years have passed since and yet the account remains unsettled. Thus, the additional interest and surcharge can be imposed on the private respondent as asserted by the petitioner. Presidential Decree No. 1705 took effect on August 1, 1980. It was, therefore, the law in effect when the additional interest and surcharge could be legally imposed on the private respondent. The three-year or 60% maximum interest provided in Section 51 (e) (2) calls for application. It is computed against the total amount unpaid by the private respondent.

CIR vs JAL

Facts:JAL is a foreign corporation engaged in the business of International aircarriage. Since mid-July of 1957, JAL had maintained an office at the FilipinasHotel, Roxas Boulevard Manila. The said office did not sell tickets but wasmerely for the promotion of the company. On July 17 1957, JAL constituted PALas its agent in the Philippines. PAL sold tickets for and in behalf of JAL. OnJune 1972, JAL then received deficiency income tax assessments notices and ademand letter from petitioner for years 1959 through 1963. JAL protestedagainst said assessments alleging that as a non-resident foreign corporation,it as taxable only on income from Philippines sources as determined by section37 of the Tax Code, there being no income on said years, JAL is not liable fortaxes.

Issue:WON proceeds from sales of JAL tickets sold in the Philippines are taxable asincome from sources within the Philippines

Ruling:Yes, Citing the case of CIR v BOAC, the court reiterated that the source of anincome is the property, activity or service that produced the income. For thesource of income to be considered as coming from the Philippines, it issufficient that the income is derived from activity within the Philippines. Theabsence of flight operations to and from the Philippines is not determinativeof the source of income or the situs of income taxation. The test of taxabilityis the source, and the source of the income is that activity which produced theincome. In this case, as JAL constitutes PAL as its agent, the sales of JALtickets made by PAL is taxable.

Bank of America vs CA234 SCRA 302

Facts:Bank of America is a foreign corporation licensed to engage in business in thePhilippines through a branch in Makati. Bank of America paid 15% branch profitremittance tax amounting to PhP7.5M from its REGULAR UNIT OPERATIONS andanother 405K PhP from its FOREIGN CURRENCY DEPOSIT OPERATIONS. The tax wasbased on net profits after income tax without deducting the amountcorresponding to the 15% tax. Bank of America thereafter filed a claim forrefund with the BIR for the portion the corresponds with the 15% branch profitremittance tax. BOA’s claim: “BIR should tax us based on the profits actuallyremitted (45M), and NOT on the amount before profit remittance tax (53M)... Thebasis should be the amount actually remitted abroad.” CIR contends otherwiseand holds that in computing the 15% remittance tax, the tax should be inclusiveof the sum deemed remitted.

Issue:Whether or not the branch profit remittance tax should be base on the amountactually remitted

Ruling:Yes, it should be based on the amount actually committed, NOT what was appliedfor. There is nothing in Section 24which indicates that the 15% tax/branchprofit remittance is on the total amount of profit; where the law does NOTqualify that the tax is imposed and collected at source, the qualificationshould not be read into law. Rationale of 15%: To equalize/ share the burden ofincome taxation with foreign corporations.

NV Amstrerdam vs CIR162 SCRA 489

Facts:Both vessels of petitioner N.V. Reederij “Amsterdam” called on Philippine portsto load cargoes for foreign destinations. The freight fees for thesetransactions were paid in abroad. In these two transactions, petition RoyalInterocean Lines acted as husbanding agent for a fee or commission on saidvessels. No income tax has been paid by “Amsterdam” on the freight receipts. Asa result, Commissioner of Internal Revenue filed the corresponding income taxreturns for the petitioner. Commissioner assessed petitioner for deficiency ofincome tax, as a non-resident foreign corporation NOT engaged in trade orbusiness. On the assumption that the said petitioner is a foreign corporationengaged in trade or business in the Philippines, petitioner Royal InteroceanLines filed an income tax return of the aforementioned vessels and paid the taxin pursuant to their supposed classification. On the same date, petitionerRoyal Interocean Lines, as the husbanding agent of “Amsterdam”, filed a writtenprotest against the abovementioned assessment made by the respondentCommissioner. The protest was denied. On appeal, CTA modified the assessment byeliminating the 50% fraud compromise penalties imposed upon petitioners.Petitioner still was not satisfied and decided to appeal to the SC.

Issue:Whether or not N.V. Reederij “Amsterdam” should be taxed as a foreigncorporation not engaged in trade or business in the Philippines

Ruling:No, Petitioner is a foreign corporation not authorized or licensed to dobusiness in the Philippines. It does not have a branch in the Philippines, andit only made two calls in Philippine ports, one in 1963 and the other in 1964.In order that a foreign corporation may be considered engaged in trade orbusiness, its business transactions must be continuous. A casual businessactivity in the Philippines by a foreign corporation does not amount toengaging in trade or business in the Philippines for income tax purposes. Aforeign corporation doing business in the Philippines is taxable on incomesolely from sources within the Philippines. It is permitted to claim deductionsfrom gross income but only to the extent connected with income earned in thePhilippines. On the other hand, foreign corporations not doing business in thePhilippines are taxable on income from all sources within the Philippines. Thetax is 30% (now 35% for non-resident foreign corp which is also known asforeign corp not engaged in trade or business) of such gross income. (*takenote that in a resident foreign corp, what is being taxed is the taxableincome, which is with deductions, as compared to a non-resident foreign corpwhich the tax base is gross income). Petiioner “Amsterdam” is a non-residentforeign corporation, organized and existing under the laws of the Netherlandswith principal office in Amsterdam and not licensed to do business in thePhilippines.

CIR vs CA and YMCA (Repeated)

Abra Valley College vs Aquino162 SCRA 106

Facts:Abra Valley College, an educational corporation and institution of higherlearning duly incorporated with the SEC filed a complaint to annul and declarevoid the “Notice of Seizure” and the “Notice of Sale” of its lot and buildinglocatedat Bangued, Abra, for non-payment of real estate taxes and penalties.Paterno Millare filed through counsel a motion to dismiss the complaint. Theprovincial fiscal filed a memorandum for the government wherein they opined hatbased on the evidence, the laws applicable, court decisions and jurisprudence,the school building and the school lot used for educational purposes of theAbra Valley College are exempted from payment of taxes. Nonetheless, the trialcourt disagreed because of the use of the second floor by the Director of thesaid school for residential purpose. He thus ruled for the government andrendered the assailed decision.

Issue:Whether or not the lot and building in question are used exclusively foreducational purposes

Ruling:NO. It must be stressed that while the court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educationalpurposes” as provided for in the Article VI, Section 22, Paragraph 3 of the1935Philippine Constitution, reasonable emphasis has always been made thatexemption extends to facilities which are incidental to and reasonablynecessary for the accomplishment of the main purpose. Otherwise stated, the useof the school building or lot for commercial purposes is neither contemplatedby law, nor by jurisprudence. Thus, while the use of the second floor of themain building in the case at bar for residential purposes of the Director andhis family, may find justification under the concept of incidental use, whichis complimentary to the main or primary purpose – educational, the lease of thefirst floor thereof to the Northern Marketing Corporation cannot by any stretchof the imagination be considered incidental to the purposes of education. Underthe 1935 Constitution, the trial court correctly arrived at the conclusion thatthe school building as well as the lot where it is built, should be taxed, notbecause the second floor of the same is being used by the director and hisfamily for residential purposes, but because the first floor thereof is beingused for commercial purposes. However, since only a portion is used forpurposes of commerce, it is only fair that half of the assessed tax be returnto the school involved.

Madrigal vs Rafferty38 Phil 414

Facts:Vicente Madrigal and Susana Paterno were legally married prior to January 1,1914, contracted under the provisions of law concerning conjugal partnerships.In 1915, Madrigal filed a sworn declaration with the CIR showing that his totalnet income for the year 1914 was P296,302.73. Subsequently Madrigal submittedthe claim that the said P296,302.73 did not represent his income for the year1914, but was in fact the income of the conjugal partnership existing betweenhimself and his wife Susana Paterno, and that in computing and assessing theadditional income tax provided by the Act of Congress of October 3, 1913, theincome declared by Vicente Madrigal should be divided into two equal parts,one-half to be considered the income of Vicente Madrigal and the other half ofSusana Paterno. After payment under protest, and after the protest of Madrigalhad been decided adversely by the CIR, action was begun by Madrigal and hiswife Paterno in the CFI of Manila against Collector of Internal Revenue and theDeputy Collector of Internal Revenue. CFI decided against Madrigal and Paterno.

Appellees contend that the taxes imposed by the Income Tax Law are as the nameimplies taxes upon income tax and not upon capital and property; that the factthat Madrigal was a married man, and his marriage contracted under theprovisions governing the conjugal partnership, has no bearing on incomeconsidered as income, and that the distinction must be drawn between theordinary form of commercial partnership and the conjugal partnership of spousesresulting from the relation of marriage.

Issue:Whether or not the additional income tax should be divided into two equal partsbecause of the conjugal partnership

Ruling:No. Income as contrasted with capital or property is to be the test. Theessential difference between capital and income is that capital is a fund;income is a flow. A fund of property existing at an instant of time is calledcapital. A flow of services rendered by that capital by the payment of moneyfrom it or any other benefit rendered by a fund of capital in relation to suchfund through a period of time is called an income. Capital is wealth, whileincome is the service of wealth.

Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the propertyof her husband Vicente Madrigal during the life of the conjugal partnership.She has an interest in the ultimate property rights and in the ultimateownership of property acquired as income after such income has become capital.Susana Paterno has no absolute right to one-half the income of the conjugalpartnership. Not being seized of a separate estate, Susana Paterno cannot makea separate return in order to receive the benefit of the exemption which wouldarise by reason of the additional tax. As she has no estate and income,actually and legally vested in her and entirely distinct from her husband'sproperty, the income cannot properly be considered the separate income of thewife for the purposes of the additional tax. Moreover, the Income Tax Law does

not look on the spouses as individual partners in an ordinary partnership. Thehusband and wife are only entitled to the exemption of P8,000 specificallygranted by the law. The higher schedules of the additional tax directed at theincomes of the wealthy may not be partially defeated by reliance on provisionsin our Civil Code dealing with the conjugal partnership and having noapplication to the Income Tax Law. The aims and purposes of the Income Tax Lawmust be given effect.

Commissioner vs Tours Specialist183 SCRA 402

Facts:The Commissioner of Internal Revenue filed a petition to review on certiorarito the CTA decision which ruled that the money entrusted to private respondentTours Specialist (TS), earmarked and paid for hotel room charges of tourists,travellers and/or foreign travel agencies do not form part of its gross receiptsubject to 3% independent contractor’s tax. Tours Specialist derived incomefrom its activities and services as a travel agency, which included bookingtourists in local hotels. To supply such service, TS and its counterparttourist agencies abroad have agreed to offer a package fee for the tourists(payment of hotel room accommodations, food and other personal expenses). Byarrangement, the foreign tour agency entrusts to TS the fund for hotel roomaccommodation, which in turn paid by the latter to the local hotel when billed.

Despite this arrangement, CIR assessed private respondent for deficiency 3%contractor’s tax as independent contractor including the entrusted hotel roomcharges in its gross receipts from services for years 1974-1976 plus compromisepenalty. During cross-examination, TS General Manager stated that the paymentthrough them “is only an act of accommodation on (its) part” and “the agentabroad instead of sending several telexes and saving on bank charges they takethe option to send the money to (TS) to be held in trust to be endorsed to thehotel.”’ Nevertheless, CIR caused the issuance of a warrant of distraint andlevy, and had TS’ bank deposits garnished.

Issue:WON amounts received by a local tourist and travel agency included in a packagefee from tourists or foreign tour agencies, intended or earmarked for hotelaccommodations form part of gross receipts subject to 3% contractor’s tax

Ruling:No. Gross receipts subject to tax under the Tax Code do not include monies orreceipts entrusted to the taxpayer which do not belong to them and do notredound to the taxpayer’s benefit; and it is not necessary that there must be alaw or regulation which would exempt such monies or receipts within the meaningof gross receipts under the Tax Code. Parenthetically, the room chargesentrusted by the foreign travel agencies to the private respondents do not formpart of its gross receipts within the definition of the Tax Code. The saidreceipts never belonged to the private respondent. The private respondent neverbenefited from their payment to the local hotels. This arrangement was only toaccommodate the foreign travel agencies.

Fisher vs Trinidad43 Phil 973

Facts:No. Gross receipts subject to tax under the Tax Code do not include monies orreceipts entrusted to the taxpayer which do not belong to them and do notredound to the taxpayer’s benefit; and it is not necessary that there must be alaw or regulation which would exempt such monies or receipts within the meaningof gross receipts under the Tax Code. Parenthetically, the room chargesentrusted by the foreign travel agencies to the private respondents do not formpart of its gross receipts within the definition of the Tax Code. The saidreceipts never belonged to the private respondent. The private respondent neverbenefited from their payment to the local hotels. This arrangement was only toaccommodate the foreign travel agencies.

Issue:Whether or not the stock dividend was an income and therefore taxablRuling:No. Generally speaking, stock dividends represent undistributed increase in thecapital of corporations or firms, joint stock companies, etc., etc., for aparticular period. The inventory of the property of the corporation forparticular period shows an increase in its capital, so that the stocktheretofore issued does not show the real value of the stockholder's interest,and additional stock is issued showing the increase in the actual capital, orproperty, or assets of the corporation. In the case of Gray vs. Darlington (82U.S., 653), the US Supreme Court held that mere advance in value does notconstitute the "income" specified in the revenue law as "income" of the ownerfor the year in which the sale of the property was made. Such advanceconstitutes and can be treated merely as an increase of capital. In the case ofTowne vs. Eisner, income was defined in an income tax law to mean cash or itsequivalent, unless it is otherwise specified. It does not mean unrealizedincrements in the value of the property. A stock dividend really takes nothingfrom the property of the corporation, and adds nothing to the interests of theshareholders. Its property is not diminished and their interest are notincreased. The proportional interest of each shareholder remains the same. Inshort, the corporation is no poorer and the stockholder is no richer then theywere before. In the case of Doyle vs. Mitchell Bros. Co. (247 U.S., 179), Mr.Justice Pitney, said that the term "income" in its natural and obvious sense,imports something distinct from principal or capital and conveying the idea ofgain or increase arising from corporate activity. In the case of Eisner vs.Macomber (252 U.S., 189), income was defined as the gain derived from capital,from labor, or from both combined, provided it be understood to include profitgained through a sale or conversion of capital assets. When a corporation orcompany issues "stock dividends" it shows that the company's accumulatedprofits have been capitalized, instead of distributed to the stockholders orretained as surplus available for distribution, in money or in kind, shouldopportunity offer. The essential and controlling fact is that the stockholderhas received nothing out of the company's assets for his separate use andbenefit; on the contrary, every dollar of his original investment, togetherwith whatever accretions and accumulations resulting from employment of hismoney and that of the other stockholders in the business of the company, still

remains the property of the company, and subject to business risks which mayresult in wiping out of the entire investment. The stockholder by virtue of thestock dividend has in fact received nothing that answers the definition of an"income." The stockholder who receives a stock dividend has received nothingbut a representation of his increased interest in the capital of thecorporation. There has been no separation or segregation of his interest. Allthe property or capital of the corporation still belongs to the corporation.There has been no separation of the interest of the stockholder from thegeneral capital of the corporation. The stockholder, by virtue of the stockdividend, has no separate or individual control over the interest representedthereby, further than he had before the stock dividend was issued. He cannotuse it for the reason that it is still the property of the corporation and notthe property of the individual holder of stock dividend. A certificate of stockrepresented by the stock dividend is simply a statement of his proportionalinterest or participation in the capital of the corporation. The receipt of astock dividend in no way increases the money received of a stockholder nor hiscash account at the close of the year. It simply shows that there has been anincrease in the amount of the capital of the corporation during the particularperiod, which may be due to an increased business or to a natural increase ofthe value of the capital due to business, economic, or other reasons. Webelieve that the Legislature, when it provided for an "income tax," intended totax only the "income" of corporations, firms or individuals, as that term isgenerally used in its common acceptation; that is that the income means moneyreceived, coming to a person or corporation for services, interest, or profitfrom investments. We do not believe that the Legislature intended that a mereincrease in the value of the capital or assets of a corporation, firm, orindividual, should be taxed as "income." A stock dividend, still being theproperty of the corporation and not the stockholder, may be reached by anexecution against the corporation, and sold as a part of the property of thecorporation. In such a case, if all the property of the corporation is sold,then the stockholder certainly could not be charged with having received anincome by virtue of the issuance of the stock dividend. Until the dividend isdeclared and paid, the corporate profits still belong to the corporation, notto the stockholders, and are liable for corporate indebtedness. The rule iswell established that cash dividend, whether large or small, are regarded as"income" and all stock dividends, as capital or assets If the ownership of theproperty represented by a stock dividend is still in the corporation and not inthe holder of such stock, then it is difficult to understand how it can beregarded as income to the stockholder and not as a part of the capital orassets of the corporation. If the holder of the stock dividend is required topay an income tax on the same, the result would be that he has paid a tax uponan income which he never received. Such a conclusion is absolutelycontradictory to the idea of an income. As stock dividends are not "income,"the same cannot be considered taxes under that provision of Act No. 2833. Forall of the foregoing reasons, SC held that the judgment of the lower courtshould be REVOKED.

Request of Attorney Zialcita

Since terminal leave is applied for by an officer or employee who has alreadysevered his connection with his employer ans who is no longer working, then itfollows that TERMINAL LEAVE PAY, which is the cash value of his accumulatedleave credits, should not be treated as compensation for services rendered atthat time. It cannot be viewed as salary for purposes which would reduce it.There can be no "commutation of salary" when a government retiree applies forterminal leave because he is not receiving it as salary. what applies for is acommutation of leave credits. It is an accumulation of credits intended for oldage or separation from the service. Hence, Section 286 of the RevisedAdministrative Code is not applicable. It cannot be construed as limiting thebasis of the computation of terminal pay to monthly salary only.

Commissioner vs Javier199 SCRA 824

Facts:In 1977, Victoria Javier received a $1 Million remittance in her bank accountfrom her sister abroad, Dolores Ventosa. Melchor Javier, Jr., the husband ofVictoria immediately withdrew the said amount and then appropriated it forhimself. Later, the Mellon Bank, a foreign bank in the U.S.A. filed a complaintagainst the Javiers for estafa. Apparently, Ventosa only sent $1,000.00 to hersister Victoria but due to a clerical error in Mellon Bank, what was sent wasthe $1 Million.

Meanwhile, Javier filed his income tax return. In his return, he place afootnote which states:

Taxpayer was recipient of some money received from abroad whichhe presumed to be a gift but turned out to be an error and is nowsubject of litigation.

The Commissioner of Internal Revenue (CIR) then assessed Javier a tax liabilityamounting to P4.8 Million. The CIR also imposed a 50% penalty against Javier asthe CIR deemed Javier’s return as a fraudulent return.

