Taxation II Digests - Midterms

TAXATION II DIGESTS ATTY. BANIQUED ALS2014B

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RIGHTS AND REMEDIES OF THE GOVERNMENT UNDER THE NATIONAL INTERNAL REVENUE CODE

01 - CIR v. Aquafresh Seafoods, Inc. (2010) (Residential to Commercial) Doctrine:

• While the CIR is given the authority to determine the fair market value of the subject properties for the purpose of computing internal revenue taxes, such authority is not without restriction or limitation.

• The first sentence of Section 6(E) sets the limitation or condition in the exercise of such power by requiring respondent to consult with competent appraisers both from private and public sectors.

Facts:

Aquafresh Seafoods sold to Philips Seafood two parcels of land located at Barrio Banica, Roxas City. Aquafresh paid the corresponding Capital Gains Tax (P186,000) and Documentary Stamp Tax (P46,500). However, the BIR received a report that the purchase price of the sale was undervalued for tax purposes. They conducted an investigation and concluded that the subject properties were commercial and had a higher zonal value (P2000). They sent deficiency assessment notices to Aquafresh for tax deficiencies. The deficiencies were based on the supposed selling price following the P2000 zonal value. Aquafresh protested but the protest was denied.

Aquafresh filed a petition for review with the CTA seeking the reversal of the decision. They argued that since the properties were located in Barrio Banica, classified as residential and given a zonal value of P650 per sq/m in the 1995 Revised Zonal Values of Real Property, the prescribed zonal value should prevail. Aquafresh contends that the BIR had no business in re-classifying the subject properties to commercial. The CTA decided in favor of Aquafresh stating that while the CIR is given the authority to determine the zonal values, the same is not without limitation - it should be done in consulation with competent appraisers both from the public and private sectors (Sec. 6e, NIRC).

The CIR now assails the CTA decision. First, he argues that the requirement of consultation is mandatory only when it is prescribing real property values — that is when a formulation or change is made in the schedule of zonal values. He argues that what they did was not to prescribe the zonal value, but merely classify the same as commercial and apply the corresponding zonal value for such classification based on the existing schedule of zonal values. Second, he argues that their act was pursuant to their Zonal Valuation Guidelines. According to the CIR, the guidelines provide that “All real properties, regardless of actual use, located in a street/barangay zone, the use of which are predominantly commercial shall be classified as “Commercial” for purposes of zonal valuation.”

Issues:

1. W/N the CIR is correct in re-classifying the subject properties from “residential” to “commercial”, consequently raising the zonal value of the properties.

Held/Ratio:

1. NO. While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the law is clear that the same has to be done upon consultation with competent appraisers both from the public and private sectors. It is undisputed that at the time of the sale of the subject properties found in Barrio Banica, Roxas City, the same were classified as residential. The petitioner cannot unilaterally classify the same to “commercial” without first conducting a re-evaluation of the zonal values as mandated under Section 6(E) of the NIRC.

As to the contention that consultation is needed only when there is a change in the prescribed zonal values, and what they did was merely to classify the properties to commercial and apply the zonal values, it should be noted that ALL the properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values. The act of classifying the subject properties into commercial involves a re-classification and revision of the prescribed zonal values.


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As to the second contention, the Guidelines provision being invoked may only be used as basis when the real property is located in an area or zone where the properties are not yet classified and their respective zonal valuation are not yet determined. The BIR itself expressed this view in a BIR Ruling . Such is not the situation in the case.

02 - CIR v. COA (1993) Doctrines:

• That the informer’s reward was sought and given in relation to tax delinquencies of government agencies provides no reason for disallowance

Facts:

This case is a consolidated case of CIR v COA and Savellano v COA. On June 25, 1986 Tirso B. Savellano funished BIR with a confidential affidavit of information which reveals that National Coal Authority (NCA) and Philippine National Oil Company do not pay taxes amounting to P 234 Million. After several demands and investigation of BIR, the two corporation NCA and PNOC paid the BIR their tax liability. A few months later, the Minister of finance with the recommendation from BIR Commissioner Bienvenido Tan Jr. agreed to pay Savellano an informer’s reward (15% of the P 15.9 M paid by NCA. In 1989, COA issued a decision wherein in disallowed the payment of informer’s reward to Savellano on the ground that such payment according to Sec 281 of NIRC is conditioned upon the actual recovery or revenue realized by the government . In this case, the government was not able to realize any benefit since the unpaid tax liabilities were collected from 2 government agencies (NCA and PNOC.)

Issues:

1. Whether the approval by the Department of Finance of the claim of the informer’s reward conclusive upon the executive agencies concerned including COA.

2. Whether the informer Savellano is not entitled to receive the informer’s reward because there was no actual collection of revenues since the unpaid tax liabilities were collected from government agencies as well.

Held/Ratio:

1. NO. The Supreme Court held that the final determination made by Dept of Finance can’t bind COA. COA is vested by the Constitution with power and authority to audit and ensure that the public funds are expended and used in conformity with the law. To bar COA from reviewing the decision of Dept. Finance and BIR is to circumvent and ignore Sec. 3 Art IX of 1987 Constitution where it stated that no law shall be passed exempting any entity of the government from jurisdiction of the COA. The Court, however, added that the disallowance of COA is not absolute and final for it may still be set aside and nullified by the SC if done with grave abuse of discretion.

2. NO. The SC held that Savellano is still entitled to the informer’s reward despite the fact that such unpaid tax liabilities were recovered from 2 government agencies (NCA and PNOC.) The Court said that these 2 agencies possess legal personalities separate and distinct from the Philippine government and they both perform proprietary functions. This means that their revenues do not automatically goes to the general funds of the government and it is only when such revenues are subjected to tax does it create revenue for the government. In the end, the Court held that the Sec 281 (Now Sec 282) of NIRC does not make any distinction between delinquent taxpayers whether private natural or juridical persons, or public or quasi-public agencies. It is sufficient that such delinquent party is subjected and violated tax laws and the informer’s report resulted in the recovery of revenues.


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03 - Fitness by Design, Inc. v. CIR (2008) Facts:

On March 17, 2004, the CIR assessed Fitness by Design, Inc. (FbD) for deficiency taxes for the taxable year 1995. FbD protested the assessment on the ground that it was issued beyond the three-year prescriptive period. Additionally, FbD claimed that since it was incorporated only on May 30, 1995, there was no basis to assume that it had already earned income for the tax year 1995.

On February 1, 2005, the CIR issued a warrant of distraint and/or levy against FbD, thus, the latter filed on March 1, 2005 a Petition for Review before the CTA, where it reiterated its defense of prescription.

The CIR, in his Answer, alleged that the right of the CIR to assess deficiency taxes has not yet prescribed since the 1995 ITR filed by FbD on April 11, 1996 was false and fraudulent for deliberate failure to declare its true sales. The CIR argued further that investigations by the revenue officers disclosed that it has been operating/doing business and had sales operations for the year 1995 which it failed to report in its 1995 ITR, thus, there was deliberate intent to evade tax. Hence, the CIR argued that the period of prescription shall be 10 years from the date of discovery of such fraud, pursuant to Sec. 222(a) of the Tax Code. The CIR also contended that the deficiency tax assessments have already become final, executory and demandable for failure of the petitioner to file a protest within the reglementary period provided for by law.

The BIR also filed on March 10, 2005 a criminal complaint before the DOJ against the officers and accountant of petitioner for violation of the provisions of “The National Internal Revenue Code of 1977, as amended, covering the taxable year 1995.”

A preliminary hearing on the issue of prescription was conducted before the CTA, during which FbD’s former bookkeeper attested that a former colleague — Sablan — illegally took custody of FbD’s accounting records, invoices, and official receipts and turned them over to the BIR.

A subpoena ad testificandum and subpoena duces tecum was requested by FbD for the appearance of Sablan and the production of the Affidavit of the Informer. In a related move, FbD submitted written interrogatories addressed to Sablan, and to the revenue officers of the BIR.

By Resolution of January 15, 2007, the CTA denied petitioner’s Motion for Issuance of Subpoenas and disallowed the submission by petitioner of written interrogatories, it finding that the testimony, documents, and admissions sought are not relevant and that to require Sablan to testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of informers of violations of internal revenue laws, except when the information is proven to be malicious or false.

Issue:

1. Whether the CTA committed grave abuse of discretion when it issued the questioned Resolution?

Held/Ratio:

1. NO. The Court found that the testimonies, documents and admissions sought by FbD to be presented in the case through subpoenas and written interrogatories were not relevant to the issues before the CTA, since the issues pertain only to whether the CIR’s tax assessment against FbD had already prescribed, and whether FbD’s tax return was false or fraudulent. However, the reason of FbD for requesting the issuance of subpoenas and submission of written interrogatories was to establish that its accounting records and related documents, invoices, and receipts were illegally obtained.

Furthermore, the SC affirmed the CTA’s reasoning that the subpoenas and answers to the written interrogatories would violate Section 2 of Republic Act No. 2338 as implemented by Section 12 of Finance Department Order No. 46-66.

FbD claims that it only intended to obtain information on the whereabouts of the documents it needs in order to refute the assessment, and not to disclose the identity of the informer. However, the SC found that the interrogatories addressed to Sablan and the revenue officers show that they were intended to confirm FbD’s belief that Sablan was the informer.


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FbD argues that the BIR obtained the documents illegally since Sablan allegedly submitted them to the BIR without FbD’s consent. The SC, however, found that FbD’s lack of consent does not imply that the BIR obtained them illegally or that the information received is false or malicious.

Section 5 of the Tax Code allows the BIR access to all relevant or material records and data in the person of the taxpayer, and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes.

Also, the SC said that there is no more need for the issuance of subpoena duces tecum for the production of the documents requested by FbD since the CTA already ordered the CIR to certify and forward to it all the records of the case.


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04 - Sy Po v. CTA (1998) Doctrine:

• Sec. 16. Power of the Commissioner of Internal Revenue to make assessments.—

xxx xxx xxx

(b) Failure to submit required returns, statements, reports and other documents. - When a report required by law as a basis for the assessment of an national internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise, files a false or fraudulent return or other documents, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

• Tax assessments by tax examiners are presumed correct and made in good faith.

Facts:

Sy Po is the widow of Mr. Sing which was the sole owner of a wine store and factory (Silver Cup) in Cebu. The Secretary of Finance (Virata) conducted an investigation on Silver Cup for its alleged tax evasion amounting to millions. A subpoena for relevant documents was issued, but Sing did not produce such. This prompted the investigators to enter the factory bodega of Silver Cup and cease different products. They posited the deficiency income tax to be around 7million based on the confiscated goods.

Sy Po protested such deficiency assessments so the BIR recommended the reiteration of the assessments in view of Silver Cup’s persistent failure to present documents which then compelled the CTA to isse warrants of distraint and levy.

Issue:

1. W/N the assessments have valid legal bases

Held/Ratio:

1. YES. The law was specific and clear. The rule on the “best evidence obtainable” applies when a tax report required by law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent.

In this case, the persistent failure of the late Mr. Sing and the herein petitioner to present their books of accounts for examination for the taxable years left the CIR no other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code.

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.

Actually, the revenue inspector or storekeeper comes around once a week Sometimes, when the storekeeper is around in the morning and Mr. Sing wants to operate with untaxed alcohol as raw materials, Mr. Sing tells the storekeeper to go home because the factory is not going to operate for the day. After the storekeeper leaves, the illegal operation then begins. Untaxed alcohol is brought in from Cebu Alcohol Plant into the compound of Silver Cup. When the storekeeper comes, he sees nothing because untaxed alcohol is brought directly to, and stored at, a secret tunnel within the bodega itself inside the compound of Silver Cup.


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05 - Pilipinas Shell Petroleum Corporation v. CIR (2007) Facts:

Pilipinas Petroelum Shell Corporation, PSPC for brevity, is the subsidiary of Shell Philippines, and is engaged in the importation, refining and sale of petroleum products. From 1988 to 1997, PSPC paid part of its excise tax liabilities with Tax Credit Certificates (TCCs) which it acquired through the Department of Finance (DOF) One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (Center) and other BOI registered companies.

PSPC signified its intent to use the said TCCs to pay part of its excise tax liabilities said payments were duly approved by the center. However, on April 22, 1998 the BIR sent a collection to PSPC for alleged deficiency excise tax liabilities. The BIR further stated that PSPC is not a qualified transferee of the TCTCs. PSPC protested the collection letter.

On July 23, 1999 the CTA rendered a decision in favor of PSPC and that the TCCs was legal and valid. Respondent elevated the decision to the Court of Appeals.

Meanwhile, despite the pendency of the case in the Court of Appeals, the Center sent several letters to PSPC dated August 31, 1999 to submit copies of pertinent sales and invoices and delivery receipts covering sale transactions of PSPC products to the TCC assignors/transferors purportedly in collection with an ongoing post audit.

PSPC’s response to the letter and received by the Center emphasized that the required submission of these documents had no legal basis, for the applicable rules and regulations on the matter on the matter only require that both the assignor and assignee of the TCCs be BOI-registered.

On November 22, 1999, PSPC received an assessment letter from respondent for excise tax deficiencies, surcharges, and interest based on the first batch of cancelled TCCs. PSPC protested the assessment letter but the protest was denied by the BIR.

RA 9282 was promulgated expanding the jurisdiction of the CTA. Thus the case was heard decided by the CTA Division.

The CTA division ruled in favor of PSPC. It held that respondent failed to prove with convincing evidence that the TCCs transferred to PSPC were fraudulently issued as respondent’s finding of the alleged fraud was merely speculative.

Respondent filed his Motion for reconsideration. CTA ruled in favor of respondent and ordered PSPC to pay its tax deficiencies.

Thus, PSPC filed this petition.

Issues:

1. W/N the CTA gravely erred in ordering petitioner PSPC to pay the amount of 284, 760, 987.00 as alleged deficiency excise taxes.

2. W/N the CTA gravely erred in issuing the question decision upholding the cancellation of the TCC utilized by Petitioner PSPC in paying its excise liabilities.

3. W/N the CTA gravely erred in imposing surcharges and interests on the alleged deficiency excise tax on Petitioner PSPC

4. W/N Assessment is void considering that it failed to comply with the statutory as well as regulatory requirements in the issuance of assessment.

Held/Ratio: The petition is meritorious

1. Yes. It is clear that a TCC is an undertaking by the government through the BIR or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit from either an overpayment of income taxes, a direct benefit granted by law or other sources and instances granted by law such as on specific unused input taxes and excise taxes on certain goods. As such, tax credit is transferable in accordance with pertinent laws, rules, and regulations.


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Therefore, the TCCs are immediately valid and effective after their issuance.

2. Yes. But even assuming that fraud attended the procurement of the subject TCCs, it cannot prejudice PSPC’s rights as earlier explained since PSPC has not been shown or proven to have participated in the perpetration of the fraudulent acts, nor is it shown that PSPC committed fraud in the transfer and utilization of the subject TCCs.

3. Yes. This issue has been mooted by our disquisition above resolving the first issue in that PSPC has duly settled its excise tax liabilities for 1992 and 1994 to 1997. Consequently, there is no basis for the imposition of a late payment surcharges and for interests, and no need for further discussion on the matter.

4. Yes. PSPC was not accorded due process before the assessment was levied on it.

The Center informed PSPC of the cancellation of the subject TCCs and the TDM covering the application of the TCCs to PSPC’s excise tax liabilities. The objections of PSPC were brushed aside by the Center and respondent issued the assessment on November 15, 1999, without following the statutory and procedural requirements clearly provided under the NIRC and applicable regulations.

What is applicable is RR 12-99, which superseded RR 12-85, pursuant to Sec. 244 in relation to Sec. 245 of the NIRC implementing Secs. 6, 7, 204, 228, 247, 248, and 249 on the assessment of national internal revenue taxes, fees, and charges. The procedures delineated in the said statutory provisos and RR 12-99 were not followed by respondent, depriving PSPC of due process in contesting the formal assessment levied against it. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice, as required. PSPC’s November 4, 1999 motion for reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was not even acted upon.

PSPC was merely informed that it is liable for the amount of excise taxes it declared in its excise tax returns for 1992 and 1994 to 1997 covered by the subject TCCs via the formal letter of demand and assessment notice. For being formally defective, the November 15, 1999 formal letter of demand and assessment notice is void.

Paragraph 3.1.4 of Sec. 3, RR 12-99 pertinently provides:

3.1.4 Formal Letter of Demand and Assessment Notice.——The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by personal delivery. (Emphasis supplied.)

In short, respondent merely relied on the findings of the Center, which did not give PSPC ample opportunity to air its side. While PSPC indeed protested the formal assessment, such does not denigrate the fact that it was deprived of statutory and procedural due process to contest the assessment before it was issued.


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06 - CIR v. Menguito (2008) Facts:

Spouses Menguito are owners of a restaurant with branches in Pasay and Baguio. In 1997, the spouses were informed by the BIR Assessment Division of Baguio, through a ten (10) day Preliminary Letter that investigation showed that they have undeclared sales from 1991 — 1993 thereby resulting to deficiency income and percentage taxes of around 34Million. Mrs. Menguito protested. The BIR alleged that Meguito committed fraud with intent to evade the payment of tax by under-declaring his sales.

The CTA rules in favor of the CIR and ordered the spouses to pay deficiency and percentage tax. The spouses’ MR was also denied. Menguitos then appealed to the CA questioning the Assessment notices.

Issues:

1. W/N the CA erred in holding that respondent was denied due process for failure of CIR to validly serve respondent with the post-reporting and pre-assessment notices.

Held/Ratio:

1. YES. The SC stressed that the requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that such assessment notice have been served on the taxpayer, applies only to formal assessments under Sec. 22 of the NIRC and NOT to post-reporting or pre- assessment notices.

According to the SC a “post-reporting or pre-assessment notice” do not bear the gravity of a foral assessment notice. Such notices merely serves as hints of the initial findings f the BIR against a taxpayer and invites the latter to an “informal” conference or clarificatory meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is then served a formal assessment notice.

There is no doubt that petitioner failed to prove that it served on respondent a post-reporting notice and a pre-assessment notice. What the BIR sent was a mere letter it sent to Menguito informing him of the initial outcome of the investigation into his sales, and the release of a preliminary assessment upon completion of the investigation, with notice for the latter to file any objection within five days from receipt of the letter. Another, the Preliminary Ten (10) Day Letter to respondent, informing him that he had been found to be liable for deficiency income and percentage tax and inviting him to submit a written objection to the proposed assessment within 10 days from receipt of notice. But nowhere on the face of said documents can be found evidence that these were sent to and received by respondent. Nor is there separate evidence, such as a registry receipt of the notices or a certification from the Bureau of Posts, that such were actually mailed to the petitioner.

However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually received by respondents in accordance with Section 228 of the National Internal Revenue Code which was in effect at the time of assessment.

Formal assessment — substantive requisite to tax collection containg computation of tax liabilities and a demand for payment within a said period. Thereby signaling the time when penalties and remedies accrue and determined. Due process requires for such be served on and received by the taxpayer. (Roxas Securities Inc. v. CIR, GR 157064, August 7, 2006)


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07 - CIR v. Metro Star Superama, Inc. (2010) Doctrines:

• Sending of a PAN (pre-assessment notice) as required by Section 228 of NIRC is part of due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorties. Failure to send the PAN make’s CIR tax assessment VOID.

Facts:

CIR filed before the Supreme Court a petition for review on certiorari against the CTA-En banc’s decision that the assessment made by CIR is Void due to non-service of PAN. CIR assessed Metro Star Superama, Inc (Metrostar) of deficiency in value-added tax and withholding tax for 1999. The following are previous events:

On Jan 2001 — Regional Director of BIR issued letter of Authority for Revenue Officer to examine Metrostar’s book of account. Due to failure of the latter to present the records a subpoena duces tecum was issued by BIR. On Nov 2001, a preliminary 15-day letter was issued to Metrostar wherein BIR stated that a post audit review was held and that it was found that there was a deficiency in value-added and withholding taxes of around P292,000. On April 11, 2002, Metrostar received Formal Letter of Demand Assessing from Rev. district assessing them P292,000 for deficiency value-added and withholding taxes for 1999. With this, Metro star filed a petition for review with CTA wherein the corporation denied that it received a PAN thus claiming that such assessment made by BIR was not accorded due process.

Issues:

1. W/N Metro Star complied with due process requirement of serving PAN before assessment

2. W/N deficiency assessment issued by respondent are void for failure to send PAN

Held/Ratio:

1. YES. The Court held that the failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was issued. Based on jurisprudence, if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. It is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. In this case, CIR only stated that since FAN (final assessment notice) was served then the PAN should have also been served. CIR, however, failed to support its claim with substantial evidence. With this, the Court held that there was no clear showing that Metrostar actually received the alleged PAN.

2. YES, Section 228 of NIRC clearly requires that taxpayer must first be informed that he is liable for deficiency of taxes through send of PAN and to proceed heedlessly with tax collection without first establishing a valid assessment is violative of one’s right for due process. The Court held that the sending of PAN to taxpayer to inform him of the assessment made is but part of the “due process requirement in the issuance of deficiency tax assessment “ the absence of which renders nugatory any assessment made by the tax authority. It is clearly stated in sec 228, that failure to send PAN stating the facts and the law on which the assessment was made, renders the assessment made by CIR void.


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08 - Commissioner of Internal Revenue v. Azucena Reyes (2006) (informed of basis v. notified of findings)

Doctrines:

• Taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void.

• An invalid assessment notice amounts to lack of due process.

• An invalid assessment cannot be the basis of a tax compromise.

Facts:

In 1993, Tancino died and left a house and lot in Dasmariñas Village. In 1997, on the basis of an information, the Revenue District of Makati conducted an investigation on Tancino’s estate. They issued a Letter of Authority for the regular investigation of the estate tax case. The letter was received by Azucena Reyes, one of Tancino’s heirs.

On Feb. 1998, a preliminary assessment notice against the estate amounting to P14,580,618.67 was issued by the BIR. On May 1998, the heirs received a Final Assessment (dated April 1998) amounting to P14,912,205.47 inclusive of surcharge and interest. The heirs protested the assessment because the Dasma Property was already sold in 1990 (the property was to be seized for failure to pay tax liabilities). They also proposed several compromises1, pleading financial incapacity, but the BIR rejected the offers. According to the BIR the financial incapacity of the heirs is immaterial as the estate had a total value of P32M. Thus, in 2000, they demanded payment of P18,034,382.13 otherwise, the property will be auctioned off. The heirs failed to pay and the auction was scheduled.

Reyes filed a petition for review in the CTA and applied for the issuance of a writ of preliminary injunction to enjoin the BIR from proceeding with the auction. She assailed that the assessments and investigations were void ab initio. The injunction was issued. Meanwhile, during the pendency of the case, the BIR issued a Rev. Regulation offering delinquent tax payers to compromise liability. The proceedings in the CTA was postponed and Reyes applied for compromise under the Rev. Reg. Reyes paid P1,062,778.20 to the BIR as compromise, however, the compromise was yet to be perfected because the National Evaluation Board (NEB) has not yet approved said compromise. Reyes asked the CTA to declare the compromise perfected but the CTA denied the request, leaving the compromise unapproved.

The CTA resumed hearing the petition for review and decided that Reyes should pay P19,504,909.78 as deficiency tax. The CTA said that there could be no valid compromise because the NEB did not approve the application. The CTA also said the assessments were valid because the heirs knew of the findings of the BIR investigation. The CA partly reversed the decision and held that there was no valid assessment and the question on validity of the compromise is still premature.

Issues:

1. W/N the assessments were valid.

2. W/N there is a valid compromise under the Revenue Regulation.

Held/Ratio:

1. NO. Sec. 228 requires that taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. In the instant case, Reyes was not informed but was merely notified by the CIR of the findings in the investigation. The requirement of notifying the taxpayers of the findings of the CIR as provided in the old Sec. 229 is now amended by the Tax Reform Act of 1997. Sec. 228 is now the procedure to be followed. When the assessments were sent to the heirs, the amendment was already in

1. First compromise: P1,000,000

Second Compromise: 50% of the basic tax liabilities

Third Compromise: 100% of the basic tax liability amounting to P5,313,891.00.


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effect. Moreover, the Letter of Authority they sent to Reyes was not even notice of the findings but is a mere notice for conducting an investigation.

The fact that during this time there was still no regulation issued by the BIR to implement Sec. 228 is of no moment because the law must still be followed even if the RR then existing pertains to the implementation of the old law (Sec 229). The subsequent implementation of a new RR in 1999 should retroact to the time Sec. 228 was promulgated in 1998.

The Court also said that a review of the assessments would show lack of basis and insufficiency of figures and deductions. They held that the assessments were arbitrary and based on estimates capriciously arrived at.

2. Because the assessments were VOID, the Court could not decide on whether or not the compromise was valid or not.


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09 - CIR v. Enron Subic Powercorporation (2009) Doctrine:

• Due process demands that a taxpayer must be informed of the legal and factual bases of the assessment against it. Otherwise, the assessment is void.

Facts:

The respondent corporation Enron filed its annual income tax return, for the year 1996 on April 12, 1997, indicating a net loss of P7,684,948. Subsequently, it was informed by BIR, through a PRELIMINARY 5-DAY LETTER, of a proposed assessment of an alleged P2,880,817.25 deficiency income tax. Enron disputed this proposed assessment in its first protest letter. On May 26, 1999, the CIR sent Enron a FORMAL ASSESSMENT NOTICE requiring the latter to pay the alleged deficiency income tax of P2,880,817.25 for the year 1996. This was again protested by Enron.

Because its protest wasn’t resolved within the 180-day period, Enron filed a petition for review in the CTA, questioning the substantive validity of the assessment and arguing that the deficiency tax assessment did not provide the legal and factual bases of the assessment, in defiance of Sec. 228 of the NIRC and Sec 3.1.4 of RR No. 12-99.2 The CTA ordered the deficiency assessment cancelled for the reason that the assessment notice sent to Enron failed to comply with the requirements of the mentioned provisions by failing to show the applicability of the cited law to the facts of the assessment. This CTA ruling was affirmed by the CA. The CIR argues that Enron was informed, through the preliminary 5-day letter and the formal assessment notice, of the legal and factual bases of the deficiency assessment against it.

Issue:

1. Whether the deficiency assessment is void for noncompliance with Sec. 228 and RR No. 12-99

Held/Ratio:

1. Yes, it is void. It is clear that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. In this case, the CIR merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon. In issuing the Formal Assessment Notice, the CIR did not provide Enron with the written bases of the law and facts on which the assessment was based. The CIR did not bother to explain how it arrived at such an assessment. More so, he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron. The advice of tax deficiency and the preliminary 5-day letter were not valid substitutes for the mandatory notice in writing provided for in Sec. 228 of the NIRC and RR No. 12-99.

The Court notes that the old law merely required that the taxpayer be notified of the assessment made by the BIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. The Court explained that such an amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process.

2. Section 3.1.4. of RR No. 12-99: ... The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state

the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand or assessment notice shall be void.


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10 - Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, et al. (1999) Doctrines:

• Assessment is laying a tax. ‘The word assessment when used in connection with taxation, may have more than one meaning. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay. More commonly, the word ‘assessment’ means the official valuation of a taxpayer’s property for purpose of taxation

• An assessment informs the taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must demand payment of the taxes within a specific period. It is deemed a notice duly sent to the taxpayer. It is considered “made” only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.

Facts:

BIR Commissioner Jose Ong authorized Revenue Officers Thomas Que, Sonia Estorco and Emmanuel Savellano to examine Pasco Realty and Development Corporation (PRDC)’ books of accounts and other accounting records. They examined years 1986, 1987, and 1988. They recommended that an assessment be issued in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.

The Commissioner of Internal Revenue filed a criminal complaint in the DOJ against PRDC, its President Rogelio Dio, and its Treasurer Virgina Dio. The CIR alleged PRDC evaded taxes amounting to P10,513,671.00. The DOJ subpoenaed PRDC, President Dio and Treasurer Dio.

Contesting the complaint, PRDC filed an Urgent Request for Reconsideration/ Reinvestigation of the tax liability. However, in a letter, the CIR denied this because the Commissioner has yet to issue a formal assessment.

PRDC filed a petition for review before the Court of Tax Appeals (CTA). CIR filed a Motion to Dismiss claiming that the CTA lacks jurisdiction over the subject matter of the petition due to the absence of a formal assessment. The CTA denied the motion to dismiss and ordered the CIR to file an answer.

Instead of filing an answer or moving to reconsider the resolution, the CIR filed a Petition for Review on Certiorari before the Court of Appeals (CA). It claimed the CTA acted with grave abuse of discretion and without discretion when it considered the affidavit/ report of the revenue officer and the indorsement of the report to the Secretary of Justice as assessment. The CA held that the CTA did not commit grave abuse of discretion when it ruled that the criminal complaint for tax evasion constituted an “assessment”. The Joint Affidavit of the revenue officers submitted with the criminal complaint already contains sufficient details needed for an assessment. To constitute as an assessment, the following details must be present: kind and amount of tax due, and the period covered. Moreover, the CTA acquired jurisdiction when the CIR denied PRDC’s letter concerning the disputing of the assessment.

CIR appealed to the SC.

Issues:

1. W/N the filing of the criminal complaint with the attached Joint Affidavit can be construed as an assessment.

Held/Ratio:

1. NO. There is no specific definition or form of assessment contained in the NIRC and revenue regulations. However, the NIRC provides the specific functions and effects of an assessment. An assessment informs the taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must demand payment of the taxes within a specific period. It is deemed a notice duly sent to the taxpayer. It is considered “made” only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. The taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue.


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Here, the Joint Affidavit is not an assessment. First, it only contained a computation of PRDC’s tax liability. Second, it did not state a demand or a period for payment. Third, it was addressed to the justice secretary and not the taxpayers.

Though the Joint Affidavit contains certain details, it continues to remain an assessment because its purpose was merely to support and substantiate the complaint for tax evasion. It was not meant to be a notice of the tax due and a demand of payment to PRDC. Moreover, the fact that it was specifically addressed and sent to the DOJ shows that the CIR intended to file a complaint and not issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. Further, the CIR received a motion for reconsideration of the tax evasion charges and not an assessment.

- - - - - - - - - - - - - - - - - - - - - - -

Other additional issues:

Assessment is not necessary before a criminal complaint may be filed.

Section 222 of the NIRC provides that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment.

Procedure on how assessments are issued:

Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. The criminal charge need not go through all these.


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11 - Republic v. Court of Appeals (1987) [assessment, mail]

Facts:

The Commissioner of Internal Revenue assessed Nielson & Co. to pay the ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late payment for the years 1949 to 1952. In a demand letter dated July 16, 1955, the CIR assessed the deficiency taxes totaling P14,449. CIR sent 3 more demand letters. Nielson did not contest the assessment of the Court of Tax Appeals. On the theory that the assessment has become final and executory, the CIR filed a complaint for collection of the said amount with the CFI of Manila. But since there was a failure to serve summons on Nielson, the case was dismissed without prejudice. The CFI refiled the case which is now the subject matter of this appeal.

Issues:

1. W/N the letter of assessment dated July 16, 1955 was received by Nielson in the ordinary course of mail

Held/Ratio:

1. No. While the contention of petitioner that service is deemed complete and effective upon the expiration of five days after mailing, the presumption that arises is merely a disputable presumption, subject to controversion and a direct denial of Nielson of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee.

However, the follow-up letter is considered a notice of assessment in itself which was duly received by Nielson in accordance with its own admission.

Under Section 7 of RA1125, the assessment is appealable to the CTA within 30 days from receipt of the letter, the taxpayer’s failure to appeal in due time makes the assessment in question final executory and demandable.

In a suit for collection of internal revenue taxes, where the assessment has already become final and executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon.


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12 - Basilan Estates v. CIR (1967) WARNING: SUPER COMPLICATED

Facts:

Basilan filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of P8,028 .On February 26, 1959, the Commissioner of Internal Revenue, per examiners’ report of February 19, 1959, assessed Basilan Estates, Inc., a deficiency income tax of P3,912 for 1953 and P86,876.85 as 25% surtax on unreasonably accumulated profits as of 1953. On non-payment of the assessed amount, a warrant of distraint and levy was issued but was not executed because Basilan got the Deputy Commissioner of Internal Revenue to order the Zamboanga City District Director to hold execution and maintain constructive embargo instead. Because of its refusal to waive the period of prescription, the corporation’s request for reinvestigation was not given due course, and on December 2, 1960, notice was served the corporation that the warrant of distraint and levy would be executed.

Basilan filed before the CTA a petition for review alleging prescription of the period for assessment and collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and error in finding the existence of unreasonably accumulated profits and the imposition of 25% surtax thereon. On October 31, 1963, the Court of Tax Appeals found that there was no prescription and affirmed the deficiency assessment in toto.

Issues:

1. Has the Commissioner’s right to collect deficiency income tax prescribed? (NOT PART OF THE TOPIC BUT I PUT IT HERE JUST IN CASE HE ASKS.)

2. Was the disallowance of items claimed as deductible proper?

3. Have there been unreasonably accumulated profits? If so, should the 25% surtax be imposed on the balance of the entire surplus from 1947-1953, or only for 1953?

4. Is the petitioner exempt from the penalty tax under Republic Act 1823 amending Section 25 of the Tax?

Held/Ratio:

1. NO, the presence of circumstances that led the court to presume regularity in the performance of official functions. The notice of assessment shows the assessment to have been made and released by the BIR on February 26, 1959, well within the five-year period. The Commissioner himself in his letter answering petitioner’s request to lift, the warrant of distraint and levy, asserts that notice had been sent to petitioner. In the letter of the Regional Director forwarding the case to the Chief of the Investigation Division, notice of assessment was said to have been sent to petitioner. Subsequently, the Chief of the Investigation Division indorsed on March 18, 1959 the case to the Chief of the Law Division. There it was alleged that notice was already sent to petitioner on February 26, 1959. These circumstances pointing to official performance of duty must necessarily prevail over petitioner’s contrary interpretation.

2. YES for depreciation since the income tax law does not authorize the depreciation of an asset beyond its acquisition cost. For then what the taxpayer would recover will be, not only the acquisition cost, but also some profit.

But NO, for expenses. These were disallowed on the ground that the nature of these expenses could not be satisfactorily explained nor could the same be supported by appropriate papers. Under Section 337 of the Tax Code, receipts and papers supporting such expenses need be kept by the taxpayer for a period of five years from the last entry. At the time of the investigation, said five years had lapsed. Taxpayer’s stand on this issue is therefore sustained.

3. YES, In the unreasonable accumulation of P347,507.01 are included P200,000 for electrification of driers and mechanization and P50,000 for malaria control which were reserved way back in 1948 (p. 67 of the BIR records) but reverted to the general fund only in 1953. If there were any plans for these amounts to be used in further expansion through projects, it did not appear in the records as was properly indicated in 1948 when such amounts were reserved. Thus, they are improperly accumulated


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From 1947 until 1953. The previous accumulations should be considered in determining unreasonable accumulations for the year concerned. “In determining whether accumulations of earnings or profits in a particular year are within the reasonable needs of a corporation, it is necessary to take into account prior accumulations, since accumulations prior to the year involved may have been sufficient to cover the business needs and additional accumulations during the year involved would not reasonably

4. NO. We have but to point out that the unreasonable accumulation was in 1953. The exemption was by virtue of Republic Act 1823 which amended Sec. 25 only on June 22, 1957 — more than three years after the period covered by the assessment.

(NOTE: THE CASE DID NOT EXACTLY ANSWER THE QUESTION WHAT IS AN ASSESSMENT. HOWEVER, I THINK THAT WHAT THE CASE SHOWS ARE THE PARTS OF AN ASSESMENT WHICH ARE THE AFOREMENTIONED ISSUES AND ANSWERS EXCEPT FOR PRESCRIPTION.)

13 - Nava v. CIR (1965) Doctrines:

• The release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense

Facts:

On May 15, 1951, Nava filed his income tax return for the year 1950 and was assessed, on the same day, by the CIR the sum of P4,952 based solely on said return. He paid one half of the tax due and offered his backpay certificate to pay the balance. The CIR refused to accept the backpay certificate. Subsequently, the CIR sent Nava notices demanding payment of the balance.

On March 30, 1955, the CIR issued a deficiency income tax assessment notice requiring Nava to pay not later than April 30, 1955 the sum of P9,124.50, that included the balance mentioned above and a 50% surcharge. Notices of this revised assessment were purportedly issued to Nava. Nava claims that he learned of this assessment for the first time only on December 19, 1956, more than five years since the original tax return was filed. Nava asked for a reinvestigation of this new assessment and was told that it could only be done if he waives the statute of limitations. Nava refused to do so. Hence, the CIR denied the reconsideration of the assessment. Nava then filed a case with the CTA. The CTA reduced the assessment to P3,052.00 and cancelled the 50% surcharge.

Issues:

1. W/N the enforcement of the tax assessment has prescribed

Held/Ratio:

1. YES. While the Rules of Court presumes that a letter duly directed and mailed was received in the regular course of mail, this cannot be applied to the case at bar. The CIR failed to prove that the assessment notice dated March 30, 1955 and other supposed written demand letters or notices were in fact issued or sent to Nava.

The CTA, in deciding the case, relied mainly on the duplicate copy of the deficiency income tax notice found in the BIR file of Nava. Nava denied having received the original copy of the said notice. The BIR presented Sangil, a clerk of the BIR, to establish that the original copy was actually issued on March 30, 1955. However, the witness disclaimed having personal knowledge of its issuance or release on said date and said that there is no notation in the file copy that stated that the original copy was ever actually issued or sent to Nava. The CTA also relies on a note sent or delivered by Nava to the BIR where he said that he received the second final notice. The BIR also presented Fernandez, a BIR employee who sends mail and keeps a record of letters mailed to the taxpayers. He maintains that there was a notation that a letter dated March 15, 1957 was mailed to Nava but that he wasn’t the one who prepared such entry. At any rate, the 1957 letter was obviously mailed beyond the 5-year limitation period.


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There was no valid and effective issuance or release of said deficiency income tax assessment notice dated March 30, 1955 and of the other demand letters. These dates cannot be reckoned with in computing the period of prescription within which a court action to collect the same may be brought. The fact that Nava acknowledged receipt of the second final notice is no proof that he received the first one by mail. There is a difference between receiving a second final notice and receiving a final notice for the second time.

Since Nava’s 1950 income tax return was made on May 15, 1951, and no valid and effective notice of the re-assessment was made after that date, it is evident that the period under Section 331 of the Tax Code within which to make a re-assessment expired on May 15, 1956. Since the notice of said deficiency income tax was effectively made on December 19, 1956 at the earliest, the judicial action to collect any deficiency tax on Nava’s 1950 income tax return has already prescribed under Section 332 (c) of the Tax Code, it having been found by the CTA that said return was not false or fraudulent.

The release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.


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14 - Barcelon, Roxas Securities, Inc. v. CIR (2006) Doctrines:

• An assessment is made within the prescriptive period if the notice of assessment is released, mailed or sent by the CIR to the taxpayer within the said period. Receipt thereof by the taxpayer within the prescriptive period is not necessary.

Facts:

Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.), a corporation engaged in the trading of securities, was issued by the CIR an assessment for deficiency income tax for P826,698.31. This arose from the disallowance of deductions for salaries, bonuses and allowances (P1.2 million) for failing to subject such items to withholding taxes. The CIR alleges that the Formal Assessment Notice (FAN) was sent through registered mail on February 6, 1991, while Barcelon denies receiving it and alleges to have only known of the deficiency when it was served with a Warrant of Distraint or Levy a year later.

Important dates:

April 15, 1988 - last day of filing of return

April 15, 1991 (3 years later) - last day of sending an assessment notice

February 6, 1991 - alleged date of mailing of the assessment notice

Issue:

1. W/N the right to assess Barcelon’s alleged deficiency income tax is barred by prescription. (Note: Under Sec. 203 of the NIRC, the CIR has 3 years from the last day of filing of the return to send an assessment notice to a taxpayer.)

Held/Ratio:

1. YES. The right to assess and collect the alleged deficiency income tax has already prescribed.

In CIR v. Bautista, the Court held that an assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the CIR to the taxpayer within said period. Receipt thereof by the taxpayer within the prescriptive period is not necessary. However, this does not dispense with the requirement that the taxpayer should actually receive, even beyond the prescriptive period, the assessment notice.

When a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are: (a) that the letter was properly addressed with postage prepaid; and (b) that it was mailed. However, this is merely a disputable presumption. A direct denial of the receipt thereof shifts the burden upon the party favored by the presumption (in this case, the CIR) to prove that the mailed letter was indeed received by the addressee (Barcelon).

Since Barcelon denies receiving the assessment notice, the burden is on the CIR to prove that the assessment was indeed received by the former. In this case, the CIR was unable to present substantial evidence to prove that the notice was mailed before the expiration of the period and that the notice was received by Barcelon. The CIR presented the BIR record book and the BIR records custodian who made the entries therein. However, the testimony of the custodian is hearsay since it was not stated that she has personal knowledge of the entries nor was it stated that the facts recorded were acquired by her personally or through official information. Furthermore, independent evidence, such as the registry receipt, or a certification from the Bureau of Posts, could have been easily obtained by the CIR yet it failed to present such evidence. The evidence offered by the CIR is therefore insufficient to give rise to the presumption that the assessment notice was received in the regular course of mail. Consequently, the right of the government to assess and collect the alleged deficiency is already barred by prescription.


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15 - Collector v. Bautista (1959) Doctrine:

• Sec. 331 of the Tax Code provides that deficiency assessment must be made within 5 years after the return was filled, and the assessment is deemed made when the notice to this effect is released, mailed or sent by the Collector to the taxpayer, for the purpose of giving effect to said assessment. Said Section does not require that notice be received by the taxpayer within the said period of 5 years.

Facts:

Sps. Pedro Bautista and Dativa Tan each filled a separate income tax return (ITR) in 1947. The husband reported an income of P2300, and paid an income tax of P9, after claiming personal exemptions of P2500 as head of the family and P500 for a minor child. The wife reported an income of P9999.9 from a sale of a lot and building at Tabora st. Manila, paying an income tax of P490. She claimed a personal exemption of P2500 as head of the family and P500 for the same minor child.

The BIR, assessed a deficiency tax against them in the sum of P1564.54, which was mainly based on the under-declaration of the of the wife’s share in the Tabora property and the overvaluation of the cost.

Issue:

1. W/N the right to assess the deficiency income tax has prescribed? (Important)

2. W/N the Sps. deductions should be allowed, for loses sustained as a result of a fire which destroyed their house? (Not important)

3. W/N the Tabora property was an ordinary asset? (Not important)

Held/Ratio:

1. No. Sec. 331 of the Tax Code provides that deficiency assessment must be made within 5 years after the return was filled, and the assessment is deemed made when the notice to this effect is released, mailed or sent by the Collector to the taxpayer, for the purpose of giving effect to said assessment. Said Section does not require that notice be received by the taxpayer within the said period of 5 years.

The Baustistas filled their ITR as of March 1, 1948. The Collector assessed the deficiency tax on Jan 21, 1953 and notice to this effect was sent or given due course prior Mar 1, 1953, for it was received in the Office of the City Treasurer of Quezon City, on Feb 13, 1953, and hence before expiration of said period.

2. No, the question of whether the disallowance was correct or not depends upon the credence of the testimonial evidence, which the lower court was in a better position to decide.

3. No, the property was primarily held for rent, and they never occupied it as their residence.


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16 - Adamson v. CA (2009) Doctrines:

• An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer.

Facts:

This case is a consolidation of G.R. No. 120935 and G.R. No. 124557.

Lucas Adamson and Adamson Management Corporation (AMC) sold 131,897 common shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were valued P7,789,995. P159,363.21 was paid as capital gains tax for the transaction. On a different date, AMC sold to APAC another 229,870 common shares of stock in AAI for P17,718,360. AMC paid capital gains tax of P352,242.96. The Commissioner issued a “Notice of Taxpayer” to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of deficiencies on their payment of capital gains tax and Value Added Tax (VAT).

G.R. No. 120935

Private respondents Lucas Adamson, Therese Adamson and Sara delos Reyes (in their capacity as president, treasurer and secretary of AMC, respectively) were criminally charged before the RTC of Makati for tax evasion. In a Motion for Reconsideration Lucas, Therese and Sara invoked the grounds that there was yet no final assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases. The trial court granted the Motion. The Commissioner filed a Petition for Review with the Court of Appeals assailing the trial court’s dismissal of the criminal cases. She averred that it was not a condition prerequisite that a formal assessment should first be given to the private respondents before she may file the aforesaid criminal complaints against them. She argued that the criminal complaints for tax evasion may proceed independently from the assessment cases pending before the CTA.

The Court of Appeals reversed the trial court’s decision and reinstated the criminal complaints. The appellate court held that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax. It ruled that private respondents filed false and fraudulent returns with intent to evade taxes, and acting thereupon, the Commissioner filed an Affidavit of Complaint with the Department of Justice, without an accompanying assessment of the tax deficiency of private respondents, in order to commence criminal action against the latter for tax evasion.

G.R. No. 124557

AMC, Lucas Adamson, Therese Adamson and Sara de los Reyes filed a Petition for Review with the CTA. They assailed the Commissioner’s finding of tax evasion against them. The Commissioner moved to dismiss the petition. The CTA denied the Motion to Dismiss. It considered the criminal complaint filed by the Commissioner with the DOJ as an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of petitioners’ protest regarding the tax deficiency.

The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave abuse of discretion. She maintained that she had not yet issued a formal assessment of tax liability, and the tax deficiency amounts mentioned in her criminal complaint with the DOJ were given only to show the difference between the tax returns filed and the audit findings of the revenue examiner.

Issues:

1. W/N the Commissioner has already rendered an assessment of the tax liability of AMC, Lucas Adamson, Therese Adamson and Sara delos Reyes


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2. W/N the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a formal assessment.

Held/Ratio:

1. No. An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. A formal assessment is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.

In the present case, the revenue officers’ Affidavit that was submitted to the DOJ merely contained a computation of respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. That the BIR examiners’ Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof.

The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

Therefore, the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points:

a. It was not addressed to the taxpayers.

b. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein.

c. The letter was never mailed or sent to the taxpayers by the Commissioner.

In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations

2. Yes.

Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes. - (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof…

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment. Here, the private respondents had already filed the capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon


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investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud.

The case of Ungab v. Cusi was applied to the case at bar. In this case, the Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him.

17 - Collector v. Benipayo (1962) (extrapolation of 3:1 child-to-adult ratio) Doctrines:

• Assessment must be based on actual facts.

Facts:

Respondent Alberto Benipayo is the owner and operator of the Lucena Theater located in the municipality of Lucena, Quezon. In October of 1953 Internal Revenue Agent Romeo de Guia’s investigated respondent’s amusement tax liability in connection with the operation of Benipayo’s theater.

His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period the period from August, 1952 to September, 1953, the proportion is reversed - three children to one adult. From this he concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the amusement tax prescribed in Section 260 of the National Internal Revenue Code. Based on the average ratio between adult and children attendance in the past years, Examiner de Guia recommended a deficiency amusement tax assessment against respondent in the sum of P11,193.45, inclusive of 25% surcharge, plus a suggested compromise penalty of P900.00 for violation of section 260 of the National Internal Revenue Code, or a total sum of P12,093.45 covering the period from August, 1952 to September, 1953 inclusive. In July of 1954, CIR issued a deficiency amusement tax assessment against Benipayo. In August 1954, Benipayo filed the corresponding protest with the Conference Staff of the Bureau of Internal Revenue.

After due hearing, the Conference Staff submitted to petitioner Collector of Internal Revenue its finding to the effect that the “meager reports of these fieldmen (Examiner de Guia and the Provincial Revenue Agent of Quezon) are mere presumptions and conclusions, devoid of findings of the fact of the alleged fraudulent practices of the herein taxpayer”. In view thereof, and as recommended by the Conference Staff, CIR referred the case back to the Provincial Revenue Agent of Quezon for further investigation. The Provincial Revenue Officer H.I. Bernardo reinforced the findings of Agent De Guia. His report stated that returns from July 1-11 showed tickets with ratio of 1:3, but from July 14-24, when agents for his office supervised in the sales of admission tickets, the sales ratio soared to 3:1. His investigation report read “without fear of contradiction that the ratio of 3:1 xxx conveys the true picture of the situation under the law of averages.”

Thereafter, the Conference Staff of the Bureau of Internal Revenue recommended to the Collector of Internal Revenue the issuance of the deficiency amusement tax assessment in question in this appeal. CTA reversed the decision of the CIR, relieving Benipayo of the deficiency amusement tax assessed.

Issues:

1. W/N there is sufficient evidence in the record showing that Benipayo sold and issued to his adult customers two tax-free 20-centavo children’s tickets, instead of one 40-centavo ticket for each adult customer; to cheat or defraud the Government.

Held/Ratio:

1. NO. The Court quoted the decision of the CTA:


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[A]ssessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. Assuming arguendo that the average ratio of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the inference that the same conditions existed during the years in question (1952 and 1953). The fact that almost the same ratio existed during the month of July, 1955 does not provide a sufficient inference on the conditions in 1952 and 1953. ..

In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951 and July 1955. In the case under consideration there are no substantial facts to support the assessment in question. ...

Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the present case, is lacking.


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18 - CIR v. Hantex Trading Co., Inc. (2005) Doctrine:

• The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose is to enable the BIR to get at the taxpayer’s records in whatever form they may be kept. The standard is not the form of the record but where it might shed light on the accuracy of the taxpayer’s return.

• As a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such assessment was based on sufficient evidence.

Facts:

Hantex Trading Co., Inc. is a corporation engaged in the sale of plastic products and importation of synthetic resin and other chemicals for the manufacture of its products. It is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs.

In October 1989, Lt. Amoto, Acting Chief of the Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that Hantex had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.97 for the year 1987. The informer based it on the photocopies of 77 Consumption Entries furnished by another informer. The EIIB failed to secure certified copies since the custodian in the Bureau of Customs told them that the original copies had been eaten by termites. The Chief of the Collection Division Merlita Tomas of the Port of Manila could also not authenticate the copies since she did not have the originals. She wrote a letter, merely indicating the entry numbers and the date of release of the imports made by Hantex. The Bureau of Customs Chief of Collection Division Augusto Danganan also could not authenticate the import entries since the originals had also been eaten by termites. He just issued a certification of the entries filed by Hantex.

Thus, the EIIB relied on the photocopies and the certifications of Tomas and Danganan and recommended the collection of the tax assessment to the BIR. The BIR conducted an investigation and found out that there was a prima facie case of fraud against Hantex, based on the report of the EIIB. The BIR Commissioner sent a letter dated April 15, 1991 to demand payment of the deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest.

Hantex made a protest and stated that since the officers failed to present the original or authenticated copies of the Consumption and Import Entry Accounts. However, the CIR denied the request. The CTA ruled in favor of the BIR and Hantex was ordered to pay. However, the CA reversed the decision and ruled that the assessments were unlawful and baseless since the photocopies were not duly authenticated nor verified under oath by the investigators.

Issue:

1. W/N the BIR’s assessment against Hantex for deficiency income tax and sales tax for the was based on actual facts

Held/Ratio:

1. NO. The “best evidence” envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. The court stated that the law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose is to enable the BIR to get at the taxpayer’s records in whatever form they may be kept. The BIR Commissioner was correct in saying that the best evidence may consist of hearsay evidence. The general rule is that administrative agencies such as the BIR are not bound by the technical rules of evidence.

However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The BIR, in making a preliminary and final tax deficiency assessment


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against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries 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 no probative value as basis for any deficiency income or business taxes against a taxpayer.

The Court in Collector of Internal Revenue v. Benipayo ruled that the assessment must be based on actual facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by the informer of the EIIB were furnished by another informer. The BIR or the EIIB could have gotten hold of the originals since these are accomplished in several copies.

The BIR acted arbitrarily and capriciously in relying on the machine copies of the Consumption Entries. Also, it should not have considered the certifications made by Tomas and Danganan because they did not authenticate the copies of the Consumption Entries. They just indicated in their letters the numbers of the entries and the dates of release of the imports.


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19 - People v. Sandiganbayan (2005) (San Miguel 300M to 10M tax)

Doctrines:

• A final assessment is needed as the basis for collection by distraint or levy.

• An abatement or cancellation of the taxes due is proper if the assessment is erroneous or excessive.

Facts:

The BIR assessed that San Miguel Corp. (SMC) had a tax deficiency of up to P343M on specific and ad valorem taxes for the fiscal year 1985-1986. On 13 July 1987, it sent a PAN demanding payment of the assessed deficiency. On August 10, SMC protested the assessment, arguing that 1) its excess ad valorem payments (because the BIR had a scheme allowing the pre-payments of taxes) should be applied to its deficiency in payment of specific taxes, and 2) that the BIR computed its ad valorem tax deficiency wrongly by disallowing the deduction of the price differential (cost of freight from place of production to warehouse) and the ad valorem tax itself from the tax base. On October 7, the protest was denied, but the BIR reduced the tax deficiency to around P302M by allowing the excess ad valorem deposits to be credited. CIR Bienvenido Tan wrote to SMC of the decision on their protest on October 8. SMC received this letter on October 26.

On October 27, SMC representatives met with Tan in order to orally move to have the assessment reinvestigated. Tan then forwarded the matter to different BIR officials under him to ask for their opinion on how much deficiency tax should really be paid by SMC. On November 2, SMC filed a request for reinvestigation. The Chief of the Legislative Ruling and Research Division recommended that SMC’s tax liability should be reduced to P22M. On 21 August 1988, SMC offered to pay P10M to settle the assessment. The Chief of the BIR’s Prosecutor Division and the Legal Service Assistant Commissioner recommended the acceptance of the compromise settlement. In the end, Tan approved the compromise settlement.

Because of this, Tan was charged with violating Sec. 3(e) of the Anti-Graft and Corrupt Practices Act by approving a compromise agreement reducing SMC’s liability from P302 to P10, which was grossly disadvantageous to the government. The Sandiganbayan acquitted Tan, but the Ombudsman still raised the case to the SC on certiorari. According to the Ombudsman, the P302 assessment was already final and executory since SMC did not appeal to the CTA, so it could not have been the subject of a compromise agreement anymore.

Issues:

1. W/N the assessment was final and executory (impt for IV-A)

2. W/N the compromise was proper (impt for IV-F)

Held/Ratio:

1. NO, the assessment was not yet final and executory. When Tan wrote to SMC on October 8 to say that the BIR has “finally decided” on its case, he was pertaining to the decision on SMC’s protest and not on the assessment itself. It did not constitute as a final assessment on SMC’s tax liability. First, the phrase “finally decided” referred to the reduction of the assessment, not to total amount of deficiency. Assuming arguendo that it was a final assessment, its finality was suspended because of Tan’s handwritten note on the bottom left of the 2nd page, extending the period for tender of payment because he was going to refer the assessment to the BIR’s Legal Service.

Thus, while it was reviewing SMC’s request for reinvestigation, the BIR did not render a decision about the disputed assessment, and consequently, it could not yet have given a FAN to SMC. Because the assessment was clearly not yet final, executory or demandable, and while it is pending with the CIR, it cannot serve as the basis of collection by distraint or levy or by judicial action. (This is the only mention of distraint/levy in the case.)

Here are more reasons why the court said that the assessment wasn’t final yet:

Second, SMC filed a timely request for reinvestigation on November 2. Since it received the alleged assessment only on October 26, their administrative protest was done within 30 days of such receipt, as allowed under Sec.


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229. Further, SMC’s oral protest on their October 27 meeting with Tan was not merely pro forma—it is considered as a protest already, and it suspended the period for appeal. Third, after SMC’s request for reinvestigation, there was no other issuance from BIR that could be considered as a decision. Thus, SMC could not appeal to the CTA, which only had jurisdiction over decisions involving disputed assessments, and not on the assessments themselves. Fourth, it was also quite obvious that no decision could be rendered yet since the protest was referred to different BIR officials for further review. Fifth and last, petitioner’s reliance on Sec. 228 (which provided that after the BIR’s inaction over the protest over 180 days, the taxpayer could appeal to the CTA) was erroneous since during this time, RA 8424, which amended Sec. 228 to supersede Sec. 229, was not yet in effect. Thus, even if the review took more than 180 days, SMC had no other recourse but to wait for the BIR’s decision.

2. YES. The court said that what really happened was an abatement or cancellation, and not a compromise. An abatement is the “diminution or decrease in the amount of tax imposed”, and it refers to the act of eliminating, nullifying, lessening, or moderating the tax imposed. Cancellation, on the other hand, means “to obliterate, cross out, or invalidate” and “to strike out, delete, erase, make void or invalid, annul, destroy, revoke or recall” the tax imposed. The BIR may abate or cancel the whole or any unpaid portion of a tax liability, including its increments, if its assessment is excessive or erroneous, or if the administration costs involved don’t justify the collection of the amount due. There is no need for mutual concessions, because an excessive or erroneous tax is not compromised—it is abated or canceled. Moreover, there was no finality in the assessment that could be settled.

Here, the tax deficiency imposed on SMC was erroneous since it was computed wrongly. When the BIR assessors computed SMC’s alleged tax liability, the price that they used as the tax base included the price differential and the ad valorem tax itself. As proved by Tan, the tax base should be based on the price of the liquor while it is at the brewery where it was produced, since as per Sec. 110 of the NIRC, as amended by PD 1994 in 1986, the excise tax of a domestic product should be paid before the removal of such product from the place of production. Thus, price differential should not be counted in the tax base. And by including the ad valorem tax in the tax base, essentially, they imposed tax on another tax (tax pyramiding, which has no basis in fact or in law). Moreover, Tan showed that inclusion of the ad valorem tax in the tax base would only yield to a circuitous manner of computation that can never end in imposing the proper ad valorem tax on the taxpayer.


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20 - Republic v. Lim Tian Teng Sons and Co., Inc (1966) (Copra outturn)

Doctrines:

• The Collector of Internal Revenue is authorized to collect delinquent internal revenue tax either by distraint, levy or by judicial action or both as long as he assesses the same within the time fixed by law and should be timely appealed to the Court of Tax Appeal as per RA 1125 Sec. 11.

Facts:

Lim Tian Teng & Sons (LTT) was a domestic corporation based in Cebu which was engaged in the export of copra. The copra was weighed both at the point of departure and the point of destination. The weight at the point of departure before shipment was called copra outturn. To allow loss of weight due to shrinkage LTT collected only 95% of the amount appearing in the letter of credit covering every copra outturn. The 5% balance remained outstanding until final liquidation and adjustment. On March 30, 1953 they filed their income tax return for 1952 based on accrued income and expenses and it showed a loss of P50K. They took as part of the beginning inventory for 1952 the copra outturn shipped in 1951 in the sum of P95K they already partially collected as part of its outstanding stock as of Dec. 31, 1951. The Collector of Internal Revenue (CIR) audited and examined their 1952 return and eliminated the P95K outturn from the beginning inventory of 1952 and considered it as an accrued income for 1951. This increased LTT’s income in 1952 by P95K and raised their taxable income. Subsequently, the CIR in a letter dated Jan. 16, 1957 assessed LTT a deficiency income tax of P10K and a surcharge of P5K and demanded payment on Feb 15, 1957. On Jan 31, 1957 LTT requested a reinvestigation. There was no reply from the CIR but instead referred the case to the Solicitor General for collection. On a letter dated Sept 20, 1957 which must have been received no later than Oct 8, 1957, the SolGen demanded from LTT payment within 5 days otherwise judicial action would be instituted without notice. LTT in a letter reiterated its request for reinvestigation and to be allowed to present supporting papers concerning its tax liability. This request was relayed by the SolGen to the CIR. The Deputy CIR wrote a letter to LTT informing them that a reinvestigation would be granted if LTT executed a waiver of the statute of limitations within 10 days. This was extended up to Dec 31 1957 and advised LTT that if no waiver was produced by this date then a judicial action for collection would be instituted without notice. LTT failed to file a waiver and the CIR instituted an action in the CFI of Cebu for collection of deficiency income tax on Sept 2, 1958 or 8 months later. The CFI ruled in favor of the CIR but the latter moved for reconsideration on the fact that the decision did not include a 5% surcharge for late payment of tax.

Issues:

1. W/N the CFI has jurisdiction to entertain the collection case against LTT even if the CIR has not made a decision on the request of reinvestigation?

2. W/N the assessment was final and executory?

3. W/N the assessment was correct?

Held/Ratio:

1. Yes. The stand of LTT that the CIR has to make a final decision on the assessment before the filing of a collection case has no merit. The CIR is authorized to collect delinquent taxes either by distraint and levy or by judicial action or both simultaneously. The only requisite before he can collect the tax is that he must assess the same within the time fixed by law and in the case of false or fraudulent return with intent to evade the tax or for failure to file a return, a proceeding in court for collection may be begun without an assessment. The Tax Code does not require the CIR to rule first on request for reinvestigation before going to court to collect the assessed tax. Infact Sec 305 of the Tax Code withholds from all courts except the Court of Tax Appeal (CTA) under Sec 11 of RA1125 the authority to restrain the collection of any national internal revenue tax, fee or charge. Before the creation of the CTA, the remedy of a taxpayer who contests an assessment was to pay the tax and bring an action in court for recovery under Sec 306 of the Code. The CTA now allows the taxpayer to dispute the correctness and legality of an assessment both in a purely administrative level and in the said court but it does not stop the CIR from collecting tax through any means provided by Sec 316 of the Code unless enjoined by the same CTA.


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2. Yes. The Court considered that the decision of the CIR to collect the tax was indicative of its decision against reinvestigation. This was communicated to LTT by the SolGen in its letter dated Sept 20, 1957 which must have been received no later than Oct. 8, 1957. They had from this date 30 days to appeal the assessment to the CTA. Instead they again requested for a reinvestigation. The CIR responded to LTT by saying that the request would be granted if they would sign a waiver of statute of limitation as per General Circular V-258. The deadline to submit was Dec 31, 1957. Having failed to file a waiver automatically brought the denial of the request for reinvestigation. The Court further said that even if the reckoning date to file an appeal to the CTA was moved from Oct 8 to Dec 31, 1957, the period to file an appeal has long passed when the action for collection was filed in the CFI in Sept. 1958. Taxpayer’s failure to file an appeal to the CTA in due time made the assessment final, executory and demandable. LTT was barred from disputing the correctness of the assessment. No inquiry can be made on the merit of the original case or the justness of the judgment other than evidence of want of jurisdiction, of collusion between the parties or fraud in a party offering the record with respect to the proceedings.

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


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21 - Edward San Juan v. Vasquez & CIR (1961) Doctrines:

• Court of Tax Appeals has exclusive appellate jurisdiction to review by appeal “decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.”

• CIR may not ignore the positive dispute against the assessment by immediately bringing an action to collect, thus depriving the taxpayer of his right to appeal the disputed assessment.

Facts:

On June 5, 1954, The Collector of Internal Revenue informed San Juan, through his accountant, that he has until July 16, 1954 to pay deficiency taxes (P19,704.50) without penalty or until July 31, 1954 to submit evidence to refute the CIR’s assessment. San Juan’s accountant wrote a letter dated July 30, 1954 to the CIR. He explained why the assessments were not due and owed to CIR, and begged the CIR to reconsider the penalties. He also assured full payment upon receipt of the adjusted assessment. The CIR did not respond to the letter.

On February 25, 1959, the CIR brought the action seeking to enjoin San Juan before the CFI of Manila. San Juan contested the assessments in his answer. He alleged that the action has already prescribed as it was filed more than 5 years from the date of the return. San Juan moved to dismiss the action on the ground that the CTA, not the CFI, had proper jurisdiction. He also claimed that a case was pending before the CTA. The CFI denied the Motion to Dismiss. An MR was filed but it was also denied. San Juan filed a Petition for certiorari and prohibition alleging CFI’s lack of jurisdiction.

Issues:

1. W/N the CFI lacked jurisdiction over cases involving disputed assessments

Held/Ratio:

a) YES. It is the CTA who has proper jurisdiction.

Under Sec. 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review by appeal “decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.”

The criminal complaint against San Juan is for the recovery of income taxes and deficiency tax. San Juan questioned the correctness of the assessment in both his accountant’s letter and his answer. Despite this, the CIR refused to correct the assessment and claimed that it was made in accordance with law. However, the CIR may not overlook the fact that the assessment had been disputed as the objections to the assessment had been made within the period. He may not ignore the positive dispute against the assessment by immediately bringing an action to collect, thus depriving the taxpayer of his right to appeal the disputed assessment.


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22 - Yabes v. Flojo (1982) Doctrine:

• The CFI of Cagayan (civil courts) can only acquire jurisdiction over a case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, then the Court of Tax Appeals has exclusive jurisdiction over the case.

Facts:

Doroteo Yabes was, for sometime, an exclusive dealer of products of the International Harvester Macleod, Inc. On May 1, 1962, He received a letter from the CIR demanding payment of the amount of P15,976.81 as commercial broker’s fixed and percentage taxes plus surcharges and the sum of P2,530 as compromise penalty allegedly due from Yabes for the years 1956-1960. Yabes protested the assessment against him on the ground that his agreements with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence he claimed he was not liable to pay such kind of taxes. The Commissioner informed Yabes that he acted as a commercial broker in accordance with the ruling of the BIR in the case of Cirilo D. Constantino. Yabes then sent two letters:

1. An appeal, requesting for the reinvestigation, or review of the case by the appellate division of the Bureau of Internal Revenue.

2. A request that the appeal be held in abeyance pending final decision of the Case of Cirilo D. Constantino (a case involving similar facts.)

In reply, the COMMISSIONER INFORMED YABES IN A LETTER (DATED SEPTEMBER 18, 1962) THAT HIS REQUEST FOR REINVESTIGATION WAS DENIED ON THE GROUND THAT HE HAS NOT SUBMITTED ANY EVIDENCE TO OFFSET THE FINDINGS OF THE BIR as to warrant a reinvestigation thereof. However, eight days later or on September 26, 1962, the Commissioner wrote a letter advising Yabes that “the administrative appeal will be held in abeyance pending the resolution of the issues in the Constantino case.”

To give time for the Commissioner to study the case and several other cases similar thereto, Yabes filed a tax waiver on October 20, 1962, extending the period of prescription to December 31, 1967. Yabes died on March 13, 1963 and no estate proceedings were instituted for the settlement of his estate. His widow also died during the pendency of the case; the petitioners in this case are the deceased taxpayer’s heirs.

On March 14, 1966, the Court of Tax Appeals decided the Constantino case and ruled that agreements entered into by Constantino with the International Harvester Macleod, Inc. were of purchase and sale, and not of agency, hence no commercial broker’s fixed and percentage fees could be collected from the said taxpayer. However on appeal, the CA reversed the ruling of the CTA and ruled in favor of the Commissioner of Internal Revenue.

After a lapse of about five years, the heirs of Yabes, through their lawyers, received on August 4, 1967, a letter from the Commissioner dated July 27, 1967, requesting the heirs to “waive anew the Statute of Limitations” and further confirming the previous understanding that the final resolution of the protest of the deceased Doroteo Yabes was “being held in abeyance until the Supreme Court renders its decision in the Constantino case. The heirs of Doroteo Yabes filed a revised waiver further extending the period of prescription to December 31, 1970.

For 3 years, no word was received by the heirs of Yabes or their lawyers. On January 20, 1971, the heirs of Yabes received the summons and a copy of the complaint filed by the Commissioner on December 4, 1970 with the Court of First Instance 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 from transactions as dealer of the products of the International Harvester Macleod, Inc.

Taking the complaint as the final decision of the Commissioner on the disputed assessment against the deceased taxpayer Doroteo Yabes, petitioners filed on February 12, 1971, a petition for review of said disputed assessment with the Court of Tax Appeals. On the same day, the heirs of Yabes filed their answer to the complaint of the Commissioner before the Court of First Instance of Cagayan and alleged therein that the Court of Tax Appeals has exclusive jurisdiction over the action and that there is another action of the same nature between the parties relating to


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the same assessment pending before the Court of Tax Appeals. The Commissioner filed a motion to dismiss with the Court of Tax Appeals and subsequently filed a memorandum in support of said motion to dismiss, on the ground that the assessment against Doroteo Yabes had already become final, executory and incontestable (Final na daw kasi hindi nag-appeal si Yabes within 30 days from the denial of his protest dated September 18, 1962. Yung naka-all caps na part. Haha.), and the Court of Tax Appeals had no jurisdiction over the case.

The heirs filed a formal motion to dismiss with the Court of First Instance of Cagayan on the grounds that said Court has no jurisdiction over the case and that there is another action pending between the same parties for the same cause before a competent court. The CFI of Cagayan denied the heir’s motion to dismiss on the ground that the heirs “have already made a previous answer wherein they categorically admitted the jurisdiction of the court over the subject matter.”

Issues:

1. W/N the assessment made by the CIR against Doroteo Yabes has become final, executory and incontestable after failing to appeal within the 30-day period from the denial (dated September 18, 1962) of the protest against such assessment.

2. W/N the CFI of Cagayan has jurisdiction over the case.

Held/Ratio:

1. No. The period for appeal should NOT be counted from September 18, 1962. In a letter of July 27, 1967, CIR informed the heirs that a resolution of their protest was being held in abeyance until the Supreme Court renders a decision on a similar case “involving the same factual and legal issues.” (The Constantino case) As a matter of fact, in an earlier letter dated September 26, 1962, the CIR also informed the heirs’ counsel that “administrative appeal for and in behalf of their clients win be held in abeyance pending resolution of the issues on a similar case which was appealed by you to the Court of Tax Appeals.” It is clear from the letters that the CIR reconsidered the finality of its decision regarding the protest and therefore the assessment cannot be considered final and executory.

2. No. Under the circumstances of the case, what may be considered as final decision or assessment of the Commissioner is the filing of the complaint for collection in the CFI of Cagayan, the summons of which was served on the heirs on January 20, 1971, and that therefore the appeal with the Court of Tax Appeals was filed on time. The CFI of Cagayan can only acquire jurisdiction over this case filed against the heirs of the taxpayer if the assessment made by the Commissioner of Internal Revenue had become final and incontestable. If the contrary is established, then the Court of Tax Appeals has exclusive jurisdiction over this case. The heirs received the summons in the case filed before the CFI of Cagayan on January 20, 1971, and they filed their appeal with the Court of Tax Appeals on February 12, 1971, well within the thirty-day prescriptive period under Section 11 of Republic Act No. 1125. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code.

Additional: The Court ruled that the dismissal of the complaint is not sufficient. The ends of justice would best be served by considering the complaint filed in CFI of Cagayan not only as a final notice of assessment but also as a counterclaim in the CTA case, in order to avoid mutiplicity of suits, as well as to expedite the settlement of the controversy between the parties. After all, the two cases involve the same parties, the same subject matter, and the same issue, which is the liability of the heirs of the deceased Doroteo Yabes for commercial broker’s fixed and percentage taxes due from the said deceased.


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23 - Emilio E. Lim, Sr. and Antonia Sun Lim v. CA (1990) Doctrines:

• The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to that effect.

Facts:

Emilio Lim, Sr. and Antonia Sun Lim were engaged in the dealership of various household appliances. They filed income tax returns for 1958 and 1959. In 1959, a raid was conducted at their business address in Manila by the NBI. The NBI seized business and accounting records which served as bases for an investigation undertaken by the BIR.

In 1964, the BIR discovered that the ITRs filed by the petitioners were false or fraudulent. In 1965, the BIR informed the petitioners that they were to pay P922,913.04 as deficiency income taxes. Emilio requested for a reinvestigation that was denied by the BIR for Lim’s refusal to accomplish a waiver of prescription.

In 1967, the BIR assessed the petitioners P934,000.54 as deficiency income taxes plus interest and compromise penalty. The petitioners protested this latest assessment and repeated the request for reinvestigation. The BIR rendered a final decision, requiring petitioners to pay the deficiency income taxes. A final notice and demand for payment was served on petitioners in 1968.

The petitioners did not pay the taxes. Hence, 4 separate criminal informations were filed against the petitioners in the CFI of Manila for violation of Sections 45 and 51 in relation to Section 73 of the NIRC. The CFI ruled in favor of the BIR and ordered the petitioners to pay a fine and to pay the government pursuant to PD 69 the deficiency taxes. On appeal, the CA affirmed the CFI decision. 23 days later, Emilio Lim, Sr. died. Antonia moved for a reconsideration of the CA decision. The CA then decided that by the death of Emilio, his criminal liability is extinguished and his heirs are substituted as to the civil aspect of the case.

Issues:

1. W/N the criminal charges prescribed in 10 years

2. W/N the prescriptive period commenced to run from the date of the final assessment (1968)

3. W/N the petitioners should pay the deficiency taxes to the government under PD 69, as decided by the CFI

Held/Ratio:

1. NO, FIVE, as provided by the NIRC: “All violations of any provision of this Code shall prescribe after five years”.

2. YES. The tax or deficiency in tax so discovered shall be paid upon notice and demand from the CIR. Hence, it was only in 1968 that the cause of action on the part of the BIR accrued. The offense was committed only after receipt of the letter-assessment with the willful refusal to pay the taxes due.

3. NO. SC said that the lower court erred in applying PD 69, which provides that the “judgment in the criminal case shall not only impose the penalty but shall order payment of the taxes subject of the criminal case”. The decree took effect on January 1, 1973, while the criminal cases were instituted on June 23, 1970. PD 69 has no retroactive effect. The SC added that there is no legal sanction for the imposition of payment of the civil indemnity to the Government in a criminal proceeding for violation of income tax laws. While Section 73 provides for the imposition of the penalty for refusal or neglect to pay income tax or to make a return thereof, by imprisonment or fine or both, it fails to provide for the collection of said tax in criminal proceedings. The NIRC provides only civil remedies for the collection of income tax, such as distraint of goods, chattels or by judicial action. The criminal conviction for a violation of any penal provision in the Tax Code does not amount at the same time to a decision for the payment of the unpaid taxes inasmuch as there is no specific provision in the Tax Code to that effect. Antonia Sun Lim was ordered to pay the fine. The fine is deemed extinguished in the case of the deceased Emilio.


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24 - Republic of the Philippines v. Pedro Patanao (1967) Facts:

This is an appeal from an order of the CFI of Agusan in a civil case, dismissing the Republic’s complaint in so far as it concerns the collection of deficiency income taxes (taxable year 1951, 1953 and 1954) and residence taxes (1951-52).

Patanao was engaged in the business of producing logs and lumber for sale during the years 1951-55. It was alleged that he failed to file income tax returns for 1953 and 1954 and that the return he filed for 1951, 1952 and 1955 were false and fraudulent because he did not report substantial income earned by him from his business.

The Republic through the Deputy Commissioner of Internal Revenue sent a letter of demand with enclosed income taxes assessment. Notwithstanding repeated demands, the Republic refused, failed and neglected to pay the taxes and the assessment became final, executory and demandable because it was not contested before the CTA,

Patanao moved to dismiss the complaint on 2 grounds:

1. Action is barred by prior judgment, Patanao having been previously acquitted in criminal cases for failure to file income tax returns and non-payment of income taxes.

2. Action is prescribed.

After considering the motion to dismiss, the opposition and the rejoinder to the opposition, the lower court held that the only cause of action left to the Republic is for the collection of income tax due for the year 1955 and the residence tax for 1953 to 1955. The lower court ruled that the present action was barred by prior judgment, being that the accused was acquitted in prior criminal cases for not filing and non-payment of his income tax returns for the years 1953 and 1954. Since there was no waiver or reservation as to the filing of a separate civil vase, Patanao was completely exonerated of any civil action to collect the payment of the said taxes.

Issues:

1. W/N the lower court properly dismissed the case for being barred by prior judgment.

Held/Ratio:

1. NO, the court fell into error in applying the principle underlying the civil liability of an offender under the Penal Code to a case involving the collection of taxes. The 2 cases are of different factual premises, which are opposed to each other and founded on entirely different philosophies.

Under the penal law, civil liability is incurred by reason of the offender’s criminal act. Meanwhile, under the income tax law, the civil liability to pay taxes arises from engaging in a taxable activity (i.e. business) and the criminal liability from the failure to satisfy such civil obligation. The difference in the factual premises and foundation principles of the 2 cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Also, while the NIRC provided the imposition of the penalty of imprisonment or fine for refusal or neglect to pay income taxes or to make a return, it failed to provide for collection of income tax in criminal proceedings. The only civil remedies provided for the collection of income tax are distraint of goods, chattels by judicial action, which are remedies generally exclusive in the absence of a contrary intent.

The acquittal in criminal cases cannot operate to discharge Patanao from the duty of paying taxes which the law requires to be paid, since that duty is imposed by statute prior to and independently of any attempts by the taxpayer to evade payment. The obligation is not a consequence of the felonious acts charged in the criminal proceedings, nor is it a mere civil liability arising from crime tat could be wiped out by the judicial declaration of non-exitence of the criminal acts charged.

As to the prescription of the action, the complaint was filed on December 7, 1962 and was not barred by prescription because what was applicable was the 10-year prescription period from the discovery of the falsity, fraud or omission. The fraud in the income tax return for 1951 was discovered on February 14, 1958 hence the 1962 filing was well within the 10-year prescription period.


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25 - Ungab v. Judge Cusi (1980) Doctrines:

• There is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. The crime is complete when the violator has knowingly and willfully filed fraudulent returns with intent to evade and defeat taxes.

Facts:

On July 1974, BIR examiner Garcia examined the income tax returns of Ungab for the calendar year 1973. Garcia discovered that Ungab failed to report his income from sales of banana saplings. So, the BIR District Revenue Officer sent a “Notice of Taxpayer” to Ungab saying that he owes P104,980 (income, business tax and forest charges). They also invited him and his lawyer to an informal conference where he could present his objections.

Upon receipt of the notice, Ungab protested the assessment claiming that he was only a dealer/agent on commission basis in the banana sapling business and that his income was correct. BIR Examiner Garcia however was convinced that Ungab had filed a fraudulent return so he submitted “Fraud Referral Report” to the Tax Fraud Unit of the BIR. The Unit found sufficient proof that Ungab is guilty of tax evasion and recommended his prosecution. The Commissioner of the BIR approved the prosecution on the second indorsement.

State Prosecutor Acebes (designated to assist in all violations of the NIRC) conducted a preliminary investigation of the case and finding probable cause filed 6 informations against Ungab. Ungab filed a motion to quash to annul the informations filed against him but Judge Cusi denied this.

Issues:

1. W/N the State Prosecutor has authority to initiate and prosecute the case against him

2. W/N the court has jurisdiction even though there is a pending protest against the assessment made by the BIR Examiner

Held/Ratio:

1. YES. The State Prosecutor first sought permission from the City Fiscal of Davao before he started the preliminary investigation of these cases. The Fiscal, designating the State Prosecutor to assist all fiscals in the investigation and prosecution of all violations of the NIRC, graciously allowed the State Prosecutor to conduct the investigation. In fact, the investigation was conducted in the office of the City Fiscal.

2. YES. What is involved here is not the collection of taxes but a criminal prosecution for violations of NIRC which is within the cognizance of the trial court. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. The crime is complete when the violator has knowingly and willfully filed fraudulent returns with intent to evade and defeat taxes.

A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the NIRC. Accordingly, Judge Cusi did not abuse his discretion in denying the motion to quash.


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26 - CIR v. Cebu Portland Cement Company and CTA (1987) Doctrine:

• Sec. 291 Injunction not available to restrain collection of tax—No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code.

Facts:

The CTA ordered the CIR to refund Cebu Portland Cement Company (CEPOC) P359,408.98, representing overpayments of ad valorem taxes on cement produced and sold by it. After denial of motions for reconsideration filed by both CIR and CEPOC, the latter moved for a writ of execution to enforce the judgment.

CIR opposed the motion for the writ of execution on the ground that CEPOC had an outstanding sales tax liability to which the judgment debt had already been credited. In fact, there was still a balance amounting to P4,789, 279. 85 plus 28% surcharge. CTA granted the motion, stating that the liability of CEPOC for the alleged sales tax was still being questioned and therefore could not be set-off against the refund.

CIR filed a petition for review of the CTA resolution claiming that the refund should be charged against the tax deficiency of CEPOC on cement sales under Sec. 186 of the Tax Code. According to the CIR, cement is a manufactured and not a mineral product, therefore not exempt from sales taxes. He adds that he enforced the tax deficiency through his power of distraint of personal property, as granted to him under the Tax Code, and that the collection of any national internal revenue tax may not be enjoined under Sec. 305, subject to only to the exception under RA. 11253, which is not applicable in this case. The CIR also denies that the sales tax assessments have prescribed because the sales tax returns have not been filed by CEPOC.

On the other hand, CEPOC denied liability for sales taxes alleging that cement as a mineral product is exempted from sales taxes under Sec. 188 of the Tax Code after the effectivity of RA. 12994 and in accordance with the ruling in CEPOC v. CIR (1968). In addition it claimed that the alleged tax deficiency was unenforceable because the tax assessment was not yet final, the same being under protest. It also cites prescription as a defense, not having been filed within the reglementary 5 year period from the filing of tax returns.

Issues:

1. W/N the sales tax was properly imposed

2. W/N the assessment of its sales tax liability has expired

3. W/N the assessment of its sales tax cannot be enforced because it is still being contested (IMPT)

Held/Ratio:

1. YES. Cement has always been considered a manufactured product, therefore liable for sales tax. It has never been considered a mineral product under the Tax Code because it is a product of a manufacturing process, even if 80% of its components are minerals.

2. NO. What CEPOC filed on June 30, 1962 was not its sales returns but its ad valorem returns. Hence, the assessments made for sales taxes on January 14, 1968 and March 4, 1968 were not out of time. In order to avail of the benefits of the 5-year prescription period, the taxpayer should have filed the required return for the tax involved that is the sales return.

3. No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue or the Collector of Customs

shall suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the Bureau of Internal Revenue or the Commissioner of Customs may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

4. Act Amending CA. 466 Sec, 246, defining minerals and mineral products


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3. NO. Taxes are the lifeblood of the government. If payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and government functions would be paralyzed. The Tax Code states that, “no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by this Code.” This injunction is available not only when the assessment is already being questioned in a court of justice but more so if, as in the instant case, the challenge to the assessment is still-and only-on the administrative level. There is more reason to apply the rule here because it appears that even after crediting of the refund against the tax deficiency, a balance of more than P 4 million is still due from the CEPOC.

27 - Churchill & Tait v. Rafferty (1915) Doctrine:

• That no courts shall have authority to grant an injunction restraining the collection of any taxes imposed, but the remedy of the taxpayer who claims that he is unjustly assessed or taxed shall be by payment under protest of the sum claimed from him by the Collector of Internal Revenue and by action to recover back the sum claimed to have been illegally collected.

Facts:

The judgment appealed from in this case perpetually restrains and prohibits the defendant and his deputies from collecting and enforcing against the plaintiffs and their property the annual tax mentioned and described in subsection (b) of section 100 of Act No. 2339, effective July 1, 1914, and from destroying or removing any sign, signboard, or billboard, the property of the plaintiffs, for the sole reason that such sign, signboard, or billboard is, or may be, offensive to the sight; and decrees the cancellation of the bond given by the plaintiffs to secure the issuance of the preliminary injunction granted soon after the commencement of this action.

Issues:

1. W/N the court may restrain by injunction the collection of tax complained of

2. W/N section 100 of Act No. 2339 is valid conferring power upon the Collector of Internal Revenue to remove any sign, signboard, or billboard upon the ground that the same is offensive to the sight or is otherwise a nuisance.

Held/Ratio:

1. No. Section 3224 of the Revised Statutes of the United States, effective since 1867, provides that: “No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.”

Section 139, with which we have been dealing, reads: “No court shall have authority to grant an injunction to restrain the collection of any internal-revenue tax.”

A comparison of these two sections show that they are essentially the same. Both expressly prohibit the restraining of taxes by injunction.

In Pollock v. Farmers’ Loan & Trust Co. (157 U.S., 429) the court, through Mr. Justice Miller, said: “If there existed in the courts, state or National, any general power of impeding or controlling the collection of taxes, or relieving the hardship incident to taxation, the very existence of the government might be placed in the power of a hostile judiciary.

Section 84 of Act No. 82 provides that “No court shall entertain any suit assailing the validity of a tax assessed under this act until the taxpayer shall have paid, under protest, the taxes assessed against him[.]”

This inhibition was inserted in section 17 of Act No. 83 and applies to taxes imposed by provincial boards. The inhibition was not inserted in the Manila Charter until the passage of Act No. 1793, effective October 12, 1907. Act No. 355 expressly makes the payment of the exactions claimed a condition precedent to a resort to the courts by dissatisfied importers. Section 52 of Act No. 1189 provides “That no courts shall have authority to grant an injunction restraining the collection of any taxes imposed by virtue of the provisions of this Act, but the remedy of the taxpayer who claims that he is unjustly assessed or taxed shall be by payment under protest of the sum


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claimed from him by the Collector of Internal Revenue and by action to recover back the sum claimed to have been illegally collected.”

2. Yes, by virtue of the state’s police power. The pertinent provisions of subsection (b) of section 100 of Act No. 2339 read: “If after due investigation the Collector of Internal Revenue shall decide that any sign, signboard, or billboard displayed or exposed to public view is offensive to the sight or is otherwise a nuisance, he may by summary order direct the removal of such sign, signboard, or billboard, and if same is not removed within ten days after he has issued such order he my himself cause its removal, and the sign, signboard, or billboard shall thereupon be forfeited to the Government, and the owner thereof charged with the expenses of the removal so effected. When the sign, signboard, or billboard ordered to be removed as herein provided shall not comply with the provisions of the general regulations of the Collector of Internal Revenue, no rebate or refund shall be allowed for any portion of a year for which the tax may have been paid. Otherwise, the Collector of Internal Revenue may in his discretion make a proportionate refund of the tax for the portion of the year remaining for which the taxes were paid. An appeal may be had from the order of the Collector of Internal Revenue to the Secretary of Finance and Justice whose decision thereon shall be final.”

The basic idea of civil polity in the United States is that government should interfere with individual effort only to the extent necessary to preserve a healthy social and economic condition of the country. State interference with the use of private property may be exercised in three ways. First, through the power of taxation, second, through the power of eminent domain, and third, through the police power. Buy the first method it is assumed that the individual receives the equivalent of the tax in the form of protection and benefit he receives from the government as such. By the second method he receives the market value of the property taken from him. But under the third method the benefits he derived are only such as may arise from the maintenance of a healthy economic standard of society and is often referred to as damnum absque injuria.


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28 - CIR v. Reyes and CTA (1957) (distraint & levy after 3 years of filing for return)

Doctrines:

• After three years have elapsed from the date to which income tax returns (that have been found to be false, fraudulent, or erroneous) may have been made, the CIR can’t make summary collection through administrative methods, but must do so through judicial proceedings.

• The requirement of the bond as a condition precedent to the issuance of the writ of injunction applies only in cases where the processes by which the collection sought to be made by means thereof are carried out in consonance with the law

Facts:

Aurelio Reyes dutifully filed his income tax returns for the years 1946-1950, with the last one filed on 27 April 1951. However, more than three years later, on 13 October 1954, the BIR sent a letter of demand to Reyes for deficiency income taxes, surcharges, interests, and penalties for those years. According to the letter, Reyes had until October 31 to pay the taxes either to the BIR or the City Treasurer of Manila. Together with the letter, he received a warrant of distraint and levy should he fail to settle his account. But on November 4, Reyes received another letter from the City Treasurer saying that the BIR instructed it to execute the said warrant if the Reyes still hadn’t settled the amount by November 10.

On November 15, Reyes filed a petition to review the CIR’s assessment of his alleged deficiency tax liabilities. He followed it up the next day with an urgent petition to restrain the CIR for executing the warrant of distraint and levy, alleging that (a) the period to collect via summary proceedings has already prescribed under Sec. 51(d) of the NIRC, (b) the distraint and levy would work injustice and irreparable injury to him and render any judgment by the Court in the main case meaningless and ineffectual, (c) that the requirement under Sec. 11 of RA 1125 that a taxpayer must first file a bond or deposit before the warrant of distraint and levy may be suspended is not applicable in this case, and (d) there’s no possibility that he would abscond w/ his property or remove or conceal them since they consist mostly of real property in Metro Manila and shares of stock in the Philippine Racing Club.

The CIR opposed the petition, arguing that (a) the CTA had no authority to restrain him from executing the warrant of distraint and levy, (b) that the proper remedy for Reyes would be to pay first then seek recovery after, and (c) Sec. 51(d) doesn’t preclude distraint and levy. The CTA sided with Reyes, and restrained the CIR from executing the warrant of distraint and levy, w/o prejudice to any judicial remedies that the CIR may take. The SolGen instituted a notice of appeal before this Court.

Issues:

1. W/N the CTA could restrain the CIR from executing the warrant of restraint and levy, even w/o requiring the filing of a bond or make a deposit as prescribed by Sec. 11 of RA 1125

Held/Ratio:

1. YES. In a long line of cases, the SC has consistently held that the three-year prescriptive period under Sec. 51(d) constitutes a limitation on the government’s right to enforce the collection of income taxes by summary proceedings (distraint and levy). The remaining remedy would be to institute a civil action for collection. Thus, after three years have elapsed from the date to which income tax returns (that have been found to be false, fraudulent, or erroneous) may have been made, the CIR can’t make summary collection through administrative methods, but must do so through judicial proceedings.

In this case, the bond/deposit required under Sec. 11 of RA 1125 is not applicable since it only applies when the collection via distraint or levy is proper. In this case, it is illogical to require the taxpayer to pay a bond to restrain the collection via a warrant of distraint and levy when such warrant was itself incorrectly issued. The requirement of the bond as a condition precedent to the issuance of the writ of injunction applies only in cases where the processes by which the collection sought to be made by means thereof are carried out in consonance with the law. Sec. 11 of RA 1125 is premised on the assumption that the collection by summary proceedings is by itself in accordance with existing law; and then what is suspended is the act of collecting, whereas, in the case at


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bar what the respondent Court suspended was the use of the method employed to verify the collection which was evidently illegal after the lapse of the three-year limitation period.

29 - CIR v. Avelino (1956) Doctrine:

• The Court may suspend the collection of taxes even without the required bond if it is found that such collection would be unlawful.

Facts:

Jose Avelino filed his income tax returns for 1946 and 1948 on February 28, 1947 and April 20, 1949. Five years and thirty-five days after the last of the two returns was filed (May 24, 2954), the Collector of Internal Revenue demanded from Jose Avelino the payment of the above taxes. Upon his failure to pay them, the Collector issued on September 23, 1954, a warrant of garnishment. This was followed by another warrant of distraint, and levy. Avelino filed an urgent petition with the Court of Tax Appeals praying that the Collector of Internal Revenue be enjoined from proceeding with the sale of his properties and that the assessment made by him be reviewed.

The CTA issued a resolution declaring the warrants of garnishment, as well as of distraint and levy, including the seizure and notice of sale of the properties of Jose Avelino, null and void, and ordering the Collector of Internal Revenue to desist from collecting “through summary administrative methods” the deficiency income taxes.

Issues:

1. Whether the CIR is barred from collecting through summary administrative methods of distraint and levy the deficiency income taxes in question

2. Whether the CTA erred in restraining the CIR from collecting through summary administrative methods the deficiency income taxes, and without requiring a bond in accordance with section 11 of Republic Act No. 1125.

Held/Ratio:

1. YES. The government loses its rights to collect the income tax by summary proceedings after three years have elapsed from the time the income tax return is filed, although it may still collect the tax by judicial action.

Since, admittedly, the deficiency taxes in question were assessed and the warrants for their collection by distraint and levy were issued after the period of three years from the filing of the returns, the warrants and the levy were issued without authority of law and hence, the Court of Tax Appeals acted properly in enjoining their enforcement.

While a five-year prescriptive period was given in sections 331 and 332 of the NIRC, it applies only to internal revenue taxes in general and not to income tax which is given a two-year prescription by sec 51(d) of the same law.

2. NO. This case is not an injunction against the judicial collection for taxes. Instead, what is enjoined is the enforcement by distraint and levy which was found to be in violation of the law.

“XXX The Court, when in its opinion, the collection of the tax by the CIR may jeopardize the interest of the taxpayer it may, at any stage of the proceeding, suspend the collection and require the taxpayer either to deposit the amount claimed or file a surety bond for not more than double the amount with the court.”

While court did not require the taxpayer to deposit the amount claimed or to file a bond, such action is justified considering that the court found the action of the Collector to be contrary to law (beyond the prescriptive period). To require a bond under such a situation would indeed be illogical and improper. (Citing a similar case involving A.P. Reyes)


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29 - PNOC v. CA (2005) (Sorry this is a really long and complicated case, so bear with me.)

Facts:

The Petitions before this Court originated from a sworn statement submitted by private respondent Tirso B. Savellano.

In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with PNB and which PNB did not withhold. Another letter, dated 14 October 1986, PNOC reiterated its proposal to settle its tax liability through the set-off of the said tax liability against NAPOCOR’S pending claim for tax refund/credit. The BIR replied that the proposal for set-off was premature since NAPOCOR’s claim was still under process. Once more, BIR requested PNOC to settle its tax liability in the total amount of P385,961,580.82, consisting of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November 1986.

On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax, in accordance with the provisions of Executive Order (E.O.) No. 44, which BIR Commissioner Bienvenido A. Tan accepted.

Disagreeing with the CIR regarding the reward and the compromise, Savellano filed a Petition for Review ad cautelam with the CTA, docketed as CTA Case No. 4249. There are numerous motions filed by both parties and in the end both the CTA and CA ruled that the Compromise is invalid.

Issue:

1. W/N the declaration by the CTA that the compromise agreement was without force and effect is proper.

Held/Ratio:

1. Yes. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a delinquent account or a disputed assessment (which is required by E.O. 44) as of 31 December 1985. PNOC’s tax liability could not be considered a delinquent account since it was not self-assessed (the BIR conducted an assessment of PNOC and PNB after obtaining information from private respondent Savellano.

Also, such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31 December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an assessment that could have been disputed or protested on or before 31 December 1985, having been issued on a later date.

Although PNOC and PNB have extensively argued their entitlement to compromise under E.O. No. 44, neither of them has presented any evidence to prove that it may compromise its tax liability under Section 246 of the NIRC of 1977, as amended, which is the proper law.

In addition, the tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44. E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer rather than a mere agent. RMO No. 39-86 expressly allows a withholding agent, who failed to withhold the required tax because of neglect, ignorance of the law, or his belief that he was not required by law to withhold tax, to apply for a compromise settlement of his withholding tax liability under E.O. No. 44. A withholding agent, in such a situation, may compromise the withholding tax assessment against him precisely because he is being held directly accountable for the tax. RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from the withholding agent who withheld the tax but failed to remit the amount to the Government. The latter is disqualified from applying for a compromise settlement because he is being made accountable as an agent, who held funds in trust for the Government.

Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for compromise was filed beyond the deadline. Although the compromise agreement was executed only on 22 June 1987, PNOC is claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering to compromise its tax liability, and that the said letter should be considered as PNOC’s application for compromise settlement. A perusal of PNOC’s letter, dated 25 September 1986, would reveal, however, that the terms of its


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proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of the basic tax assessed against it as required by E.O. No. 44. Instead, PNOC’s offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44 because it would not only delay collection, but more importantly, it would not guarantee collection.

The compromise agreement between the BIR and PNOC was contrary to law having been entered into by BIR Commissioner Tan in excess of his authority. E.O. No. 44 and the NIRC of 1977, as amended, had identified the situations wherein the BIR Commissioner may compromise tax liabilities, and none of these existed.

The compromise, moreover, was contrary to public policy; they delayed the collection of taxes. Taxes are the lifeblood of the Government and their prompt and certain availability are imperious needs.

30 - Proton Pilipinas v. Republic (2006) Doctrine:

• Civil liability to pay taxes arises from the fact that one has engaged himself in business, and not because of any criminal act committed by him.

Facts:

Proton Pilipinas Corporation (Proton) is engaged in the business of importing, manufacturing, and selling vehicles. In 1997, Devmark Textile Industries, Inc. (Devmark), engaged in the business of spinning, knitting, weaving, dyeing, and finishing all types of textile, yarns, and fabrics, together with Texasia, Inc. (Texasia) purchased various vehicles distributed and marketed by Proton. In payment thereof, the above named companies offered Proton their Tax Credit Certificates (TCCs) worth P30,817,191.00. The companies, through their officers, guaranteed Proton that the TCCs were valid, genuine, and subsisting and that TCCs were a safe and valid mode of payment for import duties and taxes as they were issued by the Department of Finance (DOF) and duly honored and accepted by the Bureau of Customs (BOC).

Persuaded by the representations and assurances made by the two companies as to the legality of the transaction, Paul Y. Rodriguez, in his capacity as Executive Vice-President of Proton, accepted the TCCs and signed a Deed of Assignment with Eulogio L. Reyes, General Manager of Devmark. The TCCs were submitted to the DOF for evaluation and approval. The TCCs were cleared by the DOF and were used by Proton for the payment of customs and duties taxes to the BOC.

Meanwhile, the Office of the Ombudsman (Ombudsman) under Hon. Aniano Desierto began conducting an investigation on the alleged “P60 Billion DOF Tax Credit Scam.” The TCCs assigned to Proton were found to be irregularly and fraudulently issued by several officers of the DOF, including its Department Undersecretary Belicena, to Devmark. Apparently, all the pertinent documents submitted by Devmark in support of its application for the TCCs were fake and spurious. As a consequence thereof, the transfers of the subject TCCs to Proton and their subsequent use of the same was declared invalid and illegal.

The Ombudsman filed with the Sandiganbayan, Criminal Cases charging DOF Undersecretary Belicena together with Reyes, General Manager of Devmark, Peter Y. Rodriguez and Paul Y. Rodriguez, in their capacity as Director and Executive Vice-President/Chief Operating Officer of Proton, respectively, for violation of Section 3 (e) and (j) of The Anti Graft and Corrupt Practices Act. Proton then filed a criminal case for Estafa against the officers of Devmark. THE BOC ON THE OTHER HAND, FILED A CASE AGAINST PROTON BEFORE THE RTC FOR THE COLLECTION OF TAXES AND CUSTOMS DUTIES, WHICH REMAIN UNPAID BECAUSE THE SUBJECT TCCS HAD BEEN CANCELLED BROUGHT ABOUT BY PROTON’S USE OF FRAUDULENT TCCS IN PAYING ITS OBLIGATIONS. Proton argues that the RTC had no jurisdiction since the filing of the criminal cases was anchored on the alleged conspiracy among accused public officials, including the corporate officers, regarding the anomalous and illegal transfer of four TCCs from Devmark to Proton and the latter’s subsequent use of three TCCs in paying their customs duties and taxes to the detriment of the government, the civil case regarding collection of unpaid customs duties and taxes was deemed impliedly instituted with the criminal cases before the Sandiganbayan. Proton


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then filed a Motion to Dismiss the case filed by BOC against it on the grounds of lack of jurisdiction, prematurity of action, and litis pendentia. The RTC denied said Motion. Proton sought reconsideration but the same was denied.