Issue:Whether or not Javier is liable to pay the 50% penalty

Ruling:No. It is true that a fraudulent return shall cause the imposition of a 50%penalty upon a taxpayer filing such fraudulent return. However, in this case,although Javier may be guilty of estafa due to misappropriating money that doesnot belong to him, as far as his tax return is concerned, there can be nofraud. There is no fraud in the filing of the return. Javier’s notation on hisincome tax return can be considered as a mere mistake of fact or law but notfraud. Such notation was practically an invitation for investigation and thatJavier had literally “laid his cards on the table.” The government was neverdefrauded because by such notation, Javier opened himself for investigation.

It must be noted that the fraud contemplated by law is actual and notconstructive. It must be intentional fraud, consisting of deception willfullyand deliberately done or resorted to in order to induce another to give up somelegal right.

PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES vs JUDGE MAXIMO ASUNCION250 SCRA 434

Facts:Police Chief Inspector Napoleon B. Pascua applied for a search warrant beforeRegional Trial Court (RTC) of Quezon City, that the Paper IndustriesCorporation of the Philippines located at Bislig, Surigao De Sur is inpossession or has in its control high powered firearms, ammunitions,explosives, which are the subject of the offense.

Issue:Whether the Search Warrant is Valid

Ruling:No, petition for Certiorari and prohibition is hereby granted and SearchWarrant No. 799 accordingly declared null and void, TRO permanent. There is aquestion of fact when the doubt arises as to the truth or falsity of thealleged facts.

Esso vs CIR175 SCRA 149

Facts:In CTA Case No. 1251, Esso Standard Eastern Inc. (Esso) deducted from its grossincome for 1959, as part of its ordinary and necessary business expenses, theamount it had spent for drilling and exploration of its petroleum concessions.This claim was disallowed by the Commissioner of Internal Revenue (CIR) on theground that the expenses should be capitalized and might be written off as aloss only when a "dry hole" should result. Esso then filed an amended returnwhere it asked for the refund of P323,279.00 by reason of its abandonment asdry holes of several of its oil wells. Also claimed as ordinary and necessaryexpenses in the same return was the amount of P340,822.04, representing marginfees it had paid to the Central Bank on its profit remittances to its New Yorkhead office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only,disallowing the claimed deduction for the margin fees paid on the ground thatthe margin fees paid to the Central Bank could not be considered taxes orallowed as deductible business expenses. Esso appealed to the Court of TaxAppeals (CTA) for the refund of the margin fees it had earlier paid contendingthat the margin fees were deductible from gross income either as a tax or as anordinary and necessary business expense. However, Esso’s appeal was denied.

Issues:1. Whether or not the margin fees are taxes2. Whether or not the margin fees are necessary and ordinary business

expenses

Ruling:1. No. A tax is levied to provide revenue for government operations, while

the proceeds of the margin fee are applied to strengthen our country'sinternational reserves. The margin fee was imposed by the State in theexercise of its police power and not the power of taxation.

2. No. Ordinarily, an expense will be considered 'necessary' where theexpenditure is appropriate and helpful in the development of thetaxpayer's business. It is 'ordinary' when it connotes a payment which isnormal in relation to the business of the taxpayer and the surroundingcircumstances. Since the margin fees in question were incurred for theremittance of funds to Esso's Head Office in New York, which is aseparate and distinct income taxpayer from the branch in the Philippines,for its disposal abroad, it can never be said therefore that the marginfees were appropriate and helpful in the development of Esso's businessin the Philippines exclusively or were incurred for purposes proper tothe conduct of the affairs of Esso's branch in the Philippinesexclusively or for the purpose of realizing a profit or of minimizing aloss in the Philippines exclusively. If at all, the margin fees wereincurred for purposes proper to the conduct of the corporate affairs ofEsso in New York, but certainly not in the Philippines.

CIR vs CA and A. Soriano Corp.GR L-108576

Facts:Don Andres Soriano, a citizen and resident of the United States, formed thecorporation "A. Soriano Y Cia", predecessor of ANSCOR, with a P1,000,000.00capitalization divided into 10,000 common shares at a par value of P100/share.ANSCOR is wholly owned and controlled by the family of Don Andres, who are allnonresident aliens. In 1937, Don Andres subscribed to 4,963 shares of the 5,000shares originally issued. In 1945, ANSCOR's authorized capital stock wasincreased to P2,500,000.00 divided into 25,000 common shares with the same parvalue. Don Andres' increased his subscription to 14,963 common shares. A monthlater, Don Andres transferred 1,250 shares each to his two sons, Jose andAndres, Jr., as their initial investments in ANSCOR. Both sons are foreigners.From 1947-1963, ANSCOR declared stock dividends. On December 30, 1964 DonAndres died. As of that date, the records revealed that he has a totalshareholdings of 185,154 shares. Correspondingly, one-half of thatshareholdings or 92,577 shares were transferred to his wife, Doña CarmenSoriano, as her conjugal share. The other half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in1966 further increased it to P30M. Stock dividends worth 46,290 and 46,287shares were respectively received by the Don Andres estate and Doña Carmen fromANSCOR. Hence, increasing their accumulated shareholdings to 138,867 and138,864 common shares each. On June 30, 1968, pursuant to a Board Resolution,ANSCOR redeemed 28,000 common shares from the Don Andres' estate. By November1968, the Board further increased ANSCOR's capital stock to P75M. About a yearlater, ANSCOR again redeemed 80,000 common shares from the Don Andres' estate.As stated in the Board Resolutions, ANSCOR's business purpose for bothredemptions of stocks is to partially retire said stocks as treasury shares inorder to reduce the company's foreign exchange remittances in case cashdividends are declared. In 1973, after examining ANSCOR's books of account andrecords, Revenue examiners issued a report proposing that ANSCOR be assessedfor deficiency withholding tax-at-source, pursuant to Sections 53 and 54 of the1939 Revenue Code for the year 1968 and the second quarter of 1969 based on thetransactions of exchange and redemption of stocks.

Issue:Whether or not ANSCOR's redemption of stocks from its stockholder as well asthe exchange of common with preferred shares can be considered as "essentiallyequivalent to the distribution of taxable dividend" making the proceeds thereoftaxable.

Ruling:YES. Stock dividends, strictly speaking, represent capital and do notconstitute income to its recipient. So that the mere issuance thereof is notyet subject to income tax as they are nothing but an "enrichment throughincrease in value of capital investment." The exception provides that theredemption or cancellation of stock dividends, depending on the "time" and"manner" it was made, is essentially equivalent to a distribution of taxable

dividends," making the proceeds thereof "taxable income" "to the extent itrepresents profits".

The exception was designed to prevent the issuance and cancellation orredemption of stock dividends, which is fundamentally not taxable, from beingmade use of as a device for the actual distribution of cash dividends, which istaxable. Simply put, depending on the circumstances, the proceeds of redemptionof stock dividends are essentially distribution of cash dividends, which whenpaid becomes the absolute property of the stockholder. Thereafter, the latterbecomes the exclusive owner thereof and can exercise the freedom of choice.Having realized gain from that redemption, the income earner cannot escapeincome tax. For the exempting clause of Section, 83(b) to apply, it isindispensable that:

(a) there is redemption or cancellation; (b) the transaction involves stock dividends and (c) the "time and manner" of the transaction makes it "essentially equivalentto a distribution of taxable dividends."

Redemption is repurchase, a reacquisition of stock by a corporation whichissued the stock 89 in exchange for property, whether or not the acquired stockis cancelled, retired or held in the treasury. Essentially, the corporationgets back some of its stock, distributes cash or property to the shareholder inpayment for the stock, and continues in business as before. In the case, ANSCORredeemed shares twice. But where did the shares redeemed come from? If itssource is the original capital subscriptions upon establishment of thecorporation or from initial capital investment in an existing enterprise, itsredemption to the concurrent value of acquisition may not invite theapplication of Sec. 83(b) under the 1939 Tax Code, as it is not income but amere return of capital.

On the contrary, if the redeemed shares are from stock dividend declarationsother than as initial capital investment, the proceeds of the redemption isadditional wealth, for it is not merely a return of capital but a gain thereon.It is not the stock dividends but the proceeds of its redemption that may bedeemed as taxable dividends. At the time of the last redemption, the originalcommon shares owned by the estate were only 25,247.5 This means that from thetotal of 108,000 shares redeemed from the estate, the balance of 82,752.5(108,000 less 25,247.5) must have come from stock dividends. In the absence ofevidence to the contrary, the Tax Code presumes that every distribution ofcorporate property, in whole or in part, is made out of corporate profits suchas stock dividends. The capital cannot be distributed in the form of redemptionof stock dividends without violating the trust fund doctrine. With respect tothe third requisite, ANSCOR redeemed stock dividends issued just 2 to 3 yearsearlier.

The time alone that lapsed from the issuance to the redemption is not asufficient indicator to determine taxability. It is a must to consider thefactual circumstances as to the manner of both the issuance and the redemption.The issuance of stock dividends and its subsequent redemption must be separate,

distinct, and not related, for the redemption to be considered a legitimate taxscheme. Redemption cannot be used as a cloak to distribute corporate earnings.

ANSCOR invoked two reasons to justify the redemptions — (1) the alleged"filipinization" program and (2) the reduction of foreign exchange remittancesin case cash dividends are declared. The Court is not concerned with the wisdomof these purposes but on their relevance to the whole transaction which can beinferred from the outcome thereof. It is the "net effect rather than themotives and plans of the taxpayer or his corporation". The test of taxabilityunder the exempting clause, when it provides "such time and manner" as wouldmake the redemption "essentially equivalent to the distribution of a taxabledividend", is whether the redemption resulted into a flow of wealth. If nowealth is realized from the redemption, there may not be a dividend equivalencetreatment. The test of taxability under the exempting clause of Section 83(b)is, whether income was realized through the redemption of stock dividends. Theredemption converts into money the stock dividends which become a realizedprofit or gain and consequently, the stockholder's separate property. Profitsderived from the capital invested cannot escape income tax. As realized income,the proceeds of the redeemed stock dividends can be reached by income taxationregardless of the existence of any business purpose for the redemption.Otherwise, to rule that the said proceeds are exempt from income tax when theredemption is supported by legitimate business reasons would defeat the verypurpose of imposing tax on income. The issuance and the redemption of stocksare two different transactions.