Issue:

1. W/N the case filed by the BOC involving collection of unpaid customs duties and taxes of Proton, belongs to the Sandiganbayan and not to the RTC, as it can be considered the civil aspect of the Criminal Cases filed before the Sandiganbayan.

Held/Ratio:

1. No. While it is true that according to Section 4, of Republic Act No. 8249, the institution of the criminal action automatically carries with it the institution of the civil action for the recovery of civil liability, however, in the case at bar, the civil case for the collection of unpaid customs duties and taxes cannot be simultaneously instituted and determined in the same proceedings as the criminal cases before the Sandiganbayan, as it cannot be made the civil aspect of the criminal cases filed before it. It should be borne in mind that the tax and the obligation to pay the same are all created by statute; so are its collection and payment governed by statute. The payment of taxes is a duty which the law requires to be paid. Said obligation is not a consequence of the felonious acts charged in the criminal proceeding nor is it a mere civil liability arising from crime that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. HENCE, THE PAYMENT AND COLLECTION OF CUSTOMS DUTIES AND TAXES IN ITSELF CREATES CIVIL LIABILITY ON THE PART OF THE TAXPAYER. SUCH CIVIL LIABILITY TO PAY TAXES ARISES FROM THE FACT, FOR INSTANCE, THAT ONE HAS ENGAGED HIMSELF IN BUSINESS, AND NOT BECAUSE OF ANY CRIMINAL ACT COMMITTED BY HIM.


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31 - Philippine Refining Company v. Court of Appeals (1996) Doctrines:

• SEC 248. Civil Penalties. — (a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

...

(3) Failure to pay the tax within the time prescribed for its payment.

• SEC. 249. Interest. — (a) In general. — There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations, from the date prescribed for payment until the amount is fully paid.

(c) Delinquency interest. — In case of failure to pay:

(1) The amount of the tax due on any return required to be filed, or

(2) The amount of the tax due for which no return is required, or

(3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected, on the unpaid amount, interest at the rate prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the tax.”

Facts:

Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584.00. The assessment was timely protested by petitioner on April 26, 1989, on the ground that it was based on the erroneous disallowances of “bad debts” and “interest expense” although the same are both allowable and legal deductions. Respondent Commissioner, however, issued a warrant of garnishment against the deposits of petitioner which action the latter considered as a denial of its protest.

Petitioner accordingly filed a petition for review with the CTA on the same assignment of error. In its decision, the CTA modified the findings of the Commissioner by reducing the deficiency income tax assessment to P237,381.26, with surcharge and interest incident to delinquency. In said decision, the Tax Court reversed and set aside the Commissioner’s disallowance of the supposed interest expense of P2,666,545.19 but maintained the disallowance of the bad debts of thirteen (13) debtors. Petitioner then elevated the case to respondent CA.

Issue:

1. W/N the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its payment of the tax assessed is improper and unwarranted, considering that the assessment of the Commissioner was modified by the CTA and the decision of said court has not yet become final and executory.

Held/Ratio:

1. No. The deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioner’s default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

Tax laws imposing penalties for delinquencies, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected. It is mandatory to collect penalty and interest at the stated rate in case of


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delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government and, in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government.

32 - BPI v. CIR (2006) Doctrine:

• It is only equitable for the government to collect interest from a taxpayer who, by the government’s error, received a refund which was not due him.

• The intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature

Facts:

From February to October 1986, BPI sold to the BSP US Dollars for P1,608,541,900.00. BPI telegraphically coordinates with a bank in New York in order to credit US Dollars to the BSP account. Upon confirmation, BSP credits the peso to the BPI account. During 1985 to 1987, BSP enjoyed tax exemption privileges. However, in 1985, a law was passed that taxes any party to which BSP transacts with in respect to these kinds of transactions.

In 1988, the CIR ordered an investigation to be made on BPI’s sale of foreign currency. The CIR issued a pre-assessment notice informing BPI of its liability for documentary stamp tax plus penalties assessed at P3,016,316.06. BPI disputed this. Nevertheless, the CIR issued an Assessment. BPI formally protested the assessment, but the protest was denied. In 1990, BPI received the final notice and demand for payment of its 1986 assessment for deficiency documentary stamp tax in the amount of P3,016,316.06.

Consequently, a petition for review was filed with the CTA in 1990. On 31 May 1994, the CTA rendered the Decision holding BPI liable for documentary stamp tax in connection with the sale of foreign exchange to the Central Bank from the period July 1986 to October 1986 only, thus substantially reducing the CIR’s original assessment down to P690,030 inclusive penalties plus 20% annual interest until fully paid.

Motions for Revconsideration were filed in the CA which likewise affirmed the CTA’s Decision imposing a 20% delinquency on the reduced assessment.

BPI filed a Partial Motion for Reconsideration to the SC.

Issue:

1. W/N the delinquency interest of 20% per annum is applicable

Held/Ratio:

1. YES. The SC categorically ruled that even if an assessment was later reduced by the courts, a delinquency interest should still be imposed from the time demand was made by the CIR. This doctrine is consistent with the earlier decisions of this Court justifying the imposition of additional charges and interests incident to delinquency by explaining that the nature of additional charges is compensatory and not a penalty.

The above legal provision makes no distinctions nor does it establish exceptions. It directs the collection of the surcharge and interest at the stated rate upon any sum or sums due and unpaid after the dates prescribed. The provision therefore is mandatory in case of delinquency. This is justified because the intention of the law is precisely to discourage delay in the payment of taxes due to the State and, in this sense, the surcharge and interest charged are not penal but compensatory in nature — they are compensation to the State for the delay in payment, or for the concomitant use of the funds by the taxpayer beyond the date he is supposed to have paid them to the State.

Based on established doctrine, these charges incident to delinquency are compensatory in nature and are imposed for the taxpayers’ use of the funds at the time when the State should have control of said funds. Collecting


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such charges is mandatory. Therefore, the Decision of the Court of Appeals imposing a 20% delinquency interest over the assessment reduced by the CTA was justified and in accordance with Section 249(c)(3) of the NIRC.

33 - Tambunting Pawnshop v. CIR (2010) Doctrines:

• From RR 12-99:

SECTION 4. Civil Penalties.

4.1 Twenty-Five Percent (25%) Surcharge. There shall be imposed, in addition to the basic tax required to be paid, a penalty equivalent to twenty-five percent (25%)thereof, in any the following cases:

4.1.1 Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or

4.1.2 Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or

4.1.3 Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

4.1.4 Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

Facts:

Tambunting Pawnshop (Tambunting) is engaged in the pawnshop business. The BIR sent an assessment notice dated August 27, 2003 to Tambunting. It demanded the payment of deficiency VAT (P5,212,404.52) and compromise penalty (P25,000) for the taxable year of 2000.

Tambunting protested the assessment and argued that a pawnshop business is not subject to VAT and the compromise penalty. The CIR did not do anything about the protest. As a result, Tambunting filed a petition for review before the CTA (2nd division). The CTA (2nd division) ordered Tambunting to pay CIR the deficiency VAT plus 25% surcharge and 20% delinquency interest per annum (The CTA deleted the compromise penalty).

Tambunting filed a motion for partial reconsideration. It submitted a written manifestation, attaching a copy of the BIR tax payment deposit slip and the corresponding schedule evincing the payment of P828,809.67 pursuant to a settlement agreement with the BIR. The CTA denied the motion for partial reconsideration. Tambunting appealed by petition for review to the CTA en banc. The CTA en banc denied the petition for review. It also denied the subsequent motion for reconsideration.

Hence, Tambunting appealed. Tambunting claims that pawnshops are not within the concept of “all services” and “similar services” as contained in Section 108 of the NIRC. It also claims that the enumeration of services subject to VAT is exclusive.

Issues:

1. W/N a pawnshop operator is liable for VAT and compromise penalty during the taxable year of 2000.

Held/Ratio:

1. NO. Pawnshops are treated as non-bank financial intermediaries. Various laws (and subsequent amendments) related to VAT levied upon non-bank financial intermediaries resulted to consecutive deferments.


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Sec 3 and 17 of RA 7716 (Expanded VAT Laws) VAT on non-financial intermediaries was first levied. The amount is equivalent to 10% of gross receipts.

Sec. 11 of RA 8421 amended Sec. 17 of RA 7716 Moved the effectivity of VAT on non-bank financial intermediaries to January 1, 1998

RA 8424 (NIRC) Moved the effectivity of VAT on non-bank financial intermediaries to December 31, 1999.

RA 8761 Moved the effectivity of VAT on non-bank financial intermediaries to January 1, 2001

RA 9010 Moved the effectivity of VAT on non-bank financial intermediaries to January 1, 2003

The consecutive deferments of the effectivity date of the application of VAT on non-bank financial intermediaries resulted in their non-liability for VAT during the affected taxable years (1996-2002). Moreover, the VAT deficiency assessment and the surcharge served on Tambunting lacked legal basis and must be canceled. Tambunting is entitled to a refund of the amount it paid under the settlement agreement for the taxable year of 2000 only.


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34 - Michel Lhuiller v. CIR (2006) *NOTE: the main issue in the case is whether pawnshop transactions are subject to Documentary Stamp Tax (DST). With regard to the topic of civil penalties: the Court merely imposed Lhuiller Pawnshop to pay an additional deficiency interest of 20% per annum for failure to pay the required DST on Jan 2, 2000.

Doctrine:

• For failure to pay the Deficiency DST the Court may, in pursuant to Sec 249 NIRC (now Sec 248), imposed a delinquency Interest rate of 20% per annum from Jan 2, 2000 (date taxpayer should have paid BIR) until the deficiency assessment are fully paid.

Facts:

Michel J. Lhuiller Pawnshop, Inc, (Lhuiller) is a corporation engaged in the pawnshop business which issues pawn ticket to customers. The case started when Lhuiller received 2 Assessment Notices from BIR Cebu City for deficiency VAT for P 19,961,639 and deficiency DST for P 13, 142,986 for the fiscal year of 1997. Lhuiller filed motion for reconsideration to CIR but it was denied which prompted the former to file for petition for review with CTA.

CTA decided in favour of Lhuiller and set aside the assessment notice holding that a pawn ticket can’t be subject of a DST.

Then the CA reversed CTA decision and held that Lhuiller should pay the deficiency DST. It clarified that it is not the actual pawn ticket that is subjected to DST but rather it is the transaction of pledge (as evidenced by the pawn ticket) which is being taxed.

The dispositive portion stated the amount to be paid by Lhuillier:

(1) P19,961636.09, as deficiency Value-Added Tax, inclusive of surcharge and interest; and

(2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997.

(3) Delinquency Interest at the rate of 20% per annum from January 2, 2000, until the deficiency assessment are fully paid, pursuant to Section 249 of the National Internal Revenue Code.

* Note that No. 3 was only added after CIR filed a motion for partial reconsideration praying that Lhuiller be ordered to also pay the said deficiency interest.

Issue:

1. Whether Lhuiller Pawnshop transactions are subject to DST

Held/Ratio:

1. YES. The Court held that the transactions of Lhuiller are subjected to DST. It is expressly stated in Sec 195 of NIRC that “on every mortgage or pledge of land, estate, or property, real or personal…there shall be collected a documentary stamp tax.” As defined in PD 114 (Pawnshop Regulations Act) the business of pawnshop is basically engaging in lending money on personal property delivered as security for loans (pledge.) In this case, the Court clarified that it is not the pawn ticket that creates the pawnshop’s obligation to pay DST but rather it is the exercise of the privilege to enter into a contract of pledge.

ADDITIONAL: The Court also noted BIR Ruling No. 018-88 which held that DST is a tax on document and since a pawn ticket is not an evidence of indebtedness, it can’t be subject to DST. In the case at hand, the Court held that the interpretation of the BIR Ruling is inconsistent with Sec 195 of NIRC. The former being merely an admin issuance can’t override or modify the law (NIRC. )


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35 - Connel Bros. Co. v. CIR (1963) (sales tax, difference in computation)

Doctrine:

• In all cases where the delinquent has delayed the administration of the law or has intentionally violated the provisions of the law, or has purposely delayed filing the return, the Collector of Internal Revenue will insist on enforcing the specific penalty for failure to make return within the time prescribed by law.

Facts:

Connel Bros. Co. is engaged in the importation of general merchandise. The case concerned the alleged deficiency in sales tax paid by Connel for the period of January 18, 1948 to January 31, 1949.

Section 186 of the NIRC imposes a sales tax of 5% of the gross selling price or gross value in money of the articles so sold, bartered, exchanged or transferred. The following circulars promulgated by the BIR are applicable:

General Circular No. 431 provides that if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by him, has included an amount of money intended to cover the sales tax in the gross selling price of the articles, the sales tax shall be based on the gross selling price less the amount intended to cover the tax, if the same be billed to the purchaser as separate item.

General Circular No. 440 reiterates the requirement of separate billing: Unless billed to the purchaser as separate items in the invoice, the amounts intended to cover the sales tax shall be considered as part of the gross selling price of the articles sold, and deductions thereof will not be allowed.

NOTE: [The sales tax of 5% is based on the gross selling price of the articles sold, bartered, exchanged, or transferred. But the manufacturer, producer, or importer can already include the sales tax in fixing the gross selling price — which means that the burden of paying would be shifted to the customer. The circulars require that the amount corresponding to the sales tax must be billed to the purchaser as a separate item so that the deduction would be allowed by the BIR when it computes for the tax.]

Up to January 17, 1948, every sales invoice issued by Connel contained an itemization of the actual selling price and of the 5% sales tax, which was then added to the selling price and shifted to the customer, in compliance with General Circulars No. 431 and 440. However, for January 18, 1948 until January 31, 1949, the sales invoice merely showed one single amount in each instance: the TOTAL actual selling price, with the notation “5% sales tax included”.

Due to its failure to itemize the amount allotted for the sales tax, there had been a difference in the computations made by Connel and the BIR. The BIR based the 5% tax on the single amount since Connel did not make a separate itemization of the amounts, while Connel computed it on the basis of the actual selling price alone (it deducted the amount which was shifted to the customer).

The difference between the amounts resulting from the two methods of computation is the alleged deficiency in sales tax. The BIR assessed that the deficiency in sales tax amounted to P29,365.50 but it was later reduced to P21,716.54. In 1950, Connel contested the validity of the assessment but it deposited a check with the BIR. It was in 1956 when the check was converted as payment for the deficiency. Then a formal request for refund was filed but it was denied by the BIR.

In 1957, Connel filed a petition for review with the CTA. The CTA denied the request for a refund and imposed a 25% surcharge.

Issue:

1. W/N the mere notation of the words “5% sales tax included” on the invoices of Connel complies with the mentioned circulars

2. W/N the imposition of the 25% surcharge was proper

Held/Ratio:

1. NO. The 5% sales tax under Section 186 of the Revenue Code is imposed on such gross selling price, including


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the tax itself when it shifted to the customer, for that is the total amount that he pays to receive the goods purchased by him. The deduction that is allowed by the two circulars constitutes in effect an exception to the rule established by the statute, and may be availed of only if the amount intended to cover the tax is billed the purchaser as a separate item. The exception is merely a privilege granted to the taxpayer which, if he is to claim its benefits, must be complied with by him.

It was clearly emphasized in the Circulars that the amount of tax must be stated as a separate item in the sales invoice. Certainly a simple indication on the invoice that the 5% tax is already included in the aggregate sum charged to the customer cannot be a separate billing of the amount of such tax. The intention is to apprise the customer of the exact amount of the tax that is passed on to him for payment. The deduction is allowed only when the amount intended to cover the sales tax is billed as a separate item in the invoices.

Connel relied on the case of Fred Wilson and Company, Inc. wherein the Board of Tax Appeals allowed the mere notation of the words “tax included” as substantial compliance. However, Connel cannot rely on this ruling which was decided on 1952, since the sales covered were in 1948-1949.

2. NO. In all cases where the delinquent has delayed the administration of the law or has intentionally violated the provisions of the law, or has purposely delayed filing the return, the Collector of Internal Revenue will insist on enforcing the specific penalty for failure to make return within the time prescribed by law. Failure to make this return and pay the tax during the months in which the said taxes are payable will be considered as purposely delaying filing the return. The necessity of notifying the taxpayer of his delinquency or the discovery of such a delinquency by a revenue officer will be treated as delaying the administration the law.

However in this case, the Court did not affirm the CTA’s decision of imposing a 25% surcharge. The Court ruled that Connel, in preparing its sales invoices as it did, was not guilty of an intentional violation of the law. It did not delay filing the returns for the sales taxes corresponding to the period in question, let alone did so purposely. The delay was in the payment of the deficiency, which arose from a mistaken understanding of the regulations laid down by the BIR. The ensuing controversy was, generated in good faith and should furnish no justification for the imposition of a penalty.


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36 - Tuazon, Jr. v. Lingad (1974) Doctrines:

• Payment of surcharge and interest should be eliminated in cases when the taxpayer relied in good faith upon opinions rendered by no less than the highest officials of the BIR, including the Commissioner himself.

The ruling in the previous case (Connell Bros. Co. v. CIR) applies to this case.

Facts:

This case involved two parcels of land inherited by Tuazon from his mother. When his mother was still alive, these lots (with an area of 318 and 67,684 sq. m.) were subdivided into 29 lots, 28 of these were leased out with contracts ending in 1953. The 29th lot with an area of 48,000 sq. m. was not leased to any person because it needed filling due to its very low elevation.

After the petitioner took possession of the mentioned parcels in 1950, he instructed his attorney-in-fact, J. Antonio Araneta, to sell them. The 28 lots were immediately sold on a 10-year installment basis. Lot 29 could not however be sold immediately due to its low elevation.

In 1952, the atty-in-fact had Lot 29 filled. This lot was subsequently subdivided into smaller lots. The small lots were then sold over the years on a uniform 10-year annual amortization basis. The attorney-in-fact did not employ any broker nor did he put up advertisements in the matter of the sale thereof.

In 1953 and 1954 the petitioner reported his income from the sale of the small lots as long-term capital gains.

In 1957, like the previous years, the petitioner treated his income from the sale of the small lots as capital gains. He, however, deducted the real estate dealer’s tax he paid for in 1957 on account of rentals received from the mentioned 28 lots and other properties of the petitioner. The CIR approved the assessment. On Jan. 1963, however, the Commissioner reversed himself and considered the profits derived as ordinary gains and ordered him to pay the proper taxes and an additional .5% monthly interest from 1959-1962.

His motion for reconsideration was denied. On appeal, the CTA modified the Commissioner’s order and required him to pay an additional 5% surcharge and 1% monthly interest.

Issues:

1. W/N the properties in question which the petitioner had inherited and subsequently sold in small lots to other persons should be regarded as capital assets

2. W/N he should be maid liable to pay the surcharge and monthly interest (relevant issue)

Held/Ratio:

1. NO. The following circumstances in combination show unequivocally that the petitioner was, at the time material to this case, engaged in the real estate business: (1) the parcels of land involved have in totality a substantially large area, nearly seven (7) hectares, big enough to be transformed into a subdivision, and in the case at bar, the said properties are located in the heart of Metropolitan Manila; (2) they were subdivided into small lots and then sold on installment basis (this manner of selling residential lots is one of the basic earmarks of a real estate business); (3) comparatively valuable improvements were introduced in the subdivided lots for the unmistakable purpose of not simply liquidating the estate but of making the lots more saleable to the general public; (4) the employment of J. Antonio Araneta, the petitioner’s attorney-in-fact, for the purpose of developing, managing, administering and selling the lots in question indicates the existence of owner-realty broker relationship; (5) the sales were made with frequency and continuity, and from these the petitioner consequently received substantial income periodically; (6) the annual sales volume of the petitioner from the said lots was considerable, e.g., P102,050.79 in 1953; P103,468.56 in 1954; and P119,072.18 in 1957; and (7) the petitioner, by his own tax returns, was not a person who can be indubitably adjudged as a stranger to the real estate business. Under the circumstances, this Court finds no error in the holding below that the income of the petitioner from the sales of the lots in question should be considered as ordinary income.


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2. NO. This Court notes, however, that in ordering the petitioner to pay the deficiency income tax, the Tax Court also required him to pay a 5% surcharge plus 1% monthly interest. In our opinion this additional requirement should be eliminated because the petitioner relied in good faith upon opinions rendered by no less than the highest officials of the Bureau of Internal Revenue, including the Commissioner himself. The following ruling in Connell Bros. Co. (Phil.) v. Collector of Internal Revenue applies with reason to the case at bar:

We do not think Section 183(a) of the National Internal Revenue Code is applicable. The same imposes the penalty of 25% when the percentage tax is not paid on time, and contemplates a case where the liability for the tax is undisputed or indisputable. In the present case the taxes were paid, the delay being with reference to the deficiency, owing to a controversy as to the proper interpretation if Circulars Nos. 431 and 440 of the office of respondent-appellee. The controversy was generated in good faith, since that office itself appears to have formerly taken the view that the inclusion of the words “tax included” on invoices issued by the taxpayer was sufficient compliance with the requirements of said circulars.


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37 - CIR v. Republic Cement (1983) • Surcharges for late tax payments apply only when the percentage tax is not paid on time, and contemplates

a case where the liability for the tax is undisputed or indisputable.

Facts:

All of the five (5) respondents in the case are domestic corporations engaged in the business of manufacturing cement.

Pursuant to the decision of the SC in another case (declaring that cement is a manufactured product), the CIR issued individual assessments against the respondents for the corresponding sales deficiency tax. The assessments amounted to a total of P38.5 million. [Note: Apparently, the disputed assessments carried with it a 25% surcharge pursuant to Section 183 (a) of the Tax Code [now Sec. 193 (a) (3)] prescribing the said surcharge for late tax payment.]

The respondents jointly protested the assessments made against them. The CIR denied the joint protest of the respondents.

The respondents then appealed the matter to the CTA. The CTA ultimately reversed the ruling of the CIR.

The petitioner then filed the petition before the SC.

Issues:

1. (Main issue but not relevant) Whether or not cement should be considered as a mineral or a manufactured good for purposes of determining the applicable tax.

2. (Relevant issue to the topic) Whether or not the 25% surcharge for late payment was proper.

Held/Ratio:

1. Cement is a manufactured good.

2. The 25% surcharges was not proper hence, should be deleted.

Citing the case of Connell bros. v CIR, the Court explained that Section 183 (a) of the Tax Code [now Sec. 193 (a) (3)] prescribing surcharges for late tax payments is applicable only when the percentage tax is not paid on time, and contemplates a case where the liability for the tax is undisputed or indisputable. Further, it said that where the taxpayer apparently had himself originally adopted an incorrect interpretation of its own circulars, it would not be just to penalize appellant for falling into the same error.

It found that in the instant case, the assessments are not undisputed or indisputable.

According to the Court, the dispute arose not merely from the respondents’ good faith divergent interpretation of the law but more from the stand of the BIR itself that cement is a mineral product. The Court noted that in fact, the CTA affirmed this stand of the BIR.


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38 - Antam Pawnshop Corporation v. CIR (2008) Facts:

Antam is a duly organized corporation engaged in the pawnshop business. The BIR examined Antam’s books of accounts and other accounting records for all internal revenue taxes for the period covering January 1 to December 31, 1998. Antam was assessed with deficient VAT, MCIT, DST, and compromise penalties.

CTA: On the issue of the DST on pawn tickets, they are neither security nor a printed evidence of indebtedness. Consequently, it cannot be considered as a document subject to DST under Section 195 of the NIRC. However, for failure to present proof of payment of tax, Antam was held liable for DST on subscribed capital stock in the amount of P15,000.00.

CA: Pawn tickets are subject to DST. It was ruled that the pawn ticket is the logical document evidencing a contract of pledge and thus subject to DST pursuant to Section 195 of the NIRC in relation to Section 173.

The CA explained that the DST provided under Section 173 of the NIRC is levied, not on the documents, but in respect to the transaction so had or accomplished. In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision or termination of specific legal relationships through the execution of specific instruments.

Issues:

1. Whether Antam is liable for DST

2. Whether Antam is liable for surcharges and delinquency interest

Held/Ratio:

1. Yes. Antam’s contention that pawn ticket, being merely a receipt for a pawn as defined in P.D. No. 114, is thus not subject to DST under Section 195 of the NIRC and that the document to be taxed should be the pledge agreement, and not the pawn ticket, cannot prosper because what is subject to DST is not the ticket itself but the privilege of entering into a contract of pledge.

In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. [Cites doctrines from Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue]

2. No. Good faith and honest belief that one is not subject to tax on the previous interpretation of the government instrumentality tasked to implement the tax law are sufficient justification for petitioner to be spared of interest and surcharges.

The dispute as to the tax liability of petitioner for DST on pawn tickets arose not simply because of ordinary divergence of views in the interpretation of the law. Petitioner’s position was founded on the previous interpretation of the BIR that a pawn ticket is not a printed evidence of indebtedness, hence, not subject to DST. Even the CTA, the specialized body handling tax cases, sustained its position and it was only only recently, in Lhuillier, that the Court made a categorical pronouncement that pawn tickets are subject to DST.


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39 - CIR v. Javier, Jr. (1991) Doctrine:

• Fraud is never imputed and the courts never sustain findings of fraud upon circumstances, which, at most, create only suspicion, and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

Facts:

About June 3, 1977, Victoria L. Javier (wife of private respondent, Melchor Javier, Jr.) received from the Prudential Bank and Trust Company the amount of US$999,973.70 remitted by her sister, Mrs. Dolores Ventosa through some banks in the United States, among which is Mellon Bank, N.A. Later that month, Mellon Bank, N.A. filed a complaint against private respondent, his wife and other defendants, claiming that its remittance of US$1,000,000.00 was a clerical error and should have been US$1,000.00 only and prayed that the excess amount be returned on the ground that the defendants are trustees of an implied trust for the benefit of Mellon Bank with the duty to return said amount from the moment it was received.

In November 1977, the Fiscal of Pasay City filed an information with the then Circuit Criminal Court charging Spouses Javier with the crime of estafa, alleging that they misappropriated, misapplied, and converted to their own personal use and benefit the amount they received as a result of a mistake in remittance.

On March 15, 1978, Javier filed his income tax return for 1977 showing a gross income of P53,053.38 and a net income of P48,053.88 and stating in the footnotes of the return that “Taxpayer was recipient of some money received from abroad which he presumed to be a gift but turned out to be an error and is now subject of litigation.”

In 1980, Javier received a letter from the acting Commissioner of Internal Revenue, together with income assessment notices for the years 1976 and 1977, demanding that he pay P1,615.96 and P9,287,297.51 as deficiency assessments for the years 1976 and 1977 respectively. On December 15, 1980, he wrote to the BIR that he was paying the deficiency income assessment for the year 1976 but denied that he had any undeclared income for 1977 and requested that the assessment for the latter year be made to await final court decision on the case filed against him for filing an allegedly fraudulent return.

He again received from Acting CIR Romulo Villa a letter stating in reply to his December 15, 1980 letter-protest that “the amount of Mellon Bank’s erroneous remittance which you were able to dispose, is taxable”. The Commissioner also imposed a 50% fraud penalty against him. Disagreeing, Javier filed an appeal with the CTA, which held that the 50% surcharge imposition should be deleted.

Issue:

1. W/N Javier is liable for the 50% fraud penalty.

Held/Ratio:

1. No. CIR contends that Melchor Javier, Jr. committed fraud by not declaring the “mistaken remittance” in his income tax return and by merely making a footnote thereon. However, it is respectfully submitted that the said return was not fraudulent. The footnote was practically an invitation to the CIR to make an investigation, and to make the proper assessment.

The rule in fraud cases is that the proof “must be clear and convincing”, that is, it must be stronger than the “mere preponderance of evidence” which could be sufficient to sustain a judgment on the issue of correctness of the deficiency itself apart from the fraud penalty. When Javier filed the questioned return, he was guided not by that “willful and deliberate intent to prevent the Government from making a proper assessment” which constitute fraud, but by an honest doubt as to whether or not the “mistaken remittance” was subject to tax.

Under the then Section 72 of the Tax Code, a taxpayer who files a false return is liable to pay the fraud penalty of 50% of the tax due from him or of the delinquency tax in case payment has been made on the basis of the return filed before the discovery of the falsity or fraud.


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In Aznar v. Court of Tax Appeals, it was held that the fraud contemplated by law in relation to the filing of income tax return is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right.

Fraud is never imputed and the courts never sustain findings of fraud upon circumstances, which, at most, create only suspicion, and the mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

A “fraudulent return” is always an attempt to evade a tax but a merely “false return” may not be. Herein, there was no actual and intentional fraud through willful and deliberate misleading of the government agency concerned, the BIR. Javier did not conceal anything to induce the government to give up some legal right and place itself at a disadvantage as to prevent its lawful agents from proper assessment of tax liabilities. Error or mistake of law is not fraud.

As ruled by the CTA, the 50% surcharge imposed as fraud penalty by the BIR in the deficiency assessment should be deleted.


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40 - CIR v. JAL (1991) Facts:

Since mid-July, 1957, JAL had maintained an office at the Filipinas Hotel, Roxas Boulevard, Manila. Said office did not sell tickets but was maintained merely for the promotion of the company’s public relations and to hand out brochures, literature and other information playing up the attractions of Japan as a tourist spot and the services enjoyed in JAL planes.

On July 17, 1957, JAL constituted the Philippine Air Lines (PAL), as its general sales agent in the Philippines. As an agent, PAL, among other things, sold for and in behalf of JAL, plane tickets and reservations for cargo spaces which were used by the passengers or customers on the facilities of JAL.

On June 2, 1972, JAL received deficiency income tax assessment notices and a demand letter from petitioner Commissioner of Internal Revenue (hereinafter referred to as Commissioner for brevity), all dated February 28, 1972, for a total amount of P2,099,687.52 inclusive of 50% surcharge and interest, for years 1959 through 1963. On June 19, 1972, JAL protested said assessments alleging that as a non-resident foreign corporation, it was taxable only on income from Philippine sources as determined under Section 37 of the Tax Code, and there being no such income during the period in question, it was not liable for the deficiency income tax liabilities assessed.

JAL therefore, elevated the case to the Court of Tax Appeals which, in turn, reversed the decision

Issue:

1. W/N sales of tickets and other activities by PAL in behalf of JAL were taxable.

2. W/N the imposition of a surcharge is proper? (IMPORTANT)

3. W/N the imposition of an interest is proper? (IMPORTANT)

4. W/N the imposition of a compromise penalty is proper? (IMPORTANT)

Held/Ratio:

1. YES. Section 29 of the old Tax Code provides that the words `income from any source whatever’ disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws. The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

2. NO. Nowhere in the records of the case can be found that JAL deliberately failed to file its income tax returns for the years covered by the assessment. There was not even an attempt by petitioner to prove the same or justify the imposition of the 50% surcharge. The 50% surcharge or fraud penalty provided in Section 72 of the National Internal Revenue Code is imposed on a delinquent taxpayer who willfully neglects to file the required tax return within the period prescribed by the law, or who willfully files a false or fraudulent tax return. On the other hand, the same Section provides that if the failure to file the required tax return is not due to willful neglect, a penalty of 25% is to be added to the amount of the tax due from the taxpayer. Thus, 25% is the proper charge.

3. YES. As to the 1/2% interest per month, the same finds basis in Section 51(d) of the Tax Code then in force.

Interest on deficiency. Interest upon the amount determined as a deficiency shall be assessed at the same time as the deficiency and shall be paid upon notice and demand from the Commissioner of Internal Revenue; and shall be collected as a part of the tax, at the rate of six per centum per annum from the date prescribed for the payment of the tax x x x; PROVIDED, That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years, the present provisions regarding prescription to the contrary notwithstanding.

The 6% interest per annum is the same as 1/2% interest per month and petitioner correctly computed such interest equivalent to three years which is the maximum set by the law.


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4. NO. The compromise penalty amounting to P1,500.00 for violation of bookkeeping regulations appears to be without support. The particular provision in the said regulations allegedly violated was not even specified. Furthermore, the term “compromise penalty” itself is not found among the penal provisions of the Bookkeeping Regulations

41 - Insular Lumber Company v. CIR (1956) Note: This was lifted directly from e-SCRA. No other text appears except for these two paragraphs.

Appeal from a judgment of the Court of First Instance of Negros Occidental ordering defendant to reimburse plaintiff the amount of P25,780.64, plus interest thereon from the time the taxes were collected, and to pay the costs. This is a reconstituted case. The complaint was filed in the Court of First Instance of Negros Occidental on Aug. 1, 1935 by the Insular Lumber Co., against the Collector of Internal Revenue for the recovery of the total amount of P25,821.07, representing 1½% sales tax, 25% surcharge for late payment, and an additional surcharge of 100% for allegedly making fraudulent returns, all of which plaintiff paid under protest. After trial, the Court below rendered judgment absolving defendant from the complaint, and on appeal to the Court of Appeals, judgment was affirmed. Upon certiorari to this Court, we ordered the remand to the court a quo f or the’ reception of certain evidence erroneously excluded at the trial. Before the second hearing could be had, war broke out and the records of the case were destroyed.

Judgment appealed from is reversed insofar as it orders the appellant CoIlector of Internal Revenue to refund to plaintiff-appellee the 1½% sales taxes and the 25% surcharge for late payment collected under the first, second, third and fourth causes of action; and affirmed insofar as it orders the appellant to refund to plaintiff-appellee the 100% surcharge collected under the first,. second, third, fourth, and sixth, causes of action, but without interest thereon. No costs. Reyes, J.B. L., J., ponente.


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42 - Cagayan Electric v. CIR (1985) (interest)

Doctrine:

• Since the assessment is highly controversial (because the CIR was not certain of petitioner’s liability and that petitioner has reason to believe that it is not liable to pay income tax), petitioner should only be liable for the tax proper and not for the surcharge and interest.

Facts:

Cagayan Electric Power & Light Co., Inc. (Cagayan Electric) is the holder of a legislative franchise under RA 3247. By virtue of the franchise, Cagayan Electric is exempted from paying 3% tax on its gross earnings from the sale of electric current5.

RA 5431 (27 June 1968) was passed amending section 24 of the Tax Code, and made liable to income tax all corporate taxpayers not specifically exempt under paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the provisions of existing special or general laws to the contrary. Therefore, franchise companies were subjected to income tax in addition to franchise tax.

Cagayan Electric’s franchise was amended by RA 6020 (04 August 1969) [added Villanueva and Jasaan, Misamis Oriental to its zone]. Under this amendment, the tax exemption in its original charter is re-enacted.

By virtue of RA 5431, the CIR required Cagayan Electric to pay deficiency taxes for 1968-1971. Syempre, petitioner contested. CIR cancelled the assessments for 1970 and 1971 only.

Cagayan Electric appealed to the Tax Court. Court held that the petitioner is liable for January 1 to August 3, 1969 (dates when RA 5431 was in effect as to Cagayan Electric). Petitioner appealed to SC.

Issue:

1. W/N the assessment was valid

Held/Ratio:

1. NO. A franchise is a mere privilege. The Congress could impair one’s legislative franchise when the public interest so requires.

RA 5431 had the effect of withdrawing petitioner’s income tax. The Tax Court correctly held that the exemption was restored by the subsequent enactment of RA 6020 which re-enacted the said tax exemption. Hence, as correctly held by the Tax Court, petitioner is liable only for income tax for the period from January 1 to August 3, 1969.

It should be noted that franchise companies have been paying income tax in addition to the franchise tax. However, it cannot be denied that the 1969 assessment is highly controversial since petitioner has reason not to pay the income tax because of the tax exemption in its franchise.

For this reason, the Court held that it should be liable only for tax proper and should not be held liable for surcharge and interest.

5. Section 3, RA 3247. In lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and

poles, wires, transformers, and insulators of the grantee, from which taxes and assessments the grantee is hereby expressly exempted.


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43 - Republic v. Heras (1970) (backpay certificates) Doctrines:

• There being an invalid payment by the taxpayer of his tax liability, which constituted no payment at all, the collection of surcharges and interests becomes mandatory on the CIR and the courts.

• Interest for deficiency tax is not punitive but compensatory in nature. It is the charge for the use of taxpayer of funds that rightfully should have been in the government coffers and utilized for its needs.

Facts:

Antonio Heras filed his income tax return for 1958, declaring a taxable net income of P62, 444.64. Yet upon audit and examination of the return by the BIR, he was held accountable for a deficiency of P 13,962.00. He was sent an Income Tax Assessment Notice on May 14, 1959. On August 17, 1959 Heras paid the tax due to the Municipal Treasurer of Bacoor Cavite using negotiable certificates of indebtedness in the sum of P13, 934.55 and cash in the amount of P24.75, making the total P 13, 962.00

However Heras was later notified by the Revenue Office that pursuant to BIR General Circular No. V-289 dated May 8, 1959, payment of income taxes with indorsed negotiable backpay certificates is not allowed. After another demand for payment was ignored, an action for collection for the alleged deficiency income tax was filed against Heras for the sum of P13,934.55; P697.00 as 5% surcharge; plus 1% monthly interest in the amount from May 31, 1959 or for a total of P 19, 637, 04.

As his defense, Heras claimed the following: a) that his payment on August 17, 1959 to the Municipal Treasurer was valid; b) that upon acceptance of payment, the Republic of the Philippines was estopped from pursuing the complaint; and c) that the opinion of the Secretary of Justice upon which Circular V-289 was based is not binding on the courts. Nevertheless, the Republic contended that only original applicants of such certificates had the privilege to use backpay certificates for payment of taxes and other obligations to the government, while Heras was only an assignee of the certificate.

The CFI rendered judgment in favor of Heras and held as valid and effective his payment using the indorsed negotiable backpay certificates. Hence, this appeal.

Issues:

1. W/N negotiable certificates of indebtedness or backpay certificates may be used for payment for tax liabilities by holders who are not the original applicants therefor

2. W/N Heras is liable for surcharges and interests for late payment of his 1958 income tax (IMPT)

Held/Ratio:

1. NO. It is not denied by Heras that he was only an assignee of the backpay certificates. Under R.A. 304 as amended by R.A. 800 and 897, and further supported by the case of De Borja v. Gella, the law confined the privilege of using backpay certificates for payment of taxes by its original applicants. In enumerating the obligations that may be properly settled with the said certificates, the law referred to them as “his taxes,” and government hospital bills of “the applicant,” making it clear that the intent of the legislators was to limit its use by the original applicants or original holders thereof. The most an assignee or a subsequent holder like Heras could do was have it discounted upon maturity or to negotiate it.

2. YES. Heras not being the original applicant of the certificates, the effected payment of his tax obligation constituted no payment at all. His tax liability not only remained unextinguished, but became subjected to surcharges and penalties for late payment.

Under Sec. 51-e of the Internal Revenue Code, where the deficiency tax is not paid in full, there shall be collected upon the unpaid amount, as part of the tax, interest of 1% a month, but not to exceed the amount corresponding to 3 years, plus 5% surcharge, such surcharge to be computed from the notice of the assessment or demand of the Commissioner.


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After being informed of the basis of the demand by the Commissioner (the BIR circular disallowing backpay certificates for settlement of the tax obligations of assignees or subsequent holders), the refusal of Heras to pay the demanded income tax cannot be considered in good faith that would relieve payment of surcharges and interests. There being an invalid payment of his tax liability, which constituted no payment at all, the collection of surcharges and interests becomes mandatory on the CIR and the courts.

The interest collectible is not punitive, but compensatory in nature. It is compensation to the State for the delay in the payment of tax. It is the charge for the use by the taxpayer of funds that rightfully should have been in the government coffers and utilized for its needs.

44 - CIR v. Lianga Bay Logging Co., Inc. & CTA (1991) (Class C sawmill operator)

Doctrines:

• The imposition of a compromise penalty w/o the conformity of the taxpayer is illegal and unauthorized

Facts:

Lianga is a forest concessionare. It originally held an ordinary timber license, but in 1958, its license was converted into a Timber License Agreement. With this, Lianga also operated a sawmill, and it posted a bond of P25k w/ the CIR to guarantee payment of any forest charges w/c may be due from it. Forest officers were also permanently assigned to Lianga’s concession, where they prepared monthly reports about the quantity of logs cut and removed. Based on these, under the Revised Internal Revenue Forest Products Regulation No. 85, Lianga was certified as a Class C sawmill operator. Based on the officers’ reports, Lianga’s forest charges were computed, and for the period of April 1956-December 1961, it paid a total of P336k in regular forest charges.

Two years later, the CIR wrote to Lianga demanding that it pay P84k, which represented a 25% surcharge on the P336k it paid earlier. According to the CIR, Lianga had to pay the surcharge for not complying w/ Sec. 267 of the NIRC (in relation to Secs. 11 and 13 of Regulations No. 85) which required forest concessionaires to file auxiliary invoices before it could remove forest products from its cutting area. The CIR also demanded that Lianga pay P300 as compromise fee if Lianga wished to settle the supposed violation extrajudicially. Lianga asked the CIR to reconsider his assessment, but the latter refused, so Lianga appealed to the CTA. The CTA decided in favor of Lianga.

Issues:

1. W/N the imposition of the 25% surcharge and additional compromise fee was proper since Lianga failed to file auxiliary invoices

Held/Ratio:

1. NO. Sec. 11 of Regulations No. 85 only requires the submission of auxiliary invoices for the concessionaire who holds an ordinary license. It provides for separate requirements in case of forest concessionaires who own/operate sawmills, like Lianga. Being a Class C sawmill operator, Lianga wasn’t required to submit auxiliary invoices but only a copy of its monthly scale reports (the one made by the forest officers). Thus, by submitting such report, Lianga could transport the logs it had cut w/o any corresponding auxiliary invoice. The CTA conclusively found that Lianga is a Class C sawmill operator because a) it posted the bond to guarantee payment of forest charges and b) forest officers have been permanently assigned to it. The CIR has never claimed & made no effort to prove that Lianga did not submit the necessary report and other invoices. Thus, it is presumed that Lianga has complied w/ all its requirements. Plus, the CIR’s assessment of the surcharge was even based on the monthly report that Lianga is required to submit.

Sec. 267 of the NIRC does not specify the nature of the invoice which is required to be submitted before forest products can be removed from the forest concession. It may refer either to auxiliary invoices or official/commercial invoices, such as those prepared by Class C sawmill operators. In this case, Lianga prepared the necessary sawmill and commercial invoices, so no violation of the rule may be imputed to it. Thus, there is no basis for the compromise penalty, and as the CTA declared, “the imposition of the same w/o the conformity of the taxpayer is illegal & unauthorized.”


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45 - The Philippines International Fair, Inc. v. CIR (1962) Doctrines:

• The payment of the compromise is really a “penalty” to avoid prosecution for violation of provisions of the Tax Code.

Facts:

Philippines International Fair (PIF) is engaged in the business of establishing, operating and managing of international fairs and expositions. In 1953 and 1954, the PIF held a fair and charged fees for admission to the exposition and amusement grounds and the auditoriums.

The CIR, in 1954, sent 3 letters demanding the payment of P132,220 as amusement tax on its gross receipts derived from admission tickets to the exposition and amusement grounds, Aquacade Show, and benefit dances, and those derived from its gate and auditorium fees. The CIR also demanded the payment of P33,055.12 as 25% surcharge thereon for late payment and P13,200.00 as compromise penalty. The compromise penalty was allegedly for the extrajudicial settlement of PIF’s violation of some sections of the Tax Code. The PIF requested for reinvestigation. The CIR still ordered PIF to pay.

PIF appealed to the CTA. The CTA ordered PIF to pay the amusement tax and surcharge on its gross receipts from admission tickets to the exposition ground, auditorium, and benefit dances. The CTA exempted PIF from paying the amusement tax and surcharge on its receipts from admission tickets to the Aquacade Show and the compromise penalty.

PIF alleged that it is not subject to the amusement tax because its activities were sponsored by the Philippine Government and by virtue of RA 722 which exempts exhibitions, except film and radio phonographic records. The CIR alleged that the CIR erred in exempting PIF from paying the amusement taxes on the Aquacade Show and the compromise penalty.

Issues:

1. W/N PIF is exempt from paying amusement taxes on the Aquacade Show?

2. W/N PIF is exempt from paying the compromise penalty?

Held/Ratio:

1. YES. It is an art exhibition, covered by the exemption under RA 722.

2. YES. The case at hand is not a criminal action instituted against PIF for having violated some of the provisions of the Tax Code. Rather, this case deals with a tax assessment or demand made by the CIR upon PIF, from which PIF appealed to the CTA and ultimately to the SC. It is clear that the PIF resisted the assessment. Consequently, the result of the proceedings cannot be considered a compromise because the CTA and the SC’s decision constitute an adjudication upon the issue arising from the assessment made by the CIR, on the one hand, and PIF’s refusal to pay the same, on the other.

A compromise is really a penalty for violation of the provisions of the Tax Code. Since this case is not a criminal case, the payment of the alleged compromise cannot be imposed upon the taxpayer in the present proceedings (unless the taxpayer gives his consent).


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46 - CIR v. Phoenix Assurance Co., Ltd. (1965) (amended return)

Facts:

Phoenix Assurance Co., Ltd. is a foreign insurance corporation based in London which entered into worldwide reinsurance treaties.

April 1, 1953 - Phoenix filed its Philippine income tax return for 1952.

August 30, 1955 - Phoenix amended its ITRs for 1952 and 1953.

July 24, 1958 - CIR assessed a deficiency tax of P5,667.00 representing disallowed deductions for head office expenses.

August 1, 1958 - BIR assessed Phoenix deficiency income taxes for the years 1952 and 1954 for P2,847.

Phoenix protested the assessment. The CIR denied the protest. On appeal, the CTA, among other things, declared that the right of the CIR to assess the deficiency income tax for 1952 has prescribed, the same having been exercised more than 5 years from the date the original return was filed (April 1, 1953). The CIR insists that the right to issue the assessment has not prescribed since it was made within 5 years from the date when the amended return was filed (August 30, 1955).

Issues:

1. W/N the right of the CIR to assess deficiency income tax for the year 1952 against Phoenix has prescribed (Should the running of the prescriptive period commence from the filing of the original or amended return?)

Held/Ratio:

1. NO. The prescriptive period for making the assessment should be counted from the date of filing of the amended return.

The amended return of Phoenix was substantially different from the original return. The changes made in the amended ITR consisted of the exclusion of reinsurance premiums from domestic insurance companies by Phoenix’s London head office, exclusion of reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines, and various items of deduction attributable to such excluded reinsurance premiums, thereby substantially modifying the original return. (Just remember that the amended return was substantially different from the original return)

Considering that the deficiency assessment was based on the amended return which is substantially different from the original return, the period of limitation should be counted from the filing of the amended return. From August 30, 1955, when the amended return was filed, to July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The right of the CIR to assess the deficiency tax on such amended return has not prescribed.

To hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same more than five years later when the CIR has lost his authority to assess the proper tax thereunder.


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47 - Butuan Sawmill v. CTA (1966) Doctrine:

• An ITR cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code, and that the taxpayer must file a return for the particular tax required by law in order to avail himself o the benefits of Section 331; otherwise, if he does not file a return, an assessment may be made within the time stated in Section 332(a) of the NIRC.

Facts:

Butuan Sawmill sold logs to Japanese firms at prices, including the costs of loading, wharfage stevedoring and other costs in the PHL. Upon investigation of the BIR, it was found out that no sales tax return was filed by Butuan Sawmill and neither did it pay the corresponding tax on the sales. Because of this, the CIR amended the assessment it had previously made. The CTA upheld the amended assessment of the sales tax and surcharge. The CTA also said that the assessment was made well within the 10 year period prescribed by Section 332(a) of the NIRC since Butuan Sawmill omitted to file its sales tax returns for 1951, 1952 and 1953. This omission was discovered only in 1957. Butuan Sawmill claimed that the filing of its ITR, wherein the proceeds of the disputed sales were declared, is substantial compliance with the requirement of filing a sales tax return. Butuan Sawmill also alleged that if there should be deemed a return filed by them, the 5 year period within which to make an assessment and collection of the tax from the time the return was filed under Section 331, and not Section 332(a), should apply. Further, Butuan Sawmill allged that since it had filed its ITRs in 1951,1952 and 1953, and that the assessment was made only in 1957, the CIR should be barred from making its assessment.

Issue:

1. W/N the assessment was made within the prescriptive period?

Held/Ratio:

1. YES. An ITR cannot be considered as a return for compensating tax for purposes of computing the period of prescription under Section 331 of the Tax Code (5 years), and that the taxpayer must file a return for the particular tax required by law in order to avail himself o the benefits of Section 331; otherwise, if he does not file a return, an assessment may be made within the time stated in Section 332(a) (10 years) of the NIRC.