Although the existence of legitimate corporate purposes may justify acorporation's acquisition of its own shares under Section 41 of the CorporationCode, such purposes cannot excuse the stockholder from the effects of taxationarising from the redemption. Even if the said purposes support the redemptionand justify the issuance of stock dividends, the same has no bearing whatsoeveron the imposition of the tax herein assessed because the proceeds of theredemption are deemed taxable dividends since it was shown that income wasgenerated therefrom. The proceeds thereof are essentially considered equivalentto a distribution of taxable dividends. As "taxable dividend" under Section83(b), it is part of the "entire income" subject to tax under Section 22 inrelation to Section 21 120 of the 1939 Code. Moreover, under Section 29(a) ofsaid Code, dividends are included in "gross income". As income, it is subjectto income tax which is required to be withheld at source.

CIR vs Proctor and Gamble160 SCRA 560

Facts:Procter and Gamble Philippines declared dividends payable to its parent companyand sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Philpaid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M Itsubsequently filed a claim with the Commissioner of Internal Revenue for arefund or tax credit, claiming that pursuant to Section 24(b)(1) of theNational Internal Revenue Code, as amended by Presidential Decree No. 369, theapplicable rate of withholding tax on the dividends remitted was only 15%.

Issue:Whether or not P&G Philippines is entitled to the refund or tax credit

Ruling:YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that anordinary 35% tax rate will be applied to dividend remittances to non-residentcorporate stockholders of a Philippine corporation. This rate goes down to 15%ONLY IF he country of domicile of the foreign stockholder corporation “shallallow” such foreign corporation a tax credit for “taxes deemed paid in thePhilippines,” applicable against the tax payable to the domiciliary country bythe foreign stockholder corporation. However, such tax credit for “taxes deemedpaid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20percentage points which represents the difference between the regular 35%dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA “shallallow” P&G USA a tax credit for ”taxes deemed paid in the Philippines”applicable against the US taxes of P&G USA, and such tax credit must reach atleast 20 percentage points. Requirements were met.

CIR vs Pascor309 SCRA 402

Facts:The CIR authorized certain BIR officers to examine the books of accounts andother accounting records of Pascor Realty and Development Corp. (PRDC) for1986, 1987 and 1988. The examination resulted in recommendation for theissuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987,respectively. On March 1, 1995, Commissioner filed a criminal complaint for taxevasion against PRDC, its president and treasurer before the DOJ. Privaterespondents filed immediately an urgent request for reconsideration onreinvestigation disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ inconnection with the criminal complaint. In a letter dated, May 17, 1995, theCommissioner denied private respondent’s request for reconsideration(reinvestigation on the ground that no formal assessment has been issued whichthe latter elevated to the CTA on a petition for review. The Commissioner’smotion to dismiss on the ground of the CTA’s lack of jurisdiction inasmuch asno formal assessment was issued against private respondent was denied by CTAand ordered the Commissioner to file an answer but did not instead filed apetition with the CA alleging grave abuse of discretion and lack ofjurisdiction on the part of CTA for considering the affidavit/report of therevenue officers and the endorsement of said report as assessment which may beappealed to he CTA. The CA sustained the CTA decision and dismissed thepetition.

Issue:1. Whether or not the criminal complaint for tax evasion can be construed as

an assessment2. Whether or not an assessment is necessary before criminal charges for tax

evasion may be instituted

Ruling:1. No. The filing of the criminal complaint with the DOJ cannot be construed

as a formal assessment. Neither the Tax Code nor the revenue regulationsgoverning the protest assessments provide a specific definition or formof an assessment.

An assessment must be sent to and received by the taxpayer, and mustdemand payment of the taxes described therein within a specific period.The revenue officer’s affidavit merely contained a computation ofrespondent’s tax liability. It did not state a demand or period forpayment. It was addressed to the Secretary of Justice not to thetaxpayer. They joint affidavit was meant to support the criminalcomplaint for tax evasion; it was not meant to be a notice of tax due anda demand to private respondents for the payment thereof. The fact thatthe complaint was sent to the DOJ, and not to private respondent, showsthat commissioner intended to file a criminal complaint for tax evasion,not to issue an assessment.

2. No. An assessment is not necessary before criminal charges can be filed.A criminal charge need not only be supported by a prima facie showing offailure to file a required return. The CIR had, in such tax evasioncases, discretion on whether to issue an assessment, or to file acriminal case against the taxpayer, or to do both.

CIR vs YusecoL-12518

Facts:It was found out that for two years, Yuseco failed to file his incometaxreturns. This prompted the tax authorities to assess and hold Yuseco liablefor the deficiency in payment. Yuseco asked for a report on how the amount wasderived but this request was denied. He asked for reconsideration which wasalso denied. This prompted BIR to ask still for payment. Yuseco then filed apetition for prohibition with the CTA, which the latter granted and now isbeing questioned by the Commissioner.

Issue:Whether or not the CTA have original jurisdiction to issue writs of prohibitionand injunction from an appealed case

Ruling:Nowhere does the law expressly vest in the Court of Tax Appeals originaljurisdiction to issue writs of prohibition and injunction independently of, andapart from, an appealed case. The writ of prohibition or injunction that it mayissue under the provisions of section 11, Republic Act No. 1125, to suspend thecollection of taxes, is merely ancillary to and in furtherance of its appellatejurisdiction in the cases mentioned in section 7 of the Act. The power to issuethe writ exists only in cases appealed to it.

Gaston vs Republic Planter’s Bank158 SCRA 622

Facts:Petitioners are sugar producers and planters and millers filed a MANDAMUS toimplement the privatization of Republic Planters Bank, and for the transfer ofthe shares in the government bank to sugar producers and planters. (becausethey are allegedly the true beneficial owners of the bank since they pay P1.00per picul of sugar from the proceeds of sugar producers as STABILIZATION FEES)

The shares are currently held by Philsucom / Sugar Regulatory Admin.

The Solgen countered that the stabilization fees are considered governmentfunds and that the transfer of shares to from Philsucom to the sugar producerswould be irregular.

Issue:1. What is the nature of the P1.00 stabilization fees collected from sugar

producers?2. Are they funds held in trust for them, or are they public funds?3. Are the shares in the bank (paid using these fees) owned by the

government Philsucom or privately by the different sugar planters fromwhom such fees were collected?

Ruling:PUBLIC FUNDS. While it is true that the collected fees were used to buy sharesin RPB, it did not collect said fees for the account of sugar producers. Thestabilization fees were charged on sugar produced and milled which ACCRUED TOPHILSUCOM, under PD 338.

The fees collected ARE IN THE NATURE OF A TAX., which is within the power ofthe state to impose FOR THE PROMOTION OF THE SUGAR INDUSTRY. They constitutesugar liens. The collections accrue to a SPECIAL FUNDS. It is levied not purelyfor taxation, but for regulation, to provide means TO STABILIZE THE SUGARINDUSTRY. The levy is primarily an exercise of police powers.

The fact that the State has taken money pursuant to law is sufficient toconstitute them as STATE FUNDS, even though held for a special purpose. Havingbeen levied for a special purpose, the revenues are treated as a special fund,administered in trust for the purpose intended. Once the purpose has beenfulfilled or abandoned, the balance will be transferred to the general funds ofgov’t.

It is a special fund since the funds are deposited in PNB, not in the NationalTreasury.

The sugar planters are NOT BENEFICIAL OWNERS. The money is collected from themonly because they it is also they who are to be benefited from the expenditureof funds derived from it. The investing of the funds in RPB is not alien to thepurpose since the Bank is a commodity bank for sugar, conceived for the sugarindustry’ growth and development.

Revenues derived from taxes cannot be used purely for private purposes or forthe exclusive benefit of private persons. The Stabilization Fund is to beutilized for the benefit of the ENTIRE SUGAR INDUSTRY, and all its components,stabilization of domestic and foreign markets, since the sugar industry is ofvital importance to the country’s economy and national interest.

Paseo Realty vs CA440 SCRA 235

Facts:Paseo Realty and Development Corporation, a domestic corporation engaged in thelease of two parcels of land at Paseo de Roxas in Makati City. On April 16,1990, petitioner filed its Income Tax Return for the calendaryear1989 declaringa gross income of P1,855,000.00, deductions of P1,775,991.00, net income ofP79,009.00, an income tax due thereon in the amount of P27,653.00, prior year‘sexcess credit of P146,026.00, and creditable taxes withheld in 1989 ofP54,104.00 or a total tax credit of P200,130.00 and credit balance ofP172,477.00.In a resolution dated October 21, 1993 Respondent Courtreconsidered its decision of July 29, 1993 and dismissed the petition forreview, stating that it has―overlooked the fact that the petitioner‘s 1989Corporate Income Tax Return (Exh. ―A‖) indicated that the amount of P54,104.00subject of petitioner‘s claim for refund has already been included as partand parcel of the P172,477.00 which the petitioner automatically applied as taxcredit for the succeeding taxable year 1990. Petitioner filed a Motion forReconsideration which was denied by respondent Court on March10,1994.Petitioner filed a Petition for Review dated April 3, 1994with theCourt of Appeals. Resolving the twin issues of whether petitioner is entitledto a refund of P54,104.00 representing creditable taxes withheld in 1989 andwhether petitioner applied such creditable taxes withheld to its 1990income taxliability, the appellate court held that petitioner is not entitled to a refundbecause it had already elected to apply the total amount of P172,447.00, whichincludes the P54,104.00 refund claimed, against its income tax liability for1990. The appellate court elucidated on the reason for its dismissal ofpetitioner‘s claimfor refund.

Issue:Whether or not the alleged excess taxes paid by a corporation during a taxableyear should be refunded or credited against its tax liabilities for thesucceeding year

Ruling:No. The petition must be denied. As a matter of principle, it is not advisablefor this Court to set aside the conclusion reached by an agency such as the CTAwhich is, by the very nature of its functions, dedicated exclusively to thestudy and consideration of tax problems and has necessarily developed anexpertise on the subject, unless there has been an abuse or improvidentexercise of its authority. This interdiction finds particular application inthis case since the CTA, after careful consideration of the merits of theCommissioner of Internal Revenue‘s motion for reconsideration, reconsidered itsearlier decision which ordered the latter to refund the amount of P54,104.00 topetitioner. Its resolution cannot be successfully assailed based, as it is, onthe pertinent laws as applied to the facts.

Petitioner‘s 1989 tax return indicates an aggregate creditable tax ofP172,477.00, representing its 1988 excess credit of P146,026.00 and 1989creditable tax of P54,104.00 less tax due for 1989, which it elected to apply a

stax credit for the succeeding taxable year. According to petitioner, itsuccessively utilized this amount when it obtained refunds in CTA Case No. 4439and CTA Case No. 4528 and applied its1990 tax liability, leaving a balance ofP54,104.00, the amount subject of the instant claim for refund.The confusion as to petitioner‘s entitlement to a refund could altogether havebeen avoided had it presented its tax return for 1990. Such return would haveshown whether petitioner actually applied its 1989 tax credit of P172,477.00,which includes the P54,104.00 creditable taxes withheld for 1989subject of theinstant claim for refund, against its 1990 tax liability as it had elected inits 1989 return, or at least, whether petitioner‘s tax credit of P172,477.00was applied to its approved refunds as it claims. As clearly shown from theabove-quoted provisions, in case the corporation is entitled to a refund of theexcess estimated quarterly income taxes paid, the refundable amount shown onits final adjustment return maybe credited against the estimated quarterlyincome tax liabilities for the taxable quarters of the succeeding year. Thecarrying forward of any excess or overpaid income tax for a given taxable yearis limited to the succeeding taxable year only. Taxation is a destructive powerwhich interferes with the personal and property rights of the people and takesfrom them a portion of their property for the support of the government. Andsince taxes are what we pay for civilized society, or are the lifeblood of thenation, the law frowns against exemptions from taxation and statutes grantingtax exemptions are thus construed strictissimi juris against the taxpayer andliberally in favor of the taxing authority. A claim of refund or exemption fromtax payments must be clearl yshown and be based on language in the law tooplain to be mistaken. Else wise stated, taxation is the rule, exemptiontherefrom is the exception.

CIR vs Central Luzon Drug Corp456 SCRA 414

Facts:This is a petition for review under Rule 45 of Rules of Court seeking thenullification of CA decision granting respondent’s claim for tax equal to theamount of the 20% that it extended to senior citizens on the latter’s purchasespursuant to Senior Citizens Act. Respondent deducted the total amount ofPhp219,778 from its gross income for the taxable year 1995 whereby respondentdid not pay tax for that year reporting a net loss of Php20,963 in itscorporate income tax. In 1996, claiming that the Php219,778 should be appliedas a tax credit, respondent claimed for refund in the amount of Php150, 193.

Issue:Whether or not the 20% discount granted by the respondent to qualified seniorcitizens may be claimed as tax credit or as deduction from gross sales

Ruling:“Tax credit” is explicitly provided for in Sec4 of RA 7432. The discount givento Senior citizens is a tax credit, not a deduction from the gross sales of theestablishment concerned. The tax credit that is contemplated under this Act isa form of just compensation, not a remedy for taxes that were erroneously orillegally assessed and collected. In the same vein, prior payment of any taxliability is a pre-condition before a taxable entity can benefit from taxcredit. The credit may be availed of upon payment, if any. Where there is notax liability or where a private establishment reports a net loss for theperiod, the tax credit can be availed of and carried over to the next taxableyear.

CIR vs CA (not found)208 SCRA 72

CIR vs CA257 SCRA 200

Facts:The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representingdeficiency income, ad valorem and value-added taxes for the year 1992 to whichFortune moved for reconsideration of the assessments. Later, the CIR filed acomplaint with the Department of Justice against the respondent Fortune, itscorporate officers, nine (9) other corporations and their respective corporateofficers for alleged fraudulent tax evasion for supposed non-payment by Fortuneof the correct amount of taxes, alleging among others the fraudulent scheme ofmaking simulated sales to fictitious buyers declaring lower wholesale prices,as allegedly shown by the great disparity on the declared wholesale pricesregistered in the "Daily Manufacturer's Sworn Statements" submitted by therespondents to the BIR. Such documents when requested by the court were nothowever presented by the BIR, prompting the trial court to grant the prayer forpreliminary injuction sought by the respondent upon the reason that taxliabiliity must be duly proven before any criminal prosecution be had. Thepetitioner relying on the Ungab Doctrine sought the lifting of the writ ofpreliminary mandatory injuction issued by the trial court.

Issue:Whether or not the writ of preliminary injunction should be lifted

Ruling:No. In view of the foregoing reasons, misplaced is the petitioners' thesisciting Ungab v. Cusi, that the lack of a final determination of Fortune's exactor correct tax liability is not a bar to criminal prosecution, and that while aprecise computation and assessment is required for a civil action to collecttax deficiencies, the Tax Code does not require such computation and assessmentprior to criminal prosecution.

Reading Ungab carefully, the pronouncement therein that deficiency assessmentis not necessary prior to prosecution is pointedly and deliberately qualifiedby the Court with following statement quoted from Guzik v. U.S.: "The crime iscomplete when the violator has knowingly and wilfully filed a fraudulent returnwith intent to evade and defeat a part or all of the tax." In plain words, forcriminal prosecution to proceed before assessment, there must be a prima facieshowing of a wilful attempt to evade taxes. There was a wilful attempt to evadetax in Ungab because of the taxpayer's failure to declare in his income taxreturn "his income derived from banana sapplings." In the mind of the trialcourt and the Court of Appeals, Fortune's situation is quite apart factuallysince the registered wholesale price of the goods, approved by the BIR, ispresumed to be the actual wholesale price, therefore, not fraudulent and unlessand until the BIR has made a final determination of what is supposed to be thecorrect taxes, the taxpayer should not be placed in the crucible of criminalprosecution. Herein lies a whale of difference between Ungab and the case atbar.

PICOP vs CA250 SCRA 434

Facts:On various years (1969, 1972 and 1977), Picop obtained loans from foreigncreditors in order to finance the purchase of machinery and equipment neededfor its operations. In its 1977 Income Tax Return, Picop claimed interestpayments made in 1977, amounting to P42,840,131.00, on these loans as adeduction from its 1977 gross income.

The CIR disallowed this deduction upon the ground that, because the loans hadbeen incurred for the purchase of machinery and equipment, the interestpayments on those loans should have been capitalized instead and claimed as adepreciation deduction taking into account the adjusted basis of the machineryand equipment (original acquisition cost plus interest charges) over the usefullife of such assets.

Both the CTA and the Court of Appeals sustained the position of Picop and heldthat the interest deduction claimed by Picop was proper and allowable. In theinstant Petition, the CIR insists on its original position.

Issue:Whether Picop is entitled to deductions against income of interest payments onloans for the purchase of machinery and equipment

Ruling:YES. Interest payments on loans incurred by a taxpayer (whether BOI-registeredor not) are allowed by the NIRC as deductions against the taxpayer's grossincome. The basis is 1977 Tax Code Sec. 30 (b). Thus, the general rule is thatinterest expenses are deductible against gross income and this certainlyincludes interest paid under loans incurred in connection with the carrying onof the business of the taxpayer. In the instant case, the CIR does not disputethat the interest payments were made by Picop on loans incurred in connectionwith the carrying on of the registered operations of Picop, i.e., the financingof the purchase of machinery and equipment actually used in the registeredoperations of Picop. Neither does the CIR deny that such interest payments werelegally due and demandable under the terms of such loans, and in fact paid byPicop during the tax year 1977.

The contention of CIR does not spring of the 1977 Tax Code but from RevenueRegulations 2 Sec. 79. However, the Court said that the term “interest” hereshould be construed as the so-called "theoretical interest," that is to say,interest "calculated" or computed (and not incurred or paid) for the purpose ofdetermining the "opportunity cost" of investing funds in a given business. Such"theoretical" or imputed interest does not arise from a legally demandableinterest-bearing obligation incurred by the taxpayer who however wishes to findout, e.g., whether he would have been better off by lending out his funds andearning interest rather than investing such funds in his business.

REPUBLIC vs. CA, and NIELSON & CO.,INC.149 SCRA 351

Facts:The petitioner sought the review on certiorari of the decision of therespondent Court of Appeals reversing the decision of the then Court of FirstInstance of Manila which ordered private respondent Nielson & Co., Inc. to paythe Government the amount of P11,496.00 as ad valorem tax, occupation fees,additional residence tax and 25% surcharge for late payment, for the years 1949to 1952. Petitioner claims that the demand letter of 16 July 1955 showed animprint indicating that the original thereof was released and mailed on 4August 1955 by the Chief, Records Section of the Bureau of Internal Revenue,and that the original letter was not returned to said Bureau; thus, said demandletter must be considered to have been received by the private respondent.According to petitioner, if service is made by ordinary mail, unless the actualdate of receipt is shown, service is deemed complete and effective upon theexpiration of five (5) days after mailing. As the letter of demand dated 16July 1955 was actually mailed to private respondent, there arises thepresumption that the letter was received by private respondent in the absenceof evidence to the contrary. More so, where private respondent did not offerany evidence, except the self-serving testimony of its witness, that it had notreceived the original copy of the demand letter dated 16 July 1955.