The 10 year period applies in this case.


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48 - CIR v. Primetown Property Group, Inc. (2007) (leap year)

Facts:

On March 11, 1999, Gilbert Yap, vice chair of Primetown, applied for the refund or credit of quarterly corporate income tax and creditable withholding tax that Primetown paid in 1997, explaining that while business was good during the first quarter of 1997, the real estate industry slowed down and Primetown suffered losses amounting to P71,879,228 that year. It was required to submit additional documents to support its claim. Primetown complied but its claim was not acted upon.

On April 14, 2000, it filed a petition for review in the CTA.

The CTA dismissed the petition ruling that it was filed beyond the 2-year prescriptive period for filing a judicial claim for tax refund or tax credit.6 It applied Article 13 of the Civil Code stating that years are of 365 days each and the 2-year prescriptive period was equivalent to 730 days. Since the final adjusted return was filed on April 14, 1998, and the year 2000 was a leap year, 731 days have elapsed since the filing of the return.

The CA reversed the decision ruling that since Article 13 does not distinguish between a regular year and a leap year, the period covered by April 14, 1998 to April 14, 2000 (note that in counting dates, first day is excluded) should still be counted as 365 days each or a total of 730 days.

Issue:

1. W/N the period for filing a judicial claim for tax refund or tax credit has prescribed.

Held/Ratio:

1. NO. The conclusion of the CA that respondent filed its petition for review in the CTA within the 2-year prescriptive period is correct. Its basis, however, is not.

Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365 days. In a prior case, the SC has ruled that a year is equivalent to 365 days regardless of whether it is a regular year or a leap year. However, the Administrative Code of 1987 provides that a year should be understood to be 12 calendar months. The Administrative Code of 1987, being the more recent law, should thus govern the computation of legal periods.

Applying the Administrative Code of 1987 to the case, the 2-year prescriptive period consisted of 24 calendar months. Thus, the petition filed on April 14, 2000 was filed on the last day of the 24th calendar month from the day it filed its final adjusted return (April 14,1998). Hence, it was filed within the reglementary period.

The case is remanded to the CTA.

6. Sec. 229 of NIRC - “…In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of

payment of the tax or penalty regardless of any supervening cause that may arise after payment…”


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49 - CIR v. Engineering Equipment & Supply Co. (1975) Facts:

Engineering Equipment and Supply Co., an engineering and machinery firm, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications.

CIR received an anonymous letter denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. So, NBI and Central Bank conducted a raid and search on which occasion voluminous records of the firm were seized and confiscated. CIR also reported about deficiency advance sales tax. CIR assessed against the Company payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of the Company’s penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner’s assessment.Engineering appealed the case to the Court of Tax Appeals. During the pendency of the case the investigating revenue examiners reduced the Company’s deficiency tax. CTA declared that Engineering is a contractor and is exempt from deficiency manufacturers sales tax. The Commissioner, not satisfied with the decision of the CTA, appealed to the Supreme Court.

Issue:

1. Is Engineering Equipment a manufacturer or contractor? CONTRACTOR.

2. Corrollarily, is the installation of a centralized air-conditioning system a contact of sale or a contract for piece of work? CONTRACT FOR PIECE OF WORK.

3. Is Celestino Co v. CIR case applicable in this case? NO.

Held/Ratio:

1. The word “contractor” has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. The true test of a contractor is that when he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished.

Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils) which were used in executing contracts entered into by it. Engineering undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type taking into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. Relative to the installation of air conditioning system, Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be engineered separately.

2. NATURE OF OBJECT TEST:

The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one NOT in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant’s request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it.

The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering’s customer, the


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said air conditioning units were not intended for sale to the general public. Hence, it is a contract for a piece of work.

3. Celestino Co compared to Engineering Equipment:

Points of discussion:

a. Advertisement as manufacturer/contractor

b. Ready-made materials

In Celestino Co, the Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. From the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print “ORIENTAL SASH FACTORY.” As a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which “sales” were reflected in their books of accounts totalling P118,754.69 for the period of only nine (9) months. The Court found said sum difficult to have been derived from its few customers who placed special orders for these items.

In the present case, the company advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system. Similarly, it did not have ready-made air conditioning units for sale.


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50 - Taligaman Lumber v. CIR (1962) (Prescription, whether 5 years or 10 years)

Doctrines:

• Prescription is an affirmative defense which a taxpayer claiming under Section 331 must prove (First of all, that it filed its return, then, that the time within which the government could issue an assessment has already prescribed.)

Facts:

Taligaman Lumber Co. is a domestic corporation engaged in the business of cutting and converting logs into lumber for selling. It has offices in Caloocan and Butuan city.

On December 23, 1953, a BIR agent recommended an assessment of P 134,381 as deficiency sales tax covering sales made by the Caloocan City branch during the years 1948-1952. Reexaminations of the books of accounts led to a reduced assessment, issued on May 31, 1955, reducing the deficiency income tax liability to P 83,645 inclusive of 25% surcharge.

A similar deficiency income tax assessment was made covering sales made by the Butuan City branch during the years 1948-1953. Said assessment for the amount of P 98,145 was issued on June 21, 1954. Like in the other branch, a reexamination was conducted and a new assessment was issued on November 15, 1954 for a reduced amount of P 39, 527 inclusive of 25% surcharge.

To settle these liabilities, Taligaman Lumber proposed to pay P 39, 527. (As a compromise, perhaps.) CIR refused to modify either assessment which pushed Taligaman Lumber to bring the matter before the CTA. The CTA reduced the total liability of Taligaman Lumber to P 85,790 inclusive of 25% surcharge.

Taligaman Lumber now assails the decision of the CTA alleging that 1) the right of the government to collect deficiency income taxes for the years 1948 and 1949 has already prescribed (remember/s: assessments were issued in 1955 and 1954) and 2) that the export sales made by the Butuan City branch were consummated abroad and hence, not taxable.

Issues:

1. W/N the government’s right to collect deficiency income taxes for the years 1948 and 1949 has already prescribed (NO)

2. W/N the export sales made by the Butuan City branch are taxable (YES)

Held/Ratio:

1. NO, the government’s right to collect deficiency income taxes for the years 1948 and 1949 has NOT prescribed.

Taligaman Lumber’s bases its contention that the right to collect has already prescribed on Section 331 of the Revised Internal Revenue Law that states:

Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment the collection of such taxes shall be begun after the expiration of such period. For the purposes of this section a return filed before the last day prescribed by law for the filling thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code

On the other hand, the CIR says that the applicable provision is Section 332:

In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission.


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Taligaman Lumber contends that the CIR did not give any affirmative evidence showing that it did not file its tax returns for the years 1948 and 1949, such that Section 332 could apply. However, the Court stated that prescription is an affirmative defense which Taligaman Lumber must prove in order that it may avail itself of the benefits under Section 331. Taligaman must first prove that it filed its returns for 1948 and 1949, and that the period within which the government could issue an assessment has already prescribed. In this case, Taligaman failed to prove that it submitted the returns for the years 1948 and 1949. Hence, the conclusion is that it did not file the said returns. Consequently, Section 332 applies and the government had 10 years within which to make the corresponding assessments. The BIR issued the assessment in 1954 and 1955, well within 10 years from 1948 and 1949.

2. YES, the export sales made by the Butuan City branch are taxable.

The export sales made by the Butuan City branch to Japanese buyers are taxable. The agreed price was F.O.B. Agusan. As we learned in Sales, the employment of such terminology shows the intent of the parties to have title to the goods pass to the buyer upon delivery of the logs in Agusan, on board the vessels that took the foods to Japan. Hence, the export sales were consummated in the Philippines and are subject to sales tax.


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51 - Aznar v. CTA (1974) Facts:

The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of one obviously wealthy, Matias H. Aznar caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer’s true income for said years. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid years. Based on the findings, Commissioner, in his letter dated November 28, 1952, notified the taxpayer of the assessed tax delinquency to the amount of P723,032.66, plus compromise penalty. The taxpayer requested a reinvestigation which was granted for the purpose of verifying the merits of the various objections of the taxpayer to the deficiency income tax assessment. After the reinvestigation, another deficiency assessment to the reduced amount of P381,096.07 was received.

Petitioner firstly avers that according to the NIRC, the right of the CIR to assess deficiency income taxes for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952; there being a five year limitation upon assessment and collection from the filing of the returns. Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: “(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission”. Petitioner argues said provision does not apply because the taxpayer did not file false and fraudulent returns with intent to evade tax.

Secondly, petitioner insists that there might have been false returns by mistake filed as those returns were prepared by his accountant employees, but there were no proven fraudulent returns with intent to evade taxes that would justify the imposition of the 50% surcharge authorized by law as fraud penalty.

Issue:

1. W/N the right of the Commissioner of Internal Revenue to assess deficiency income for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952.

2. W/N the imposition of 50% surcharge authorized by law as fraud penalty was proper

Held/Ratio:

1. No. The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced. There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner’s tax liability had not expired at the time said assessment was made.

2. NO. The lower court based its conclusion on a presumption that fraud can be deduced from the very substantial disparity of incomes as reported and determined by the inventory method and on the similarity of consecutive disparities for six years. Such a basis for determining the existence of fraud (intent to evade payment of tax) suffers from an inherent flaw. We cannot but emphatically reiterate the well-established doctrine that fraud cannot be presumed but must be proven. Fraudulent intent could not be deduced from mistakes however frequent they may be, especially if such mistakes emanate from erroneous entries or erroneous classification of items in accounting methods utilized for determination of tax liabilities The predecessor of the petitioner undoubtedly filed his income tax returns for “the years 1946 to 1951 and those tax returns were prepared for him by his accountant and employees. It also appears that petitioner in his lifetime and during the investigation of his tax liabilities cooperated readily with the B.I.R. and there is no indication in the record of any act of bad faith committed by him.

The lower court’s conclusion regarding the existence of fraudulent intent to evade payment of taxes was based


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merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent.

52 - CIR v. B.F. Goodrich Phils., Inc. (now Sime Darby International Tire Co., Inc.) and CA (1999) Doctrine:

• What is involved here is not a first assessment; nor is it one within the 5-year period stated in Section 331. Since what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the very specific terms ‘fraud, irregularity, and mistake’. ‘Falsity does not appear to be included in this enumeration. Falsity suffices for an assessment, which is a first assessment made within the five-year period. When it is a subsequent assessment made beyond the five-year period, then, it may be validly justified only by ‘fraud, irregularity and mistake’ on the part of the taxpayer.

Facts:

BF Goodrich (now SIME DARBY INTERNATIONAL) (BF for brevity) was an American owned and controlled corp. which sought to operate the manufacturing of rubber tires in the Philippines and in order for its application to be granted, the Central Bank required it to develop a rubber plantation. In compliance with this, BF purchased from the government in 1961, under the Public Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of land located in Tumajubong, Basilan, and there developed a rubber plantation.

In 1973, however, the justice secretary rendered an opinion stating that, upon the expiration of the Parity Amendment on July 3, 1974, the ownership rights of Americans over public agricultural lands, including the right to dispose or sell their real estate, would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its Basilan landholding forP500,000 payable in installments. In accord with the terms of the sale, Siltown Realty Philippines, Inc. (Siltown) leased the said parcels of land to private respondent for a period of 25 years, with an extension of another 25 years at the latter’s option.

The BIR issued a letter of authority requesting the examination of BF’s books and accounts to determine its tax liability for 1974. The assessment resulted with a deficiency income tax of P6,005.35 which BF duly paid. The BIR next examined Siltown’s business, income and tax liabilities and based on this, the BIR Commissioner issued another assessment for deficiency in donor’s tax amounting to P1,020,850 to BF because the BIR claims that it under sold its Basilan property based on the fair market value of said property. The BIR considered the deficiency between the fair market value — 500,000.

BF contested, on April 9, 1981, it received another assessment dated March 16, 1981, which increased to P1,092,949 the amount demanded for the alleged deficiency donor’s tax, surcharge, interest and compromise penalty.

BF appealed before the CTA which modified the decision. Respondent appealed to the CA which reversed the CTA.

Issues:

1. W/N petitioner’s right to assess herein deficiency donor’s tax has indeed prescribed as ruled by public respondent Court of Appeals

2. W/N the herein deficiency donor’s tax assessment for 1974 is valid and in accordance with law


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Held/Ratio:

1. CA did not commit error in reversing the CTA, because notwithstanding what petitioner claims that the CA’s ruling was based on factual findings that should have been left undisturbed on appeal, in the absence of any showing that it had been tainted with gross error or grave abuse of discretion, the CTA’s application of the law to the facts of this controversy is an altogether different matter, for it involves a legal question. There is a question of law when the issue is the application of the law to a given set of facts. On the other hand, a question of fact involves the truth or falsehood of alleged facts. In the present case, the Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but on the latter’s application of the law on prescription.

Section 331 of the National Internal Revenue Code provides:

SEC. 331. Period of limitation upon assessment and collection. — Except as provided in the succeeding section, internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after expiration of such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code.

Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981 assessments were issued by the BIR beyond the five-year statute of limitations. The Court has thoroughly studied the records of this case and found no basis to disregard the five-year period of prescription.

The subsequent assessment made by the respondent Commissioner on October 10, 1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year 1974 were duly filed by the petitioner, and assessment of taxes due for such year — including that on the transfer of properties on June 21, 1974 — was made on April 13, 1975 and acknowledged by Letter of Confirmation No. 101155 terminating the examination on this subject. The subsequent assessment of October 10, 1980 modified, by that of March 16, 1981, was made beyond the period expressly set in Section 331 of the National Internal Revenue Code xxx.

2. No it was not valid. Petitioner relies on the CTA ruling which uses falsity as the basis for validating its subsequent assessments which is allowed under Sec. 15 of the 1974 tax code (now sec.16 of NIRC) which grants the BIR the power to assess the proper tax on the best evidence obtainable ”when there is reason to believe that a report of a taxpayer is false, incomplete or erroneous.” More, when there is falsity with intent to evade tax. That it is guilty of falsity when it undervalued its property that it sold to Siltown.

The court finds this misplaced because:

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes.

The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Section 15 of the NIRC, on the other hand, provides that “[w]hen a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable.”

Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available. Having made its initial assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under consideration before us.


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Nor is petitioner’s claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of limitations. Petitioner insists that private respondent committed “falsity” when it sold the property for a price lesser than its declared fair market value. This fact alone did not constitute a false return which contains wrong information due to mistake, carelessness or ignorance. It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an “arm’s length” transaction. In the present case, the private respondent was compelled to sell the property even at a price less than its market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. In other words, private respondent was attempting to minimize its losses. At the same time, it was able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on the price.

Furthermore, the fact that private respondent sold its real property for a price less than its declared fair market value did not by itself justify a finding of false return. Indeed, private respondent declared the sale in its 1974 return submitted to the BIR. Within the five-year prescriptive period, the BIR could have issued the questioned assessment, because the declared fair market value of said property was of public record. This it did not do, however, during all those five years. Moreover, the BIR failed to prove that respondent’s 1974 return had been filed fraudulently. Equally significant was its failure to prove respondent’s intent to evade the payment of the correct amount of tax.


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54 - Siao Tiao Hong v. CIR (1992) Doctrine:

• In order to avail of the benefits of section 331 [now section 203], one must file a return for the lending investors’ fixed tax; otherwise, an assessment made within the period provided for in Section 332 (a) [now section 222 (a)] which provides for exceptions as to period of limitation of assessment and collection of taxes.

Facts:

[dates are important ]

The petitioner is a real estate developer whose principal income is derived from rentals. He had several deposits and extended loans to his “friends” supposedly on accommodation and not for profit. He declared an income of P9,582 from rents and royalties and P5,540 as interest income from bonds, bank deposits, etc. in his ITR for the year 1958. On May 25, 1960, the BIR ordered an examination of his books in connection with the 1958 return. A month after, June 21, 1060, the Revenue Examiner recommended that the petitioner be assessed for: 1) a deficiency income tax of P1,068.79, and 2) fixed taxes as a lending investor at P300 each year for the years 1955-1959. The petitioner protested the accuracy of the assessment and requested a reexamination, which was thereafter granted. On November 3, 1961, after reexamination, the revenue examiner reported that there was no discrepancy on the said return. Despite such finding, the Regional Office of the BIR still sent him a letter, on June 2, 1961, demanding payment of P2,400 as lending investor’s fixed tax for the years 1953-1960.

Almost a year after, May 30, 1962, the BIR brought a collection suit for the P2,400 fixed tax against the petitioner. The City Court dismissed the suit for being premature since no assessment was received by the petitioner. Hence, the case was not one of “undisputed assessment” within the jurisdiction of the court. The petitioner filed a formal protest to the assessment in August 1965 but was denied by the BIR Regional Office on March 1966. Such denial prompted him to file a petition for review with the CTA, which affirmed his liability for the lending investors’ fixed taxed. Now, the petitioner argues that such loans were only accommodations for his friends and not extended for profit. He also argues that, assuming he was liable for the fixed tax, the right to collect the same had already prescribed since no assessment for lending investors’ tax was made within the 5 year period from the filing of the petitioner’s income tax returns for the years 1953-1959.

Issue:

1. Whether the petitioner is liable for lending investors’ tax

2. Whether the BIR’s right to collect the same had prescribed

Held/Ratio:

1. Yes. The bank deposits were not considered as “loans” in the sense that such would constitute the conduct of a lending business, on which the fixed tax is imposed. On the other hand, the loans he extended to several individuals are subject to lending investors’ tax. Evidence shows that these were not mere isolated transactions to his friends; his contention is belied by the fact that he collected interest from the borrowers and that such interests were reflected in his income tax return.

2. No. The period provided in Section 331 [now Section 203 I think] is inapplicable here since fixed taxes are not included in an income tax return and neither is it paid together with the income tax. The Code provides a different date for payment of fixed taxes, for which a separate return must be filed. The Court ruled that for prescription to have set in, he must have filed a return for the lending investors’ fixed tax; otherwise, an assessment may be made within the period provided for in Sec. 332 (a) [now section 222] which provides for exceptions as to the period of limitation of assessment and collection of taxes:

(a) In case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without an assessment, at any time within 10 years after the discovery of the falsity, fraud, or omission.


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His omission to file a return was discovered on June 21, 1960, when the initial examination of books was conducted. The assessment for lending investors’ tax was made on June 2, 1961 (well within the 5 year period). The collection must be made within the 5-year period from the assessment. The running of the period was suspended on May 27,1963 when the complaint for collection was filed against the petitioner. The period ran again upon dismissal by the city court on July 14, 1965 and was stopped on October 27, 1966 when the CIR filed his answer to the petition for review brought by the petitioner before the CTA. All in all, a total of 3 years, 3 months and 8 days had elapsed. Therefore, the right of the CIR to assess and collect the lending investors’ fixed tax had not yet prescribed.


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55 - CIR v. Tulio (2005) Doctrines:

• Section 223 specifies 3 instances when the running of the 3-year prescriptive period is inapplicable: (1) filing a false return; (2) filing a fraudulent return with intent to evade tax, or (3) failure to file a return. The period within which to assess the tax is ten years from the discovery of the fraud, falsification, or omission.

Facts:

Arturo Tulio is in the construction business. On February 28, 1991, the CIR sent him a demand letter with 2 final assessment notices. He requested the payment of Tulio’s deficiency percentage taxes of P188,585.76 and P245,669.53 for taxable years 1986 and 1987. Despite receipt, Tulio did not act on the assessment notices. As a result, it became final and executory pursuant to Section 229 of the NIRC. On October 15, 1991, CIR issued a warrant of distraint and/or levy against Tulio. However, Tulio had no properties which can be placed under distraint and/or levy.

On April 3, 1991, October 5, 1993, and May 14, 1997, CIR sent letters to Tulio. These letters provided Tulio with the last opportunity to settle his deficiency tax liabilities. However, Tulio still refused to settle his deficiency taxes. CIR filed a civil action for collection of deficiency percentage taxes before the RTC of Baguio. [RTC has jurisdiction because ordinary courts entertain BIR money claims based on assessments that have become final and executory.] The RTC directed Tulio to file his answer. Three days later, Tulio filed a motion to dismiss claiming that the complaint was filed beyond the three-year prescription period. RTC granted the motion to dismiss. CIR filed a motion for reconsideration but the RTC denied this. Hence, CIR filed a petition for review on certiorari.

Issues:

1. W/N the complaint may be dismissed on the ground of prescription.

Held/Ratio:

1. NO. The RTC misapplied Section 203 of the NIRC. Section 203 provides for the three-year prescriptive period from the filing of the tax return within which internal revenue taxes shall be assessed. The RTC held that the prescriptive period should be counted from the day the return was filed. However, Tulio failed to file a tax return. When a taxpayer fails to file a tax return, Section 223 of the NIRC is the applicable provision.

Under Section 223 (now Section 222) provides that in the event a taxpayer fails to file a return, the tax is assessed or a proceeding in court for collection may be filed without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission. Any internal revenue tax may be collected by distraint or levy or by a proceeding in court within 3 years following the assessment of the tax.

Section 223 specifies 3 instances when the running of the 3-year prescriptive period is inapplicable: (1) filing a false return; (2) filing a fraudulent return with intent to evade tax, or (3) failure to file a return. The period within which to assess the tax is ten years from the discovery of the fraud, falsification, or omission.

Here, Tulio failed to file his tax returns for 1986 and 1987. CIR discovered Tulio’s omission on September 14, 1989. The ten-year prescriptive period commenced on September 14, 1989 and ended on September 14, 1999. The two final assessment notices were issued on February 28, 1991 — well within the three-year prescriptive period. It became final and executor when Tulio failed to question of protest the deficiency assessments.

Since the tax had become final and unappealable, CIR can enforce its authority to collect Tulio’s deficiency percentage taxes.


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56 - Republic v. Acebedo (1968) — once prescribed, waiver of statute can’t revive action.

Doctrine:

• SEC. 332. Exemptions as to period of limitation of assessment and collection of taxes. —

...

(c) Where the assessment of any internal-revenue tax has been made within the period of limitation above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun:

(1) within five years after the assessment of the tax, or

(2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period.

The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

Facts:

A suit for collection of deficiency tax was filed against Felix Acebedo in the amount of P5,962 for the year 1948. A notice of assessment was issued on September 1949. The complaint was filed on 1961. Even before filing his answer, Acebedo filed a motion to dismiss on the ground of prescription. The motion was granted by the lower court and the same dismissed the case.

Hence, the petitioner Republic filed an appeal with this court, contending that the various requests for reinvestigation or reconsideration of the tax assessment made by the respondent suspended the 5 year period prescription period and that the waiver of statute of limitations duly executed in 1959 was sufficient to further suspend period of prescription.

Issues:

1. W/N a request for a reinvestigation suspends the running of the period for filing an action for collection?

2. W/N the waiver of limitations suspended the period?

Held/Ratio:

1. No. More than five years had elapsed since assessment in question was made, and hence prescription had already set in.

Details of communication:

The defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 1949. There is no evidence that this request was considered or acted upon. In fact, on October 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment, but there was no follow up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection.

The next communication of record is a letter signed for the defendant by one Troadio Concha and dated October 6, 1951, again requesting a reinvestigation of his tax liability. Nothing came of this request either.

On February 9, 1954, the defendant’s lawyers wrote the Collector of Internal Revenue informing him that the books of their client were ready at their office for examination. The Collector’s reply was dated more than a year later (October 4, 1955). By October 4, 1955, more than five years had elapsed since assessment in question was made, and hence prescription had already set in.

2. No. October 4, 1955, the Commissioner required that the Acebedo specify his objections to the assessment and execute “the enclosed forms for waiver, of the statute of limitations.” But at that time, more than five years had elapsed since the assessment in question was made, and hence prescription had already set in, making subsequent events in connection with the said assessment entirely immaterial. Even the written


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waiver of the statute signed by the defendant on December 17, 1959 could no longer revive the right of action.

57 - CIR v. CA (1999) Facts:

On January 15, 1982 Carnation Phils., Inc. filed its Corporation Annual Income Tax Return for taxable year and its Manufacturers/Producers Percentage Tax Return for the quarter, both ending September 30, 1981. On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Lardizabal, signed three separate waivers of the Statute of Limitations under the NIRC which were not signed by the BIR Commissioner or any of his agents. In August 5, 1987, Carnation received BIR’s letter of demand dated July 29, 1987 asking the said corporation to pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax on undeclared sales, all for the year 1981. Carnation immediately disputed the assessments and requested a reconsideration and reinvestigation thereof, and later that same year a supplemental protest was also filed. The protests were denied by the BIR Commissioner thus prompting Carnation to appeal with CTA.

Issue:

1. Whether the signing of the waiver tolled the 5 year prescriptive period

Held/Ratio:

1. NO. Sec 319 (b) provides that: Where before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner of Internal Revenue and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed at anytime prior to the expiration of the period agreed upon. The period so agreed upon may be extended by subsequent agreement in writing made before the expiration of the period previously agreed upon. The law is clear and since in this case it was undisputed that the waivers were not signed by the CIR, the contention of BIR Commissioner on the validity of such waivers (that when examiners or agents extend the audit and investigation period, BIR gave implied consent to the waivers, signature of Commissioner is mere formality and that a waiver is not a contract but a unilateral act of renouncing ones right to avail of the defense of prescription and remains binding in accordance with the terms and conditions set forth in the waiver) must fail. The waivers executed by Carnation were said to be “for end in consideration of the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all pending at the time”, and so it cannot be said to be unilateral nor the Commissioner’s signature as mere formality because the very signatures of both the CIR and the taxpayer which give birth to such a valid agreement.

The assessment of the income and sales tax deficiency of Carnation were issued way beyond the five-year prescriptive period and were declared by court as null and void.


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59 - CIR v. FMF Corp. (2008) Facts:

On April 15, 1996, FMF filed its Annual ITR for taxable year 1995. On May 8, 1996, however, it filed an amended. The BIR then sent FMF pre-assessment notices, all dated October 6, 1998, informing it of its alleged tax liabilities. FMF filed a protest. The RDO informed FMF that the reinvestigation had been referred to a Revenue Officer. RDO also advised FMF of the informal conference set to allow it to present evidence to dispute the BIR assessments.

On the said informal conference, FMF President Enrique Fernandez executed a waiver of the three-year prescriptive period for the BIR to assess internal revenue taxes, hence extending the assessment period until October 31, 1999. The waiver was accepted and signed by RDO Zambarrano.

On October 18, 1999, FMF received amended pre-assessment notices dated October 6, 1999 from the BIR. FMF immediately filed a protest on November 3, 1999 but on the same day, it received BIR’s Demand Letter and Assessment Notice.

On November 24, 1999, FMF filed a letter of protest on the assessment invoking, inter alia, the defense of prescription by reason of the invalidity of the waiver. In its reply, the BIR insisted that the waiver is valid because it was signed by the RDO, a duly authorized representative of petitioner.

Issues:

1. W/N the waiver is valid.

2. Did the three year period to assess prescribe?

Held/Ratio:

1. NO. An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC, which provides:

...

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

The above provision authorizes the extension of the original three-year period by the execution of a valid waiver, where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the taxes due is extended to an agreed upon date.

Under RMO No. 20-90, which implements Sections 203 and 222 (b), the following procedures should be followed:

a. The waiver must be in the form identified as Annex “A” hereof....

b. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials.

Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

c. The following revenue officials are authorized to sign the waiver.


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A. In the National Office

...

3. Commissioner For tax cases involving more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount.

...

d. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.

e. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with.

Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-year prescriptive period.

1. It was not proven that respondent was furnished a copy of the BIR-accepted waiver

2. The waiver was signed only by a revenue district officer, when it should have been signed by the Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an amount of more than P1 million, and the period to assess is not yet about to prescribe.

3. It did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite necessary to determine whether the waiver was validly accepted before the expiration of the original three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the very signatures of both the Commissioner and the taxpayer to give birth to a valid agreement.

As to the contention that the RMO is merely directory, a waiver of the statute of limitations under the NIRC, to a certain extent being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed.

Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding effect on respondent because there was no consent by the Commissioner.

2. YES. The Assessment Notice dated October 25, 1999, was issued beyond the three-year prescriptive period. The waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor extended and continued to run until April 15, 1999. Even if the three-year period be counted from May 8, 1996, the date of filing of the amended return, assuming the amended return was substantially different from the original return, a case which affects the reckoning point of the prescriptive period, still, the subject assessment is definitely considered time-barred.


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60 - CIR v. Kudos Metal Corporation (2010) Facts:

Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos Metal Corp Notices of Presentation of Records. Kudos failed to comply with these notices. Hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006.

On December 10, 2001, Kudos’ accountant, executed a Waiver of the Defense of Prescription. This was followed by a second Waiver of Defense of Prescription on February 18, 2003.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices.

CTA Division

Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more than P1,000,000. The waiver failed to indicate the date of acceptance. The fact of receipt by the taxpayer of his file copy was not indicated on the original copy.

CTA En Banc

Agreed only to the second and third grounds.

Issue:

1. Whether the right of the government to assess has expired.

Held/Ratio:

1. Yes. An assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222of the NIRC.

The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01issued on August 2, 2001 lay down the procedure for the proper execution of the waiver.7

The first waiver had the following infirmities:

7. 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase “but not after ______ 19 ___”, which indicates

the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.


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1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent.

2. The waivers failed to indicate the date of acceptance.

3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers.

Estoppel does not apply in this case. In another case8, estoppel was applied as an exception to the statute of limitations on collection of taxes and not on the assessment of taxes. There was a finding that the taxpayer made several requests or positive acts to convince the government to postpone the collection of taxes.

In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments.

The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed.

8. Collector of Internal Revenue v. Suyoc Consolidated Mining Company


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61 - RCBC v. CIR (2011) (RCBC is estopped because it already paid)

Facts:

RCBC filed its Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the calendar years 1994 and 1995. On August 15, 1996, RCBC received a Letter of Authority issued from CIR Liwayway Vinzons-Chato, authorizing a special audit team to examine the books for all internal revenue taxes from January 1, 1994 to December 31, 1995.

On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription covering the internal revenue taxes due for the years 1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to assess up to December 31, 2000.

Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together with Assessment Notices from the BIR. RCBC filed a protest on February 24, 2000 and on November 20, 2000, it filed a petition for review before the CTA. On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices dated October 20, 2000, following the reinvestigation it requested, which drastically reduced the original amount of deficiency taxes and on the same day, RCBC paid the following deficiency taxes as assessed. RCBC, however, refused to pay the following assessments for deficiency onshore tax and documentary stamp tax which remained to be the subjects of its petition for review.

Issue:

1. Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is rendered estopped from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax.

Held/Ratio:

1. YES. RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and that the assessments were issued beyond the prescriptive period, then it should not have paid the reduced amount of taxes in the revised assessment.

RCBC’s subsequent action effectively belies its insistence that the waivers are invalid. The records show that on December 6, 2000, upon receipt of the revised assessment, RCBC immediately made payment on the uncontested taxes. Thus, RCBC is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds dear.


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62 - Avon Products Manufacturing, Inc. v. CIR (2010) (waiver of prescriptive period)

Doctrines:

• Under RMO No. 20-90, the waiver must be executed in 3 copies with the second copy for the taxpayer.

• The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement.

Facts:

Avon Products Manufacturing, Inc. (AVON) filed its VAT Returns and the Monthly Remittance Returns of Income Tax Withheld for the taxable year 1999 on different dates (dates between Feb 25 1999 and Jan 25 2000). It also signed two Waivers of the Defense of Prescription under the Statute of Limitations of the NIRC.

CIR sent a Preliminary Assessment Notice (Dec 23, 2002) to Avon covering a deficiency tax of P80,246,459.15. Avon filed a letter protesting against the PAN. Without ruling on the protest, CIR sent a Final Assessment Notice and Formal Letter of Demand (April 11, 2003) to Avon. Avon again protested the FAN. CIR’s Revenue Officers prepared a Memorandum recommending the enforcement and collection of the deficiency tax assessments because Avon failed to submit the necessary documents to support its protest. The Large Taxpayers Collection and Enforcement Division served the Collection Letter to Avon.

Issues:

1. W/N the waivers are defective

Held/Ratio:

1. YES. The Waivers executed are invalid and ineffective since CIR did not provide Avon a copy of the accepted Waivers, as required in Revenue Memorandum Order No. 20-90. And the invalidity of the waiver did not extend the original 3-year prescriptive period.

As it appears from the evidence, no duly BIR-accepted waiver was received by Avon involving the deficiency tax, deficiency withholding tax and deficiency withholding tax on compensation assessments. (The prescription dates are between Feb 25, 2002 and Jan 25, 2003). Considering that Avon received the FAN only on April 11, 2003, way beyond the period allowed by law to assess petitioner over its deficiency VAT, expanded withholding and withholding tax on compensation, the assessments should have already prescribed

Notably, the law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizen; to the Government because tax officers would be obliged to act promptly in the making of assessments and to citizens because after the lapse of the period of prescription, citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such legal defense, taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous agents. The law on prescription, being a remedial measure, should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommends the approval of the law.


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63 - Afisco Insurance Corp. v. CA (1999) (suspension of prescriptive period)

Doctrines:

• The prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.

Facts:

The petitioners are 41 non-life insurance corporations. They issued a Erection, Machinery Breakdown, Boiler Explosion and Contractors’ All Risk insurance policies. Thereafter, they entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (okay, Munich for short nalang). The reinsurance treaties required petitioners to form a pool, which was created on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an “Information Return of Organization Exempt from Income Tax” for the year ending in 1975. The CIR assessed a deficiency corporate taxes of P1,843,273.60, and withholding taxes of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners, respectively (letter of assessment dated March 27, 1981, petitioners were informed only on Nov 11, 1981). Petitioners protested the assessments. CIR denied the protest and ordered the Pool of Machinery Insurers (Pool) to pay the deficiencies.

The CA ruled that the Pool was a partnership taxable as a corporation, and that its collection of premiums on behalf of its members, the ceding companies, was taxable income. It added that prescription did not bar the BIR from collecting the taxes due, because the taxpayer cannot be located at the address given in the information return filed. (no other facts about the change of address was given)

Issues:

1. W/N the pool is taxable as a Corporation

2. W/N the Commissioner’s right to assess the Clearing House had already prescribed (IMP)

Held/Ratio:

1. YES. The term ‘partnership’ includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on.

2. NO. The CA and the CTA categorically found that the prescriptive period was tolled under then Section 333 of the NIC, because the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment. Indeed, whether the government’s right to collect and assess the tax has prescribed involves facts which have been ruled upon by the lower courts. The law clearly states that the prescriptive period will be suspended only if the taxpayer informs the CIR of any change in the address.


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64 - CIR v. Hambrecht and Quist Philippines, Inc. (2010) Doctrine:

Section 224 of the 1986 NIRC states that two requisites must concur before the period to enforce the collection may be suspended: a) that the taxpayer requests for reinvestigation and b) that the BIR grants such request.

Facts:

The case is about the alleged deficiency in income and expanded withholding taxes of Hambrecht and Quist. The deficiency income tax resulted from the disallowance of certain items of expense (professional fees, donations, salaries, management fees). For the deficiency in expanded withholding tax, Hambrecht failed to withhold the appropriate tax on the management fees.

January 8, 1993: an assessment notice was sent by the BIR through registered mail

February 15, 1993: Through a letter, Hambrecht & Quist informed the BIR of its change of business address from Corinthian Plaza, Paseo de Roxas to PCIB Tower in Makati Ave. corner H.V. de la Costa

November 4, 1993: Hambrecht received a follow-up letter or tracer dated October 11, 1993 issued by the BIR, demanding payment for alleged deficiency income and expanded withholding taxes for taxable year 1989 amounting to P2,936,560.87.

December 3, 1993: Hambrecht made a protest and requested a reinvestigation (letter to the BIR)

November 7, 2001, AFTER 8 YEARS: Hambrecht received a letter from the CIR. It stated that its protest was denied on the ground that the protest against the disputed tax assessment was filed beyond the 30-day period prescribed in then Section 229 of the NIRC.

Hambrecht filed a Petition for Review with the CTA. The CTA Original Division ruled that the assessment notice send to Hambrecht on January 8, 1993 in its old address was valid and binding since it gave a formal notice of its change of address only on February 18, 1993. Thus, the assessment has become final and unappealable. However, it ruled that the CIR failed to collect the assessed taxes within the prescriptive period. The CIR filed a Petition for Review with the CTA en banc but it was denied.

Issues:

1. W/N the CTA has jurisdiction to rule that the government’s right to collect the tax has prescribed

2. W/N the period to collect the assessment has prescribed

Held/Ratio:

1. YES. R.A. 1125, Section 7:

Jurisdiction. — The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided —

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law as part of law administered by the Bureau of Internal Revenue.

The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the BIR. The issue of prescription of the BIR’s right to collect taxes may be considered as covered by the term “other matters”.

2. YES. The CIR contends that its right to collect the tax deficiency it assessed on Hambrecht is not barred by prescription since the prescriptive period was allegedly suspended by the request for reinvestigation.


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Section 224 of the 1986 NIRC states that two requisites must concur before the period to enforce the collection may be suspended: a) that the taxpayer requests for reinvestigation and b) that the BIR grants such request.

In this case, it is not disputed that Hambrecht filed a request for reinvestigation. However, it was only 8 years later when the BIR replied that protest was denied. In other words, the request for reinvestigation was NOT GRANTED so the prescriptive period was not suspended. Therefore, the BIR’s right to collect has already prescribed.

65 - Republic v. Ablaza (1960) (Letter of Investigation)

Facts:

On October 3, 1951 the CIR assessed income taxes for the years 1945 - 1948 on the ITR of Ablaza.

On October 16, 1951, Ablaza’s accountants requested a reinvestigation of Ablaza’s tax liability, on the ground that it is based on third-party information and the taxpayer was not permitted to appear in person. The petition for reinvestigation was granted.

On March 10, 1954, Ablaza sent a letter to the BIR, which requested for a copy of the re-assesment as soon as the reinvestigation is over.9 (see foot note the issue revolves around the interpretation of the letter)

On February 11, 1957, after the reinvestigation, the CIR made a final assessment on the income taxes of Ablaza,

Issue:

1. W/N the March 10 1954, letter be interpreted as a request for reinvestigation therefore the period of prescription would continue to be suspended?

Held/Ratio:

1. No, If said letter be interpreted as a request for further investigation or a new investigation, different and distinct from the investigation demanded or prayed for in Ablaza’s first letter, then the period of prescription would continue to be suspended thereby. But if the letter does not ask for another investigation, the result would be the opposite. However, the letter does not ask for another investigation. Its first paragraph shows that the reinvestigation then being conducted was by virtue of its request of October 16, 1951. All that the letter asks is that the taxpayer be furnished a copy of the computation. The request may be explained in this manner: As the reinvestigation was allowed on October 1, 1951 and on October 16, 1951, the taxpayer supposed or expected that at the time, March, 1954 the reinvestigation was about to be finished and he wanted a copy of the re-assessment in order to be prepared to admit or contest it. Nowhere does the letter imply a demand or request for a ready requested and, therefore, the said letter may not be interpreted to authorize or justify the continuance of the suspension of the period of limitations.

Notes: The first letter was a request for reinvestigation therefore it suspended the prescriptive period.

The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the law. The benefit being, that the government will promptly assess taxes and the citizens will have a senses of security against unscrupulous tax agents.

9. In this connection, we wish to state that this case is presently under reinvestigation as per our request dated October 16, 1951, and

your letter to us dated October 17, 1951, and that said tax liability being only a tentative assessment, we are not as yet advised of the results of the requested reinvestigation.

In view thereof, we wish to request, in fairness to the taxpayer concerned, that we be furnished a copy of the detailed computation of the alleged tax liability as soon as the reinvestigation is terminated to enable us to prove the veracity of the taxpayer's side of the case, and if it is found out that said assessment is proper and in order, we assure you of our assistance in the speedy disposition of this case. (Exh. "P")


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66 - Republic of the Phil. v. Mambulao Lumber Company (1962) Doctrine:

• The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes.

Facts:

Mambulao Lumber (ML) admitted 3 liabilities/causes of action (1) forest charges of P588 covered by a bond by General Insurance (GI) (2) ML and GI both admitted they were solidarily liable for P296 also covered by a bond (3) ML and GI admitted that they were solidarily liable for P3,928 also covered by a bond. These 3 liabilites totaled P4,803.

Dates (don’t memorize):

(1) ML paid to the Republic P8200 for “reforestation charges” — Dec. 29, 1956

(2) ML paid to the Republic P927 for “reforestation charges” — April 30, 1947 — June 24, 1948

* These charges were paid by ML due to R.A. 115 which states that in addition to the regular forest charges provided under the NIRC, the amount of P0.50 on each cubic meter of timber used for commercial purposes shall be imposed for reforestation. The total amount paid by ML for “reforestation charges” is P9,127.

ML is saying that since the Republic has not made use of those reforestation charges collected from it for reforesting the denuded area, the Republic should refund said amount, or if it cannot be refunded, at least it should be compensated with what ML owed the Republic.

Issues:

1. W/N the sum of P9,127 paid by ML as reforestation charges may be set-off or applied to the payment of the sum of P4,803 as forest charges

Held/Ratio:

a. NO. Under Sec. 1 of RA No. 115, the amount collected as reforestation charges from a timber licenses or concessionaire shall constitute a fund to be known as the Reforestation Fund. The funds shall be expended by the Director of Forestry with the approval of the Sec. of Agriculture.

There is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. Observe too, that the licensee’s area may or may not be reforested at all, depending on whether the investigation thereof by the Director of Forestry shows that said area needs reforestation. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not.

Also, under the Civil Code, ML and the Republic are not mutually creditors and debtors of each other.

Important: The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer’s claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion.


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RIGHTS AND REMEDIES OF THE TAXPAYER UNDER THE NATIONAL INTERNAL REVENUE CODE

National Internal Revenue Code SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. —

(A) Examination of Returns and Determination of Tax Due. — ...

Any return, statement, or declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, that no notice for audit or investigation of such return, statement, or declaration has, in the meantime, been actually served upon the taxpayer.

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. — The Commissioner may — ...

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.

SEC. 228. Protesting of Assessment. — When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or


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(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

SEC. 230. Forfeiture of Cash Refund and of Tax Credit. —

(A) Forfeiture of Refund. — A refund check or warrant issued in accordance with the pertinent provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund.cralaw

(B) Forfeiture of Tax Credit. — A tax credit certificate issued in accordance with the pertinent provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund.

(C) Transitory Provision. — For purposes of the preceding Subsection, a tax credit certificate issued by the Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly authorized representative or on before June 30, 1998.

R.A. No. 1125, as Amended by R.A. No. 9282


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SEC. 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount o taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan


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Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.

c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. — Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.

All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof: Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply.

No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.

SEC. 18. Appeal to the Court of Tax Appeals En Banc. — No civil proceeding involving matter arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein


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provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act.

A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc.

SEC. 19. Review by Certiorari. — A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.

Revised Rules of the CTA, A.M. No. 05-11-07-CTA, Nov. 22, 2005 RULE 4: JURISDICTION OF THE COURT

SEC. 3. Cases within the jurisdiction of the Court in Divisions. — The Court in Divisions shall exercise:

a. Exclusive original or appellate jurisdiction to review by appeal the following:

...

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code;

RULE 8: PROCEDURE IN CIVIL CASES

SEC. 3. Who may appeal; period to file petition. — (a) A party adversely affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal revenue on claims for refund of internal revenue taxes erroneously or illegally collected, the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. (n)

Revenue Memorandum Circular No. 40-2003 SUBJECT: Effect of the Issuance and Receipt of Letter Notice to the Taxpayer’s Right to Amend its Tax Returns as Provided under Section 6 of the National Internal Revenue Code

TO: All Internal Revenue Officers and Others Concerned

For the information and guidance of all internal revenue officers and others concerned, please refer to the attached copy of the memorandum of Deputy Commissioner Jose Mario C. Buñag of the Legal and Inspection Group dated June 9, 2003 clarifying the following issue:


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Whether or not the Letter Notice (LN) being served by the Bureau upon taxpayers who were found to have under-declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of such audit or investigation.

The Deputy Commissioner for Legal and Inspection Group opines and I quote:

“LN being served by the Bureau upon taxpayers who were found to have under- declared their sales or purchases through the Third Party Information Program can be considered a notice of audit or investigation which would in effect disqualify the taxpayers concerned from amending any return which is the subject of such audit or investigation.”

Please be guided accordingly.

Revenue Memorandum Circular No. 49-2003 SUBJECT: Amending Answer to Question Number 17 of Revenue Memorandum Circular No. 42-2003 and Providing Additional Guidelines on Issues Relative to the Processing of Claims for Value-Added Tax (VAT) Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, Department of Finance (OSS-DOF) by Direct Exporters


In response to request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:

1. A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a “Petition for Review” with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the positive resolution or approval of the motion must be furnished the administrative agency as a prerequisite to the release of the tax credit certificate/tax refund processed administratively. However, if the taxpayer is not agreeable to the findings of the administrative agency or does not respond accordingly to the action of the agency, the agency shall not release the refund/TCC unless the taxpayer shows proof of withdrawal of the case filed with the tax court. If, despite the termination of the processing of the refund/TCC at the administrative level, the taxpayer decides to continue with the case filed at the tax court, the litigation lawyer of the BIR, upon the initiative of either the Legal Office or the Processing Office of the Administrative Agency, shall present as evidence against the claim of the taxpayer the result of investigation of the investigating/processing office.

2. Additional paragraphs are hereto added to the last paragraph of RMC No. 42-2003 to read as follows:

Q-18: For pending claims with incomplete documents, what is the period within which to submit the


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supporting documents required by the investigating/processing office? When should the investigating/ processing office officially receive claims for tax credit/refund and what is the period required to process such claims?

A-18: For pending claims which have not been acted upon by the investigating/processing office due to incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the documentary requirements unless given further extension by the head of the processing unit, but such extension should not exceed thirty (30) days.

For claims to be filed by claimants with the respective investigating/processing office of the administrative agency, the same shall be officially received only upon submission of complete documents.

For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty (120) days from receipt of the complete documents. If, in the course of the investigation and processing of the claim, additional documents are required for the proper determination of the legitimate amount of claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the investigating/processing office, which shall be construed as within the one hundred twenty (120) day period.

All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.

Revenue Regulations No. 12-99, Sep. 6, 1999 SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer’s records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer’s submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer’s payment of his internal revenue taxes, for the purpose of “Informal Conference,” in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall beconsidered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer’s deficiency tax liability, inclusive of the applicable penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer’s deficiency tax liability shall be sufficient:


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(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding taxfor a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(iv) When the excise tax due on excisable articles has not been paid; or

(v) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.

3.1.5 Disputed Assessment. — The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken on the taxpayer’s disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended.

The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto.

The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The phrase “submit the required documents” includes submission or presentation of the pertinent documents for scrutiny and evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report of investigation. If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable.

If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the


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taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision of the Commissioner’s duly authorized representative, the latter’s decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner.

If the Commissioner or his duly authorized representative fails to act on the taxpayer’s protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable.

3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the Commissioner or his duly authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void (see illustration inANNEX C hereof), in which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final decision.

3.1.7 Constructive Service. — If the notice to the taxpayer herein required is served by registered mail, and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. If the same is personally served on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The revenue officer who constructively served the same shall make a written report of this matter which shall form part of the docket of this case (see illustration in ANNEX D hereof).

CASES

PILIPINAS SHELL PETROLEUM CORP V. CIR -- PSPC paid part of its excise tax liabilities with TCCs which it validly purchased. BIR sent a collection to PSPC for alleged deficiency excise tax liabilities claiming that the TCCs that were used were fraudulently acquired thus, may not be used to pay taxes. PSPC now avers that its statutory and procedural right to due process was violated in the issuance of the assessment because the procedures delineated in the statutory provisos and RR 12-99 were not followed by respondent. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice, as required. Respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. PSPC’s motion for reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was not even acted upon. Because of this defect, the assessment of respondent for deficiency excise taxes against petitioner was canceled and declared without force and effect for lack of legal basis.

CIR v. MENGUITO (2008) — “non-receipt of PAN okay as long as taxpayer receives FAN” Menguito is engaged in the cafeteria business. He was given formal assessment notices by the CIR which stated that he had deficiency income and percentage taxes. Menguito questioned the validity of the formal assessment notices, alleging that they were issued in violation of the requirement of Revenue Regulations No. 12-85, which requires that the taxpayer should first be issued a post-reporting notice and pre-assessment notice before the preliminary findings of deficiency may ripen into a formal assessment.

In the case, Menguito did not receive a pre-assessment notice. Instead, he received various letters informing him of the findings of the BIR. However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually received by Menguito. A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal assessment notice. The fact that Menguito did


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not receive a pre-assessment notice does not affect his liability for deficiency income and percentage taxes because he received formal assessment notices anyway.

CIR v. METRO STAR SUPERAMA — “no proof of delivery / PAN serves due process” Metro Star Superama (Metro Star) was being assessed by the CIR for deficiencies in VAT and Withholding for the year 1999. A warrant of distraint and levy has already been issued against them. Metro Star alleges that they did not receive any PAN, thus being denied of due process. The CIR claims that Metro Star in fact received such PAN on Jan 16, 2002 and also states that even though there was no PAN, they sent a FAN which informed Metro Star of the CIR’s claims.