Issue:1. Whether or not the notice of assessment or demand was properly served to

the respondent 2. Whether the receipt by the respondent of the succeeding follow-up demand

notices be construed as receipt of the original demand

Ruling:1. No. As correctly observed by the respondent court in its appealed

decision, while the contention of petitioner is correct that a mailedletter is deemed received by the addressee in the ordinary course ofmail, still this is merely a disputable presumption, subject tocontroversion, and a direct denial of the receipt thereof shifts theburden upon the party favored by the presumption to prove that the mailedletter was indeed received by the addressee. Since petitioner has notadduced proof that private respondent had in fact received the demandletter of 16 July 1955, it can not be assumed that private respondentreceived said letter.

2. Yes. Records show that petitioner wrote private respondent a follow-upletter dated 19 September 1956, reiterating its demand for the payment oftaxes as originally demanded in petitioner's letter dated 16 July 1955.This follow-up letter is considered a notice of assessment in itselfwhich was duly received by private respondent in accordance with its ownadmission. And consequently, under Section 7 of Republic Act No. 1125,the assessment is appealable to the Court of Tax Appeals within thirty(30) days from receipt of the letter. The taxpayer's failure to appeal indue time, as in the case at bar, makes the assessment in question final,executory and demandable. Thus, private respondent is now barred from

disputing the correctness of the assessment or from invoking any defensethat would reopen the question of its liability on the merits.

Philippine Journalist vs CA447 SCRA 214

Facts:The Revenue District Office of the BIR issued a letter of authority for theexamination of petitioner Philippine Journalists books of accounts. From theexamination, the petitioner was told that there were deficiency taxes,inclusive of surcharges, interest and compromise penalty. Then, petitioner,through its Comptroller, Lorenza Tolentino, executed a waiver of statute oflimitations pursuant to Sec.223 and Sec.224 and consented to the assessment andcollection of taxes which may be found due after the examination at any timeafter the lapse of the period of limitations fixed by said Sections 223 and224and other relevant provisions of the NIRC, until the completion of theinvestigation. Petitioner had a deficiency of P136,952,408.97. On October 5,1998, the Assessment Division of the BIR issued Pre-Assessment Notices whichinformed petitioner of the results of the investigation. A Final Notice BeforeSeizure was sent to the petitioner but the latter merely questioned the amountof the deficiency and how the same was arrived. A Warrant of Distraint/Levy wasreceived by petitioner for the deficiency. Petitioner filed a Petition forReview with the CTA, contending that no assessment was received by him; thatthe warrant of distraint/levy was issued prematurely; and that the assessmentwas made beyond the 3-year period. Regarding the assessment, the CTA ruled thatthe assessment was sufficiently proven by the receipts of the Post Master. Asto the premature distraint/levy and the assessment made beyond the 3-yearperiod, the CTA ruled in favor of the petitioner. The waiver of statute oflimitations by the petitioner was invalid which resulted in the lapse of the 3year period for assessment. Consequently, the petition was granted, declaringthe order for payment of deficiency tax null and void. The CIR filed a motionfor reconsideration but the same was denied. Undaunted, the CIR filed an appealwith the CA. The CA reversed the ruling of the CTA, stating that the waiver oflimitations was valid and that the assessment notices was final and executory.Hence, this appeal.

Issue:Whether or not the waiver of limitations was invalid, making the assessmentbeyond the 3 year period

Ruling:Yes, the court ruled that the waiver of limitation was invalid, making theassessment beyond the allowable period of 3 years. The waiver of the statute of limitations is not a waiver of the right toinvoke the defense of prescription as erroneously held by the Court of Appeals.It is an agreement between the taxpayer and the BIR that the period to issue anassessment and collect the taxes due is extended to a date certain. The waiverdoes not mean that the taxpayer relinquishes the right to invoke prescriptionunequivocally particularly where the language of the document is equivocal. Forthe purpose of safeguarding taxpayers from any unreasonable examination,investigation or assessment, our tax law provides a statute of limitations inthe collection of taxes. Thus, the law on prescription, being a remedialmeasure, should be liberally construed in order to afford such protection. As a

corollary, the exceptions to the law on prescription should perforce bestrictly construed.

Estate of Diez vs CIR421 SCRA 266

Facts:During the lifetime of the decedent Juliana vda. De Gabriel, her businessaffairs were managed by the Philippine Trust Company (PhilTrust). The decedentdied on April 3, 1979 but two days after her death, PhilTrust filed her incometax return for 1978 not indicating that the decedent had died. The BIRconducted an administrative investigation of the decedent’s tax liability andfound a deficiency income tax for the year 1997 in the amount of P318,233.93.Thus, in November 18, 1982, the BIR sent by registered mail a demand letter andassessment notice addressed to the decedent “c/o PhilTrust, Sta. Cruz, Manila,which was the address stated in her 1978 income tax return. On June 18, 1984,respondent Commissioner of Internal Revenue issued warrants of distraint andlevy to enforce the collection of decedent’s deficiency income tax liabilityand serve the same upon her heir, Francisco Gabriel. On November 22, 1984,Commissioner filed a motion to allow his claim with probate court for thedeficiency tax. The Court denied BIR’s claim against the estate on the groundthat no proper notice of the tax assessment was made on the proper party. Onappeal, the CA held that BIR’s service on PhilTrust of the notice of assessmentwas binding on the estate as PhilTrust failed in its legal duty to inform therespondent of antecedent’s death. Consequently, as the estate failed toquestion the assessment within the statutory period of thirty days, theassessment became final, executory, and incontestable.

Issues:1. Whether or not the CA erred in holding that the service of deficiency tax

assessment on Juliana through PhilTrust was a valid service as to bindthe estate

2. Whether or not the CA erred in holding that the tax assessment had becomefinal, executory, and incontestable

Ruling:1. No. Since the relationship between PhilTrust and the decedent was

automatically severed the moment of the taxpayer’s death, none of thePhilTrust’s acts or omissions could bind the estate of the taxpayer.Although the administrator of the estate may have been remiss in hislegal obligation to inform respondent of the decedent’s death, theconsequence thereof merely refer to the imposition of certain penalsanction on the administrator. These do not include the indefinitetolling of the prescriptive period for making deficiency tax assessmentor waiver of the notice requirement for such assessment.

2. No. The assessment was served not even on an heir or the estate but on acompletely disinterested party. This improper service was clearly notbinding on the petitioner. The most crucial point to be remembered isthat PhilTust had absolutely no legal relationship with the deceased orto her Estate. There was therefore no assessment served on the estate asto the alleged underpayment of tax. Absent this assessment, no proceedingcould be initiated in court for collection of said tax; therefore, itcould not have become final, executory and incontestable. Respondent’s

claim for collection filed with the court only on November 22, 1984 wasbarred for having been made beyond the five-year prescriptive period setby law.

RP vs Lim Lian Teng SonsL-21731 – March 31, 1966

Facts:Lim Tian Teng Sons & Co., Inc. (LTT), a domestic corporation with principaloffice in Cebu City, engaged in 1951 and 1952, among others, in the exportationof copra. Lim Tian then filed its income tax return for 1952 based on accruedincome and expenses. Its return showed a loss of P56,109.98. CIR assessed LimTian of deficiency income tax and 50% surcharge thereon amounting to P5,037.00and demanded payment thereof not later than February 15, 1957. Lim Tianrequested reinvestigation of its income tax liability. CIR did NOT reply butinstead referred the case to the SolGen for collection by judicial action.SolGen demanded from Lim Tian payment w/in 5 days, stating that otherwisejudicial action would be instituted without further notice. Lim Tian thuswrote CIR and SolGen, reiterating its request for reinvestigation. It requestedthat it be allowed to present its explanation together w/ supporting papersrelative to its income tax liability.

Deputy Collector of CIR informed the taxpayer that its request forreinvestigation would be granted provided it executed within 10 days a WAIVERof the statute of limitations as required in General Circular V-258 datedAugust 20, 1957. The Deputy Collector extended the period within which toexecute and file with him the waiver of the statute of limitations to December31, 1957, but advised that if no waiver is forthcoming on or before said date,judicial action for collection would be instituted without further notice.HOWEVER, Lim Tian failed to file a waiver. CIR thus instituted 8 months after an action in the CFI of Cebu for thecollection of deficiency income tax. CFI declared the CIR's assessment asvalid, final and executory, condemning Lim Tian to pay CIR w/ interest at 1%monthly until fully paid.

Issues:1. WON lower court has jurisdiction to entertain the case given that CIR has

NOT yet issued its final decision on request for reinvestigation2. WON court erred in considering as final and executory the assessment

contained in the letter of the CIR dated January 16, 1957. 3. WON the assessment was correct

Ruling:4. Yes. Nowhere in the Tax Code is the CIR required to rule first on a

taxpayer's request for reinvestigation before he can go to court for thepurpose of collecting the tax assessed. On the contrary, Section 305 ofthe same Code withholds from all courts, except the CTA under Section 11of Republic Act 1125, the authority to restrain the collection of anynational internal-revenue tax, fee or charge, thereby indicating thelegislative policy to allow the CIR much latitude in the speedy andprompt collection of taxes. The reason is obvious. It is upon taxationthat the government chiefly relies to obtain the means the carry on itsoperations, Section 11 of Republic Act 1125 states in part: No appealtaken to the Court of Tax Appeals from the decision of the Collector of

Internal Revenue ... shall suspend the payment, levy, distraint, and/orsale of any property of the taxpayer for the satisfaction of his taxliability as provided by existing law EXCEPT if it may jeopardizeinterest of the gov and/or taxpayer.

5. No. In this case, Lim Tian received said assessment on January 30, 1957and on the following day requested reinvestigation of its tax liability.The CIR however did NOT reply to the request for reinvestigation.Instead, he referred the case to the Solicitor General for collection ofthe tax. The lower court interpreted this action of the Collector ofInternal Revenue as a denial of defendant's request for reinvestigation.Instead of appealing to the Tax Court, however, Lim Tian reiterated itsrequest for reinvestigation. Even if we do not count the period fromOctober 8, 1957 (the date when taxpayer received notice of the denial ofits request for reinvestigation) to December 31, 1957 (the deadline forthe submission of the written waiver of the statute of limitations) inreckoning the 30-day period within which the taxpayer may appeal to theCTA, said period had long lapsed when the CIR filed the complaint in thiscase on September 2, 1958. Taxpayer’s failure to appeal to the CTA in duetime made the assessment in question final, executory and demandable.And when the action was instituted on September 2, 1958 to enforce thedeficiency assessment in question, it was already barred from disputingthe correctness of the assessment or invoking any defense that wouldreopen the question of his tax liability on merits. Otherwise, the periodof 30 days for appeal to the Court of Tax Appeals would make littlesense.

6. Yes. From what appeared in the 1952 return the accounting method used byLTT was the accrual method of accounting. As such the copra outturn inthe amount of P95K should have been treated as accrued income of 1951instead of stock on hand of 1952. There if every indication that the 1952income was fraudulent. That the beginning inventory for 1952 consideredthe copra outturn on hand but as of Dec 31 1951 it was not in its bodegaanymore. It was in transit to a foreign port and they no longer owned thecopra as it was already paid for. They did not follow their own system ofaccounting. This deviation was made to lessen its tax liability.Therefore the surcharge of 50% was correct.

CIR vs HizonGR No. 130430 – December 13, 1999

Facts:On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiencyincome tax assessment covering the fiscal year 1981-1982. Respondent not havingcontested the assessment, petitioner BIR, on January 12, 1989, served warrantsof distraint and levy to collect the tax deficiency. However, for reasons notknown, it did not proceed to dispose of the attached properties. More than three years later, the respondent wrote the BIR requesting areconsideration of her tax deficiency assessment. The BIR, in a letter datedAugust 11, 1994, denied the request. On January 1, 1997, it filed a case withthe RTC to collect the tax deficiency. Hizon moved to dismiss the case on twogrounds: (1) that the complaint was not filed upon authority of the BIRCommissioner as required by Sec. 221 of the NIRC, and (2) that the action hadalready prescribed. Over petitioner's objection, the trial court granted themotion and dismissed the complaint.

BIR on the other hand contends that respondent's request for reinvestigation ofher tax deficiency assessment on November 1992 effectively suspended therunning of the period of prescription.

Issue:Whether or not the action has prescribed

Ruling:Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must bemade within 30 days from the taxpayer's receipt of the tax deficiencyassessment, otherwise the assessment becomes final, unappealable and,therefore, demandable. The notice of assessment for respondent's tax deficiencywas issued by petitioner on July 18, 1986. On the other hand, respondent madeher request for reconsideration thereof only on November 3, 1992, withoutstating when she received the notice of tax assessment. Hence, her request forreconsideration did not suspend the running of the prescriptive period providedunder Sec. 223(c). Although the Commissioner acted on her request by eventuallydenying it on August 11, 1994, this is of no moment and does not detract fromthe fact that the assessment had long become demandable.

Ungab vs Cusi97 SCRA 877

Facts:The BIR filed six criminal charges against Quirico Ungab, a banana saplingsproducer, for allegedly evading payment of taxes and other violations of theNIRC. Ungab, subsequently filed a motion to quash on the ground that (1) theinformation are null and void for want of authority on the part of the StateProsecutor to initiate and prosecute the said cases; and (2)that the trialcourt has no jurisdiction to take cognizance of the case in view of his pendingprotest against the assessment made by the BIR examiner. The trial court deniedthe motion prompting the petitioner to file a petition for certiorari andprohibition with preliminary injunction and restraining order to annul and setaside the information filed.

Issue:Whether or not the contention that the criminal prosecution is premature sincethe CIR has not yet resolved the protest against the tax assessment is tenable

Ruling:No. The contention is without merit. What is involved here is not thecollection of taxes where the assessment of the Commissioner of InternalRevenue may be reviewed by the Court of Tax Appeals, but a criminal prosecutionfor violations of the National Internal Revenue Code which is within thecognizance of courts of first instance. While there can be no civil action toenforce collection before the assessment procedures provided in the Code havebeen followed, there is no requirement for the precise computation andassessment of the tax before there can be a criminal prosecution under theCode.

An assessment of a deficiency is not necessary to a criminal prosecution forwilful attempt to defeat and evade the income tax. A crime is complete when theviolator has knowingly and wilfully filed a fraudulent return with intent toevade and defeat the tax. The perpetration of the crime is grounded uponknowledge on the part of the taxpayer that he has made an inaccurate return,and the government's failure to discover the error and promptly to assess hasno connections with the commission of the crime.

CIR vs GonzalesGR L-19495

Facts:In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay andLilia Yusay Gonzales. Jose was appointed as administrator. He filed an estateand inheritance tax return in 1949. The Bureau of Internal Revenue (BIR)conducted a tax audit and the BIR found that there was an under-declaration inthe return filed. In 1953 however, a project of partition between the two heirswas submitted to the BIR. The estate was to be divided as follows: 1/3 forGonzales and 2/3 for Jose. The BIR then conducted another investigation in July1957 with the same result – there was a huge under-declaration. In February1958, the Commissioner of Internal Revenue issued a final assessment notice(FAN) against the entire estate. In November 1959, Gonzales questioned thevalidity of the FAN issued in 1958. She averred that it was issued way beyondthe prescriptive period of 5 years (under the old tax code). The return wasfiled by Jose in 1949 and so the CIR’s right to make an assessment has alreadyprescribed in 1958.

Issue:Whether or not Gonzales is correct

Ruling:No. It was found that Jose filed a return which was so defective that the CIRcannot make a correct computation on the taxes due. When a tax return is sodefective, it is as if there is no return filed, hence, it is considered thatthe taxpayer omitted to file a return. As such, the five year prescriptiveperiod to make an assessment (NOTE: Under the National Internal Revenue Code of1997, prescriptive period for normal assessment is 3 years) is extended to 10years. And the counting of the prescriptive period shall run from the discoveryof the omission (or fraud or falsity in appropriate cases). In the case at bar,the omission was deemed to be discovered in the re-investigation conducted inJuly 1957. Hence, the FAN issued in February 1958 was well within the ten yearprescriptive period. Gonzales was adjudged to pay the deficiency tax in theFAN, without prejudice to her right to ask reimbursement from Jose’s estate(Jose already died).

City Trust Banking vs. CAGR 92591, 30 April 1991

Facts:Citibank N.A. Philippine Branch (CITIBANK) is a foreign corporation doingbusiness in the Philippines. In 1979 and 1980, its tenants withheld and paid tothe Bureau of Internal Revenue the taxes on rents due to Citibank, pursuant toSection 1(c) of the Expanded Withholding Tax Regulations. On April 15, 1980,Citibank field its corporate income tax returns for the year and ended December31,1979 showing a net loss of P74,854,916.00 and its tax credits totaledP6,257,780.00, even without including the amounts withheld on rental incomeunder the Expanded Withholding Tax System, the same not having been utilized orapplied for the reason that the year‘s operation resulted in a loss. The taxesthus withheld by the tenants from rentals paid to Citibank in 1979 were notincluded as tax credits although a rental income amounting to P7,796,811.00 wasincluded in its income declared for the year ended December 31, 1979.

For the year ended December 31, 1980, Citibank‘s corporate income tax returns,filed on April 15, 1981,showed a net loss P77,071,790.00 for income taxpurposes. Its available tax credit at the end of 1980amounting toP11,532,855.00 was not utilized or applied. The said available tax credits didnot include the amounts withheld by Citibank‘s tenants from rental payment sin1980 but the rental payments for that year were declared as part of its grossincome included in its annual income tax returns. On October 31, 1981, Citibanksubmitted its claim for refund of the aforesaid amounts of P270,160.56 andP298,829.29, respectively or a total of P568,989.85; and on October 12, 1981filed a petition for review with the Court of Tax Appeals concerning subjectclaim for tax refund. On August 30, 1981, the CTA adjudged Citibank‘sentitlement to the tax refund sought for, representing the 5% tax withheld andpaid on Citibank‘s rental income for 1979 and 1980. The Court of Tax Appeals,rejected Respondent CIR‘s argument that the claim was not seasonably filed. Notsatisfied the Commissioner appealed to the Court of Appeals, CA ruled thatCitibank N.A. Philippine branch, entitled to a tax refund/credit in the amountof P569,989.85, representing the 5% withheld tax in Citibank‘s rentalincome for the years 1979 and 1980 is REVERSED. Motion for Reconsideration ofthe petitioner bank was denied.

Issue:Whether or not income taxes remitted partially on a periodic or quarterly basisshould be credited or refunded to the taxpayer on the basis of the taxpayer‘sfinal adjusted returns.