To have the presumption to prove that mailed letter is deemed received by the addressee, the CIR must prove: 1) the letter was properly addressed with postage prepaid, and 2) that it was mailed. CIR failed to present evidence to prove the presumption.

Metro Star is denied due process by not receiving the PAN. A close study of Sec. 228 of the NIRC says that a taxpayer must be informed of such deficiency. Receipt of a PAN is not merely a formal requirement but a substantial one that serves due process.

CIR v. REYES (2006) — “Dasmariñas House/ assessment is not just to notify but rather to inform” The heirs of Maria Tancino received a PAN and FAN (14 M) for proper estate tax on the Dasmariñas Village house and lot left by the decedent. Heirs initially filed for a compromise but after a series of petitions and motions, the CTA questioned the validity of the assessment notice. CA modified the decision of the CTA and adjudged that the assessment notices were void for they violated Sec 228 of NIRC and the substantive due process.

In this case, SC affirmed and clarified that based on Section 228 (as amended by RA 8424 in 1998) the old requirement of merely notifying the taxpayer of CIR’s finding no longer suffice for now it is required that assessment notice must inform the taxpayer of the laws and facts on which it was made. It must contain gross figures and itemized details for the Court can no longer accept assessments based on mere arbitrary or capricious estimates. Failure to do so invalidates an assessment and thus it can’t be used as basis for the perfection of a tax compromise in the future.

CIR v. ENRON (2009) — “Formal Letter of Assessment and Demand must state the facts and the law on which it is based following Sec 228 of the Tax Code and RR 12-99 Sec 3.1.4. Otherwise it is void.” Enron, a corp. registered with the SBMA, filed its ITR for 1996 in April 1997. BIR sent them a preliminary 5 day letter and informed of proposed assessment on deficiency income tax which they protested. They were given a formal assessment notice which Enron protested but was denied. They appealed with the CTA. The appeal was granted by the CTA. The CA affirmed by saying that the assessment failed to comply with Sec 228 of the NIRC and its implementing regulation RR 12-99. The CIR in a Petition for Review to the SC claims that Enron was properly informed of the fact and law on which the assessment was made, during the pre-assessment stage, by the following: advising representative of Enron of the tax deficiency, informing them of proposed tax deficiency assessment thru preliminary 5 day letter and furnishing them of a copy of the audit working paper. The Supreme Court held it is mandatory for the formal letter of demand and assessment state the facts and law in which the assessment was made following Sec 228 of the NIRC and RR 12-99. In this case the CIR merely issued a formal letter indicating the supposed tax, surcharge, interest and penalty without explaining how they computed the amount without providing the provision of law in which it was based. The Court noted that in the old law what was required is the taxpayer simply is notified of their tax deficiency. This was amended to follow the constitutional principle that no person shall be deprived of property without due process.

CIR v. BANK OF THE PHILIPPINE ISLANDS (2007) — ”this is not a protest/factual basis not required under old law” In October 1988, the CIR sent two notices of assessment to BPI for deficiency percentage and documentary stamp taxes for the year 1986. BPI replied, arguing that the deficiency assessments were “not assessments at all” because of their failure to disclose the facts and circumstances upon which they were based. BPI made it clear that its decision to pay or protest the assessment would be communicated to the CIR only upon receipt a clarificatory letter from the latter. In reply, the CIR claimed that BPI’s letter failed to raise any valid issues and thus, did not qualify as a protest. Be that as it may, the CIR acquiesced and provided BPI with an


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explanation of the basis for its assessments. This very same letter, dated May 8, 1991 expressed that it constituted the CIR’s final decision the matter. BPI filed a petition for review before the CTA in 1992. This was denied on the ground of lack of jurisdiction because the assessments had already become final and unappealable. The CA reversed, finding that the assessments’ failure to indicate the factual and legal bases rendered them void.

The assessments are valid because the old law merely required that the taxpayer be notified of the CIR’s findings, nothing more. The assessments in this case were sent to the taxpayer prior to the passage of the Tax Reform Act of 1997, which, in addition to notification, now also requires the CIR to cite the law and the facts upon which assessments are based. Because the initial notices are valid, the running of the period within which BPI should have protested such notices started from May 8, 1991, when CIR specifically manifested that such letter constituted its final decision on the matter. Hence, BPI filed its petition for review before the CTA in 1992, the assessments had already become final, as BPI only had 30 days from May 8 to file an appeal.

CIR v. FIRST EXPRESS PAWNSHOP (2009)

Facts: On December 2001, the CIR assessed several tax deficiencies – income tax, VAT, documentary stamp tax and DST – along with surcharges against First Express Pawnshop. First Express received the notices on January 3, 2001. It filed its written protests to the assessments on February 1, 2001 attaching thereto its General Information Sheet and Balance Sheet. (Relevant fact shown in later part of decision: Apparently, the CIR requested several other documents – loan agreement with lender banks, official receipts of interests received, documentary evidence of donations made, proof of DST payment on subscriptions – from First Express after it filed its protest but the latter failed to present them.) The CIR not having responded to the written protests with the 180 days as prescribed by the NIRC, First Express filed petition before the CTA. In its petition, First Express maintained that it was not a lending investor (subject to VAT), its documents were not among those subject to the DST and the pawn tickets it issued were pledges which are subject to tax under section 195. The CIR made a general opposition that its opposition was valid and binding. First Express in the meantime paid the income tax deficiency. The CTA partially affirmed the assessment of the DST. The CTA en banc affirmed the CTA first division ruling.

Issue: Has the assessment reached finality when First Express failed to present the documents demanded by the CIR within 60 days from filing of its protest as prescribed by Section 228 of the NIRC? (The CIR insists that the CTA should not have entertained the petition of First Express because the latter did not submit relevant supporting documents as a requisite to remedy of filing of petition before the said court pursuant to section 228.)

Held: First Express complied with the requirement of submitting “relevant supporting documents” prescribed in section 228 of the NIRC. Hence, the petition was validly entertained by the CTA.

Ratio: The SC said that First Express did not fail to file the necessary “relevant supporting documents” referred to in section 228 of the NIRC.

The Court said that First Express attached its GIS and Balance Sheet upon filing of its protest.

Also, It said that the CIR cannot insist on requiring First Express to present proof of payment of the DST because the said document does not exist pursuant to the latter’s claims that it was not liable to pay such in the first place.

Finally, the Court said that in referring to “relevant supporting documents” it must be understood to mean those necessary to support the legal basis in disputing an assessment. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot specify what particular kind of documents the taxpayer has to present otherwise, the taxpayer may be required to present documents that /she cannot submit.

First Express having complied with the requirement of section 228 as to submission of relevant supporting documents, the assessment against it did not become final and executor.

MARCOS II v. CA (1997)

Facts: Following the death of former President Marcos in 1989, investigations were conducted on his and his family’s tax liabilities and it was found that the Marcoses failed to file a written notice of death of the decedent estate tax


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return and income tax returns for the years 1982 to 1986. The CIR thereby caused the preparation of the estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments and the corresponding deficiency income tax assessments. The deficiency tax assessments were not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by Marcoses. These lands were forfeited in favor of the government because there were no bidders during the auction sale.

Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul the notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA dismissed, holding that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by summary remedy of levying upon the real property.

Issue: Whether or not the proper avenue of assessment and collection was taken by the BIR.

Held: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President Marcos. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy.

DAYRIT v. CRUZ (1988)

Facts: The Teodoro spouses died and the heirs of the deceased filed separate inheritance and estate tax. CIR sent the heirs a notice of deficiency assessment on their estate and inheritance taxes. The heirs asked for reconsideration and requested a period of 30 days within which to submit their position paper. (They never submitted a position paper.)

Meanwhile, PD 23 (Tax Amnesty Subject to Certain Conditions) as amended by PD 67 was passed which states that voluntary disclosure of previously untaxed income shall be condoned and a tax of 10% of such income shall be imposed. The heirs applied for tax amnesty under the law and were asked to pay PhP285k. The CIR instituted an action for collection and contends that the heirs cannot avail of the tax amnesty in view of the prior existing assessments issued against the estate of the deceased spouses. The heirs claim that they were freed from any liability imposed by the previous assessments because they availed of the tax amnesty.

Issue: W/N the heirs could avail of the tax amnesty.

Held: NO. In the heirs’ motion for reconsideration of the assessments, they requested the CIR for a period of 30 days within which to submit their position paper, but they never did. Such failure to file a position paper may be construed as abandonment of the heirs’ request for reconsideration. It took the CIR a period of more than one year and five months to institute an action for collection. Under the circumstances of the case, the act of the CIR in filing an action may be considered as an outright denial of the heirs’ request for reconsideration.

From the date of the receipt of the copy of the CIR’s letter for collection of estate and inheritance taxes against the estate of the late Teodoro spouses, the heirs must contest or dispute the same and upon denial thereof, they have a period of 30 days within which to appeal the case to the CTA. This they failed to avail of.

OCEANIC WIRELESS INC. v. CIR -- “demand letter issued by a subordinate” Oceanic received from the BIR deficiency tax assessments. They protested the assessments and requested a consideration or cancellation of the same. On January, the Chief of BIR Billing Division denied the request and asked Oceanic to pay their dues within 10 days from receipt of the letter otherwise the necessary warrants for distraint and levy will be issued. They failed to pay and the warrants were issued. It was only on November that Oceanic filed a case with the CTA. Logically, it was denied due to prescription. Oceanic contends that the reply issued by the Chief of Billing cannot be considered a final demand because a subordinate officer issued it.


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A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. The determination on whether or not it is final is conditioned upon the language used or tenor of the letter being sent to the taxpayer. The letter must use clear and equivocal terms whenever his action on an assessment constitutes his final determination. This is to enable the taxpayer to determine when his right to appeal to the CTA accrues. The fact that only a subordinate of the CIR issued the demand is of no moment because demands may be made by the “commissioner or his duly authorized representative” (see Sec 6, NIRC). After the denial of the protest/MR, Oceanic had 30 days to file an appeal with the CTA. However, since it failed to appeal the denial within the reglementary period, the decision of the CIR (via its subordinate) was considered final, executory and enforceable (see Sec 228, NIRC).

CIR v. ISABELA CULTURAL CORPORATION — “final decision, last opportunity” CIR investigated Isabela Cultural Corporation’s 1986 books of account and discovered an income tax deficiency of some 9 million. Isabel protested. CIR sent an assessment letter and demanded payment of deficiency income tax and withholding tax. Isabela requested for reconsideration. CIR sent Isabela a Final Notice before Seizure and demanded payment within 10 days from its receipt. Isabela treated this as CIR’s final decision and filed a petition before the CTA. SC held that the Final Notice Before Seizure is deemed as the CIR’s final decision. If the protest is not acted upon within 180 days from submission of documents, the taxpayer may appeal to the CTA. Here, Isabela filed its request for reconsideration beyond the 180-day period. Moreover, the letter stated, “We are giving you this last opportunity to settle the adverted assessment.” It was tantamount to a rejection of the request for reconsideration.

CIR v. AYALA SECURITIES CORP. — Ayala Securities Corporation (Ayala) filed its income tax returns for its fiscal year which ended on 1955. The CIR assessed Ayala for deficiency taxes on its accumulated surplus. Ayala protested and eventually received a letter dated February 18, 1963 from the CIR examiner calling its attention to the unpaid tax and requesting for the payment within five (5) days from receipt of the letter. Believing the letter to be a denial of its protest, Ayala filed with the CTA a petition for review.

CIR maintains that the CTA erred in holding that the letter dated February 18, 1963 is a denial of Ayala’s protest against the assessment. They contend that the letter is merely an ordinary office letter designed to remind delinquent taxpayers of their obligations to pay their taxes to and not a decision on a disputed or protested assessment contemplated under Section 7(1) of R.A. 1125.

The court ruled that the letter of February 18, 1963 is tantamount to a denial of the protest of Ayala on the assessment made by the CIR considering the firm stand of the CIR against the reconsideration of the disputed assessment in view of the continued refusal of Ayala to execute the waiver of the period of limitation (the action has already prescribed). The letter amounts to a decision on a disputed or protested assessment and, therefore, the CTA did not err in taking cognizance of this case.

ALLIED BANKING v. CIR (2010) – “appeal on final demand / exception to rule on exhaustive remedies” BIR issued a PAN to Allied Bank for Documentary Stamp Tax and Gross Receipt Tax deficiency. Allied protested, but BIR wrote a Formal Letter of Demand w/ Assessment Notice denying the protest telling Allied that it was their “final decision based on investigation” and that if Allied disagrees, then it “may appeal the final decision w/in 30 days from receipt thereof.” Allied appealed to the CTA, but the CIR opposed on the ground that what is to be appealed to the CTA is the CIR’s decision on the taxpayer’s protest of the FAN, and not the FAN itself. CTA dismissed the petition since Allied failed to exhaust all administrative remedies.

While that is true, this case consists as an exception to the rule on exhaustion of administrative remedies since the CIR is estopped from the words it used in the FAN. It appears from the FAN that the CIR has already made a final decision on the matter, and that Allied may appeal the decision w/in 30 days. Taken in its ordinary context in tax cases and under prevailing tax law, appeal means appeal to the CIR. Thus, taking into consideration that the FAN contained the words “final decision” and “appeal”, the SC reversed the CTA decision, since it led Allied to believe that the Formal Letter of Demand was the CIR’s decision on the protest and that the former’s remedy was to appeal to the CTA.

*Note: Allied Bank offered a compromise and BIR accepted.


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CIR v. UNION SHIPPING CORP. — CIR assessed against Union Shipping Corporation deficiency income taxes. Union Shipping protested. The CIR, without ruling on the protest, issued and served a Warrant of Distraint and Levy. Union Shipping reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru distraint and levy. The CIR, again not ruling on such request, instead filed a collection suit with the CFI of Manila. The CFI issued summons. Union Shipping filed with the CFI a decision it was able to obtain from the CTA, absolving Union Shipping from paying any deficiency tax. The issue in this case is whether or not the CTA has jurisdiction over this case. Note that, in this case, the CIR did not rule on the protest, leaving Union Shipping in the dark as to which action of the CIR is the decision appealable to the CTA.

The SC has held that the CIR should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment. It is on the basis of such final determination that a taxpayer would be able to take recourse to the tax court. In other words, the taxpayer would be able to determine when his right to appeal to the tax court accrues. The reviewable decision of the Bureau of Internal Revenue is that contained in the letter of its Commissioner, that such constitutes the final decision on the matter which may be appealed to the Court of Tax Appeals and not the warrants of distraint. The issuance of a warrant of distraint and levy is proof of the finality of an assessment and is tantamount to an outright denial of a motion for reconsideration of an assessment. Applying such to the case at hand, the period to appeal has not commenced to run because the CIR did not signify his final action on the matter. Union Shipping’s protest was in effect considered denied when the CIR filed a civil suit for collection of deficiency income. Thus, it was only when Union Shipping received the summons on the civil suit that the period to appeal commenced to run. Hence, the CTA had jurisdiction over the case because Union Shipping filed its petition for review within the reglementary period.

SAN JUAN v. VASQUEZ — ”jurisdiction of CTA” There was a collection suit against San Juan for income taxes for various years and deficiency tax and surcharges therein. The Collector of Internal Revenue brought the action in the Court of First Instance of Manila. Petitioner moved to dismiss the action on the ground that the court had no jurisdiction to take cognizance of the action because the matter involved a disputed assessment, the jurisdiction of which fell upon the Court of Tax Appeals; and that there is a pending action in the Court of Tax Appeals, involving the same disputed assessment. Thedetermination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance. The Court of Tax Appeals has exclusive appellate jurisdiction to review on appeal any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue (Section 7 RA 1125)

REPUBLIC v. LIM TIAN TENG SONS & CO., INC. (1966) — “Referral to Solicitor General for Collection constitutes denial” Lim Tian Teng Sons & Co., Inc., with Office in Cebu, is engaged in the exportation of copra. In the audit and examination of taxpayer’s 1952 income tax return, the CIR eliminated the P95,500 outturn from the beginning inventory for 1952 and considered it as accrued income for 1951. (This assessment was later upheld by the SC to be correct based on accounting standards.) On January 31, 1957 Lim Tian requested reinvestigation of its 1952 income tax liability. The CIR did not reply; instead, he referred the case to the Solicitor General for collection by judicial action. Lim Tian assails the jurisdiction of the lower court on the ground that the assessment in question has not become final and executor. SC: For what is more indicative of the CIR’s decision against reinvestigation than his insistence to collect the tax? This decision was communicated to defendant in a letter dated September 20, 1957 from the office of the Solicitor General which must have been received by defendant not later than October 8, 1957 for on said date it acknowledged receipt thereof. It had thirty days from receipt within which to appeal to the CTA. Instead of appealing to the Tax Court, however, the defendant herein in a letter dated October 8, 1957 reiterated its request for reinvestigation. Taxpayer failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable.

PHIL. PLANTERS INVESTMENT CO. INC v. ACTING CIR (1962) — Warrant of Distraint and Levy as Denial of Reinvestigation Phil. Planters entered into a Management Contract with Binalbagan-Isabela Sugar Company Inc.(BISCOM) to act as its Manager of its business affairs. CIR assessed Phil. Planters 3 separate times for


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percentage tax on gross compensation for allegedly acting as a commercial broker for BISCOM for the years 1951-1961. Phil. Planters sought reinvestigation of the case to enable it to present evidence and at the same time, requested that collection of the amounts assessed be deferred for which it offered to file the necessary bond. As no reply was received from the CIR, and having been informed that collection of the amounts would be enforced by distraint and levy, Phil. Planters filed a petition for review with motion for issuance of an order “suspending the collection of the said tax and enjoining respondent and his representatives from enforcing the same.” After hearing, court granted the motion upon filing and approval of surety bond for 1.3 M to secure the payment of 901K, 384K and 271 K. In resolving the case, the CTA held that managing corporations are not independent contractors within Sec. 191 of Revenue Code. Such corporations are only subject to income and residence tax from whatever income it received under the employment contract. Even if Phil. Planters paid the commercial broker’s annual tax from 1953-1961, it cannot be considered a commercial broker if it had not intervened in any brokerage transaction. Being a nominal amount, Phil Planters was willing to pay P150/yearly in case a broker would be needed by the planters to intervene in their sales, however this need never arose.

HILADO v. CIR — “CTA case regarding “ Atty. Vicente Hilado filed his return on Feb 26, 1954 for his gross income in 1953. He claimed deductions and exemptions making his taxable income P61, 774.67. BIR sent 4 letters requesting the breakdown of his 1953 income and other documents, but remained unanswered. Thus, BIR assessed him with a deficiency of P5, 085 due to BIR’s disallowance of half of his deductions. When Hilado asked for an explanation, BIR said Hilado was not able to substantiate his deductions. Hilado protested but BIR did not resolve his protest and just issued a warrant for distraint and levy. The court stated that the issuance of a warrant for distraint and levy to enforce collection of deficiency assessment was tantamount to an outright denial of the request for reconsideration.

CENTRAL CEMENT CO. v. CIR — The BIR sent letters of proposed assessment to Central Cement, in which the latter disputed. On September 20, 1988, Central Cement received from the BIR a FAN, for alleged deficiency income tax and expanded withholding tax. A protest was sent by Central. On December 1, 1988, while awaiting resolution of the protest, an undated Warrant of Levy and Distraint were served on petitioner.

The issuance of the warrants of distraint and levy and warrants of garnishment was in violation of Section 207 of the NIRC which only authorizes the issuance of warrants “not earlier than three months nor later than six months from receipt of the demand”. The CIR where enjoined from enforcing the warrants.

ADVERTISING ASSOCIATES v. CA and CIR (1984) – “warrant of distraint to toll prescriptive period” The CIR required Advertising Associates to pay deficiency contractor’s tax w/ 25% surcharge since the latter was operating more as a general advertising business than a media office. Advertising contested the assessment in 1974, but the CIR reiterated the same. For 4 years, there was no movement in the case. But in 1978, the CIR issued 2 warrants of distraint to satisfy the deficiency taxes. He requested Advertising to pay w/in 10 days from receipt of demand, stating that it constitutes as the final decision on the matter, and the remedy was to appeal to the CTA w/in 30 days. When advertising did that, the CTA enjoined the enforcement of the warrant of distraint, but did not decide on the merits of the case.

Advertising now contends that collection of the tax has prescribed. However, the SC pointed out that it received the demand letters in June 1973 & March 1974, and the warrants were served on April & May 1978, well within five years of the assessment. Obviously, the warrants were issued to interrupt the five-year prescriptive period. The CIR relied on the warrants to interrupt the running of the statute of limitations, and not on instituting any judicial action. It gave Advertising the opportunity to contest the assessments, but at the same time, safeguarded the Government’s interests. So CTA decision is reversed. In case of non-payment of the deficiency taxes, the warrants should be enforced.

FISHWEALTH CANNING CORP. v. CIR — “does not toll the 30-day appeal period” Fishwealth did not comply with subpoenas for its records and then submitted a protest for the impropriety of the subpoena.The CIR still issued a FAN of Income Tax and VAT deficiencies worth P67.6M for the year 1999. Fishwealth received the denial of the protest on August 4, 2005. The CIR demanded payment prompting Fishwealth to file Petition for Review on October 20, 2005 but was denied. Petition to SC dismissed. Section 228 of the NIRC provides for 30


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days to appeal the denial of the protest. Therefore, Fishwealth receiving the denial on August 4, 2005 had until September 3, 2005 to file a petition for review before the CTA Division. However, it filed one on October 20, 2005. Hence, filed out of time. An MR of the denial of the administrative protes does not toll the 30-day period to appeal to the CTA.

CIR v. VILLA (1968) — “jurisdiction of CTA” Spouses Villa filed a joint income tax returns for 1951 to 1956. BIR issued on February 23, 1961 assessments for deficiency income tax and residence tax. Villa received the assessment on April 7, 1961. Villa filed a petition for review in the CTA without contesting the assessment. HELD: The CTA did not acquire jurisdiction over the case. Paragraph 1 of Section 7 of RA 1125 states that CTA shall exercise exclusive appellare jurisdiction to review by appeal the decisions of the CIR. The word “decision” has been interpreted to mean the decisions of the CIR on the protest of the taxpayer against the assessments. Definitely, said word does not signify the assessment itself. Jurisdiction over the subject matter is fundamental for the count to act on a given controversy. It is conferred by law, not by the consent of the parties. It can be challenged at any stage of the proceedings and for lack of jurisdictions a court can dismiss a case motu proprio.

MERALCO SECURITIES CORP. v. SAVELLANO (1982) — “CFI Judge no jurisdiction / no reward” The late Juan Maniago submitted to the CIR a confidential denunciation against the Meralco Securities Corp for tax evasion having paid tax on only 25% of the dividends received from Manila Electric. The CIR filed a motion to dismiss for finding no basis for deficiency since indeed only 25% is returnable as per Sec. 24(A), NIRC. Maniago filed for mandamus against the CIR to compel the assessment of the alleged deficiency corporate tax. Judge Victorino Savellano ordered the assessment and collection of the said taxes All parties filed MR’s but were denied. Hence the CIR filed a separate petition stating that indeed, the CFI judge has no jurisdiction and the CIR ruling is not reviewable by mandamus. Judge Savellano has no jurisdiction. This matter is now exclusively within the jurisdiction of the CTA. The CTA having appellate jurisdiction to review by appeal decisions of the CIR. The law transferred to the CTA jurisdiction over all cases involving such assessments previously cognizable by the CFI. What Maniago could’ve done is to appeal to the CTA within 30 days from receipt of ruling by the CIR. It is furthermore cleared that mandamus only lies to enforce the performance of a ministerial act or duty not those which are discretionary. Since no taxes are to be collected, no informer’s reward is due to private respondents as the informer’s heirs.

CIR v. COA / SAVELLANO v. COA (1993) — “audit jurisdiction / reward valid” Tirso Savellano furnished the BIR with a confidential affidavit denouncing the Nat’l Coal Authority (NCA) and the Phil. Nat’l Oil Co. (PNOC) for non-payment of taxes on interest earnings from PNB. Savellano received reward upon Dep. Of Finance approval. However, a few years later, the Commission on Audit (COA) disallowed the payment of such reward since the NCA case reward is based on the actual collection/recovery of revenues wherein none was realized by the government. CIR claimes the DoF approval was conclusive. COA invokes its audit jurisdiction and questions the standing of the CIR. The reward should be granted. The informer’s award was based on section 316 of the NIRC. PNOC and NCA are subject to tax having personalities distinct from the government. if they evade payment of their taxes, the amounts corresponding to such liabilities could be utilized for purposes exclusive to them; contrarily, if they do pay their taxes, the amounts so paid accrue to the General Fund; Section 281 prescribes that for an informer to be entitled to the reward, the information he furnishes should result in the recovery of revenues; statutes offering reward must be liberally construed in favor of informers; the possibility of collusion is not sufficient basis for disallowance, since collusion cannot be assumed, while the official acts of the BIR and the Department of Finance are entitled to a presumption of regularity; mere possibility of collusion to obtain the informer’s reward as sufficient ground for disallowance. Collusion cannot be presumed. It must be proved by clear and convincing evidence. In the case at bar, there is no showing of collusion between petitioner Savellano as informer and any official or employee of the BIR or the Department of Finance.

PNOC v. CA (2005) — Savellano informed the BIR that PNB failed to withhold 15% final tax on interest earnings and/ or yields from money placements of PNOC with the bank. BIR requested PNOC to settle its tax liability. PNOC made an offer to compromise its tax liability and proposed to set-off its tax liability against a pending claim for tax refund/ credit of NAPOCOR. BIR replied that the proposal for set-off was premature since NAPOCOR’s claim was still under process. BIR requested PNOC to settle its tax liability again. PNOC proposed a compromise, representing 30% of the basic tax. BIR paid Savellano’s informer’s reward in four installments. However,


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Savellano claims he never received the last installment. He filed a Petition for Review ad cautelam with the CTA and claimed that BIR acted with grave abuse of discretion in entering into a compromise agreement which diminished his reward. PNB and PNOC filed Motions to Dismiss arguing the CTA’s lack of jurisdiction. The CTA upheld its jurisdiction and declared the compromise agreement without force and effect, and ordered the CIR to enforce assessment against PNB. PNB and PNOC appealed. The court held that the CTA shall exercise exclusive appellate jurisdiction to review by appeal the decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees, or other charges, penalties imposed in relation thereto or other matters arising under the NIRC or other relevant laws. Here, Savellano submitted before the CTA questions of law involving the interpretation and application of EO No. 44, which authorized the CIR to compromise delinquent accounts and disputed assessments, and Sec. 316, NIRC, which involves informer’s reward. These are appealable to the CTA.

SEC. OF FINANCE v. AGANA (1975) — Shamrock Well-Drilling Enterprises, Inc. (Shamrock) imports seamless iron and steel pipes and tubes from Japan at prices less than its fair value, to the injury of the local industry. The Secretary of Finance then ordered Shamrock to pay a dumping duty in the amount of $63 per metric. Shamrock refused to pay. The Customs Commissioner refused to release the goods unless the payment of regular customs duties plus the anti-dumping charges be made. Shamrock brought the matter to the Court of First Instance (CFI) as if on appeal and sought to annul the orders of the Secretary of Finance, and likewise to have a writ of preliminary injunction issued. Judge Agana, herein respondent, ruled in favor of Shamrock, ordering the release of the imported goods upon payment of a bond. The Secretary of Finance questioned the jurisdiction of Judge Agana, stating that it was the CTA which has jurisdiction over the matter, and not the CFI.

The CTA was created by virtue of a constitutional grant of authority. It is the legislative determination to vest sole and exclusive jurisdiction on matters involving internal revenue and customs duties to such a specialized court. The CTA has jurisdiction over whatever may be incidental to the legality of an assessment, and the explicit determination of the Secretary of Finance that Shamrock is liable for anti-dumping duties falls under such category. Therefore, appropriate judicial body to pass upon the validity of the order of the Secretary of Finance imposing anti-dumping duties is the CTA.

CIR v. JOSEFINA LEAL (2002) — “pawnshop” Josefina Leal, being a pawnshop owner, is assailed the revenue orders imposing 5% lending investor’s tax on pawnshops issued by petitioner. The RTC granted the prohibition sought by Leal- holding that the revenue regulations are “in effect new taxes (against pawnshops).” The case was brought to the CA on certiorari. It held that the questioned RMO and RMC are actually rulings or opinions implementing the liability.

Clearly then, she should have filed her petition with the Court of Tax Appeals, not the RTC. This is because the jurisdiction to review the rulings of the Commissioner pertains to the Court of Tax Appeals, not to the RTC.

The determination of the correctness or incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any decision of the Collector of Internal Revenue in cases involving disputed assessments and other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue.

ASIA INT’L AUCTIONEERS, INC v. PARAYNO, JR. (2007) — “RMCs and RRs are considered as decisions of the CIR” CIR issued RRs 1-95, 12-97, & 16-99, as well as RMCs 31-2003 & 32-2003 to regulate the VAT imposed on companies that sell motor vehicles through public auction at exclusive economic zones. Petitioners Asia Int’l and Subic Bay Motors Corp., which are both such companies operating in the Subic Bay EEZ, assailed the validity of the above-enumerated RRs and RMCs before the RTC of Olongapo City. The RTC granted a TRO and prelim injunction in their favor, but upon appeal, the CA reversed on the ground that the RTC had no jurisdiction. CA is right because it is the CTA which has exclusive appellate jurisdiction over decisions of the CIR, and other laws administered by the BIR. RMCs are considered administrative rulings which are issued by the CIR from time to time. Plus, there is premature invocation of the court’s intervention since petitioners failed to file a motion for reconsideration of said RMCs.


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BRITISH AMERICAN TOBACCO v. CAMACHO (2008) — “issue on constitutionality not within the jurisdiction of CTA” A petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction was filed by petitioner to enjoin the implementation of Section 145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and RMO No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. Lower court upheld the constitutionality and this prompted the filing of a petition for review to SC. While the petition was pending, RA 9334 took effect which effectively increased the excise tax of petitioner’s products. Commissioner assessed petitioner’s importation of 911,000 packs of Lucky Strike cigarettes liable for taxes in the total sum of P22.775M. Thus petitioner filed a Supplement to Petition for Review which assailed the constitutionality of RA 9334 insofar as it retained Annex “D” (classification of brand of cigarettes based on average net retail price as of Oct 1996) and praying for the classification of Lucky Strike products at a lower tax bracket. Fortune Tobacco intervened and contended that petitioner should have brought its petition before the CTA rather than the RTC. Sec 7 of RA 1125 provides for the jurisdiction of CTA which includes exclusive appellate jurisdiction to review by appeal the decisions or the inaction deemed as denial of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue. While the CTA has jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. Petitioner, therefore, properly filed the subject case before the RTC.

TAN TIONG BIO v. BIR (1956) — Central Syndicate is a corporation organized for a limited period of two years. It allegedly purchased from Dee Hong Lue stock of surplus properties from the Foreign Liquidation Commission. Later on, it claimed refund for the excess in the payment of the sales tax due to the adjustment and reduction of the purchase price. However, an agent of the CIR reported that it was the syndicate who was the actual importer and original seller of the surplus goods, a scheme adopted for evasion of tax payment. The CTA rendered a decision holding the incorporators of the syndicate to be severally liable, the syndicate’s personality having had expired. Syndicate appealed to the Court of Tax Appeals. Solicitor-General moved for the dismissal of the appeal on the ground that the Appellant Central Syndicate no longer had the capacity to sue because its term of existence had expired on August 15, 1948. In a petition for review, the court ruled in favor of Central Syndicate. In any event, the government cannot insist on making a tax assessment against a corporation that no longer exists and then turn around and oppose the appeal questioning the legality of the assessment precisely on the ground that the corporation is non- existent, and has no longer capacity to sue. The government cannot adopt inconsistent stands and thereby deprive the officers and directors of the defunct corporation of the remedy to question the validity and correctness of the assessment for which, if sustained, they would be held personally liable as successors-in-interest to the corporate property.

THE ACTING COLLECTOR OF CUSTOMS v. CTA and COMMISSIONER OF CUSTOMS (1957) — The Philippine Education Co., Inc (intervenor-respondent) imported by copies of an issue of the magazine “Pageant” which carried an article entitled “Check Your Sex-Life Against the New Kinsey Report”. The Bureau of Customs through the Collector of Customs rendered a decision holding that the said article violated provisions of the Philippine Tariff Act of 1909 which prohibits entry of obscene and indecent reading materials in the Philippines and ordered the seizure, forfeiture and burning of the copies of the magazine. The importer appealed the decision in due time to the Commissioner of Customs in conformity with the procedures established by Section 1380 of the then Admin Code. The Commissioner rendered a judgment reversing the Collector of Customs’ view by holding that the magazine did not contain obscene or indecent article. The Secretary of Finance directed the transmittal of the records to the CTA for review. The CTA informed the Commissioner that under RA No. 1125 it was not empowered nor under legal obligation to review motu propio decisions of the Collector of Internal Revenue,


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Commissioner of Customs or the provincial or city Board of Assessment Appeals, unlike the defunct Board of Tax Appeals which was conferred that prerogative.

The issues are (1) whether the jurisdiction of the CTA to take cognizance of appeals from decisions of the Commissioner of Customs is only limited to cases involving disputed assessments and payment of duties and charges subject of detention and seizure proceedings in the BOC [YES] and (2) whether the Collector of Customs in his official capacity can institute an appeal from a decision of the Commissioner of Customs to the CTA even granting that the Collector was directed by the Secretary of Finance [NO].

(1) Sec 7 of RA No. 1125 provides that the CTA shall have exclusive jurisdiction to review by appeal decisions of the Commissioner of Customs in cases involving liability of customs duties, fees or other money charges; seizure, detention or release of property affected; fines, forfeitures, or other penalties in relation thereto or other matters arising under the Customs Law or other law or part of law administered by the Bureau of Customs. The last sentence comes after an enumeration of the class of cases cognizable by the CTA and by the doctrine of ejusdem generis, in order that the “other matters arising under Bureau of Customs” may come within the jurisdiction of the Court, they should involve liability for payment of money to the Government. The case at bar does not involve liability for customs duties, fees or other money charges; therefore the present case does not come within the appellate jurisdiction of the CTA. The proper remedy in this case, as there is no tax or pecuniary liability involved is through administrative means rather than in the judiciary, in accordance with the Customs Law.

(2) Sec 11 of RA No. 1125 provides an enumeration of those who may appeal from a decision or ruling of the Collector of Internal Revenue, the Commissioner of Customs or Board of Assessment Appeals. The right to appeal is allowed only to persons, associations or corporations adversely affected by the same, and applying the doctrine ofinclusion unius est exlusio alterius, the Government is certainly not one of them.

SOUTHERN CROSS CEMENT CORP v. CEMENT MANUFACTURERS ASSOC. OF THE PHILS ET AL. (2005) — Issue in this case is W/N the CA has jurisdiction over the special civil action for certiorari filed by Phil Cement Corp to appeal the DTI Secretary’s Decision disapproving the request to impose a safeguard measure (tariff) on Portland cement. Sec. 29 of RA.8800 or the Safeguard Measures Act (SMA) provides that: “Any interested party who is adversely affected by the ruling of the Secretary in connection with the imposition of a safeguard measure may file with the CTA a petition for review…” Respondents argue that the CTA’s jurisdiction is limited to issues regarding the imposition of a safeguard measure, and not to decisions of the DTI/Tarriff Commission not to impose a safeguard measure, as in this case. The Court ruled that the key phrase “in connection with” is broad enough to cover rulings, which modify, suspend, terminate a safeguard measure or even a ruling not to impose a safeguard measure. Even the US SC in similar cases has conceded that phrases such as “relate to” and “in connection with” may be extended to the farthest stretch of indeterminacy for, universally, relations or connections are infinite and stops nowhere. To provide more guidance, the US SC even resorted to looking at the statute and its objectives as an alternative to an “uncritical literalism.” It is held that there seems to be no sense in vesting jurisdiction on the CTA over a decision to impose a safeguard measure but not one choosing not to impose because in both cases, the common question for resolution is still an issue definitely fraught with some tax dimension. The determination of the question will call upon the same kind of expertise that a specialized body such as the CTA presumably possesses. Lastly, respondents’ claim that this case calls for a split jurisdiction or split review of the Decision must also fail seeing as there is no explicit expression of bifurcated (meaning separated/branched) appeals in Sec. 29 of the SMA.

*FYI Sec. 7, RA 1125 as amended or RA 9282 now provides: “Decisions of the Secretary of Trade and Industry… involving safeguard measures under RA 8800, where either party may appeal the decision to impose or not to impose said duties.” However, RA 9282 was promulgated in 2004 and cannot be given retroactive effect so the Court had to decide relying only on Sec. 29 of the SMA or RA 8800, promulgated in 2000.

OLLADA v. CTA (1956) — “no criminal jurisdiction; unfair competition not appealable to CTA” A case for mandamus was ALREADY pending in the CFI when R.A. 1125 created the CTA. Upon the order of the court, it issued an order remanding the case to the CTA. Ollada filed a motion before the CTA to return the case to the CFI because the case involves the issue of unfair competition and NOT a disputed assessment therefore


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CTA does not have jurisdiction. Respondents say that the question of unfair competition is but an incident of the main issue which is the authority of the Collector to approve any simplified set of bookkeeping records and that the matter arises under the NIRC so CTA has jurisdiction.

The question involved in the mandamus case does not cover any disputed assessment or refund of any internal revenue tax, fee, charge or penalty imposed in relation thereto. Rather, it involves unfair competition arising from the use of simplified set of bookkeeping records. It has nothing to do with any assessment or refund of any tax, fee or penalty. It cannot be pretended that for any violation of the Internal Revenue Law, Customs Law, or Assessment Law, the case may be appealed to the Court of Tax Appeals, for if such were the case, then the latter court would also have jurisdiction to review cases involving penal provisions such as those embodied in Title XI of the National Internal Revenue Code. Undoubtedly, such court does not have criminal jurisdiction.

Sec. 7 provides that the CTA has jurisdiction over “other matters arising under the NIRC or other law or part of law administered by the Bureau of Internal Revenue.” The court also used the principle of “ejusdem generis.” Anti-competition is not of the same kind as a disputed assessment or refund of any tax.

LACSONA LAND v. CIR (2000) — “taxpayer has option to wait for CIR’s decision” On 20 April 1998, Lacsona filed a protest against the CIR’s assessment of deficiency taxes for 1993. On 12 March 1999 (well beyond the 180-day period given to the CIR to render a decision, and the 30 days thereafter given to the taxpayer to appeal to the CTA, under Sec. 228), it received a letter from the CIR declaring that such assessment has become final & executory for failure to file an appeal with the CTA w/in 30 days after the lapse of the 180-day period for the CIR to render a decision. SC reversed the CA ruling, since taxpayers are given 2 options under Sec. 228 in case of inaction of the CIR on a protest: they can either a) file a petition for review w/ the CTA w/in 30 days after the expiration of the 180-day period, OR b) wait for the CIR to render a decision, and appeal to the CTA w/in 30 days from receipt of such decision. These are mutually exclusive, and resort to one bars application of the other. Thus, when Lacsona decided to wait for the CIR’s decision on its protest, and finally receipt of the decision on March 12, it filed timely filed the appeal on 12 April 1999.

RCBC v. CIR (2007) — “30 days after 180-day prescriptive period is jurisdictional” RCBC filed a protest to the CIR on 20 July 2001. Because the CIR did not act on the protest, it had until 16 April 2002 (w/in 30 days after the 180-day period for the CIR to decide on the case, which commenced on 18 Sept. 2011—RCBC’s deadline to file the necessary documents) to file an appeal with the CTA. However, it filed the appeal only on April 30. Thus, it filed beyond the prescriptive period, and as such, the CTA has no jurisdiction over the case in the first place. While the right to appeal the CIR’s decision to the CTA is merely a statutory remedy, the prescriptive period requirement is jurisdictional.

Also RCBC’s contention that this is excusable due to the negligence of its counsel cannot be given merit since for negligence to be excusable, it must be one which ordinary diligence & prudence could not have guarded against, and by reason of which, an aggrieved party’s rights have probably been impaired. In this case, counsel’s excuse that he failed to forward the necessary documents because his secretary wasn’t doing her work since he failed to renew her employment does not fall under excusable negligence.

CIR v. YUSECO and CTA (1961) — “CTA has no original jurisdiction to issue writs of prohibition” J. C. Yuseco did not file his income tax return so the BIR made the income tax return and assessed him for income taxes. The BIR then demanded payment. Yuseco requested for reinvestigation but it was denied. A warrant of distraint and levy was issued thereafter. So Yuseco, filed a petition for prohibition with the CTA. The CTA declared the warrant of distraint and levy as void and enjoined the CIR from collecting the taxes from Yuseco. The CIR argued that the taxpayer cannot bring in the CTA an independent special civil action for prohibition without taking to said Court an appealed decision or ruling of the CIR in the cases provided for in Sections 7 and 11 of R.A. No. 1125.

The writ of prohibition or injunction that the CTA may issue under the provisions of section 11, Republic Act No. 1125, to suspend the collection of taxes, is merely ancillary to and in furtherance of its appellate jurisdiction in the cases mentioned in section 7 of the Act. The power to issue the writ exists only in cases appealed to it. The intention of Congress was to vest the Court of Tax Appeals with jurisdiction to issue writs of


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prohibition and injunction only in aid of its appellate jurisdiction in cases appealed to it and not to clothe it with original jurisdiction to issue them. Taxes being the chief source of revenue for the Government to keep it running must be paid immediately and without delay.

COLLECTOR v. BATANGAS TRANS. CO (1958) — “joint mgmt. of 2 buses/ CIR reassesses even with perfected CTA appeal” After WWII, Batangas Transpo. And Laguna Bus decided to have a joint management and with this CIR initially assessed them with income tax deficiency of P 54, 143 for the said “partnership.” The 2 bus companies appealed before CTA but CIR, instead of filing his answer, set aside the original assessment and reassessed them to have a tax liability of P 148,890 explaining that the buses were erroneously credited in the last assessment. The issue now lies as to whether the CIR may still modify his assessment even after the appeal has been perfected with the CTA. In this case, the Supreme Court laid the ruling and doctrine that even with the appeal pending before the CTA, the Collector of Internal Revenue may still amend his assessment.

(further explanation) Justice Montemayor in this case presented the two arguments. In the first view, the CIR should no longer be allowed to change his assessment after perfection of appeal because the jurisdiction and control was automatically transferred to the CTA. Such allowance may also induce CIR to not exercise due care in the assessment since they can change it anytime. The Court however, ruled in favour of the second view and stated that allowing such reassessment is not prejudicial to the taxpayer since the CIR is allowed not only to increase but also decrease the tax liability. Allowing for changes in the appealed assessment prevents multiplicity of suit, since the CIR no longer has to file a separate subsequent assessment to collect additional sums. It held that thegovernment should not be bound by errors committed in the assessment by its agents especially if this was due to misinterpretation or application of tax laws in good faith.

(effect) Thus the CIR pending appeal in CTA may amend his assessment and include such amendment in his answer and the CTA may redetermine the assessment based on the evidence to be presented.

COMMISSIONER OF CUSTOMS v. GELMART INDUSTRIES PHIL. (2009) — Commissioner of Customs issued Warrants of Seizure and Detention and decreed the forfeiture of Gelmart’s shipments. CTA First Division reversed and ordered its release. Commissioner appealed to the SC. The SC is without jurisdiction. The CTA en banc has exclusive appellate jurisdiction relative to review of decisions or resolutions on motion for reconsideration or new trial of the CTA’s two divisions in cases arising from administrative agencies (like Bureau of Customs). Here, the procedure was not followed by the Commissioner and he offered no adequate explanation. Commissioner’s failure to file an MR of the assailed decision of the CTA First Division, or at least a petition for review with the CTA en banc, invoking the latter’s exclusive appellate jurisdiction to review decisions of the CTA divisions, rendered the assailed decision final and executory.

(NOTE: Decisions of administrative agencies are raised on petition for review to a CTA Division. A party can file an MR or MNT before the same CTA division. The resolution of the CTA division on the MR or MNT is raised to the CTA en banc.

COMMISSIONER OF CUSTOMS v. MARINA (2010) — “A motion of reconsideration or new trial must be filed with the CTA Division concerned before an appeal can be filed with the CTA en Banc.” Marina Sales Inc. (Marina) manufactures Sunquick juice concentrates being the manufacturing arm of CO-RO Food of Denmark. They import raw materials in the country for this purpose. In the past the Bureau of Customs (BOC) assessed them a 1% import duty rate. The Valuation and Classification Review Committee of the BOC reclassified their import to a 7% import duty rate. This was appealed to the Commissioner of Customs which was denied. Marina filed a petition for review before the CTA second division. CTA ruled in favor of Marina. Consequently, the Commissioner appealed to the CTA en Banc. CTA en banc denied the appeal of the Commissioner because he failed to file before the CTA 2nd division a motion for reconsideration before elevating to the CTA en banc. Commissioner appealed to the SC on a petition for review. The SC denied the petition based Rule 8 Sec 1 on the Revised Rule of the Court of Tax Appeal (Please see provision below). On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed to comply with the mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals requiring that “the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.” The rules are clear. Before the CTA En Banc could take cognizance of the petition for review


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concerning a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought prior reconsideration or moved for a new trial with the concerned CTA division.

Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule, to wit: SECTION 1. Review of Cases in the Court en banc. — In cases falling under the exclusive appellate jurisdiction of the Court en banc, the petition for review of a decision or resolution of the Court in Division must be preceded by the filing of a timely motion for reconsideration or new trial with the Division.

JUDY ANNE L. SANTOS v. BIR (2008) — CIR Parayno sent a letter to the DOJ recommending the criminal prosecution of Juday for filing a false and fraudulent return. Apparently, Juday only declared 8M as her earnings for 2002, when her true income is about 16M. This resulted to a tax deficiency of 1M+. State Prosecutor Torrevillas filed a criminal case against Juday in the CTA. Juday filed a motion to quash based on denial of due process and lack of authority of the State Prosecutor to file a case. The CTA First Division denied the motion to quash. Juday then filed a petition for review with the CTA en banc to appeal the denial of her motion to quash. CTA en banc denied the petition because the denial of the motion is an interlocutory order which, as a general rule, is not appealable.

The Supreme Court denied Juday’s petition. According to the SC the filing of a petition for review with the CTA en banc from a decision, resolution, or order of a CTA Division is a remedy newly made available in proceedings before the CTA, because prior to the amendment of the law creating the CTA, the CTA is not a collegial body. However, despite this new addition, the rule on petitions for review under the Rules of Court for other courts has long been followed by the CTA. And as we know, under the Rules only final orders are appealable. An interlocutory order is not appealable being merely provisional. However, in ordinary cases, there is a remedy for the denial of an interlocutory order – the filing of a special civil action for certiorari under Rule 65, in cases of grave abuse of discretion. But since Juday failed to raise the issue of whether the CTA, under its expanded jurisdiction, is granted jurisdiction over special civil actions for certiorari, the SC was precluded from making a pronouncement. The SC however may take cognizance of a SCA for Certiorari, so Juday was not left without recourse. The SC however said that there being no grave abuse of discretion in the denial of motion to quash, Juday’s petition must necessarily fail.

(Contention ni Juday sa motion to quash, denied daw siya ng equal protection kasi si REGINE VELASQUEZ di sinampahan ng kaso ng DOJ. Sabi ng SC uhm, syempre dapat yung defect nasa face ng information para iquash.)

ST. STEPHEN’S ASSOCIATION AND ST. STEPHEN’S CHINESE GIRLS SCHOOL v. CIR (1958) — ”period for appeal computed from the receipt of decision of the CIR on the disputed assessment” Petitioner St. Stephen’s Association turned over the amount of P9,252.48 to the St. Stephen’s Chinese Girls School, and the transfer of funds was entered in the ledger and cash book of the School as a “donation”. An examiner of the BIR reported the donation to the CIR and thereafter, sent petitioners an assessment notice (received November 12, 1954) demanding the payment for donor’s and donee’s gift taxes, surcharges and interests. Petitioners requested for cancellation and withdrawal of the assessment notice on the ground that the amount was erroneously entered by the bookkeeper as a donation, when the truth was that said amount was obtained by the Association by means of small contributions from the public and allocated to the School for its maintenance. CIR denied the request. Petitioners asked for reconsideration but were again denied on a letter dated July 11, 1955, which they received onJuly 25, 1955. A petition for review was filed before the CTA on August 13, 1955. The Court held that the petition was NOT filed within the thirty-day period prescribed in Section 11 of R.A. No. 1125 because 37 days had already elapsed (based on a computation of the running and tolling of the period for appeal). It further held that the period for petitioners’ appeal started to run from their receipt of the assessment notice in question. Hence, the CTA dismissed the case for lack of jurisdiction.

Where a taxpayer questions an assessment and asks the CIR to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a “disputed assessment” that the CIR must decide, and the taxpayer can appeal to the CTA only upon receipt of the decision of the CIR on the disputed assessment, in accordance with paragraph (1) of section 7, R.A. No. 1125. The period for appeal must be computed from the time petitioners received the decision of the respondent CIR on the disputed assessment,


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and not from the time they received said assessment. It is evident that respondent CIR considered the July 11, 1955 letter as its final decision in the case, hence the warning in the last paragraph that the same would become final in thirty days unless petitioners appealed to the CTA within the same period. Petitioners having filed their appeal on the 19th day from the receipt of this decision, their appeal was filed on time and the CTA erred in dismissing the same for lack of jurisdiction.

BAGUIO COUNTRY CLUB v. CIR and CA (1959) — (This is the exact case, just one paragraph) Petition to review a resolution of the Court of Tax Appeals dismissing petitioner’s appeal. The appeal must be sustained. Interpreting Section 11 of Republic Act No. 1125 in the case of St. Stephen’s Association, et al. vs. Collector of Internal Revenue (104 Phil 314), this Court declared that “where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a ‘disputed assessment’ that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment.” In the case at bar, the assessment became a “disputed assessment that the Collector must decide” when petitioner questioned it validity and asked for its reconsideration and that he could appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector. Petitioner received the decision of the Collector denying its request for reconsideration on June 21, 1956. It follows that its appeal taken on July 7, 1956 was well within the time prescribed by the statute. Resolution reversed. Reyes, A. J., ponente.

ROMAN CATHOLIC ARCHBISHOP OF CEBU v. CIR (1962) — “period to appeal counted from the date of receipt of the denial of MR by the CIR” The Archbishop filed the 1955 and 1956 income tax returns (ITRs) of the Archdiocese on Feb. 21, 1956 and Feb. 18, 1957, respectively. The CIR disallowed the depreciation expenses; hence, deficiency income taxes were determined on the ITRs dated July 15, 1956 and March 30, 1957, respectively. Then, the Archbishop submitted 3 motions of requests for the reconsideration of the 2 Tax Assessments. The first he submitted to the Regional Director, and it was denied on July 18, 1957; the second was on August 18, 1957, addressed to the CIR, and was denied on November 5, 1957, in a letter received by the Archbishop on November 21, 1957; and the third request was made on November 23, 1957, and again denied on January 20, 1958, modified to the Archbishop on February 1, 1958. All motions for reconsideration by the Archbishop were premised on the same grounds, allowing the depreciation expenses. The appeal to the Tax Court was filed only on February 19, 1958. By these successive motions for reconsideration, the Archbishop delayed the review of his case by the Tax Court for nearly two years. The decision by the CIR dated November 5, 1957, denying the second request for reconsideration of the assessment, was certainly reviewable by the Court of Tax Appeals. Hence, the 30-day appeal period should be counted from November 21, 1957, when the taxpayer received copy of the CIR’s ruling. The running of the period was not interrupted by the filing of the third request for reconsideration, because the latter did not advance new grounds not previously alleged, and was, therefore, merely pro forma. Therefore, petitioner's petition for review should have been lodged with the Tax Court not later than December 21, 1957, but it was actually filed only on February 1, 1958.

PANTRANCO v. BLAQUERA (1960) — (failure to file request w/n 30days) – The Collector assessed Pantranco with a documentary stamp tax deficiency w/ compromise penalty worth P74k. Pantranco requested for a reinvestigation but was denied and was afterwards assessed a lower amount (P66k). Because of the change in the amount, Pantranco requested a clarification. The Collector then wrote him a letter enclosing therewith a letter dated Sept. 1954. This was received on Nov. 20, 1954. Pantranco sought a reconsideration of the modified assessement on Dec. 2, 1954.

Considering that the ruling or decision of the Collector of September 1954 had been received by Pantranco on November 20, the Court held that the 30-day period began to run on November 20; that it was interrupted by the petition for reconsideration filed December 3, 1954; and that such interruption ended on June 11, 1955, when denial of the reconsideration was received by Pantranco; and finding that the petition had thus been presented on the 34th day after receipt of the Collector’s definite assessment, (November 20 to December 3-13 days; June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.


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The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to contest within thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals, or to any other court. The period of thirty days is jurisdictional and non-extensible.

BASA v. REPUBLIC (1985) — For failure to report in full his capital gains income for the sale of land, Basa was assessed a deficiency tax assessment for the year 1957 to 1960. A demand letter was sent in Aug 31, 1967. The Commissioner sent a letter-decision dated Dec. 6, 1974. Since Basa did not contest the assessment the decision had become final and executory and a suit was filed in the CFI for collection. CFI ruled against Basa. The trial court affirmed the assessment. Instead of appealing to the SC, Basa filed an appeal with the CA and failed to file it within the reglementary period. CFI dismissed the appeal. Basa then filed a special action for certiorari with the SC.

Issue: 1. W/N trial court acted within its jurisdiction?

2. W/N the action has prescribed?

Held: 1. YES. The trial court acted within its jurisdiction in rendering its decision and dismissing Basa’s appeal. He should have appealed the decision with the SC. Since he failed to do so the decision became final and executory and has no cause of action for certiorari. If he wanted to contest the assessment, he should have done so with the Court of Tax Appeals. He may not contest the same with the CFI.

2. NO, the issue of prescription is baseless. The assessment was based on the fact his income tax was if not fraudulent were false because he misdeclared his income. Therefore, a deficiency assessment may be made within 10 years from discovery of the fraud. Court action should be instituted within 5 years after but this period was suspended during the time the commissioner is prohibited from instituting court action. As explained in the Solicitor General's memorandum, Basa's requests for reinvestigation tolled the prescriptive period of five years within which court action may be instituted. Moreover, the issue of prescription should also have been raised in the Tax Court.

MAMBULAO LUMBER v. CIR (1984) — “Power to collect forest charges rests on the BIR, not with the Bureau of Forestry” On August 29, 1958, the Acting CIR assessed petitioner Mambulao for deficiency sales tax, forest charges and surcharges. Petitioner requested for reinvestigation of its tax liability. The CIR, in its reply, gave Petitioner a period of 20 days from the receipt thereof to submit the results of its verification of payments with a warning that failure to comply therewith would be construed as an abandonment of the request for reinvestigation. Mambulao failed to comply despite repeated demands. CIR filed a complaint for collection on August 25, 1961. Petitioner appealed to the CA, which affirmed the decision. An MR was filed but was denied. Petitioner argues that counting from January 15, 1949 when the Bureau of Forestry made an assessment and demand for payment of forest charges and surcharges in 1949, up to the filing of the complaint for collection, more than 5 years had elapsed.

Forest charges are internal revenue taxes and the sole power and duty to collect the same is lodged with the Bureau of Internal Revenue and not with the Bureau of Forestry. The computation and/or assessment of forest charges made by the Bureau of Forestry may or may not be adopted by the CIR and such computation made by the Bureau of Forestry is not appealable to the CTA. In the present case, the commencement of the five-year prescriptive period should be counted from August 29, 1958, the date of the letter of demand of the CIR to Mambulao. The complaint for collection was filed on August 25, 1961, well within the prescriptive period. Furthermore, it is not disputed that when Petitioner requested for reinvestigation, it failed to submit the results of its verification payments which was construed as abandonment of its request. Neither did it appeal to the CTA within 30 days from receipt of the letter dated July 8, 1959, thus making the assessment final and executory.

REPUBLIC v. CA (1987) — In a demand letter dated July 16, 1955, the CIR assessed Nielson & Co. deficiency taxes. CIR reiterated its demand for payment per letters dated (1) April 29, 1956, (2) Sept. 19, 1956, and (3) February 9, 1960. Nielson did not contest the assessment in the CTA. On the theory that the assessment had become final and executory, the CIR filed a complaint for collection against Nielson. However, there was a failure to serve summons so the complaint was dismissed WITHOUT prejudice. The complaint was refilled but the same was


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erroneously docketed as the same case previously dismissed. Without correcting this error, another complaint was filed, the subject matter of this appeal.

Issue: 1. W/N the letter of assessment dated July 16, 1955 was received by Nielson in the ordinary course of mail

2. Assuming that the letter dated July 16, 1955 was not considered an assessment, on the theory that the same had not been received, W/N the letter dated Sept. 19, 1956 is itself an assessment which was duly received by Nielson.

Held: 1. NO. While the contention of the CIR is that a mailed letter is deemed received by the addressee in the ordinary course of mail, still this is merely a disputable presumption, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee.

2. YES. The follow-up letter dated Sept. 19, 1956 reiterating its demand for the payment of taxes as originally demanded in the CIR’s letter dated July 16, 1955 is considered a notice of assessment in itself which was duly received by Nielson in accordance with its own admission.

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 in due 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 defense that would reopen the question of its liability on the merits.

COLLECTOR v. CTA (1960) — October 31, 1955, demand was made by the Collector of Internal Revenue against Thompson Shirts Factory for the payment of deficiency tax. On March 15, 1956, taxpayer asked for reinvestigation .This was done, and on March 21, 1957, a revised demand. This demand was received by the taxpayer on April 9, 1957, and on April 15, 1957, a request for reinvestigation was again made. On April 17, 1957, the CIR denied the request for reinvestigation. This denial was received by the taxpayer on April 21, 1957, and on May 14, 1957 he instituted the action in the Court of Tax Appeals.

The taxpayer’s second request for reinvestigation suspended the prescriptive period. The petition for reinvestigation is not pro-forma even if tested by the Rules of Court, because specific grounds are mentioned in said petition for reinvestigation, namely, lack of opportunity of taxpayer to be assisted by counsel in the investigation, and the findings are not in accordance with the facts and the evidence in the case. The rule against pro-forma motions should be not very strictly applied in tax cases before the Court of Tax Appeals, for the reason that the Rules of Court is only supplementory in character before said Court. Besides, in actions for certiorari filed before courts of justice, a motion for reconsideration should first be presented before a writ of certiorari may be invoked. Lastly, the need of exhausting all administrative remedies before resort to the courts is made, demands that the motion for reconsideration be filed. The final and definitive assessment was made in the letter of the Collector on March 21, 1957. After that definite demand, only one motion for reconsideration was made, and that is made in the letter of the taxpayer dated April 15, 1957. This motion even, if coached in general terms, serves the purpose of preparing the case for petition for review, as above indicated.

CIR v. ALGUE, INC. (1988) — "exception to Warrant of Distraint and Levy as proof of the finality of the assessment which renders hopeless request for reconsideration" January 14, 1965, Algue received a letter assessing them P83,183.85 delinquency income taxes for 1958 and 1959. January 18, 1965, Algue filed a letter of protest or request for reconsideration, stamp received the same day. March 12, 1965, a warrant of distraint and levy was presented to Algue through its counsel, Atty. Guevara, who refused to receive it due to the pending protest, for which no positive act was shown to have been made, no copy could even be found in the dockets. Atty. Guevara gave a photostat of it to the BIR. April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. April 23, 1965, Algue filed a petition for review with the CTA. ISSUE is w/n the appeal to the CTA was filed on time and the Court ruled in the affirmative. Since the protest was not pro-forma, meaning it had strong legal considerations, it effectively tolled the reglementary period for an appeal to the CTA (30days from receipt of decision). [Jan. 14 receipt of assessment--(4 days)--Jan. 18 protest --period tolled-- April 7 denial of


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protest, thus period started running again to April 23 (appeal to CTA). 4 days + 16 days, = 20 days lang] It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine.

CIR v. CENTRAL AZUCARERA DON PEDRO (1973) — On May 22, 1963 it filed an application with the Board of Industries for tax exemption and then informed the CIR of the approval of its application for tax exemption and claimed a tax credit for the entire amount of P294,705.00 which it had paid. In a letter dated May 12, 1966 the CIR informed the Central that he was allowing a tax credit of only P246,403.00 and disallowing the sum of P48,302.00 on the ground that the claim for tax credit with respect thereto was filed only on July 22, 1965, or more than (2) years after it was paid, and therefore under Sec. 309 of the Tax Code the right to recover the same had already prescribed. The court held that the granting of a tax exemption to an applicant engaged in a basic industry retroacts to the date of the filing of application for exemption. If it is the grant of exemption by the Board of Industries that gives rise to the right to file a claim for tax credit or tax refund with the Commissioner of Internal Revenue. In fine, when the tax sought to be refunded is illegally or erroneously collected, the period of prescription starts from the date the tax was paid; but when the tax is legally collected, the prescriptive period commences to run from the date of occurrence of the supervening cause which gave rise to the right of refund. Thus, it had not prescribed yet.

CIR v. PNB (2005) — In early April 1991, PNB issued to the BIR a check for P180,000,000.00. The check represented PNB’s advance income tax payment for the bank’s 1991 operations and was remitted in response to then President Corazon C. Aquino’s call to generate more revenues for national development. By the end of CY 1991, PNB’s annual income tax liability, per its 1992 annual income tax return, amounted to P144,253,229.78, which, when compared to its claimed total credits and tax payments of P217,552,122.38 [which includes the P180M], resulted to a credit balance in its favor in the amount of P73,298,892.60.8 This credit balance was carried-over to cover tax liability for the years 1992 to 1996, but, as PNB alleged, was never applied owing to the bank’s negative tax position for the said inclusive years, having incurred losses during the 4-year period. CIR ruled that the claim in question is time-barred, the bank having filed such claim only in 1997, or more than two (2) years from 1992 when the overpayment of annual income tax for 1991 was realized by the bank and the amount of excess payment ascertained with the filing of its final 1991 income tax return.

Section 230 [now Section 229] of the Tax Code, as couched, particularly its statute of limitations component, is, in context, intended to apply to suits for the recovery of internal revenue taxes or sums erroneously, excessively, illegally or wrongfully collected.

Black defines the term erroneous or illegal tax as one levied without statutory authority. In the strict legal viewpoint, therefore, PNB’s claim for tax credit did not proceed from, or is a consequence of overpayment of tax erroneously or illegally collected.

We therefore hold that the tax credit sought by PNB is not simply a case of excess payment, but rather for the application of the balance of advance income tax payment for subsequent taxable years after failure or impossibility to make such application or carry over the preceding four (4)-year period when no tax liability was incurred by petitioner due to losses in its operations. It is truly inequitable to strictly impose the two (2)-year prescriptive period as to legally bar any request for such tax credit certificate considering the special circumstances under which the advance income tax payment was made and the unexpected event (four years of business losses) which prevented such application or carry over.

SANTIAGO BERMEJO v. COLLECTOR (1950) — “file for claim of refund first before resorting to courts” Bermejo was assessed P1,083.75 for the sale of nipa shingles and charcoal. He objected to the assessment, contending that the products were agricultural, thus free from taxation. Later on he proposed to pay the tax by installments, without prejudice to whatever action he may take on the matter, which was granted. After paying the first installment, he sued for recovery of sum of money. CIR’s answer maintained the validity of the assessment and levy, and before the trial, moved for the dismissal of the complaint on the ground that the Bermejo had not complied with the provisions of section of the Internal Revenue Law 306 (now Sec 229 of NIRC), since he did not file a claim with the collector for the refund of the amount he had delivered before filing a case in court. The


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law clearly stipulates that after paying the tax, the citizen must submit a claim for refund before resorting to the courts. The reason behind this is first, to afford the collector an opportunity to correct the action of subordinate officers; and second, to notify the Government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure. Previous objections to the tax may not take the place of the claim for refund, because it could be said that in paying, the tax payer has finally come to realize the validity of assessment.

ANDREA VDA. DE AGUINALDO v. CIR (1965) — Spouses Aguinaldo received cash dividends (P10,000) from Aguinaldo Brothers, Inc. They did not declare this in their 1952 joint income tax. Instead, they declared P5,000 in their 1953 income tax. The BIR discovered this and Spouses Aguinaldo readjusted the returns. It resulted to a deficiency income tax (P3,840) and an overpayment tax (P1,600). However, the CIR assessed the deficiency tax but did not credit the overpayment. CIR said that the overpayment cannot be credited because the claim for tax credit was filed beyond the two-year period. The Court held that Spouses Aguinaldo paid income tax for 1953 on August 14, 1954, even though the adjustment took place on August 29, 1955. The claim for tax credit was filed on January 13, 1958. It was clearly filed beyond the two-year period. Such period is a condition precedent and non-compliance precludes the CIR from exercising their authority.

MERALCO v. CIR (2006) (CTA CASE) — “Claim for refund must be filed within two years from erroneous payment” MERALCO obtained two loans in the amount of $120 Million and $1 Million respectively from Norddeutsche Landesbank Gironzentrale, Singapore Branch (NLG Bank). MERALCO discovered that NLG was a foreign government-owned financing institution under the Federal Republic of Germany. Hence, MERALCO filed a request before the BIR law division to determine whether or not NLG was tax exempt under the NIRC. Pending determination, MERALCO continued to remit to the BIR the 10% withholding tax on its interest payments to NLG. BIR thereafter issued a ruling on October 7, 2003, declaring interest payments made in favor of NLG as tax exempt. This prompted MERALCO to file a claim for refund or issuance of a tax credit certificate covering the amounts erroneously remitted to the BIR.

The claim was filed beyond the 2-year prescriptive period. Under the NIRC, it is clear that a claim for refund must be filed within 2 years from the payment of the tax or penalty, regardless of any supervening cause. Non-compliance with this condition bars recovery. In this case, prescriptive period started to run from the date of payment, not from the issuance of the BIR ruling cited above as petitioner MERALCO believes. Since the claim for refund filed by MERALCO covers payments made both within and beyond the coverage of such 2-year period, its claim for refund must bepartially granted. The claim for refund concerning payments made covering the period of January 1999 to July 2002 must be denied on the ground of prescription. However, its claim for refund concerning payments after such period must be granted.


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E. Payment Under Protest Not Needed

RAMIE TEXTILES, INC. v. MATHAY (1979) — Ramie paid its taxes for machineries from 1959- 1964. On May 19, 1967, Ramie filed a claim for refund since the machineries were exempt from tax, which the Provincial Treaurer denied. The question at issue, therefore, is whether or not protest is a condition precedent or a sine qua non requirement for the recover of real estate taxes paid under the erroneous belief that the, claimant was liable therefor, and if so, what is the prescriptive period. The Court ruled that protest is not a requirement in order that a taxpayer who paid under a mistaken belief that it is required by law, may claim for a refund. In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of the fact that it was exempted from payment of the realty tax under Commonwealth Act No. 470. Payment was made through error or mistake, in the honest belief that petitioner was liable, and therefore could not have been made under protest, but with complete voluntariness. In any case, a taxpayer should not be held to suffer loss by his good intention to comply with what he believes is his legal obligation, where such obligation does not really exist. Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti the claim for refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the New Civil Code. As already stated the claim for refund must be made within six (6) years from date of payment. Since petitioner demanded the refund of real estate taxes mistakenly paid only on May 23, 1967, it can recover only those paid during the period from October 31, 1961 to September 9, 1965 or a total amount of P61,007.33. Petitioner has, by reason of the six (6) years prescriptive period, lost its right to recover the amount of P17,033.84 paid during the period from July 24, 1959 to March 27,1961.

F. Utilization of Tax Credit Certificate; Meaning of Tax Debit Memo


3. ...


PILIPINAS SHELL PETROLEUM CORP v. CIR -- PSPC paid part of its excise tax liabilities with TCCs which it validly purchased. BIR sent a collection to PSPC for alleged deficiency excise tax liabilities claiming that the TCCs that were used were fraudulently acquired thus, may not be used to pay taxes. PSPC now avers that its statutory and procedural right to due process was violated in the issuance of the assessment because the procedures delineated in the statutory provisos and RR 12-99 were not followed by respondent. Respondent ignored RR 12-99 and did not issue PSPC a notice for informal conference and a preliminary assessment notice, as required. Respondent merely relied on the findings of the Center which did not give PSPC ample opportunity to air its side. PSPC’s motion for reconsideration of the purported Center findings and cancellation of the subject TCCs and the TDM was not even acted upon. Because of this defect, the assessment of respondent for deficiency excise taxes against petitioner was canceled and declared without force and effect for lack of legal basis.

Revenue Memorandum Order No. 86-98 SUBJECT: Payment of National Internal Revenue Taxes in the Form of Tax Credit Certificate (TCC), Under Certain Conditions, Pursuant to Section 204 of the Tax Code of 1997



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SEC. 1. Scope. — This Order is issued to ensure a uniform compliance with the pertinent provisions of Section 204 of the Tax Code of 1997, as follows:

A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate revenue officer for verification and cancellation: Provided, further That in no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.

SEC. 2. Coverage. — All concerned are hereby enjoined to strictly implement the above provisions of law, as follows:

1. TCC issued prior to January 1, 1998. — A TCC duly issued under the provisions of the National Internal Revenue Code prior to January 1, 1998 shall not be accepted in payment of the taxpayer's internal revenue tax liabilities, unless the same has been duly revalidated pursuant to the provisions of Section 230 of the said Code, as implemented by Revenue Regulations No. 7-98, dated July 9, 1998.

2. TCC issued beginning January 1, 1998. — A TCC duly issued under the provisions of the National Internal Revenue Code beginning January 1, 1998 may be used by its grantee in payment of his internal revenue taxes, except his withholding tax liability.

3. Kinds of internal revenue taxes against which a TCC may be applied in payment; Exception. — Subject to the provisions of the preceding paragraphs, any TCC duly issued by the Commissioner of Internal Revenue, or his duly authorized representative, under the provisions of the National Internal Revenue Code may be used by its grantee in payment of his internal revenue taxes, such as income taxes, estate and donor's taxes, value-added tax, percentage taxes, excise taxes and documentary stamp taxes, except his withholding tax liability.

4. Meaning of a TCC "issued under the provisions of the Code"; Exception. — (a) This term is limited only to any TCC issued under the pertinent provisions of the National Internal Revenue Code, such as, but not limited to, a TCC duly issued by the Commissioner of Internal Revenue, or his duly authorized representative, for taxes erroneously paid by or illegally collected from the taxpayer, excess credit for creditable income taxes withheld from income derived, or a TCC duly issued to a VAT-registered taxpayer on account of his transactions subject to zero percent (0%) value-added tax. (b) Exception. — The term "issued under the provisions of the Code" does not include any TCC issued pursuant to the provisions of any law, other than the National Internal Revenue Code, such as a TCC issued pursuant to the provisions of the Omnibus Investments Code, the Tariff and Customs Code, or other general or special law.

5. TCC issued pursuant to the provisions of any law other than the NIRC . — Any TCC duly issued pursuant to the provisions of any law, other than the National Internal Revenue Code, may only be used, subject to the limitations of the law and regulations under which the same has been issued.

5.1 TCC issued by the Bureau of Customs. — Any TCC issued by the Commissioner of Customs, or his duly authorized representative, pursuant to Section 106 of the Tariff and Customs Code , as Duty Drawbacks, may only be used in payment of the grantee's liability to the Bureau of Customs for duties, charges and taxes on his importation, the provisions of Section 12(a) of the NIRC notwithstanding. It may not be used in payment of his internal revenue tax liabilities directly payable to the Bureau of Internal Revenue.

5.2 TCC issued under the Omnibus Investments Code. — A TCC issued by the Board of Investments, or its duly authorized representative, pursuant to the provisions of the Omnibus Investments Code , as amended, may only be used for the purposes for which the same has been issued to the grantee, in accordance with the provisions of the Omnibus Investments Code and its implementing rules and regulations. Any TCC issued jointly by the Board of Investments (BOI) and the Bureau of Internal Revenue (BIR), pursuant to the provisions of the Omnibus Investments Code and its implementing rules and regulations, may be used by the grantee or his qualified transferee, in payment of the


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grantee/transferee's internal revenue taxes, except his withholding tax liabilities: Provided, however, That any TCC issued jointly by the Board of Investments (BOI) and the Bureau of Customs (BOC), pursuant to the provisions of the Omnibus Investments Code and its implementing rules and regulations, shall not be used in payment of the grantee/transferee's liability for any internal revenue tax directly payable to the BIR, the provisions of Section 12(a) of the NIRC notwithstanding, hence, the same may only be used in payment of customs duties, charges and taxes on his importation, directly payable to the Bureau of Customs.

SEC. 3. Sanction. — Strict compliance herewith is enjoined. Any violation of this Order shall be subject to disciplinary action and shall be dealt with accordingly.

SEC. 4. Effectivity. — This Order shall take effect immediately.

Revenue Regulation No. 05-2000 SUBJECT: Prescribing the Regulations Governing the Manner of the Issuance of Tax Credit Certificates, and the Conditions for their Use, Revalidation and Transfer


Pursuant to Section 244 in relation to Sections 76 , 112 , 130 , 135, 204 and 230 all of the Tax Code of 1997, these Regulations are hereby promulgated to prescribe the rules governing the issuance of BIR-issued Tax Credit Certificates (TCCs), and the conditions for their use, conversion, revalidation and transfer.

SEC. 1. Definition of Terms. —

A. Tax Credit — For purposes of these Regulations, the term "tax credit" shall refer to the amount due to a taxpayer resulting from an overpayment of a tax liability or erroneous payment of a tax due.

B. Tax Credit Certificate — means a certification, duly issued to the taxpayer named therein, by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled a tax credit, the money value of which may be used in payment or in satisfaction of any of his internal revenue tax liability (except those excluded), or may be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any, as may be prescribed by the provisions of these Regulations.

C. Tax Debit Memo — means a certification, duly issued by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the taxpayer named therein has duly paid his internal revenue tax liability in the form of and through the use of a Tax Credit Certificate, duly issued and existing in accordance with the provisions of these Regulations. The Tax Debit Memo shall serve as the official receipt from the BIR evidencing a taxpayer's payment or satisfaction of his tax obligation. The amount shown therein shall be charged against and deducted from the credit balance of the aforesaid Tax Credit Certificate.

D. Direct Internal Revenue Tax Liability — shall refer to taxes for which the taxpayer is made statutorily liable. In essence, "direct internal revenue tax liability" pertains to the liability of a person mandated by law to file the tax return and pay the tax due thereon.

SEC. 2. Sources of Tax Credit. — A tax credit is being granted for the following:

(a) At the option of the taxpayer, excess quarterly income taxes paid reflected in the final adjustment return.

(b) At the option of the taxpayer, overwithholding at source of income taxes to the extent that the amount of such overpayment was not deducted or applied against income tax due.

(c) Input taxes as follows:

i. Attributed to zero-rated sales made by VAT-registered taxpayer including export sales by a VAT-registered exporter;


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ii. Attributed to effectively zero-rated sales made by VAT-registered taxpayer; and

iii. On capital goods imported or locally-purchased by a VAT-registered taxable person.

(d) Unused input taxes resulting from cancellation of VAT registration due to retirement from or cessation of business, or due to changes in or cessation of status as a VAT taxable taxpayer under Section 106(C) of the Tax Code.

(e) Excise taxes paid on:

i. Petroleum products sold to tax-exempt entities and international carriers;

ii. Goods locally produced or manufactured and actually exported without returning to the Philippines;

(f) Taxes erroneously or illegally paid or penalties imposed without authority.

Any taxpayer who is erroneously registered as a VAT person will not be covered by paragraphs (c) and (d) of this Section.

In no case shall a tax refund or tax credit certificate be given resulting from availment of incentives granted pursuant to special laws for which no actual tax payment was made.

SEC. 3. Uses of Tax Credit Certificate. — Whenever a Tax Credit Certificate (TCC) is issued to a taxpayer to acknowledge the existence of a valid tax credit, such Tax Credit Certificate may be used by the grantee or his assignee in the payment of his direct internal revenue tax liability, such as income tax; documentary stamp tax, excise tax, value added tax, percentage tax and other internal revenue taxes. However, in no case shall the TCC be used in payment of the following:

(a) Payment or remittance for any kind of withholding tax.

(b) Payment arising from the availment of tax amnesty declared under a legislative enactment.

(c) Payment of deposits on withdrawal of exciseable articles.

(d) Payment of taxes not administered or collected by the Bureau of Internal Revenue.

(e) Payment of compromise penalty.

SEC. 4. Assignment or Transfer. —

(a) Transferability of TCC. — Taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. Consequently, BIR-issued TCCs may be transferred in favor of an assignee subject only to the following conditions:

i. The transfer must be with prior approval of the Commissioner or his duly authorized representative who shall verify whether or not the TCC sought to be transferred is still valid in the hands of the original holder;

ii. The transfer should be limited to one transfer only.

iii. The transferee shall use the TCC assigned to him strictly in payment of his direct internal revenue tax liability and in no case shall the same be available for conversion to cash in his hands.

(b) Assignment Procedures. — The transfer or assignment of a TCC from the original holder to his or its assignee shall be subject to the following procedures:

i. The TCC sought to be assigned or transferred shall be presented before the Commissioner or his duly authorized representative for verification. If found to be valid and still with creditable balance, the TCC shall be marked "Valid for Transfer", countersigned by the said officer.

ii. Upon execution of the Deed of Assignment, the transferor shall present the same, together with the original copy of the TCC.

iii. The original copy of the TCC shall still be cancelled even if only a portion of its face value is transferred or assigned, in which case, new TCC(s) shall be issued representing the respective portions pertaining to the transferee(s) and/or the balance remaining for the account of the transferor.


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iv. Any TCC issued in favor of the transferee or assignee shall by valid for five (5) years, but subject to the following conditions which must be annotated therein, as follows:

1. Not valid for further transfer;

2. Not valid for cash conversion.

SEC. 5. Period of Validity, Conversion and Revalidation. —

(a) Validity Period. — Any Tax Credit Certificate (TCC) issued in accordance with the pertinent provision of the Tax Code of 1997 which remains unutilized after five (5) years from date of issue shall, unless revalidated before the end of the fifth year, be considered invalid and shall not be allowed for use in payment of any of the taxpayer's internal revenue tax liability nor allowed to be transferred and the unutilized amount thereof shall revert to the General Fund of the National Government.

The revalidated TCC shall be valid for a period of five years from the date of issue.

(b) Conversion Period. — Any request for conversion into cash refund of unutilized tax credits may be allowed during the validity period of the TCC. Provided, however, that the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the Asst. Commissioner, Collection Service or other duly authorized Revenue Officer for verification and cancellation. Provided, further, that a refund check or treasury warrant issued in accordance with the pertinent provisions of the Tax Code of 1997, which shall remain uncashed or unclaimed within five (5) years from the date of issue, mailing or delivery, whichever comes later, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund.

(c) Revalidation Period. — In general, a TCC may be revalidated prior to the expiration of its validity period. Provided, however, that any TCC issued prior to January 1, 1998 in which the grantee's holding period therefor as of said date is less than five (5) years counted from date of issue, may be submitted for revalidation by the holder within six (6) months prior to the end of the fifth (5th) year. For example, a TCC issued on December 31, 1997 shall be presented for revalidation within the six-month period prior to expiration, i.e., from July 1 to December 31, 2002.

(d) Procedure for Revalidation. — The revalidation of any TCC validly issued and subsisting in accordance with the provisions of law and Regulations shall be initiated by the filing of an application therefor with the Collection Service or other duly authorized Office of the Bureau of Internal Revenue.

The revalidation shall be accomplished through the issuance of a new TCC, reflecting its unutilized amount or creditable balance. Provided, however, that no revalidated TCC shall be issued unless the Commissioner's duly authorized representative has certified that the applicant taxpayer has no outstanding tax liability. If the holder has any outstanding tax liability, said liability shall be applied first against the TCC sought to be revalidated through the issuance of a Tax Debit Memo (TDM). CacISA

For this purpose, the term "outstanding tax liability" shall refer to an assessment that is already final and executory.

SEC. 6. Repealing Clause. — Revenue Regulations No. 7-98 and any other revenue issuance inconsistent with these Regulations are hereby repealed, amended or modified accordingly.

SEC. 7. Effectivity. — These Regulations shall take effect fifteen (15) days from publication in any newspaper of general circulation.

BIR Ruling No. 164-98, Nov. 23, 1998 E.O. 226-000-00-165-98 Petron Corporation 7901 Makati Avenue 1200 Makati City

Attention: Mr. Fredesuende G. Ong


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Vice-President-Finance

Gentlemen:

This refers to your letter dated July 31, 1997 addressed to the Honorable Antonio P. Belicena, Undersecretary, Department of Finance, Central Bank Bldg., Roxas Blvd., Manila which was referred to this Office for comment and recommendation, relative to the Tax Credit Certificates (TCC) assigned by some of your customers to you in payment of their fuel purchases.

It is represented that the assignment of the TCCs is duly approved by the Department of Finance (DOF) through the issuance of Tax Debit Memos (TDM); that to comply with the requirements for the application of the assigned TCC against your payment of specific taxes to the Bureau of Internal Revenue (BIR), you still need to request for another TDM from the Collections Programs Division of the BIR; that on July 23, 1997 when you requested for TDM from the BIR for some of the assigned TCCs previously approved by the DOF, you were advised by the Assistant Chief of the Collections Programs Division of the BIR, that it could not approve the application of the assigned TCCs against your tax payment to the BIR for lack of legal basis; and that you were advised that to qualify for assignment, the product being sold by you to the assignor/customer must be raw material component of the finished product of the assignor/customer.

In connection therewith, you are requesting clarification of the stand taken by the Assistant Chief of the Collection Programs Division of the BIR to the effect that they can not approve the application of the assigned TCCs against your payment to the BIR for lack of legal basis.

In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office held that —

In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of Investments to implement P.D. 1789 and B.P. Blg. 391 stating:

Rule IX — Transferability of Tax Credit Certificate

Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital equipment purchased, withholding tax on interest, raw materials used in the manufactured export products shall be issued by the Minister of Finance or his representative upon recommendation of the Board. Said certificate may be transferred only to another registered enterprise in accordance with the Memorandum of Agreement between the Ministry of Finance and the Board of Investments dated October 5, 1982.

Tax credit certificates on net local content and on net value earned shall be issued by the Chairman of the Board or his representative and may be transferred only to domestic producers of the raw material and/or component suppliers and may require compliance with local content for such raw material/component.

the tax credit certificates issued by the Board of Investments is limited to one transfer by the grantee to its domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you can be the transferee and user of such certificate, you are not allowed to transfer the same to your own supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor component of your finished product.

Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit Certificate and, in effect, to allow Petron to use the same as payment of its tax liability is hereby denied for lack of legal basis.

Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in accordance with Executive Order No. 226 otherwise known as the Omnibus Investments Act of 1987 to some of your customers can not be transferred to you in payment of their fuel purchases and in turn can not be used by you in payment of your tax liabilities.

Very truly yours,

(SGD.) BEETHOVEN L. RUALO


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Commissioner of Internal Revenue

BIR Ruling No. 165-98, Nov. 23, 1998 Pilipinas Shell Petroleum Corporation Shell House, 156 Valero St. Salcedo Village, Makati City

Attention: Mr. P.R. Cruz General Manager Treasury and Taxation

Gentlemen:

This refers to your letter dated July 31, 1997 to the Honorable Antonio P. Belicena, Undersecretary of Finance, Department of Finance Central Bank Bldg., Roxas Blvd., Manila, which was referred to this Office for comment and recommendation relative to the transferability of Tax Credit Certificates (TCC) issued by the One-Stop Shop Tax Credit and Duty Drawback Center to BOI registered firms pursuant to Executive Order No. 226 otherwise known as Omnibus Investments Code of 1987.

It is represented that the TCCs transferred to you by some of your customers in payment of their fuel purchases and in turn being used by you in payment of your tax liabilities is being questioned by Atty. Estrella V. Martinez, Assistant Chief, Collections Programs Division of the BIR, since it is in violations of BIR Ruling No. 181-94 dated December 14, 1994.

In reply thereto, please be informed that in BIR Ruling No. 181-94 dated December 14, 1994, this Office ruled as follows:

In reply, please be informed that under Rule IX of the Rules and Regulations issued by the Board of Investments to implement P.D. 1789 and B.P. Blg. 391 stating:

Rule IX — Transferability of Tax Credit Certificate

Tax Credit Certificates issued for taxes and duties that would have been paid on domestic capital equipment purchased, withholding tax on interest, raw materials used in the manufactured export products shall be issued by the Minister of Finance or his representative upon recommendation of the Board. Said certificate may be transferred only to another registered enterprise in accordance with the Memorandum of Agreement between the Ministry of Finance and the Board of Investments dated October 5, 1982.

Tax credit certificates on net local content and on net value earned shall be issued by the Chairman of the Board or his representative and may be transferred only to domestic producers of the raw material and/or component suppliers and may require compliance with local content for such raw material/component.

the tax credit certificate issued by the Board of Investments is limited to one transfer by the grantee to its domestic suppliers of raw materials and/or components who are likewise BOI-registered; thus, while you can be the transferee and user of such certificate, you are not allowed to transfer the same to your own supplier, much less to Petron for your purchases of bunker fuel which is neither a raw material nor component of your finished product.

Accordingly, your request for a ruling on the unrestricted transferability and use of BOI-issued Tax Credit Certificate and in effect, to allow Petron to use the same as payment of its tax liability is hereby denied for lack of legal basis.

Such being the case, the TCC being issued by the One-Stop Shop Interagency Tax Credit and Duty Drawback Center in accordance with Executive Order No. 226 otherwise known as the Omnibus Investment Act of 1987 to some of your customers can not be transferred to you in payment of the fuel purchases and in turn can not be used by you in payment of your tax liabilities.


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Very truly yours,

(SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue

BIR Ruling No. 113-99, July 29, 1999 Luzon Hydro Corporation 6th Floor Legaspi Building 110 Legaspi Street 1229 Makati City

Attention: Mr. Jose Maria Fernandez

Gentlemen:

This refers to your letter dated June 30, 1999 stating that Luzon Hydro Corporation (Luzon Hydro) was granted by this Office a tax credit based on the unutilized input taxes reflected in its VAT returns; that such unutilized input taxes are booked as receivables and not as part of the cost of corporate asset; that this grant was by virtue, among others, of BIR Ruling No. DA-248-A-99 dated April 23, 1999; that since the corporation's hydro electric plant is still in the process of construction, Luzon Hydro will not be able to utilize the tax credit until may be after two years from completion of construction of the hydro electric plant; and that since Luzon Hydro needs cash for its construction, it executed four Deeds of Assignment of the tax credit granted to it in favor of its four (4) affiliates and sister companies which advanced to Luzon Hydro the value of the tax credit assigned to each of such sister companies and affiliates.

Based on the foregoing, you request for a ruling on the following:

1. Whether the four (4) deeds of assignment are subject to documentary stamp tax and if it is subject, may we know how much;

2. Whether Luzon is liable to pay income tax as a result of the grant to it of tax credit;

3. Whether the assignees who be the present holders of the tax credit certificates i.e. Davao Light & Power Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development Corporation are liable for income tax upon the issuance to them of the tax credit certificates.

In reply, please be informed that assignments of tax credit certificates are not one among those expressly subjected to documentary stamp tax under Title VII of the Tax Code of 1997. However, the notarial acknowledgment to said deed of assignment is subject to the documentary stamp tax of P15.00 only pursuant to Section 188 of the Tax Code of 1997 (BIR Ruling No. DA-437-98 dated September 25, 1998)

On the other hand, Luzon Hydro is not liable to pay income tax as a result of the grant to it of tax credit since VAT which is the source of such tax credit is not eligible as a deduction from gross income under Section 34(C) of the Tax Code of 1997 and it has not been actually utilized as a deduction since it partakes the nature of an excess input.

In like manner, the assignees who are the present holders of the tax credit certificates namely: Davao Light & Power Company, Inc., Northern Mini Hydro Corporation, Pilmico Foods Corporation, and Hydro Electric Development Corporation are not liable for income tax upon the issuance to them of the tax credit certificates since they have only accommodated their affiliate or sister company by advancing the value of the tax credit assigned to each of them.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void.

BIR Ruling No. 192-99, Dec. 6, 1999 Catindig Tiongco & Nibungco Law Office 4th Floor, JMT Corporate Condominium ADB Avenue, Ortigas Center 1600 Pasig City


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Attention: Atty. Henry S. Rojas

Gentlemen:

This refers to your letter dated September 10, 1999 requesting, in effect, for a ruling on the assignability of BIR-issued Tax Credit Certificates on behalf of your clients, PHILEX MINING CORPORATION and PHILEX GOLD PHILIPPINES, INC.

It is represented, among others, that Philex Mining Corporation (Philex) is engaged in the sale of gold and in the export of mineral products which entitled it to the benefit of "zero-rating" for VAT purposes; that in the course of your business operations, you have accumulated a number of Tax Credit Certificates representing the amount of input taxes which you have claimed as a refund from the government; that these TCCs are supposed to represent a valid obligation of the government and should be available either for the payment of all internal revenue taxes (except withholding tax) or for cash refund; that however, you find yourselves unable to avail of the benefits of these TCCs on account of the dire conditions of your business; that you have been continuously posting negative financial results since 1997 such that you find no situation wherein you can apply your TCCs in the payment of taxes; that to ease your financial burden and support your operations, you have tried to convert these TCCs into cash refund but this proved unavailing as the government is always short of funds for cash refunds; that in the meantime, you are being required by law to first shoulder your input tax liabilities in the process of purchasing goods and services for your operations, leading to further accumulation of tax credits and perennially causing added burden to your already precarious position.

It is therefore your suggestion that since both options currently available to you, i.e., use of TCCs in payment of taxes and/or cash refund of TCCs from the BIR, prove unavailing, you now propose a third option, that is, the transfer of these TCCs to other taxpayers. Finally, you submit that out of the process, an ideal situation could therefore ensue, i.e., there will be no cash outlay at all from the government and you, in turn, could realize the effective reimbursement in money's worth of your unutilized TCCs.

In reply, please be advised that insofar as BIR-issued TCCs are concerned, there is no provision under the Tax Code of 1997 expressly prohibiting the transfer or assignment of duly-issued BIR TCCs. Under the Code, a Tax Credit Certificate may be validly issued for amounts representing erroneously paid taxes; excess quarterly individual or corporate income taxes paid; illegally collected taxes; VAT on Zero-rated or Effectively Zero-rated Sales; input taxes paid on capital goods imported or locally purchased; and for unused input taxes due to retirement from or cessation of business or cessation of status of a Vat-registered person. In all instances, a BIR-issued TCC presupposes the existence of a previously paid tax arising out of the normal application of the provisions of the Tax Code. In contrast to a BOI-issued Tax Credit Certificate which is in the nature of a tax incentive granted by special laws to the grantee, such TCC is transferable only under certain conditions (Article 71, Omnibus Investments Code, as implemented by Rule VII of the Rules and Regulations of E.O 226).

Verily, taxpayers with TCCs issued by the BIR in their name hold the same in the concept of an owner. In BIR Ruling No. 098-95 dated June 27, 1995, this Office had an occasion to state that "(I)n the event of the issuance of tax credit certificate, the taxpayer as the owner thereof, has the exclusive right to enjoy and dispose of the certificate according to its wishes. These powers are necessarily an attribute of the taxpayer's ownership of said certificate. The free enjoyment and disposition of said certificate can only be subject to the limitations imposed by law. (Articles 427 and 428, New Civil Code of the Philippines)" As previously stated, there are no express, much less implied, limitations imposed by law on the transfer of TCCs issued under the Tax Code. On the contrary, the law specifically allows the conversion of unutilized tax credits into cash refund within five (5) years from date of issue (Sections 204 and 230, NIRC). If the taxpayer can ultimately dispose the cash proceeds of his TCCs in any manner he chooses, we see no cogent reason why the source of such proceeds should be treated differently. At any rate, the conversion into cash refund or the transfer of the TCC to another yields the same result, without any revenue loss or prejudice to the government.

In view of the foregoing, this Office is of the opinion, and so holds, that a TCC validly issued pursuant to the Tax Code of 1997 can be transferred or assigned by the owner provided, of course, that the TCC sought to be transferred must not have expired and remains valid in the hands of the original holder pursuant to the provisions of Section 230 of the Code.


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Finding that copies of the TCCs sought to be transferred by your client, PHILEX MINING CORPORATION, i.e., TCC Nos. 007755, 007994 and 014883 are valid and with creditable balances, this Office interposes no objection to their assignment.

This ruling is being issued on the basis of the foregoing facts. if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void.

G. Forfeiture of Refund or Tax Credit

SEC. 230. Forfeiture of Cash Refund and of Tax Credit. —

(A) Forfeiture of Refund. — A refund check or warrant issued in accordance with the pertinent provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to the general fund.cralaw

(B) Forfeiture of Tax Credit. — A tax credit certificate issued in accordance with the pertinent provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general fund.

(C) Transitory Provision. — For purposes of the preceding Subsection, a tax credit certificate issued by the Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has a creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly authorized representative or on before June 30, 1998.

H. Offsetting Against Deficiency Tax Assessments

CIR v. CEBU PORTLAND CEMENT COMPANY (1987) — “offsetting of refund against deficiency tax assessments” The CIR was ordered to refund Cebu Portland the amount of P359,408.98 representing overpayments of ad valorem taxes on cement produced and sold by it. When Cebu Portland moved for a writ of execution, the CIR opposed on the ground that the refund should be charged against an outstanding sales tax liability of Cebu Portland. Cebu Portland claims that the alleged sales tax liability could not as yet be enforced since the assessment is not yet final, the same still being under protest. Held: Cebu Portland’s argument loses sight of the urgency of the need to collect taxes as “the lifeblood of the government.” If the payment of taxes could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed. Sec. 291 of the Tax Code provides: “No court shall have authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.” To require the CIR to refund to Cebu Portland the amount of the judgment debt which the former will later have the right to distrain for payment of the latter’s sales tax liability is an idle ritual.

BPI SECURITIES CORP v. CIR (2002) — The principle that taxes are not subject to set-off or legal compensation must govern, especially in this case where the taxes and the taxpayer's claim are not fully liquidated, due and demandable. Petitioner BPI filed their first quarterly income tax return for 1997 before BPI-makati in the amount of 6,313,761.62. Subsequently, it filed its second quarter return amounting to 6,548,928.21 and since it already paid 6,313,761.62 it only paid the balance amounting to 235, 166.59. For its third quarter return it declared a net income loss of 762,555.36 for the quarter. For the first three quarters of the year, petitioner had already earned a total taxable income of 16,948,668.10, with the tax due thereon amounting to P5,932,033 .84. In its FINAL income tax return it reflected a taxable income in the amount of 17,569,560.00. Hence, the total tax due for the year amounted to P6, 149,346.00 only. Thus, it overpaid in the amount of 399,582.21 which petitioner opted to apply as tax credit for the taxable year of 1998. For its annual tax return for 1998, however petitioner filed a net income loss with nil tax liability. So petitioner again indicated in the return its intention to carry over the same to the next taxable year. However for 1999 it again incurred a net income loss with nil tax liability. In 2000, petitioner filed with the BIR a written claim for refund. In its answer however, BIR stating, among others that


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Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption from taxation and as such, they are looked upon with disfavour. Petitioner provided for documents in the form of its Corporate Quarterly Income Tax Returns and Bank Deposit slips for the years in question. BIR interposed a recommendation by its revenue officer denying petitioner's claim for refund and at the same time recommending the issuance of a preliminary assessment notice in the total sum of P20,758,189.91. The issues presented were w/n the petitioner made an overpayment and that if so, was it not able to utilize the tax credit for the succeeding year. The court answered yes in both issues citing Sec.60 of the NIRC. (However, this is not what the subheading in the case list is about). In discussing further as regards to the claim of the revenue officer for the deficiency assessment, that due to its deficiency income tax, it cannot be credited the refund, the court held that the said report "cannot serve as an obstacle to the grant of the instant claim for refund because petitioner's alleged tax deficiencies for the taxable year 1997 is not the issue presented before Us in this petition for review. It appears that the memorandum report has not yet ripened into a formal assessment duly approved by the Regional Director or by the Commissioner of Internal Revenue. Thus, the same can proceed independently of the claim for refund and its merits or demerits may be determined in separate proceedings as provided for in the Tax Code. The principle that taxes are not subject to set-off or legal compensation must govern, especially in this case where the taxes and the taxpayer's claim are not fully liquidated, due and demandable.

A. SORIANO CORP v. CIR (1998) — Petitioner filed a judicial action for refund of P 5.7 M representing overpayment of income tax resulting from an excess payment of creditable withholding tax for 1993&1994. This was because in 1994, petitioner had a zero income tax liability due to its operation losses but had a refundable of P5M arising from a prior year’s excess credit of P1.6 M and the 1993 creditable withholding tax at source of P 3.3 M. Despite choosing to carry over its ’93 creditable withholding tax, it continued to suffer net losses. As a result, its application of its 1993 overpayment against anticipated income tax liability in 1994 became nugatory. On Dec. 1, 1995 petitioner filed a letter claim for refund with the BIR. Due to the CIR’s inaction, petitioner filed a petition for review on Apr. 12, 1996 to conform to the reglementary period of 2 yrs as prescribed in the Tax Code for claim of refund. As special and affirmative defenses, respondent alleged that petitioner’s claim for refund is pending administrative investigation and not properly documented.

The Court held that the overpayment of income tax should be refunded. The petitioner’s claim for refund was filed within 2 yrs from payment of the tax; the income upon which the creditable withholding taxes were paid were included in its final adjustment returns, and that the creditable withholding taxes were duly supported by Certificates of Creditable Withholding Tax at source. The objection of the respondent that the claim for refund should be denied on the basis of a memorandum report submitted by its Revenue Officer which recommended a proposed deficiency assessment for income tax, VAT, expanded withholding tax, withholding tax on salaries, among others holds no water. The court cannot tackle such an issue without the actual formal assessment issued by the respondent. To deny the instant claim for refund on the basis of a “proposed assessment” will cause an injustice to the taxpayer because assessments usually pass through specific administrative processes where the remedy of protest is made available to said taxpayer.”