Ruling:In several cases, we have already ruled that income taxes remitted partially ona periodic or quarterly basis should be credited or refunded to the taxpayer onthe basis of the taxpayer‘s final adjusted returns, not on such periodic orquarterly basis. When applied to taxpayers filing income tax returns on aquarterly basis, the date of payment mentioned in Sec. 230 must be deemed to bequalified by Sec. 68 and 69 of the present. Tax Code. It may be observed thatalthough quarterly taxes due are required to be paid within 60 days from theclose of each quarter, the fact that the amount shall be deducted from the tax

due for the succeeding quarter shows that until a final adjustment returnshallhave been filed, the taxes paid in the preceding quarters are merelypartial taxes due from a corporation. Neither amount can serve as the finalfigure to quantify what is due the government nor what should be refunded to becorporation. This interpretation may be gleaned from the last paragraph of Sec.69 of the Tax Code which provides that the refundable amount, in case are fundis due a corporation, is that amount which is shown on its final adjustmentreturn and not on its quarterly returns.

Rep. vs. De Guzman5 SCRA 990

Facts:In 1946, Limaco & De Guzman Co. was engaged in the importation of cigarettes.To guarantee payment of revenue taxes, the company and the Visayan Surety andInsurance Corp. as surety, executed 2 importer bonds. On 27 June 1946, thecompany filed with the Bureau of Customs entry papers covering shipment of 2million “Spud” cigarettes it had imported from New York. the specific tax duethereon amounted to P6,000. The company, through its agent/broker J. O.Hiponia, paid the Bureau of Customs the tax with P1000 in cash and P5,000 in aPNB Check on 15 July1946. The cigarettes were released to the company but thecheck bounced. On 17 June 1948, the Collector of Internal Revenue demanded thepayment of the deficiency specific tax. The amount remained unpaid. On 15 April1951, the company requested that action be deferred as it intends to settle thematter amicably with the BIR. The Republic filed a complaint for the forfeitureof the bonds, and the payment of the sum of P5,000 plus interest. The companyinvoked the defense of estoppel and prescription has the action prescribed onthe ground that the assessment was made in beyond 5 years from July 15 1946.

Issue:Whether or not the power of assessment prescribed

Ruling:No. The assessment in question has not yet prescribed. It was not issued onJuly 14, 1946, but on June 17, 1948. When the Collector of Internal Revenuereceived information from the Bureau of Customs that the said sum of P5,000.00was not paid (for lack of funds), he immediately issued a letter dated June 17,1948 addressed to the defendant assessing and demanding from the latter thepayment of the saidP5,000.00. It was then that the unpaid specific tax ofP5,000.00 was deemed to have been assessed. When the tax was paid in cash andin check on July 15, 1946, the Collector had a right to rely, as it, in fact,relied that said payment fully settled the specific taxes due on the importedcigarettes. The cigarettes would not have been released, had Collector beenaware that the payment did not fully settle the said specific taxes. It can notbe said that July 15, 1946 (the date of payment) was the date of assessmentfrom which the period of collection should start. July 15, 1946was simply thedate of tender of payment. The right to collect the amount of P5,000.00 beganonly after the P5,000.00 — rubber check was dishonored. The action to assessand collect the unpaid tax commenced anew on June 14, 1948, when a letter ofdemand for the amount of said rubber-check had been sent to the defendant. Thisletter should be deemed to be an assessment because it declared and fixed a taxto be payable against the party liable thereto, and demanded the settlementthereof. Judicial action having been instituted on February 18, 1953, the five-year period for collection had not then elapsed.

Even assuming that July 15, 1946 is the date of assessment, still the action tocollect is not barred by the statute of limitations, because the statute wassuspended when the rubber-check was dishonored and demand letters were sent bythe commissioner. The defendant likewise wrote two letters to the SolicitorGeneral on April 15, and 25, 1951, respectively, requesting for the deferment

of the judicial action to be taken by the latter towards the collection of theobligation, so that the former could make representations with the Collector tosettle the matter amicably. This being the case, the prescriptive period toeffect the collection of the tax whichallegedly commenced on July 15, 1946, wasinterrupted. "The prescription of actions is interrupted when they are filedbefore the court, when there is any written extrajudicial demand by thecreditors and when there is any written acknowledgment of the debt by thedebtor " (Art. 1155, New Civil Code). "Taxpayers seeking to recover overpaymentin income could not claim that collection by Commissioner was barred bylimitations where procedure carried out which result in postponement ofcollection was that requested by taxpayers". Having acknowledged the debt inwriting in April1951, and the complaint was filed in 1953, prescription had notset in. The full time for the prescription must be reckoned from the cessationof the interruption (Sagucio v. Bulos, G.R. Nos. L-17608-09, July 31, 1962, andcases cited therein). Had it notbeen for the filing of the complaint in 1953,the interruption would have ceased in April 1956.

CIR vs Lucio TanGR 119322

Facts:The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representingdeficiency income, ad valorem and value-added taxes for the year 1992 to whichFortune moved for reconsideration of the assessments. Later, the CIR filed acomplaint with the Department of Justice against the respondent Fortune, itscorporate officers, nine (9) other corporations and their respective corporateofficers for alleged fraudulent tax evasion for supposed non-payment by Fortuneof the correct amount of taxes, alleging among others the fraudulent scheme ofmaking simulated sales to fictitious buyers declaring lower wholesale prices,as allegedly shown by the great disparity on the declared wholesale pricesregistered in the "Daily Manufacturer's Sworn Statements" submitted by therespondents to the BIR. Such documents when requested by the court were nothowever presented by the BIR, prompting the trial court to grant the prayer forpreliminary injuction sought by the respondent upon the reason that taxliabiliity must be duly proven before any criminal prosecution be had. Thepetitioner relying on the Ungab Doctrine sought the lifting of the writ ofpreliminary mandatory injuction issued by the trial court.

Issue:Whose contention is correct?

Ruling:In view of the foregoing reasons, misplaced is the petitioners' thesis citingUngab v. Cusi, that the lack of a final determination of Fortune's exact orcorrect tax liability is not a bar to criminal prosecution, and that while aprecise computation and assessment is required for a civil action to collecttax deficiencies, the Tax Code does not require such computation and assessmentprior to criminal prosecution.

Reading Ungab carefully, the pronouncement therein that deficiency assessmentis not necessary prior to prosecution is pointedly and deliberately qualifiedby the Court with following statement quoted from Guzik v. U.S.: "The crime iscomplete when the violator has knowingly and wilfully filed a fraudulent returnwith intent to evade and defeat a part or all of the tax." In plain words, forcriminal prosecution to proceed before assessment, there must be a prima facieshowing of a wilful attempt to evade taxes. There was a wilful attempt to evadetax in Ungab because of the taxpayer's failure to declare in his income taxreturn "his income derived from banana sapplings." In the mind of the trialcourt and the Court of Appeals, Fortune's situation is quite apart factuallysince the registered wholesale price of the goods, approved by the BIR, ispresumed to be the actual wholesale price, therefore, not fraudulent and unlessand until the BIR has made a final determination of what is supposed to be thecorrect taxes, the taxpayer should not be placed in the crucible of criminalprosecution. Herein lies a whale of difference between Ungab and the case atbar.

Castro vs CIRGR L-12174

Facts:Petitioner-appellant Maria B. Castro asks for partial reconsideration of thedecision of this court dated April 26, 1962, contending that the one percent(1%) monthly interest on the war profits tax due from her should be limited toa total of thirty-six per centum (36%).

This contention is made to rest on the provisions of the Internal Revenue Codeon Income Tax, Section 51 (e), as amended by Republic Act No. 2343 (approved onJune 29, 1959), to the effect that:

"SEC. 51 (e). Additions to the tax in case of nonpayment. — (1) Tax shown onthe return. — Where the amount determined by the taxpayer as the tax imposed bythis Title or any installment thereof, or any part of such amount orinstallment, is not paid on or before the date prescribed for its payment,there shall be collected as a part of the tax, interest upon such unpaid amountat the rate of one per centum a month from the date prescribed for its paymentuntil it is paid: Provided, That the maximum amount that may be collected asinterest on deficiency shall in no case exceed the amount corresponding to aperiod of three years, the present provisions regarding prescription to thecontrary notwithstanding."

Issue:Whether or not Castro is correct

Ruling:No. Assuming, without deciding, that this particular section is applicable towar profits taxes, we agree with the Solicitor General that there is no legalground for applying retroactively to the delinquencies of the petitioner underthe War Profits Tax Law (and which accrued since September 23, 1950, when thecorresponding tax assessment was issued) the terms of a law (R.A. 2343) enactedalmost nine (9) years later. It is elementary that laws are presumed to operateonly prospectively, and have no retroactive effect in the absence of clearprovision to the purpose. As it stood in 1950, Section 51 (e) of the RevenueCode provided for monthly interest without limitation of the number ofmonths:jgc:chanrobles.com.ph

"SEC. 51 (e). Surcharge and interest in case of delinquency. — To any sum orsums due and unpaid after the dates prescribed in subsections (b), (c) and (d)for the payment of the same, there shall be added the sum of five per centum onthe amount of tax unpaid and interest at the rate of one per centum a monthupon said tax from the time the same became due, except from the estates ofinsane, deceased, or insolvent persons."

Petitioner contends that the imposition of interest amounts to a penalty, andthat laws imposing lighter penalties are given retrospective effect. Wedisagree with the basic assumption, and hold that the imposition of 1% monthlyinterest is but a just compensation to the state for the delay in paying thetax, and for the concomitant use by the taxpayer of funds that rightfully

should be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752; Ross v.U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed. [2d] 488). The fact that theinterest charged is made proportionate to the period of delay constitutes thebest evidence that such interest is not penal but compensatory.

People vs Balagtas (not found)GR L-10210