REPUBLIC OF THE PHILIPPINES v. MAMBULAO (1962) — The only issue to be resolved in this appeal is whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37 due from it as forest charges.

Appellant maintains that the principle of a compensation in Article 1278 of the new Civil Code 2 is applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. On this point, the trial court correctly observed

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an


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action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on.

The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion.

FNCB FINANCE v. CIR (1993) — Investors’ Finance Corp filed an amended return to reflect creditable income taxes. It then filed a claim for tax credit to the BIR. According to the BIR, there was deficiency taxes due which the BIR automatically set-off against the amount claimed as excess creditable income tax. The result was that Investors’ Finance Corp even had deficiency tax due. The CTA held that the BIR cannot be allowed to apply the tax credit claimed against the alleged deficiency tax when no assessment has been made. It cannot automatically set-off alleged deficiency tax against a claim for tax credit.

PHILEX MINING CORP. v. CIR (1999) — Philex Mining Corp. (Philex) filed a claim for refund with the Commissioner of Internal Revenue (CIR) for P623,169.30, representing 25% percent of the specific taxes paid. Pending CIR action, Philex filed a case for tax refund with the CTA. The CTA granted Philex’s claim, but only to the extent of P16,747.36. The Court of Appeals affirmed the decision of the CTA. On appeal to the SC, Philex contends that tax refund under R.A. 1435 must be computed on the basis of the increased rates actually paid under the 1977 NIRC and not on the specific tax deemed paid under Section 1 and 2 of the law. In addition to this, Philex claims they are entitled to 20% interest. The Court ruled that since the partial refund authorized R.A. 1435 is in the nature of a tax exemption, it must be construed strictissimi juris against the grantee. There is no expression of a legislative will authorizing a refund based on the higher rates claimed by Philex. When the law itself does not explicitly provide that a refund under R.A. 1435 may be based on higher rates which were non-existent at the time of its enactment, the Court cannot presume otherwise. As to the 20% interest per annum claimed by Philex, the same cannot be granted even if a refund is approved. The rule is that no interest on refund of tax can be awarded unless authorized by law or the collection of the tax was attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration where there is room for two opinions, however much it may be believed that an erroneous conclusion was reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. None of the exceptions are present in the case.

BIR Ruling No. 359-93, Aug. 26, 1993 King, Capuchino, Tan & Associates 2nd Floor, Belman II Bldg. Quezon Ave. corner Cordillera St. Quezon City

Attention: Atty. Bayani L. Chua

This refers to your letter dated July 6, 1993 requesting that Tax Credit Certificate bearing Serial Numbers 001876 and 001877 in the respective amounts of P602,244.37 and P1,234,526.85 issued by this Office in favor of your client, Maricalum Mining Corporation (MMC) be applied to the other tax liabilities of MMC specifically its excise tax liability which will fall due on July 20, 1993 and not to deficiency assessments involving the amounts of P7,756,577.81, P868,425.77, P3,900,339.77 and P3,692,644.58 under Assessment Notice Nos. FAS-1-88-93-000574, 1-89-93-00575, 1-88-92-000561 and 1-88-92-000562 on the ground that said deficiency assessments are not yet final since the same are being contested and/or protested by MMC.


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In reply thereto, please be informed that your request is hereby granted. Pursuant to Section 229 of the Tax Code, as amended. An assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable. If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision; otherwise, the decision shall become final, executory and demandable. Since your protest on the aforementioned deficiency assessments was timely filed, i.e., within the thirty (30) day period from your receipt of the assessments, the assessments have not as yet become final, executory and demandable.

Such being the case, and while the said Tax Credit Certificates bear the notation that the same shall be applied first in (partial) payment of the deficiency assessments involving the amounts of P7,756,577.81, P868,425.77, P3,900,339.77 and P3,692,644.58 under Assessment Notice Nos. FAS 1-88-92-000574, 1-89-92-000575, 1-88-92-000561 and 1-88-92-000562, nevertheless, such assessments have been protested and therefore, not yet final, executory, and demandable. Accordingly, said Tax Credit Certificates bearing Serial Numbers 001876 and 001877 in the respective amounts of P602,244.37 and P1,234,526.85 can be applied by MMC to the payment of its other tax liabilities like excise taxes due from it this July, or subsequent period.

I. Whether Government is Liable for Interest, Attorney’s Fees, Etc.

CIR v. SWEENEY (1959) — “The National Government cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or authorizing such payment” Petitioners Sweeney, et al. were past presidents of the International Club of Iloilo, Inc. The Club maintained and operated a clubhouse with a bar wherein liquor and light refreshments were sold exclusively to members and their guests. The CIR demanded from the Club payment of fixed and percentage taxes (~Php3,000) for the operation of a bar. The Club paid the taxes under protest and thereafter filed a written claim for refund. However, the CIR did not act on the claim, causing petitioners Sweeney, et al. to take the case to the CTA. The CTA ruled in favor of petitioners Sweeney and the Club, holding that they were not liable for the taxes because they were not operating the bar for profit. Therefore, the CTA ordered the CIR to refund the taxes paid, with interest. The SC agreed that the CIR must refund the taxes paid, but disallowed the payment of interest on such refund. The National Government cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or authorizing such payment, and no such law has been cited by the petitioners.

VICTORIAS MILLING CO., INC. v. COMMISSIONER (1967) — The Court of Tax Appeals declared Victorias Milling as exempt from payment of advance sales tax on its importations of ready-made cloth sugar bags and materials for conversion into sugar containers, and ordering the CIR to refund to Victorias the sum of P66,949.79, without interest. Victorias Milling appealed the CTA's decision arguing that the refund of the protested sales tax collected by the revenue authorities should have been ordered with payment of interest, for the reason that the Commissioner of Internal Revenue was guilty of arbitrariness, because of its flip-flopping ruling on the exemption from sales tax the bags and materials imported by Victorias Milling. The Court ruled that the mere fact of the reversal of a ruling previously rendered is not per se evidence of arbitrariness, neither is the fact that the administrative ruling is found by the courts not in accordance with law. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions, which, the Court found does not exist.

J. Proper Party to File a Claim for Refund or Tax Credit

CIR v. WANDER PHILIPPINES (1988) — “withholding agent has the right to file the claim for refund.” Wander Phil. Is a domestic corporation. It is a wholly-owned subsidiary of Glaro, a Swiss Corporation not engaged in trade in the Phil. Wander remitted some dividends to Glaro and paid a 35% withholding tax. The following year, Wander filed with BIR a claim for refund and/or tax credit contending it was only liable to pay 15%. CIR maintains and argues that it is Glaro the tax payer, and not Wander, the remitter or payor of the dividend income and a mere withholding agent for and in behalf of the Philippine Government, which should be legally entitled to receive the refund if any. SC ruled that said corporation is first and foremost a wholly owned subsidiary of Glaro. The fact that it became a withholding agent of the government which was not by choice but by compulsion under Section


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53 (b) of the Tax Code, cannot by any stretch of the imagination be considered as an abdication of its responsibility to its mother company. Thus, this Court construing Section 53 (b) of the Internal Revenue Code held that "the obligation imposed thereunder upon the withholding agent is compulsory." It is a device to insure the collection by the Philippine Government of taxes on incomes, derived from sources in the Philippines, by aliens who are outside the taxing jurisdiction of this Court. In fact, Wander may be assessed for deficiency withholding tax at source, plus penalties consisting of surcharge and interest (Section 54, NLRC). Therefore, as the Philippine counterpart, Wander is the proper entity who should for the refund or credit of overpaid withholding tax on dividends paid or remitted by Glaro.

CIR v. PROCTER & GAMBLE (1988) — Procter and Gamble Phils (P&G-Phils) is a wholly owned subsidiary of Procter and Gamble, U.S.A.(P&G-USA). As such, P&G-U.S.A. is the sole shareholder or stockholder of P&G-Phil. P&G-Phil also has a legal personality separate and distinct from P&G-U.S.A. For 1974 and 1975, P&G-Phil. filed its income tax return and also declared dividends in favor of P&G-USA. In 1977, P&G-Phil. invoking the tax-sparing credit provision in Section 24(b) as the withholding agent of the Philippine government with respect to the dividend taxes paid by P&G-U.S.A., filed a claim with the CIR for the refund of the 20%portion of the 35% whole tax paid.

The Court ruled that P&G-Phil is not the proper party to claim the refund. The submission of the CIR that P&G-Phil. is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged over paid taxes is completely meritorious. The real party in interest being the mother corporation in the United States, it follows that P&G-USA is the real party in interest, and should have been the claimant in this case. P&G-USA must prove that it is entitled under the US tax code equivalent to at least 20% waived or deemed paid by the government.

CIR v. PROCTER & GAMBLE PHIL. (1991) — “taxpayer/ refund allowed”. P&G Phils. filed for a claim of refund or tax credit for excess taxes withheld for dividends declared to its sole stockholder P&G USA (35% ang nawithheld niya, dapat 15% lang as per Sec. 24B). No responsive action was taken by the CIR, thus a petition for review was filed to the CTA. The CTA ordered the CIR to grant the tax credit, but the CIR appealed by alleging the incapacity to claim of P&G Phils (dapat daw P&G USA). Refund must be granted. The term “taxpayer” found in Sec. 309 (3) is applicable to P&G Phils. Sec. 53(c) provides that the withholding agent who is “required to deduct and withhold any tax” is “made personally liable for such tax”. Therefore, P&G is directly and independently liable for the correct amount of tax, and authorized to file the claim for refund and recovery. Nothing precludes the BIR from requiring P&G Phils. to provide proof of authority, given by P&G USA, to collect refund and forward back the proceeds or apply such refunds to Philippine tax duties of P&G USA, before payment of refund or issuance of a tax credit certificate.

CHINA BANKING CORP. v. CIR (1993) — “The withholding agent has capacity to file a suit on behalf of the taxpayer”. Petitioner China Bank issued several promissory notes/commercial papers in the primary market as money market placements. After the issuance, it paid the required 35% transaction tax due on the total interests. However, before the maturity dates, the money market placements were withdrawn in full and were preterminated so the total interests paid was reduced. Thus, the transaction tax due should only be based on the reduced amount. Since petitioner has already paid the tax previously, it argues that there was an overpayment. Hence, the claim for refund. The issue is whether or not the petitioner bank has personality in bringing the present suit for being a mere withholding agent and not the taxpayer. The Court ruled that the 35% transaction tax is an income tax on interest earnings to the lenders or placers. And these lenders or placers the actual taxpayers and not the petitioner; it is only a withholding agent. In the recent case of CIR v. Procter & Gamble Philippine Manufacturing Corporation, it was ruled that a withholding agent has capacity to file a suit on behalf of the taxpayers. Under the NIRC, a “taxpayer” is any person subject to tax. Section 53c of the NIRC defines a withholding agent as one who is “required to deduct and withhold any tax” and is made “personally liable for such tax”. A “person liable for tax” has been held to be a “person subject to tax” and is properly considered a “taxpayer”. Thus, such person should be regarded as a party-in-interest or as a person having sufficient legal interest to bring a suit for refund of taxes. The withholding agent is constituted as the agent of both the Government and the taxpayer.


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SILKAIR (SINGAPORE) PTE. LTD. v. CIR (2008) — “jet fuel, true tax payer is the proper party to file a refund” SilkAir, a Singaporean Airline Company, which has a representative office in the Philippines, files for a refund of excise tax from the BIR. This excise tax arose from their transactions with Petron Corporation for jet fuel. They claim that the tax paid by them is exempted under Sec 135 of the NIRC and Art. 4(b) of the Air Transport Agreement between Singapore and the Philippines. These laws give tax exemptions to SilkAir (not necessary for our topic). The CIR denied the petition for refund on the ground that SilkAir is not the proper party to file such petition.

It has been held that the proper party to file such refund is Petron Corporation, which is the true taxpayer in the transaction. The amount of excise tax was only shifted to SilkAir upon the sale, but they do not have the burden of paying such. Under Sec. 130 of the NIRC, the manufacturer is the one liable for excise tax. The amount that was passed onto SilkAir is not longer serves as a tax liability, but only an additional cost for their transaction.

PHILIPPINE GEOTHERMAL, INC. v. CIR (2005) — “Government has to restore to taxpayer the sums representing erroneous payment” To avoid tax deficiency, Geothermal Inc. remitted VAT of the fees received from NPC (around Php 39.3 M.) It then filed an administrative claim for refund with BIR alleging that the sale of steam to NPC is a VAT exempt transaction according to FIRB Reso. 17-87 in pursuant to EO 93. Both the BIR and CTA confirm the VAT exemption. The CTA however ruled that instead of Php 39.3M, Geothermal Inc. should only be refunded with Php 9.01 M or the amount not included in the payment or reimbursement made by NPC to Geothermal. The SC disagreed with CTA and held that the government has to restore Geothermal the sum it erroneously paid (Php 39.3 M). Thus the amount of refund should have been based on the VAT Returns filed by the taxpayer (Geothermal Inc.) The issue as to whether this was already reimbursed by NPC is no longer the concern of the CTA. The latter issue should only be between Geothermal and NPC. The Court held that for indirect taxes like VAT the proper party to question or seek a refund of the tax is the statutory taxpayer and who paid the same even when he shifts the burden thereof to another. In this case, Geothermal has the legal personality to apply for refund since it is the one who made the erroneous VAT payment and who will suffer financially by paying in good faith what it had believed to be its potential liability.

K. Taxes Not Subject of Set-Off

FRANCIA v. IAC (1988) — Francia owned a piece of land, a part of which was expropriated, and payment of Php4,116 was deposited with PNB. Subsequently, it was discovered that Francia had failed to pay the real estate taxes on the land since 1963 totaling Php2,400, so his property was sold at public auction. Francia was not present at the auction, and Fernandez was the highest bidder. When Francia learned of this through the TCT registration of Fernandez, he filed a complaint to annul the auction sale, one of his contentions being that his deficiency taxes should have been set-off/compensated from the expropriation payment.

However, the SC ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. Internal revenue taxes cannot be the subject of compensation because the government and the taxpayer are not mutual creditors and debtors of each other and the claim for taxes is not a debt, demand, contract, or judgment as is allowed to be set-off.

[There were other reasons for ruling against Francia, such as: the deposit for just compensation was already his and should have been withdrawn and used to pay the deficiency; real estate tax was for local government, while expropriation was for national government; etc.]

CALTEX v. COA (1992)

Facts: The Oil Price Stabilization Fund was created for the purpose of minimizing frequent price changes brought about by exchange rate adjustments. Oil Companies will be reimbursed for cost increase and possible cost underrecovery incurred due to reduction of domestic prices.


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COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an early release of its reimbursement certificates which the latter denied. Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offsetting remittances and reimbursements for the current and ensuing years.

Caltex questions the decisions of COA for disallowing the offsetting of its claims for reimbursement with its due OPSF remittance.

Issue: W/N the amounts due from Caltex to the OPSF may be offsetted against Caltex’ outstanding claims from said funds.

Held: NO. It is explicitly provided that the source of OPSF is taxation. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set off.

There is no merit in Caltex’s contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state.

The oil industry is greatly imbued with public interest as it vitally affects the general welfare.

MARCOS II v. CA (1997)

Facts: Following the death of former President Marcos in 1989, investigations were conducted on his and his family’s tax liabilities and it was found that the Marcoses failed to file a written notice of death of the decedent estate tax return and income tax returns for the years 1982 to 1986. The CIR thereby caused the preparation of the estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments and the corresponding deficiency income tax assessments. The deficiency tax assessments were not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by Marcoses. These lands were forfeited in favor of the government because there were no bidders during the auction sale.

Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul the notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA dismissed, holding that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by summary remedy of levying upon the real property.

Issue: Whether or not the proper avenue of assessment and collection was taken by the BIR.

Held: Apart from failing to file the required estate tax return within the time required for filing the same, petitioner and other Marcos heirs never questioned the assessment served upon them, allowing the same to lapse into finality, and prompting the BIR to collect said taxes by levying upon the properties left by the late President Marcos. The deficiency tax assessment, having become final, executory and demandable, the same can now be collected through the summary remedy of distraint and levy.

BPI-FAMILY SAVINGS BANK, INC. v. CA (2000) — “business losses / no tax liability / tax credit cannot be applied / refund” - BPI indicated in its 1989 ITR that it would apply the total refundable amount (inclusive of 1988 and 1989 tax credit) as tax credit for the succeeding taxable year: 1990. BPI later informed the BIR it would be claiming the amount stated as the 1989 tax credit as a tax refund, alleging it did not apply the total refundable amount to its 1990 ITR due to alleged business losses it occurred during that year. CTA and CA said there should be no refund because BPI failed to show it has not credited to its 1990 ITR the total refundable amount it previously declared to be applied as a tax credit in 1990.


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BPI had excess withholding tax for 1989 and was thus entitled to a refund. The Return clearly showed that BPI suffered a net loss in 1990. BPI could not have applied the amounts as a tax credit, as it occurred no tax liability. Rules of procedure should not be ignored to defeat the attainment of justice. If a taxpayer suffered a net loss in a subsequent year, incurring no tax liability to which a previous year’s tax credit could be applied, there is no reason for the BIR to withhold the tax refund which rightfully belongs to the taxpayer.

PHILEX MINING CORP. v. CIR (1998) — BIR sent a letter to Philex asking it to settle its tax liabilities. Philex protested the demand for payment of stating that it has pending claims for VAT input credit/refund. Therefore, these claims for tax credit/refund should be applied against the tax liabilities. In reply, the BIR, found no merit in Philex’s position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place.

Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of tax cannot await the results of a lawsuit against the government.

CIR v. CITYTRUST BANKING CORPORATION (2006) — Except for a pending issue in another CTA proceeding, Citytrust considered all its deficiency tax liabilities for 1984 fully settled, hence, it prayed that it be granted a refund. The CIR interposed his objection, however, alleging that Citytrust still had unpaid deficiency income, business and withholding taxes for the year 1985. Due to these deficiency assessments, the CIR insisted that Citytrust was not entitled to any tax refund.

On October 16, 1997, the CTA set aside the CIR’s objections and granted the refund.

Before us in this petition for review on certiorari, the CIR contends that respondent is not entitled to the refund of P13,314,506.14 as alleged overpaid income taxes for 1984 and 1985. The CIR claims that the CA erred in not holding that payment by Citytrust of its deficiency income tax was an admission of its tax liability and, therefore, a bar to its entitlement to a refund of income tax for the same taxable year. In resolving this case, the CTA did not allow a set-off or legal compensation of the taxes involved. The CTA complied with the Court’s order to conduct further proceedings for the reception of the CIR’s evidence in CTA Case No. 4099. In the course thereof, Citytrust paid the assessed deficiencies to remove all administrative impediments to its claim for refund. But the CIR considered this payment as an admission of a tax liability which was inconsistent with Citytrust’s claim for refund. There is indeed a contradiction between a claim for refund and the assessment of deficiency tax. The CA pointed out that the case was remanded to the CTA for the reception of additional evidence precisely to resolve the apparent contradiction.Because of the CTA’s recognized expertise in taxation, its findings are not ordinarily subject to review specially where there is no showing of grave error or abuse on its part.

BIR Ruling No. 415-93, Oct. 15, 1993 The Honorable Undersecretary Tomas I. Alcantara Department of Trade and Industry 385 Sen. Gil Puyat Avenue Makati, Metro Manila

This refers to your request for confirmation and/or issuance of guidelines for the automatic offsetting of claims for VAT input tax by mining companies against their excise tax liabilities.

I reply, I regret to inform you that the same cannot be granted for lack of legal basis. Any claim for tax credit or refund of alleged excess input tax by a VAT registered taxpayer pursuant to Sections 104 and 106 both of the Tax Code, as amended by E.O. 273, shall be subject to verification by this Office pursuant to existing rules and regulations. Accordingly, until after the amount claimed as input taxes attributable to goods exported, or on sales which are zero-rated or effectively zero-rated or input tax paid on capital goods imported or locally purchased, to the extent that such input


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taxes have not been applied against output taxes, have been finally determined to be legally due to the taxpayer, and a tax credit certificate issued therefor, no automatic offsetting of the amount claimed as input tax against the tax liability of the taxpayer can be allowed.

However, a Tax Credit Certificate duly issued by this Office shall, upon proper application, be allowed to be used in payment of excise and other tax liabilities of taxpayers, like the mining companies.

L. Solutio Indebiti as Basis of Tax Refund/Credit

CIR v. ACESITE (PHILIPPINES) HOTEL CORPORATION (2007) — Acesite owns Holiday Inn and leases a portion of its premises to PAGCOR for casino operations. Acesite incurred VAT from its rental income and sale of food and beverages to PAGCOR. It tried to shift the taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. PAGCOR refused to pay the said taxes on account of its tax exempt status. Hence, Acesite paid the VAT. Belatedly, Acesite realized that its transaction with PAGCOR was subject to zero rate as it is considered a tax-exempt entity. Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Hence, Acesite filed a petition with the CTA. CTA ordered the CIR to refund the amounts paid. CA affirmed the CTA decision and further said that PAGCOR was exempt from both direct and indirect taxes, such as VAT. PAGCOR’s tax exemption covers the indirect tax of VAT, under PD 1869, the charter creating PAGCOR. This exemption is also extended to entities or individuals dealing with PAGCOR. It must be noted that the indirect tax of VAT can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, the law is exempting PAGCOR from being liable for indirect taxes. PAGCOR’s exemption also falls within the purview of Section 102(b)(3) of the NIRC (Followings services performed by VAT-registered persons shall be subject to 0% - Services rendered to persons or entities whose exemption under special laws). Verily, Acesite has clearly shown that it paid the taxes under a mistake of fact, that is, when it was not aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments. Hence, the CIR should refund the said taxes. An action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against the claimant who must discharge such burden convincingly.

CIR v. TOKYO SHIPPING (1995) — Tokyo Shipping prepaid its tax obligations on a freight contract it entered into. Upon arrival at the port of destination, no cargo was found thus the freight contract never materialized. Tokyo Shipping now filed a refund to the CIR for no taxable transaction transpired. CTA ruled in favor of Tokyo. SC likewise ordered CIR to refund Tokyo because there was no taxable event and the prepayment made by Tokyo was a mistake.

AB LEASING AND FINANCE CORP. v. CIR (2003) — Petitioner had an overpayment of its net income tax for the taxable year (TY) 1993, of which it chose to apply the excess payment as tax credits for the following year, 1994. By the end of 1994, petitioner incurred net loss exempting it from payment of the 1994 taxes. It was thus unable to apply the tax credits incurred in 1993. Petitioner filed 2 claims with the CIR then to CTA for refund of overpaid income taxes for TY 1993 (Case 1) and 1994 (Case 2), respectively. CTA dismissed Case 1 for insufficiency of evidence but ruled in favour of petitioner in Case 2, ordering CIR to refund the unutilized tax paid for TY 1994. Court held that although § 69 of the old NIRC provides: “when a corporation is entitled to a refund of the excess income taxes paid, the refundable amount on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year (the carrying forward of any excess income tax for a given TY is limited to the succeeding TY only)”, the petitioner is entitled to claim the refund of the taxes it overpaid.

Petitioner had signified its intention to apply the entire amount of excess payment for 1993 and for 1994 to the year 1995. Even assuming that there was a need for petitioner to present in evidence the 1995 ITR or the breakdown of excess taxes paid in 1994, the CTA could have taken judicial notice of the records of Case 2, petitioner’s claim for refund of overpaid taxes for 1994, which was already pending before it. It is significant to note that petitioner’s claim for refund in said case was granted by the CTA, as mentioned earlier. At all events, while the rules of evidence and jurisprudence do not sanction the grant of evidentiary value to evidence which is


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not formally offered, it must be stressed that technical rules of procedure are not ends in themselves but are primarily designed to help in the administration of justice. Moreover, the law creating the CTA expressly provides that it shall not be governed strictly by technical rules of evidence. Substantial justice, equity and fair play are thus on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the State to keep money not belonging to it. If it expects its taxpayers to observe fairness and honesty in paying their taxes, it must apply the same standard against itself in refunding excess payments of such taxes. It should not enrich oneself at the expense of another.

CIR v. MERALCO (2007) — The CIR found that Meralco was liable for deficiency income and franchise taxes (around 2M each). On the other hand, Meralco filed a letter-claim for refund or credit in the amount of 107M representing overpaid income taxes. CIR didn’t act on the request so Meralco filed a judicial claim for refund or credit with the CTA. While the case was pending, Meralco paid the deficiency franchise tax. It also protested the payment of the alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for refund or credit but this was refused by the CIR. The CTA ordered the CIR “to refund or, in the alternative, issue a tax credit certificate in favor of Meralco the sum of 107M representing overpaid income taxes.” The case was elevated by the CIR to the CA, but the CA affirmed. Now the CIR alleges in the SC that the claim for tax refund should be construed strictly against the claimant as it partakes the nature of exemption from taxes.

Sec. 69 of the 1986 NIRC (see Sec. 76 of 1997 NIRC – there are differences) provides that if the sum of the quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay the excess tax still due, or (b) be refunded the excess amount paid. A corporate taxpayer's option to avail of tax credit does not, however, mean that it is ipso facto granted. For the CIR still has to investigate and ascertain the veracity of the claim. Both the CTA and CA found Meralco’s claim for tax refund or credit meritorious on the basis of testimonial and documentary evidence. The deficiency franchise tax had already been paid and the deficiency income tax was the subject of a compromise agreement. The issue of w/n Meralco adduced sufficient evidence to prove its entitlement to refund is a question of fact w/c can’t be brought to the SC. Therefore, the finding of fact by the CTA and CA is upheld. Moreover, a taxpayer may recover from the BIR excess income tax paid under the provisions of Sec. 86 of the 1986 NIRC w/in 10 years from the date of payment considering that it is an obligation created by law.

Note: Solutio Indebiti was not mentioned in the case. However, the Civil Code states that if something is received when there’s no right to demand such, and such was unduly delivered through mistake, the obligation to return arises. I am assuming that since there was overpayment, the CIR has to return the excess.

PHILAM ASSET MANAGEMENT v. CIR (2005) — Philam has creditable withholding taxes from 1997. The following year, Philam wanted to utilize the credit. It applied for a tax refund by filing a written claim before the Commissioner. The Commissioner refused to grant a refund, holding that for a request for either a refund or a credit of income tax paid, a corporation must signify its intention by marking the corresponding option box on its annual corporate final adjustment return (FAR). Parenthetically, Section 76 of the NIRC offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit.

Tax refund is easier as it only requires that a taxpayer properly apply for the refund (through written claim before the Commissioner). The tax credit option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These two options are alternative in nature; the choice of one precludes the other.

Meanwhile, while a taxpayer is required to mark its choice in the form provided by the BIR (the FAR), this requirement is only for the purpose of facilitating tax collection. Failure to signify one’s intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. The taxpayer’s failure to indicate an option in its FAR does not automatically mean that the taxpayer has opted to carry-over its income tax credit. The taxpayer’s choice may be ascertained using circumstantial evidence. Nonetheless, when a choice to carry-over the tax credit in the succeeding year has been made actually or constructively, this becomes irrevocable already.


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Finally, the Commissioner erroneously ruled that the ITR or FAR of the succeeding year be submitted as evidence to determine whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities. Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence.

M. Substantiation Requirements for Refund Claims: Withholding Tax Certificates, etc.

CITIBANK N.A. v. CA and CIR (1997) — Citibank’s tenants withheld and paid taxes to the BIR for rentals due to Citibank. The tenants withheld such taxes quarterly for the years 1979 and 1980. It was shown in Citibank’s final adjusted ITRs for said years that they suffered net losses and were entitled to tax credits. In 1981, they submitted a claim for refund of said taxes and filed a petition for review with the CTA. BIR argued that the claim was filed out of time. The CTA ruled in favor of Citibank. On appeal, the CA ruled that it was not enough for Citibank to show its lack of income tax liability. They should have also shown that the withholding tax was illegally or erroneously collected and remitted by the tenants. SC said that when the taxes were withheld quarterly by the tenants, the taxes were legally collected. However, when final adjusted returns were filed and it showed that the taxpayer is entitled to refund, the withheld taxes ceased to be legally collected.

As to the onus probandi, there is no disagreement that a claimant has the burden of proof to establish the factual basis of the claim for tax credit or refund. Tax refunds are construed strictly against the taxpayer. However, there is no need for a detailed showing of the truthfulness of each item in the ITR. In the case at bar, the BIR’s only contention is prescription. They only raised the issue of the validity of the losses claimed in 1992. It can thus be presumed that the BIR held the ITRs valid. The fact that the ITRs showed losses should be enough as basis for refund of said taxes. To require Citibank to produce their books would constitute an assessment and would be contrary to the Tax Code especially when more than 10 years have lapsed since 1979 and 1980. The BIR should refund the tax or else the government is guilty of unjust enrichment.

FAR EAST BANK AND TRUST CO. v. CA (2005) — During the period from 1990 to 1991, Cavite Development Bank [CDB] sold some acquired assets in the course of which it allegedly withheld the creditable tax from the sales proceeds which amounted to P755,715.00. In said years, CDB filed income tax returns which reflected that CDB incurred negative taxable income or losses for both years. Since there was no tax against which to credit or offset the taxes withheld by CDB, the result was that CDB had excess creditable withholding tax. In the early part of 1992, CDB was merged with FEBTC with the latter as its surviving entity. Petitioner being the surviving entity, FEBTC acquired all the assets of CDB. Being the surviving entity of the merger, filed this Petition for Review after its administrative claim for refund was not acted upon. Petitioner contends that the confirmation receipts presented by it constitute “competent and irrefutable proof of the fact that taxes were withheld and remitted to the BIR.” The issue is whether petitioner adduced sufficient evidence to prove its entitlement to a refund. A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare the income payments it received as part of its gross income and (b) establish the fact of withholding. On this score, the relevant revenue regulation provides as follows:

Section 10. Claims for tax credit or refund. — Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom.

The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income tax returns are the same taxes withheld from CDB’s income payments from the sale of its acquired assets. This is because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will show that what are reflected therein are merely the names of the payors and the amount of tax. The nature of the tax paid, or at the very least, the income payments from which the taxes paid were withheld are not reflected therein.


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BANCO FILIPINO SAVINGS AND MORTGAGE BANK v. CA, CTA and CIR (2007) — “substantiation requirements of refund claims” Banco Filipino filed with CIR an administrative claim for refund of creditable taxes withheld for the year 1995. CIR failed to act on the claim, so Banco Filipino filed a Petition for Review with CTA. Banco Filipino presented the following: (a) Certificate of Income Tax Withheld on Compensation for the year 1995 (from the sale of acquired assets), and (b) Monthly Remittance Return of Income Taxes Withheld. CTA granted the claim partially [only the part which was substantiated by evidence (a)]. Banco Filipino filed a Petition for Review with CA, but was dismissed. The issue was whether the CA erred in affirming the disallowance of Banco Filipino’s claim for tax refund because the evidence lacks probative value. HELD: CA did not err. There are three conditions for the grant of a claim for refund of creditable withholding tax: 1) the claim is filed with the CIR within the 2-year period from the date of payment of the tax, 2) it is shown on the return of the recipient that the income payment received was declared as part of the gross income, and 3) the fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom (basis of #3: Section 10 of RR 6-85).

It was proven that #s 1 and 2 have been complied with; the question now is if #3 was complied just by presenting evidence (a) and (b). The Court ruled that Banco Filipino’s evidence was not sufficient. The document which may be accepted as evidence of the third condition must emanate from the payor itself, and not merely from the payee, and must indicate the name of the payor, the income payment basis of the tax withheld, the amount of the tax withheld and the nature of the tax paid. In the case at bar, though it was issued by the payor, the document does not state the amount and nature of the income payment. Hence, it cannot be verified from the document if the tax withheld is correct.

PLDT v. CIR (2008) — PLDT terminated employees due to redundancy. In compliance with labor law requirements, PLDT paid them separation pay and other benefits. It deducted from such separation pay withholding taxes which were remitted to the BIR. In 1997, it filed a claim for tax refund. The CTA contended that PLDT failed to show proof of payment of separation pay and remittance of the alleged withheld taxes. CA dismissed the same. PLDT now asserts that it is not essential to prove that the separation pay benefits were actually received by the terminated employees. They further contend that for as long as there is no legal basis for the payment of taxes to the BIR, the taxpayer is entitled to refund.

The SC ruled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority, and the taxpayer bears the burden of establishing the factual basis of his claim for a refund. RR 6-85 must be followed which states that “claims for tax credit refund shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy f the statement duly issued by the payer to the payee.” PLDT must do two things to be able to successfully make a claim for tax refund: a) declare the income payments it received as part of its gross income and b) establish the fact of withholding. In this case, the evidence that PLDT offered does not sufficiently establish its claim for refund. As it failed to comply with RR 6-85, the refund must be denied.

CIR v. A. SORIANO CORP. (1997) — Soriano Corporation filed before the CTA a petition for refund of excess tax payments made to the BIR. During trial, only Soriano presented evidence to support its refund claim. The BIR merely submitted the case for decision without presenting any evidence and without objecting to the existence of statements and certificates offered by Soriano as proof of withholding taxes. After the CTA rendered its decision ordering the payment of refunds, the BIR sought reconsideration and the admission of a certain BIR report into evidence. The Court ruled that the said BIR report was “forgotten evidence” which could no longer be considered on appeal and was not “newly discovered evidence” that would merit a new trial. The CIR urged that Section 8 of the Rules of the Court of Tax Appeals called for liberal application of the rules on new trial based on newly discovered evidence but the Court held that to do so would give rise to a dangerous precedent where there would be no end to a hearing because, every time a party is aggrieved by its decision, he can have it set aside by asking to be allowed to present additional evidence without having to comply with the requirements of a motion for a new trial based on newly discovered evidence.

FILINVEST DEVELOPMENT CORP v. CIR (2011)


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Facts: CTA rendered a decision dismissing Filinvest’s petition for review of its claim for refund representing excess creditable withholding taxes for years 1994-1996 for insufficiency of evidence because it failed to present in evidence its 1997 income tax return.The CTA held that since petitioner indicated in its 1996 Income Tax Return that it has opted to carry over any excess income tax paid to the following year, there was no way for the court to determine with particular certainty if petitioner Filinvest indeed applied or credited the refundable amount to its 1997 tax liability, if there were any. In this petition for review, petitioner Filinvest alleges that the CTA erred in denying its claim for tax refund on the sole ground that it failed to present in evidence its Annual Income Tax Return for Corporations for 1997 despite holding that it had complied with all the requirements to sustain a claim for tax refund. The main issue for our resolution is whether petitioner is entitled to the tax refund or tax credit it seeks.

Issue: W/N FILINVEST is entitled to refund

Held: We rule in the affirmative. In the proceedings before the CTA, petitioner presented in evidence its letter of claim for refund before the BIR to show that it was made within the two-year reglementary period; its Income Tax Returns for the years 1995 and 1996 to prove its total creditable withholding tax and the fact that the amounts were declared as part of its gross income; and several certificates of income tax withheld at source corresponding to the period of claim to prove the total amount of the taxes erroneously withheld. More importantly, petitioner attached its 1997 Income Tax Return to its Motion for Reconsideration, making the same part of the records of the case. The CTA cannot simply ignore this document.

Thus, we hold that petitioner has complied with all the requirements to prove its claim for tax refund.

It is true that herein petitioner has the burden of proving that it is entitled to refund. However, we have already held that once the claimant has submitted all the required documents, it is the function of the BIR to assess these documents with purposeful dispatch.

In proving the inclusion of the income payments which formed the basis of the withholding taxes and the fact of withholding, this Court has held that:

[D]etailed proof of the truthfulness of each and every item in the income tax return is not required. That function is lodged in the Commissioner of Internal Revenue by the NIRC which requires the Commissioner to assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return. x x x The grant of a refund is founded on the assumption that the tax return is valid; that is, the facts stated therein are true and correct. In fact, even without petitioner’s tax claim, the Commissioner can proceed to examine the books, records of the petitioner-bank, or any data which may be relevant or material in accordance with Section 16 of the present NIRC.

BPI FAMILY SAVINGS BANK v. CA (2000) — BPI claimed a tax refund for the year 1989 and declared in its income tax return for the same year the amount as a tax credit to be applied to the succeeding taxable year. But in 1990, BPO filed a claim with the CIR stating that it did not apply the same as tax credit for the year 1990 because it suffered business losses. Without waiting for the CIR’s response, BPI filed a petition for review with the CTA seeking a refund but the CTA dismissed the petition on the ground that BPI failed to present as evidence its Corporate Annual Income Tax Return for 1990 to establish the fact that it had not yet credited the amount to its 1990 tax liability. The SC disagreed with the CTA, stating that BPI actually presented evidence to prove its claim. The manager of BPI’s accounting department testified to this fact. BPI also presented its claim for refund and a certification issued by its VP stating that the said amount will not be automatically credited against any succeeding income tax liabilities. A copy of the Final Adjustment Return for 1990 was also attached to the MR filed with the CTA. A final adjustment return shows whether a corporation incurred a loss or gained a profit during the taxable year. In this case, that Return clearly showed that petitioner incurred a net loss in 1990. Clearly, it could not have applied the amount in dispute as a tax credit.

CIR v. MERALCO (2007) — The CIR found that Meralco was liable for deficiency income and franchise taxes (around 2M each). On the other hand, Meralco filed a letter-claim for refund or credit in the amount of 107M representing overpaid income taxes. CIR didn’t act on the request so Meralco filed a judicial claim for refund or credit with the CTA. While the case was pending, Meralco paid the deficiency franchise tax. It also protested the payment of the


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alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for refund or credit but this was refused by the CIR. The CTA ordered the CIR “to refund or, in the alternative, issue a tax credit certificate in favor of Meralco the sum of 107M representing overpaid income taxes.” The case was elevated by the CIR to the CA, but the CA affirmed. Now the CIR alleges in the SC that the claim for tax refund should be construed strictly against the claimant as it partakes the nature of exemption from taxes.

Sec. 69 of the 1986 NIRC (see Sec. 76 of 1997 NIRC – there are differences) provides that if the sum of the quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay the excess tax still due, or (b) be refunded the excess amount paid. A corporate taxpayer's option to avail of tax credit does not, however, mean that it is ipso facto granted. For the CIR still has to investigate and ascertain the veracity of the claim. Both the CTA and CA found Meralco’s claim for tax refund or credit meritorious on the basis of testimonial and documentary evidence. The deficiency franchise tax had already been paid and the deficiency income tax was the subject of a compromise agreement. The issue of w/n Meralco adduced sufficient evidence to prove its entitlement to refund is a question of fact w/c can’t be brought to the SC. Therefore, the finding of fact by the CTA and CA is upheld. Moreover, a taxpayer may recover from the BIR excess income tax paid under the provisions of Sec. 86 of the 1986 NIRC w/in 10 years from the date of payment considering that it is an obligation created by law.

Note: Solutio Indebiti was not mentioned in the case. However, the Civil Code states that if something is received when there’s no right to demand such, and such was unduly delivered through mistake, the obligation to return arises. I am assuming that since there was overpayment, the CIR has to return the excess.

STATE LAND INVESTMENT CORP. v. CIR (2008) — Petitioner filed with the BIR its annual income tax return for 1997. For that year, its tax due was P9.7 M while its credits for the same year was P23.6M. The remaining P13.9 M unutilized was applied as credit for 1998 but still, a balance of P9.8 M from its 1997 excess credit remained. On April 7, 2000, petitioner filed a claim for refund. Due to the CIR’s inaction, it filed a petition for review with the CTA on April 13, 2000 to toll the 2 yr prescriptive period. On April 4, 2002 CTA denied the claim for refund ruling that petitioner’s failure to present its 1999 corporate annual ITR is fatal to its claim for refund (petitioner’s 1998 ITR stated that it would carry over its 1997 excess tax credit to 1999 and in failing to present its 1999 ITR, CTA was unable to determine with certainty that its 1997 tax credit was not charged against tax liabilities for 1999). The issue is W/N petitioner is entitled to refund of P 9.8 M representing excess creditable withholding tax for 1997? Yes.

Under Sec 69 (now, sec 76), if the total tax due is less that the quarterly tax payments during the year, a taxpayer is entitled to a refund or credit for the excess amount paid. Due to business losses, petitioner had no tax liability in 1999 to which the 1997 excess tax credits could be applied. Excess income taxes paid in a year that could not be applied to taxes due the following year may be refunded the next year, provided that the claim for such a refund is made within two years after payment of the tax. It was not necessary on the part of petitioner to file with the BIR its income tax return for 1999. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Tax Code merely requires the filing of the final adjustment return for the preceding — not the succeeding — taxable year. Any refundable amount indicated therein corresponding to the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. Requiring that the income tax return or the final adjustment return of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. Under the principle of solutio indebiti provided in Art. 2154, Civil Code,the BIR received something “when there was no right to demand it,” and thus, it has the obligation to return it.

CIR v. FAR AST BANK & TRUST CO. (2010) — FEBTC filed a claim for refund with the BIR. Due to the failure of the CIR to act on the claim for refund, FEBTC brought the matter to the CTA. The CTA denied the refund on the ground that FEBTC failed to show that the income derived from rentals and sale of real property from which the taxes were withheld were reflected in its 1994 Annual Income Tax Return. SC affirmed the decision of the CTA, holding that FEBTC failed to prove its entitlement to the refund. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:


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(1) The claim must be filed with the CIR within the 2-year period from the date of payment of the tax; (2) It must be shown on the return that the income received was declared as part of the gross income; and (3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.

Section 10 of Rev. Reg. 6-85 states that claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payer to the payee showing the amount paid and the amount of tax withheld therefrom.

FEBTC failed to include the income derived from rentals and sales of real property in its ITR. Hence, since no income was reported, no tax was withheld. It is incumbent upon the taxpayer to reflect in his return the income upon which any creditable tax is required to be withheld at the source. Further, FEBTC failed to present all the Certificates of Creditable Tax Withheld at Source. FEBTC failed to present substantial evidence to prove its claim for refund. [Although the BIR did not present evidence in this case, there is no automatic refund. Entitlement to a tax refund is for the taxpayer to prove and not for the government to disprove.]

VI. APPEAL IN CASE OF DENIAL OF REFUND/TAX CREDIT CLAIM

A. CTA (Division and En Banc)

SEC. 7. Jurisdiction. — The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;

SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. — Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A Division of the CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.

All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof: Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution and appeal shall likewise apply.


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No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction.

SEC. 18. Appeal to the Court of Tax Appeals En Banc. — No civil proceeding involving matter arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act.

A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc.

CTA Circular No. 1-95 SUBJECT : CTA Rules Governing the Presentation of Voluminous Documents as Evidence Such as Receipts, Invoices and Vouchers

In accordance with the announced policy of the court and in the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts, pursuant to Section 3 (c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125.

1. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must properly be identified by a competent witness from the accounting firm.

2. The method of individual presentation of each and every receipt or invoice or other documents for marking, identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and other documents covering the said accounts or payments must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and verify the correctness of the summary and CPA certification. However, the originals of the said receipts, invoices or documents should be ready for verification and comparison in case doubt on the authenticity of the particular documents presented is raised during the hearing of the case.

Be guided accordingly.

Quezon City, Metro Manila, January 25, 1995.

CTA Circular No. 10-97 (amends CTA Circular No. 1-95) SUBJECT : Amending CTA Circular No. 1-95 — Rules Governing the Presentation of Voluminous Documents as Evidence Such as Receipts, Invoices, Vouchers or Long Accounts

In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to


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establish certain facts pursuant to Section 3 (c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by the Court, present: (a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account for marking, identification and comparison with the originals thereof need not be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices, vouchers or other documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for verification and comparison in case doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of evidence.

Be guided accordingly.

Quezon City, Metro Manila, October 6, 1997. (SGD.) ERNESTO D. ACOSTA

Presiding Judge

(SGD.) AMANCIO Q. SAGA Associate Judge

(SGD.) RAMON O. DE VEYRA Associate Judge

Revenue Memorandum Circular No. 49-2003 SUBJECT: Amending Answer to Question Number 17 of Revenue Memorandum Circular No. 42-2003 and Providing Additional Guidelines on Issues Relative to the Processing of Claims for Value-Added Tax (VAT) Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, Department of Finance (OSS-DOF) by Direct Exporters


In response to request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:

1. A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a “Petition for Review” with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the


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administrative agency shall continue processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the positive resolution or approval of the motion must be furnished the administrative agency as a prerequisite to the release of the tax credit certificate/tax refund processed administratively. However, if the taxpayer is not agreeable to the findings of the administrative agency or does not respond accordingly to the action of the agency, the agency shall not release the refund/TCC unless the taxpayer shows proof of withdrawal of the case filed with the tax court. If, despite the termination of the processing of the refund/TCC at the administrative level, the taxpayer decides to continue with the case filed at the tax court, the litigation lawyer of the BIR, upon the initiative of either the Legal Office or the Processing Office of the Administrative Agency, shall present as evidence against the claim of the taxpayer the result of investigation of the investigating/processing office.

2. Additional paragraphs are hereto added to the last paragraph of RMC No. 42-2003 to read as follows:

Q-18: For pending claims with incomplete documents, what is the period within which to submit the supporting documents required by the investigating/processing office? When should the investigating/ processing office officially receive claims for tax credit/refund and what is the period required to process such claims?

A-18: For pending claims which have not been acted upon by the investigating/processing office due to incomplete documentation, the taxpayer-claimants are given thirty (30) days within which to submit the documentary requirements unless given further extension by the head of the processing unit, but such extension should not exceed thirty (30) days.

For claims to be filed by claimants with the respective investigating/processing office of the administrative agency, the same shall be officially received only upon submission of complete documents.

For current and future claims for tax credit/refund, the same shall be processed within one hundred twenty (120) days from receipt of the complete documents. If, in the course of the investigation and processing of the claim, additional documents are required for the proper determination of the legitimate amount of claim, the taxpayer-claimants shall submit such documents within thirty (30) days from request of the investigating/processing office, which shall be construed as within the one hundred twenty (120) day period.

All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible.

B. Supreme Court

SEC. 19. Review by Certiorari. — A party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure.

VII. STATUTE OF LIMITATIONS

A. Period to File Protest

SEC. 228. Protesting of Assessment. — When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases:


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(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

PANTRANCO v. BLAQUERA (1960) — (failure to file request w/n 30days) – The Collector assessed Pantranco with a documentary stamp tax deficiency w/ compromise penalty worth P74k. Pantranco requested for a reinvestigation but was denied and was afterwards assessed a lower amount (P66k). Because of the change in the amount, Pantranco requested a clarification. The Collector then wrote him a letter enclosing therewith a letter dated Sept. 1954. This was received on Nov. 20, 1954. Pantranco sought a reconsideration of the modified assessement on Dec. 2, 1954.

Considering that the ruling or decision of the Collector of September 1954 had been received by Pantranco on November 20, the Court held that the 30-day period began to run on November 20; that it was interrupted by the petition for reconsideration filed December 3, 1954; and that such interruption ended on June 11, 1955, when denial of the reconsideration was received by Pantranco; and finding that the petition had thus been presented on the 34th day after receipt of the Collector’s definite assessment, (November 20 to December 3-13 days; June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.

The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to contest within thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals, or to any other court. The period of thirty days is jurisdictional and non-extensible.

DY PAC COMPANY v. CTA (1972) — Petitioner DyPac was assessed by CIR of deficiency taxes on March 1967. It protested the assessment on April 1967. CIR sent a letter dated October 1987, received by petitioner on November 1967 denying the protest and requiring petitioner to pay the assessment within 30 days from receipt of the letter. On December 1967, petitioner then wrote a letter to the Secretary of Finance requesting him to withdraw the denial of CIR. Sec. of Finance endorsed the letter to CIR of which CIR again sent a letter to petitioner. The second letter reiterated the previous demand to pay the deficiency assessment.


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Sec. 11 of RA 1125 states that: “Any person, association or corporation adversely affected by a decision or ruling of the Commissioner of Internal Revenue, x x x may file an appeal in the Court of Tax Appeals within thirty days after receipt of such decision or ruling.” Issue was which was the appealable decision of the Commissioner, the first letter of denial of protest dated October 1967 received by the petitioner on November 1967, as the respondents contend, OR the second letter sent by CIR dated May 1968, received by petitioner on June 1968, as the petitioner insists? If the latter, then the petition for review filed with the CTA on July 5, 1968 was timely; if not, the assessment had become final and executory. SC held that the point from which the period to appeal should be counted is the receipt by the petitioner of the first letter on November 1967 and not the second letter.

Par.1, Sec.11 of RA 1125 allows appeal from the “decision or ruling of the Commissioner of CIR.” The word “decision” has been interpreted to mean decisions of the Commissioner on protests of taxpayers against assessments. And, in computing the 30-day period for appeal to the CTA, counting should begin from the date of receipt of the decision of the Commissioner on the disputed assessment. However, where several requests for reconsideration have been filed with the Commissioner, it would appear that the communication from the latter overruling taxpayer’s request for reconsideration and affirming the disputed assessment in terms clearly indicating finality of the action taken, constitutes the appealable decision or ruling.

Considering the substance of the first letter of the respondent Commissioner of October 1967, it is evident that the said letter constitutes his “decision;” it has the unmistakable tenor of finality that would make it the appealable decision or ruling. The respondent Commissioner himself considered the said letter as his “decision” that is final, hence his request for payment for the “last time.” It is also quite certain that the petitioner himself must have believed that the letter of October 1967 was the final decision of respondent Commissioner for otherwise he would not have turned to the Secretary of Finance immediately thereafter for possible relief. From June 1968, the date when the petitioner received the respondent Commissioner’s second letter of May 1968, to July 1968, the date when the petitioner filed its petition for review with the CTA, an additional 30 days had elapsed. The appeal was therefore late by 25 days. The period to appeal being jurisdictional and non-extendible, is filed beyond the 30-day period.

COMMISSIONER v. CONCEPCION (1968) — Concepcion (ancillary administrator of the estate of Mary H. Mitchell-Roberts), and Jack F. Mitchell-Roberts (husband of the deceased) sought a refund of estate and inheritance taxes on 50 shares of stock of Edward J. Nell Company issued in the names of both spouses as joint tenants with full rights of survivorship and not as tenants in common but was denied. Not being agreeable to the assessment of the Commissioner of Internal Revenue, respondents appealed the decision to the CTA which was dismissed because the appeal was filed beyond the reglementary period of 30 days. Thus the decision became final, executory and demandable. Concepcion and Mitchell-Roberts paid the taxes in question along with delinquency penalties, and at the same time filed a claim for the refund of said amounts. Without waiting for the decision of CIR on the claim for refund, another appeal was filed in order to avoid the prescriptive period of two years provided for in Section 306 of the NIRC. CTA in that appeal case ordered the CIR to refund Concepcion and Mitchell-Roberts. SC overturned and said that once the matter has reached the stage of finality in view of the failure to appeal, it logically follows that it could no longer be reopened through the expedient of an appeal from the denial of petitioner’s request. The procedure set forth in Section 306 of the NIRC is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken. Furthermore, having paid the same, Concepcion and Mitchell-Roberts are clearly devoid of any legal right to sue for recovery.

BASILAN ESTATES, INC. v. CIR (1967) — Petitioner Basilan Estates, Inc. filed on March 24, 1954 its income tax returns for 1953 and paid an income tax of P8,028. On February 26, 1959, the CIR, per examiners’ report, assessed petitioner a deficiency income tax and 25% surtax on unreasonably accumulated profits as of 1953 pursuant to Section 25 of the Tax Code. On non-payment of the assessed amount, a warrant of distraint and levy was issued but the same was not executed because Basilan succeeded in getting the Deputy Commissioner of Internal Revenue to order the Director of the district in Zamboanga City to hold execution and maintain constructive embargo instead. Because of its refusal to waive the period of prescription, the corporation’s request


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for reinvestigation was not given due course. Eventually, notice was served the corporation that the warrant of distraint and levy would be executed.

Petitioner filed before the CTA a petition for review alleging prescription of the period for assessment and collection; error in disallowing claimed depreciations, travelling and miscellaneous expenses; and error in finding the existence of unreasonably accumulated profits and the imposition of 25% surtax thereon. The CTA found that there was no prescription and affirmed the deficiency assessment in toto.

The notice of assessment shows the assessment to have been made on February 26, 1959, well within the five-year period. Even granting that notice had been received by the petitioner late, as alleged, under Section 331 of the (Old) Tax Code requiring five years within which to assess deficiency taxes, the assessment is deemed made when notice to this effect is released, mailed or sent by the Collector to the taxpayer and it is not required that the notice be received by the taxpayer within the aforementioned five-year period. Moreover, the presumption of regularity of official functions prevails.

REPUBLIC v. CA (1987) — “Follow-up letter which reiterates demand for payment of taxes considered notice of assessment. Failure of taxpayer to appeal the assessment to the CTA in due time makes the assessment final executory and demandable and the taxpayer is barred from disputing the correctness of the assessment.” In a demand letter, dated 16 July 1955, the CIR assessed respondent deficiency taxes for the years 1949 to 1952. Petitioner reiterated its demand three times - dated 24 April 1956, 19 September 1956 and 9 February 1960. Private respondent did not contest the assessment in the Court of Tax Appeals. On the theory that the assessment had become final and executory, petitioner filed a complaint for collection of the said amount against respondent. ISSUE: W/N the CIR’s letter dated 19 Sept. 1956 which was duly received by respondents is an assessment. HELD: Yes. The follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission. Under Section 7 of Republic Act No. 1125, the assessment is appealable to the CTA within thirty (30) days from receipt of the letter. The taxpayer’s failure to appeal in due 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 defense that would reopen the question of its liability on the merits. In Mamburao Lumber Co. vs. Republic, this Court further said: In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect is akin to an action to enforce a judgment.

B. Period to File Refund or Tax Credit Claim


(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.


SEC. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or


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collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

TRANS PHILIPPINES INVESTMENT CORP. v. CIR (1995)

CIR v. SWEENEY (1959) — “The National Government cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or authorizing such payment” Petitioners Sweeney, et al. were past presidents of the International Club of Iloilo, Inc. The Club maintained and operated a clubhouse with a bar wherein liquor and light refreshments were sold exclusively to members and their guests. The CIR demanded from the Club payment of fixed and percentage taxes (~Php3,000) for the operation of a bar. The Club paid the taxes under protest and thereafter filed a written claim for refund. However, the CIR did not act on the claim, causing petitioners Sweeney, et al. to take the case to the CTA. The CTA ruled in favor of petitioners Sweeney and the Club, holding that they were not liable for the taxes because they were not operating the bar for profit. Therefore, the CTA ordered the CIR to refund the taxes paid, with interest. The SC agreed that the CIR must refund the taxes paid, but disallowed the payment of interest on such refund. The National Government cannot be required to pay interest in the absence of a statutory provision clearly or expressly directing or authorizing such payment, and no such law has been cited by the petitioners. Taxpayers need not wait for the CIR to act on the refund claim before going to court within the 2 year prescription period

GIBBS v. CIR (1960) — CIR denied Gibbs’ request for refund by saying “I regret to have to inform you that for reasons stated in our letter dated August 28, 1956, this Office finds no justifiable basis to grant your said request.” It was made on a letter that was received on November 14, 1956, by the petitioner’s brother who was acting as an attorney-in-fact. On October 1, 1958, Gibbs filed with the CTA a petition for review and refund of tax paid. The SC held that the action has prescribed because it was filed beyond the 30-day period from the receipt of the denial of the refund claim (November 14, 1956) which, by its words, is deemed as a final decision on the controversy. Also, the petitioner’s brother was his attorney in law and deemed authorized recipient.

CIR v. CA (1999) — Petitioner, Bank of the Philippine Islands (BPI for short) is a bank and trust corporation duly organized and existing under Philippine laws. It acts as the liquidator of Paramount Acceptance Corporation after its dissolution on March 31, 1986. The question is whether the two-year period of prescription for filing a claim for refund, as provided in §230 of the National Internal Revenue Code, is to be counted from April 2, 1986 when the corporate income tax return was actually filed or from April 15, 1986 when, according to §70(b) of the NIRC, the final adjustment return could still be filed without incurring any penalty. The aforesaid §230 of the NIRC provides that such period must be counted “from the date of payment of the tax.” But, given the facts as stated above, when was the corporate income tax paid in this case?

We agree with the respondent court’s ruling that the date of payment of the tax as prescribed under the Tax Code is the date when the corporate income tax return is required to be filed. Clearly, the prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished.

In the case at bar, Paramount filed its corporate annual income tax return on April 2, 1986. However, private respondent BPI, as liquidator of Paramount, filed a written claim for refund only on April 14, 1988 and a petition for refund only on April 15, 1988. Both claim and action for refund were thus barred by prescription.

ACCRA INVESTMENTS v. CA (1991) — “filing of return signifies payment / counting starts from payment” On April 15, 1982 ACCRA Investments Corp (ACCRAIN) filed and paid its annual income tax return for the year ended December 31, 1981 which reported a loss. On December 29, 1983, ACCRAIN claimed for refund from the CIR then a petition for review to the CTA, both stating that such claim from refund was filed out of time for the


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reckoning date should be on December 31, 1981 when taxes withheld at source were paid. Court decided that the “date of payment” referred to in Sec. 230 is that when the tax payer actually files and pays its income tax return (Sec. 49 NIRC). Such date is April 15, 1982, therefore ACCRAIN has until April 1984 to claim refund. The lower courts had missaplied jurisprudence in holding that the “taxpayer whose income is withheld at source will be deemed to have paid its tax liability end of the tax year”. (Gibbs vs. CIR)

BPI v. CIR (2001) — “When the corporation is contemplating dissolution, the 2-year prescription period begins 30 days after the SEC approves the plan of dissolution” Family Bank and Trust Company (FBTC) merged with BPI in July 1, 1985. Prior to the merger, FBTC had in its favor, creditable withholding taxes amounting to ~P174k from the 1985 tax year and excess credit of ~P 2M from the previous year. After the merger of BPI and FBTC, BPI claimed the amount of the creditable withholding taxes (174k) and excess credit(2M) for refund. The CIR only allowed the refund for the 2M, and disallowed that of the 174k, saying that the claim for refund of the latter had already prescribed. BPI filed a petition for review in the CTA on December 29, 1987. CTA denied the claim on the ground of prescription.

The question is, when did the 2 year period begin to run? BPI contends that it started on April 15, 1986 when FBTC filed its final adjusted return pursuant to Section 46(a) of the Tax Code. On the other hand, the CIR contends that the 2-year prescription period began to run from July 31, 1985---30 days after the approval by the SEC of the plan of dissolution pursuant to the merger, as directed by Section 78 of the Tax Code.[See 1] The SC ruled that the prescription period began to run 30 days after the SEC approved the plan of dissolution (July 31, 1985) and consequently, the claim for refund had already prescribed. Thus, the rule is, the period of prescription begins upon filing of the Final Adjustment Return applies only when the corporation remains subsisting and its business operations are continuing. When the corporation is contemplating dissolution, §78 of the Tax Code applies and the prescription period begins 30 days after the SEC approves the plan of dissolution.

[1] Every corporation shall, within thirty days after the adoption by the corporation of a resolution or plan for the dissolution of the corporation… render a correct return to the Commissioner of Internal Revenue, verified under oath, setting forth the terms of such resolution or plan and such other information as the Minister of Finance shall, by regulations, prescribe. The dissolving corporation prior to the issuance of the Certificate of Dissolution by the Securities and Exchange Commission shall secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission.

CIR v. TMX SALES, INC. (1992) — “where a tax is paid on installments, the two-year prescriptive period for the claim of refund should commence to run from the date of the last installment (filing of the Final Return)”

On May 15, 1981, TMX filed its quarterly income tax for the first quarter of 1981. During the subsequent quarters, it suffered losses, so upon filing of its Annual Income Tax Return on April 15, 1982, it declared a net loss. On March 14, 1984, TMX Sales filed a claim for refund before the CTA, representing overpaid income tax. The CIR argued that more than 2 years have elapsed from the payment of quarterly income tax and the filing of the claim, thus the claim of TMX Sales has already prescribed. The CTA ruled that it has not yet prescribed since the period should be counted from the date of final payment. The issue is whether the 2-year prescriptive period would commence to run from the date the quarterly income tax was paid or from the date of filing the Final Return (final payment). The Court held that the most reasonable and logical application of the law would be to compute the two-year prescriptive period at the time of filing the Final Adjustment Return or the Annual Income Tax Return, when it can be finally ascertained if the taxpayer still has to pay additional income tax or if he is entitled to a refund of overpaid income tax. This ruling is reiterated in Commission of Internal Revenue v. Carlos Palanca, wherein the Court stated that where the tax account was paid on installment, the computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last installment. Since the prescriptive period is counted from the filing of the Final Adjustment Return on April 15, 1982, TMX Sales is not yet barred by prescription.

CIR v. PRIMETOWN PROPERTY GROUP, INC. (2007) — Yap, Vice Chair of Primetown Property Group (Primetown) applied on March 11, 1999 for the refund / credit of income tax Primetown paid in 1997. However, its claim was not acted upon so Primetown filed a petition for review with the CTA on April 14, 2000. CTA dismissed the appeal as it was filed beyond the two-year prescriptive period for filing a judicial claim for tax


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refund or tax credit in accordance with Sec. 229 NIRC. According to the CTA, the two-year prescriptive period is 730 days pursuant to Art 13 of the Civil Code wherein “years are of 365 days each”. Since Primetown filed its final adjusted return on April, 14, 1998 and the year 2000 was a leap year, the petition was filed 731 days after Primetown filed its final adjusted return, therefore beyond the reglementary period. CA reversed.

The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted return. But how should the two-year prescriptive period be computed? Article 13 of the Civil Code provides that when the law speaks of a year, it is understood to be equivalent to 365 days. A year is equivalent to 365 days regardless of whether it is a regular year or a leap year.

CIR v. PL MANAGEMENT INTERNATIONAL PHILIPPINES, INC. (2011) — “unlike the option for tax refund claims, which prescribes after 2 years of filing, there is no prescriptive period for tax credit” On April 13, 1998, PL Management filed 1997 ITR where it expressly stated that its creditable withholding tax of P 1.2 million shall be claimed as tax credit for its 1998 ITR. However, tax credit was not claimed the next year because PL Mgmt was in net loss. In 2000, PL Mgmt then filed written claim for the tax refund with CIR. CIR failed to act on the claim, which prompted for case to be elevated to CTA on April 14, 2000. CTA denied the petition because it was filed beyond the 2-yr prescription but CA reversed this and held that PL Management may get the refund because prescription period may be suspended for reasons of equity. SC disallowed the refund but the PL management is permitted to apply unutilized P 1.2 million as tax credit in succeeding taxable years.

The Court held that if total tax payment exceeds tax liability, taxpayers have 2 options: (1) tax refund or (2) tax credit. The choice of one precludes the other. In this case, PL Management already chose option (2) when it declared that it will carry-over the unutilized P 1.2 Million to the 1998 ITR. This then bars the company from claiming a tax refund. Based on jurisprudence, it must be noted that unlike claims for refund (which prescribes after 2 years of filing ITR), the option of tax credit does not have a prescriptive period and such amount (1.2 million) may be carried over to succeeding taxable years until fully exhausted.

ORAL AND DENTAL COLLEGE v. CTA (1958) — (Prescription runs irrespective of pendency of refund claim with the CIR; conflict between NIRC 2 yr period and RA 1125) Petitioner is school claiming to be exempt from taxes and thus sought to recover the taxes it allegedly paid wrongfully. Said taxes were paid on May 15, 1951, September 15, 1951 and May 15, 1952, and that although the claim for the refund of the same was filed with the CIR on November 14, 1952, the request for the reconsideration of the latter’s decision was denied only on April 20, 1955. Meanwhile, no proceeding in court was instituted for that purpose in the intervening period. In dismissing the petition filed with the Court of Tax Appeals, said tribunal relied on the provisions of section 306 of the NIRC which provided for the 2 year prescriptive period within which refund claims must be brought. The Court ruled that under said provisions, the taxpayer’s failure to comply with the requirement regarding the institution of the action or proceeding in court within 2 years after the payment of the taxes bars him from the recovery of the same, irrespective of whether a claim for the refund of such taxes filed with the Collector of Internal Revenue is still pending action of the latter.

The petitioner argued that its refund claim has not prescribed because of the seeming conflict between the NIRC 2 year prescriptive period (counted from payment, irrespective of the action taken by the CIR) and the and Section 11 of Republic Act 1125 specifically providing that actions should be brought to the Court of Tax Appeals within 30 days from receipt of the decision of the Collector of Internal Revenue. The Court deferred ruling on the matter and notes that although it has the power to interpret laws, the legislature should take notice of apparent conflicts in statutes and work towards its elimination.

CIR v. PHILIPPINE AMERICAN LIFE INSURANCE CO. (1995) — “The prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished” On May 30, 1983, Philam life paid its 1983 1st Quarter income tax of P3,246,141. On August 29, 1983, it paid P396,874 for the 2nd Quarter. The company later on paid P708,464 for the 3rd Quarter of the same year. In the 4th Quarter, however, it suffered loss and thereby had no income tax liability. In the 4th quarter return, Philam life declared a refund of P3,991,841 representing the 1st and 2nd quarterly payments (comprising of the 1st quarter payment of P3,246.141 plus 215,742.00 as withholding taxes on rental income for 1983 and P133,084.00 representing 1982 income tax refund applied as 1983 tax credit). In 1984,


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Philam life suffered loss again and applied for tax credit of its overpaid taxes in 1983 and 1982. On December 16, 1985, it filed another claim for refund with the CIR’s appellate division for an amended and increased amount. On January 2, 1986, it filed petition for review with the CTA.

[note: The simple story of the case is this… Philam life remits/pays to the BIR tax withheld on income for the 1983 1st quarter but it would eventually turn out that its business operations actually resulted in a loss by the end of the year 1983, as reflected in the Corporate Final Adjustment Return subsequently filed with the BIR. Because of this, Philam life sought to have the payments made on the earlier quarters refunded.]

The issue is the reckoning date of the two-year prescriptive period provided in Section 230 of the NIRC for the recovery of tax erroneously or illegally collected. CIR claims that the running of the prescriptive period commences from the remittance/payment at the end of the first quarter of the tax withheld instead of from the filing of the Final Adjustment Return. In such a case, Philamlife is not entitled for refund. The Supreme Court held that the CIR was wrong. The prescriptive period of two years should commence to run only from the time that the refund is ascertained, which can only be determined after a final adjustment return is accomplished. Although quarterly taxes due are required to be paid within sixty days 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 adjustment return shall have been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to the corporation. In the present case, this date is April 16, 1984, and two years from this date would be April 19, 1986. The record shows that the claim for refund was field on December 16, 1985 and the petition for review was brought before the CTA on January 2, 1986. Both dates are within the two-year reglamentary period. Even if the two-year prescriptive period had already lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances.

FAR EAST BANK AND TRUST COMPANY v. CIR (2006) — FEBTC was a trustee for employee retirement funds, and in the exercise of its authority, it invested such funds in various placements and securities. The interest income earned on these investments was subjected to withholding tax. However, a previous ruling by the SC declared income for retirement funds exempt from income tax, so FEBTC filed for refunds with the BIR, which were all denied. In order to comply with the 2-year prescriptive period, instead of filing a petition for review, FEBTC filed a Motion to Admit Supplemental Petition (Supplement) with its ongoing case in the CTA for the same subject matter but for different time periods. The CTA denied this motion and suggested that FEBTC file a petition for review instead. FEBTC obliged, but the petition for review was filed more than 2 years after payment of the withholding taxes.

FEBTC’s contention that the prescriptive period should be reckoned from the date of the filing of its Supplement was denied. The prescriptive period also could not have been deemed suspended upon filing of the Supplement, as the 2 year period cannot be deemed tolled upon the filing of just any judicial claim with any court, much less a supplement whose admission is discretionary upon the court. Refund denied. [This was actually just Obiter, as the real ratio was the failure to submit the proper documentary requirements. Prescription was an “even if” discussion of the merits.]

VIII. REQUEST FOR RULING

Revenue Memorandum Order No. 45-99

A. Procedure

B. Appeal Procedure

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. — The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.


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The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

Revenue Administrative Order No. 3-2001, Oct. 22, 2001 SUBJECT: IMPLEMENTING FURTHER DEPARTMENT ORDER NO. 23-01 DATED OCTOBER 5, 2001 THAT PROVIDES FOR THE RULES ON THE FIRST PARAGRAPH OF SECTION 4 OF THE TAX CODE OF 1997

TO: ALL INTERNAL REVENUE OFFICERS AND OTHERS CONCERNED

I. OBJECTIVES

To identify the responsibilities of revenue officers and to provide for the procedure for the proper implementation of the first paragraph of Section 4 of the Tax Code of 1997, as implemented by Department Order No. 23-01, that vests in the Secretary of Finance the power to review the interpretation of the Tax Code and other tax laws by the Commissioner of Internal Revenue.

To provide for the certification fees to be paid to the Bureau of Internal Revenue by the taxpayers seeking review of rulings that interpret the provisions of the Tax Code and other tax laws.

II. SCOPE

This Revenue Administrative Order (RAO) covers rulings issued by the Commissioner of Internal Revenue (Commissioner) and by officers (delegatee/s) with duly delegated powers to issue rulings on behalf of the Commissioner under pertinent issuances such as, but not limited to the Commissioner's Memoranda dated June 21, 2000 and October 26, 2000; Revenue Memorandum Order (RMO) No. 75-99; Revenue Memorandum Circular (RMC) No. 10-2001, RMC Nos. 3-2001 and 2-2001, as supplemented by RMC No. 14-2001; and, RMC No. 39-2001.

Particularly, these rulings refer to those issued by the Commissioner, or by his Deputy Commissioner for Legal and Inspection Group, Assistant Commissioner for Legal Service, or by the Regional Directors, as may be appropriate.

This RAO does not cover, however, disputed assessments, refunds of internal revenue taxes, fees or other charges, and penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws or portions thereof administered by the Bureau of Internal Revenue. In these instances, the Court of Tax Appeals has the exclusive appellate jurisdiction pursuant to the second paragraph of the same Section 4 of the Tax Code of 1997.

Neither shall this RAO apply to rulings that are deemed void ab initio because they contradict duly issued Revenue Regulations, Revenue Memorandum Orders, Revenue Memorandum Rulings, and Revenue Memorandum Circulars.

III. PROCEDURE

1. Within thirty (30) days from the date of receipt of the adverse ruling of the Commissioner, the affected taxpayer may seek the review of the ruling by the Department of Finance. In all cases, the adverse ruling that can be brought to the Department of Finance shall only be the final adverse decision of the Commissioner.

In the case of rulings by the Commissioner's delegatees, the taxpayer shall exhaust administrative remedies within the Bureau of Internal Revenue by filing a letter of reconsideration addressed to the Commissioner, but filed with the Office of the Assistant Commissioner for Legal Service (ACIR-LS) in the case of adverse rulings decided by the Revenue Regional Directors or with the Office of the Deputy Commissioner of Internal Revenue for Legal and Inspection Group (DCIR-LIG) in the case of adverse rulings decided by the ACIR-LS within fifteen (15) days from receipt of an adverse ruling, before requesting for a review by the Secretary of Finance;


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2. File with the Office of the Commissioner, for endorsement to the ACIR-LS, a copy of the request for review of the Ruling;

3. Request from the ACIR-LS for an authenticated and certified true copy of the complete docket or records on file.

4. Pay the certification fee to the authorized agent bank having jurisdiction over the taxpayer or the place of business of the taxpayer, using Payment Form 0605;

5. Present to the ACIR-LS the original copy of the official receipt that evidences payment of the certification fee, and submit a photocopy thereof to form part of the docket or records of the case;

6. Within five (5) days from the date of payment of the certification fee, the ACIR-LS shall instruct the Division Chief of the Law Division or the International Tax Affairs Division, as the case may be, for each and every page of the records of the case, sequentially numbered, to be photocopied, including a copy of the subject BIR Ruling, and for the complete set to be stamped and signed by the concerned Division Chief to be an authentic and true copy of the original and complete records on file. In the case of rulings made by the Revenue Regional Directors and finally decided by the Commissioner to be adverse to the taxpayer, the ACIR-LS shall certify and authenticate the duplicate copy of the records of the case;

7. The appropriate office shall also prepare the endorsement letter of the Commissioner of Internal Revenue (Annex "A"), which letter shall be signed by the Assistant Commissioner for Legal Service, who is hereby designated as the Commissioner's duly authorized representative. In this regard, the ACIR-LS shall submit to the Commissioner, copy furnished the ODCIR-LIG, a monthly report of cases appealed and certifications made;

8. The authenticated and certified true copy of the docket or records of the case, including the endorsement thereof to the Secretary of Finance, through the Revenue Operations Group, shall be released to the holder of the original copy of the official receipt evidencing payment of the certification fee.

IV. TAXPAYER'S REQUEST FOR REVIEW BY THE SECRETARY OF FINANCE

A taxpayer who receives an adverse ruling from the Commissioner of Internal Revenue may, within thirty (30) days from the date of receipt of such ruling, seek its review by the Secretary of Finance, either by himself/itself or through his/its duly accredited tax agent or representative. The request for review shall be in writing and under oath, and must:

a) be addressed to the Secretary of Finance and filed with the Revenue Operations Group, Department of Finance, DOF Building, BSP Complex, Roxas Boulevard corner Pablo Ocampo Street, City of Manila;

b) contain the heading "Request for Review of BIR Ruling No. _____";

c) allege and show that the request was filed within the reglementary period;

d) allege the material facts upon which the ruling was requested;

e) state that exactly the same set of facts were presented to the BIR;

f) define the issues to be resolved;

g) contain the facts and the law relied upon to dispute the ruling of the Commissioner;

h) be signed by or on behalf of the taxpayer filing the request for review, provided that, only those lawyers engaged by the taxpayer and/or tax agents accredited by the BIR may sign on behalf of the taxpayer;

i) indicate the Taxpayer Identification Number (TIN) of the taxpayer;

j) be accompanied by a copy of the Commissioner's challenged ruling;

k) contain a statement of the Office of the Commissioner of Internal Revenue, indicating that a copy of the request for review of the ruling was received by the Commissioner's Office and;

l) specifically state that the taxpayer does not have a pending assessment or case in any court of justice where the same issues are being considered.


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Furthermore, the taxpayer must, at the time of filing of the request for review, submit a duplicate copy of the records on file with the BIR pertaining to his request, which set of records must be authenticated and certified by the BIR.

V. CERTIFICATION FEE

For this purpose, the requesting taxpayer shall pay a certification fee in the amount of ten pesos (P10.00) for every page of the complete records on file that shall be reproduced and certified to be a true and authentic copy thereof.

Any and all amounts paid as certification fee are non-refundable and shall be forfeited in case the taxpayer finally decides not to seek a review by the Secretary of Finance.

VI. EFFECTIVITY CLAUSE

This Order shall take effect immediately.

Revenue Memorandum Circular No. 40-A-2002, May 7, 2002

C. Non-Retroactivity of Revocation of Rulings or Regulations

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith.

COMMISSIONER v. MEGA GEN. MERCH. (1988) — “specific tax, to 7%, then back to specific tax/paraffin wax imports” Mega General Merchandising Corporation (MGMC) is engaged in the business of importing paraffin wax. In 1974, MGMC started to import such goods. The importation imposed upon a specific tax under Sec 142(i) of the Tax Code (MGMC would pay a relatively higher amount under this tax provision). Subsequently, due to Ruling of the CIR in 1977, importation of paraffin wax is only now subject to a 7% tax rate. Then, a year after, in 1978, the CIR revoked the previous ruling and stated that paraffin imports are subject to the specific rate under Sec 142(i).

MGMC now claims a refund of the tax paid by them on the year 1977, because they claim to be prejudiced by the passing of the new Ruling of the CIR in 1978. The CTA ruled in their favor that revocations of rulings must not prejudice the rights of taxpayers. But the SC reversed the decision of the CTA, although it is true that they were prejudiced by the revocation, their importation has dated way back before the passing of the first ruling in 1977.

CIR v. BURROUGHS LTD. AND CTA (1986) — In 1979 Burroughs applied with the Central Bank for authority to remit branch profits to its foreign branch. The total amount of its remittance was 7,647,058.00 and under Sec. 24 (b)(ii) it was obliged to deduct 15% as remittance tax amounting to 1,147,058.70 with the actual amount remitted amounting to 6,499,999.30. In 1980, the then acting commissioner issued a RR which stated that Sec. 24 (b)(ii) had been interpreted to mean that “the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. “ Thus, in 1981 Burroughs filed before the CTA a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax (because 15% of 6,499,999.30 is only 974,999.89). The CTA affirmed the decision. BIR claims that such ruling is no longer applicable to Burroughs because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980 which stated that considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad. The issue was whether or not under such memorandum circular, Burroughs is no longer entitled to refund. The court ruled in the negative stating that


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since Burroughs paid its remittance tax in 1979, RR of 1980 was the correct interpretation to be applied. It cited Sec. 327 (now Sec. 246) which provides for the non-retroactive application of any revocation, modification, or reversal of any of the rules and regulations promulgated by the BIR if it will be prejudicial to the taxpayer save for certain exceptions which the court did not find in the case at bar.

ABS-CBN v. CTA (1981) — By virtue of General Circular No. V-334 issued by the CIR, ABS-CBN (petitioner) dutifully withheld and turned over to the BIR the amount of 30% of ½ of the film rentals paid by it to foreign corporations not engaged in trade or business within the Philippines. The last year that petitioner withheld taxes pursuant to the foregoing Circular was in 1968. In 1971, the CIR issued Revenue Memorandum Circular No. 4-71, revoking the abovementioned General Circular, and held that the latter was “erroneous for lack of legal basis,” because “the tax therein prescribed should be based on gross income without deduction whatever.”

On the basis of the new Circular, the CIR issued against ABS-CBN a letter of assessment and demand, requiring them to pay deficiency withholding income tax on the remitted films for rentals in years 1965 through 1968 and film royalty as of the end of 1968.

The SC ruled that notwithstanding the well-entrenched principle that the Government is never estopped from collecting taxes because mistakes or errors on the part of agents, the same admits of exceptions in the interest of justice and fair play. Thus it has been held that the Commissioner or Collector is precluded from adopting a position inconsistent with one previously taken where injustice would result therefrom or where there has been misrepresentation to the taxpayer.

PNOC v. CA (2005) — An administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given.

It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led to Commissioner Ong’s revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such a revocation was only proper considering that the former BIR Commissioner’s decision to approve the said compromise agreement was based on the erroneous construction of the law (i.e., E.O. No. 44 and its implementing rules and regulations) and should not give rise to any vested right on PNOC.

Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a general rule, the Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents

CIR v. BENGUET CORPORATION (2005) — In January of 1988, Benguet Corporation applied for and was granted by the BIR zero-rated status on its sale of gold to Central Bank. On 28 August 1988, Deputy Commissioner of Internal Revenue Eufracio D. Santos issued VAT Ruling No. 3788-88, which declared that “[t]he sale of gold to Central Bank is considered as export sale subject to zero-rate pursuant to Section 100 of the Tax Code, as amended by Executive Order No. 273.” The BIR came out with at least six (6) other issuances reiterating the zero-rating of sale of gold to the Central Bank, the latest of which is VAT Ruling No. 036-90 dated 14 February 1990. Relying on its zero-rated status and the above issuances, respondent sold gold to the Central Bank during the period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred in relation to the subject sales of gold. It then filed applications for tax refunds/credits corresponding to input VAT. Respondent’s applications were either unacted upon or expressly disallowed by petitioner. In addition, petitioner issued a deficiency assessment against respondent when, after applying respondent’s creditable input VAT costs against the retroactive 10% VAT levy, there resulted a balance of excess output VAT.

The express disallowance of respondent’s application for refunds/credits and the issuance of deficiency assessments against it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated 23 January 1992-that was issued subsequent to the consummation of the subject sales of gold to the Central Bank which provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be subject to 10% VAT. In


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addition, BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all inconsistent BIR issuances. The BIR also issued VAT Ruling No. 059-92 dated 28 April 1992 and Revenue Memorandum Order No. 22-92 which decreed that the revocation of VAT Ruling No. 3788-88 by VAT Ruling No. 008-92 would not unduly prejudice mining companies and, thus, could be applied retroactively.

Respondent filed three separate petitions for review with the CTA arguing that retroactive application of BIR VAT Ruling No. 008-92 would violate Sec. 246 of the NIRC, which mandates the non-retroactivity of rulings or circulars issued by the Commissioner of Internal Revenue that would operate to prejudice the taxpayer. CTA dismissed all three petitions. CA reversed. Petitioner appealed to the SC with the question of whether respondent would suffer prejudice from the retroactive application of VAT Ruling No. 008-92.

At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. Respondent should not be faulted for relying on the BIR’s interpretation of the said laws and regulations. While it is true, as petitioner alleges, that government is not estopped from collecting taxes which remain unpaid on account of the errors or mistakes of its agents and/or officials and there could be no vested right arising from an erroneous interpretation of law, these principles must give way to exceptions based on and in keeping with the interest of justice and fairplay, as has been done in the instant matter. For, it is primordial that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Before respondent was entitled to tax refunds or credits based on petitioner’s own issuances. Then suddenly, it found itself instead being made to pay deficiency taxes with petitioner’s retroactive change in the VAT categorization of respondent’s transactions with the Central Bank. This is the sort of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC abhors and forbids.

CIR v. BENGUET CORPORATION (2006) — Similar facts and the same ruling with the 2005 case. Additional information: There is no question, therefore, as to the prohibition against the retroactive application of the revocation, modification or reversal, as the case maybe, of previously established Bureau on Internal Revenue (BIR) Rulings when the taxpayer’s interest would be prejudiced thereby. But even if prejudicial to a taxpayer, retroactive application is still allowed where: (a) a taxpayer deliberately misstates or omits material facts from his return or any document required by the BIR; (b) where subsequent facts gathered by the BIR are materially different from which the ruling is based; and (c) where the taxpayer acted in bad faith.

CIR v. BURMEISTER and WAIN SCANDANAVIAN CONTRACTOR MINDANAO, INC. (2007) — “revocation of a ruling by the CIR will not be given retroactive application if the revocation will prejudice the taxpayer” BWSCM sought a ruling from the BIR to ascertain the tax implications of transactions involving foreign currency remittances. BIR Ruling No. 023-95 was issued declaring that if BWSCM chooses to register as a VAT taxpayer and the consideration for its services is paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, its services shall be subject to 0% VAT. Pursuant to the ruling, BWSCM registered as a VAT taxpayer. For the year 1996, it filed VAT returns showing zero rated sales. However, in 1997, it subjected itself to the 10% VAT because it allegedly misinterpreted RR No. 5-96 which is applicable to its case. In 1999, it was able to secure VAT Ruling No. 003-99 which reconfirmed BIR Ruling No. 023-95 holding that the services of BWSCM is subject to VAT at 0%. Pursuant to this, BWSCM filed a claim for the issuance of a TCC representing the 10% VAT payments. Held: BWSCM’s services do not qualify for 0% VAT because the recipient is doing business not outside, but within the Philippines. Nevertheless, BWSCM’s reliance on the two rulings holding that it is subject to 0% VAT binds the BIR. When the CIR filed its Answer in the CTA challenging the claim for refund, such serves as a revocation of the rulings. However, such revocation cannot be given retroactive effect since it will prejudice BWSCM. Changing BWSCM’s status will deprive it of a refund of a substantial amount representing excess output tax. Nonetheless, from the filing of the CIR’s Answer before the CTA, BWSCM’s services shall be subject to the regular 10% VAT as such filing is deemed a revocation of the rulings.

CIR v. CA, CTA, & ALHAMBRA INDUSTRIES, INC. (1997) — Alhambra is engaged in the manufacture and sale of cigarette products. On April 1991, the CIR assessed them with deficiency Ad Valorem Tax (AVT). Eventually, Alhambra elevated the case to the CTA. The CTA ordered the CIR to refund to Alhambra erroneously paid AVT.


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According to the CTA, Alhambra used BIR Ruling 473-88 (1988), allowing it to exclude VAT in the determination of gross selling price for purposes of computing AVT. Thereafter, CIR issued BIR Ruling 017-91 (1991), revoking the earlier BIR Ruling 473-88 for being violative of Sec. 142 of the then Tax Code. It included back the VAT to the gross selling price in determining the tax base for computing the AVT on cigarettes. CIR sought to apply the revocation retroactively to Alhambra’s removals of cigarettes for the period starting November 1990 to January 1991 on the ground that Alhambra allegedly acted in bad faith which is an exception to the rule on non-retroactivity of BIR Rulings. The CIR also alleged that since the earlier ruling is contrary to the Tax Code, it does not confer vested rights to Alhambra; that good faith is immaterial in cases of reliance on a void ruling; that Alhambra acted in good faith; that there is presumption of regularity in the assessment; and strict construction of claim of tax refunds should be applied.

CIR claims that Alhambra falls under the 3rd exception to non-retroactivity, which is bad faith. Bad faith imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of interest or ill will.Alhambra, upon knowledge of the effectivity of the newer BIR Ruling 017-91, immediately implemented the method of computation mandated therein. This manifests its good faith. Well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the CIR would have no retroactive application if to so apply them would be prejudicial to the taxpayers, subjects to exceptions (not present in this case). Alhambra would be prejudiced by the retroactive application.

CIR v. TELEFUNKEN SEMICONDUCTOR PHILIPPINES, INC. (1995) — Telefunken is registered with the Board of Investments (BOI) under Republic Act No. 6135. Telefunken paid contractor’s tax. Then Telefunken wrote a letter to the BIR stating that the payment of contractor’s tax was erroneous and requested its refund or tax credit thereof. Telefunken contended that under the provisions of Section 7 of Republic Act No. 6135 in relation to Section 8 (a) of Republic Act No. 5186 (The Investment Act), it was exempted from the payment of all national internal revenue taxes for the period in question, except for income tax. CIR argues that the NIRC speaks of firms registered under Republic Act No. 5186 and thus, the privilege of tax exemption cannot be made to apply to firms registered under Republic Act No. 6135.

Telefunken is entitled to the tax credit. There is no difference between the gross receipts of pioneer enterprises registered with the BOI under RA No. 6135 and the gross receipts of registered pioneer enterprises under RA No. 5186. In fact, the CIR himself had ruled in the same on 1974 in a case. CIR now maintains that this 1974 ruling has been abrogated with the passage of the 1977 Tax Code. However, the wording of the relevant part(for this case) of the 1974 and 1977 Tax Code are the same. Lastly, under Sec. 246 of the National Internal Revenue Code, rulings of the BIR may not be given retroactive effect, if the same is prejudicial to the taxpayer.

D. Weight of BIR Rulings

PBCOM v. CIR (1999) — Weight of BIR Rulings. PBCom filed its quarterly income tax returns for the first and second quarters of 1985. Subsequently, however, PBCom suffered net loss thereby showing no income tax liability in its Annual Income Tax Returns for the year-ended December 31, 1985. For the succeeding year PBCom likewise reported a net loss and thus declared no tax payable for the year. But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to the BIR withholding creditable taxes in 1986. PBCom then requested CIR for a tax credit for the withholding taxes. Thereafter it filed a claim for refund of creditable withholding tax. Pending the investigation of CIR, it filed a Petition for Review with CTA. CTA decided in favor of the BIR on the ground that the Petition was filed out of time as the same was filed beyond the two-year reglementary period. The issue now is whether RR 7-85, which alters the reglementary period from 2 years to 10 years, is valid, thereby making PBCom’s petition valid. HELD: it is INVALID. Administrative issuances are merely interpretations and not expansions of the provisions of law, thus, in case of inconsistency, the law prevails over them. Administrative agencies have no legislative power. When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977


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NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress.

E. Reliance on Ruling Issued to Third Party

SANIWARES v. CIR (1992)

F. Authority of Regional Directors to Issue Certain Rulings

Revenue Memorandum Circular No. 3-2001, Jan. 31, 2001

IX. AMNESTY, ABATEMENT, AND COMPROMISE

CIR v. CA (1999) — Tax amnesties like tax exemption are strictly construed against the taxpayer and liberally construed in favor of the taxing authority.

Don Andres Soriano founded A.Soriano Y Cia which became ANSCOR a corporation wholly owned and controlled by the family of Don Andres. Over the years the value of ANSCOR increased and stock dividends were declared and issued to Don Andres. When he died one half of his shares was transferred to his wife as her conjugal share and the other half remained with his estate. Don Andres’s wife and his estate exchanged a portion of their common shares to preferred shares. ANSCOR in a board resolution redeemed a majority of the common stock of Don Andres’s estate saying that their redemption of stocks was to partially reduce the company’s foreign exchanges remittance in case dividends are declared.

After examining the books of accounts of ANSCOR, they were assessed for deficiency withholding tax at the source for the year 1968 and 1969 despite the claim of ANSCOR that it availed of the tax amnesty under PD 23 as amended by PD 67. ANSCOR protested but was denied. In a petition for review, the CTA reversed the ruling of the CIR by interpreting Sec 83b of the 1939 Revenue Act. CTA said the redemption of stock of ANSCOR and their exchange of common with preferred created income. CIR claimed that what ANSCOR did was a cancellation and in effect the estate of Don Andres increased and ANSCOR had a duty to withhold tax. ANSCOR denied this and specifically invoked the tax amnesty.

PD 67 condones the collection of internal revenue taxes including penalties for non-payment as well as civil, criminal or administrative liability from the voluntary disclosure of previously untaxed income and/or wealth realized here or abroad by any taxpayer. ANSCOR was assessed deficiency withholding tax and as such is held liable in the capacity of withholding agent and not as a taxpayer. As a withholding agent is no more than an agent or a collector of tax for the government for payment of the taxpayer. He is not liable for the tax of the taxpayer as no wealth flowed into him — he earned no income. Since as a withholding agent he earned no income and PD 67 applies only to income earned that was not declared and not collected, the amnesty under the aforementioned law does not apply to him.

(Important) Tax Amnesty, much like tax exemption is never favored nor presumed in law and if granted by the statute, the term of the amnesty like that if tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. Furthermore, the claim of amnesty of ANSCOR cannot prosper because implementing rule of PD 370 Sec 4.2 says that the tax amnesty does not cover tax liabilities with or without assessment on withholding tax at the source under Sec 53 — 54 of the NIRC. Thus, by specific provision of law it is not covered by the amnesty.

PEOPLE v. SANDIGANBAYAN (2005)

SECURITY BANK v. CIR (2006) — Security Bank Corp. (SBC) received a PAN for deficiency Documentary Stamp Tax (DST) on the (1) promissory notes issued and (2) on sale of securities under repurchase agreement. SBC protested because the promissory notes were NON-NEGOTIABLE and therefore not subject to DST and the sale of securities were also not subject to DST. The BIR did not answer the letter-protest but it sent an assessment letter . SBC answered and said that the BIR, through former Commissioner Tan, entered into a general


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compromise agreement with the Bankers Association of the Phil. (BAP) concerning the DST assessment relating to non-negotiable promissory notes. Pursuant to said compromise, SBC signed its own compromise agreement by paying P650k as full settlement. The court said that the compromise was not valid because it was not authorized by the BIR commissioner. SBC’s contention that the BIR, through its various officials, accepted its offer to settle its entire DST deficiency assessment. (they paid P650k) ISSUE: W/N the compromise is valid? HELD: NO. The BIR Commissioner has the sole power and authority to compromise taxes. Neither was there any showing that the BIR Commissioner specifically authorized those revenue officials, who purportedly accepted and approved SBC’s offer of payment, to compromise the DST on sale of securities, which, to stress, were not included in the Compromise Agreement of August 15, 1988 by delegating his power to compromise said DST assessment on securities. This ultra vires act of those revenue officials cannot have any valid and binding legal effect upon the BIR, so as to proscribe the latter from issuing the assailed reassessment of unpaid DST on the sales of securities under repurchase agreements for the year 1983.

PHILIPPINE BANKING CORPORATION (now Global Business Bank, Inc.) v. CIR (2009) — “Surviving or new corporations may avail of the tax amnesty in behalf of the corporation absorbed or dissolved pursuant to a merger or consolidation that took effect prior to taxable year 2005” Philippine Banking Corporation (PBC) offered its Special/Super Savings Deposit Account (SSDA) to its depositors. SSDAs allowed depositors who maintained a high daily average account balance to earn interest on their deposits at a higher rate, provided that a minimum deposit of P50,000 is maintained within an agreed time period of 30, 60, or 90 days. BIR sent PBC a final assessment notice for deficiency Documentary Stamp Tax (DST). The assessment was anchored on the fact that the law subjects certificates of deposits drawing interest to the payment of DST. BIR argued that while it is true that SSDA deposits are evidenced by a passbook instead of a certificate of deposit, SSDA deposits were akin to time deposits evidenced by certificates and therefore, the passbook must be treated as a certificate in itself and thus, subject to DST.

The CTA 2nd division, CTA en banc and thereafter the SC itself found PBC liable to pay DST. However, during the pendency of the case, RA 948010 granting an amnesty on all unpaid revenue taxes imposed by the

10. The pertinent provisions of RA 9480 are:

Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall cover all national internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as of December 31, 2005: Provided, however, That the amnesty hereby authorized and granted shall not cover persons or cases enumerated under Section 8 hereof.

...

Sec. 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under Section 5 hereof, and have fully complied with all its conditions shall be entitled to the following immunities and privileges:

1. The taxpayer shall be immune from the payment of taxes, as well as addition thereto, and the appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.

...

Sec. 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the following persons or cases existing as of the effectivity of this Act:

1. Withholding agents with respect to their withholding tax liabilities;

2. Those with pending cases falling under the jurisdiction of the Presidential Commission on Good Government;

3. Those with pending cases involving unexplained or unlawfully acquired wealth or under the Anti-Graft and Corrupt Practices Act;

4. Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;


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national government for the taxable year 2005 and prior years lapsed into law. Pursuant to the law, Metrobank, the surviving entity that absorbed PBC, applied for and complied with all the requirements of the Tax Amnesty program. By virtue of Metrobank’s availment, PBC is now deemed statutorily discharged from paying the DST, it appearing that the finding of the SC with respect to PBC’s liability to pay the tax had yet to become final and executory when Metrobank qualified for the amnesty program.

BAÑAS, JR. v. CA (2000) — “mere filing of tax amnesty return does not shield from prosecution” In 1976, Bañas sold a parcel of land located in Muntinlupa to Ayala Investment Corp. for around Php2.3M. Ayala paid around Php400k, w/ the agreement that the remaining balance would be paid in four equal installments, w/ 12% interest p.a. This was evidenced by one promissory note. Contrary to regular practice, Bañas discounted the promissory note that same day, and Ayala issued nine checks, each amounting to Php205k. In its 1976 Income Tax Return, Bañas reported as income the original Php400k payment, but upon inspection, it was found out that Bañas didn’t include any amounts receivable. Therefore, the BIR concluded that the sale was not really on installment basis but was paid w/ cash and that having realized the entire income that year, the whole Php2.3M should have been indicated therein, not just the Php400k. The BIR found that he had deficiency taxes of around Php900k.

A criminal case for tax evasion was filed against Bañas. On July 1981, Bañas filed for tax amnesty under P.D. 1740 and paid Php41,729. Later that November, he filed for another amnesty under P.D. 1840 and paid Php1.5k. In both, he didn’t recognize that the sale was on cash basis. He didn’t amend his income return, and didn’t pay the additional taxes due him. However, the mere filing of tax amnesty return under P.D.s 1740 & 1840 doesn’t ipso facto shield him from prosecution. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. To avail of a tax amnesty granted by the government, and to be immune from suit on its delinquencies, the taxpayer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income. In both instances, he did not meet the twin requirements under both P.D.’s of (1) declaring all his untaxed income and (2) full payment of tax due thereon. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.

REPUBLIC v. CA and PRECISION PRINTING (2000) — “assessments made prior to August 21, 1986 are still covered the E.O. 41” On June 10, 1985, BIR issued an assessment notice and letter against Precision Printing and demanded payment (P248,406.11). However, Precision Printing did not pay within the prescribed period. The tax assessment became final and demandable. On October 31, 1986, Precision Printing filed a Tax Amnesty Return (pursuant to EO 41), Statements of Net Worth, its Amended Tax Return, and other supporting documents. BIR filed a complaint against Precision Printing for the collection of deficiency income tax. Precision Printing claimed that it is not liable because of the Tax Amnesty. RTC ruled in favor of Precision Printing. CA upheld. Under R.O. 4-87, a certification of tax amnesty is sufficient basis for “the cancellation/withdrawal of assessment notice and letters of demand, issued after August 21, 1986 for the collection of income, business, estate or donor’s taxes during the taxable years.” BIR claims Precision Printing was assessed of its tax deficiency before Revenue Order 4-87 was issued to implement E.O. 41. BIR is wrong. On its face, R .O. 4-87 reckoned the applicability of the tax amnesty from the date E.O. 41 took effect on August 22, 1986. However, EO 41 does not limit its applicability to assessment made prior to its effectivity. E.O. 41 merely provided for a general statement covering all tax liabilities incurred from 1981-1985. If it intended to exclude 1981-1985 tax liabilities already assessed, the law

5. Those with pending criminal cases for tax evasion and other criminal offenses under Chapter II of Title X of the National Internal Revenue Code of 1997, as amended, and the felonies of frauds, illegal exactions and transactions, and malversation of public funds and property under Chapters III and IV of Title VII of the Revised Penal Code; and

6. Tax cases subject of final and executory judgment by the courts. (Emphasis supplied)


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could have simply included exclusionary clauses. It did not. E.O. 41 is in the nature of a general grant of tax amnesty subject only to cases specifically excepted by it.

CIR v. ARIETE (2010)

Facts: Respondent filed her income tax returns for the years 1993, 1994, 1995, and 1996 under Revenue Memorandum Order (RMO) No. 59-97 as amended by RMO No. 60-97 and RMO No. 63-97, otherwise known as the Voluntary Assessment Program (VAP). Respondent was subsequently assessed with deficiency income taxes for the years 1993 to 1996. CIR issued four assessment notices against respondent. Respondent filed an Assessment Protest with Prayer for Reinvestigation but was denied. On 16 April 1999, respondent offered a compromise settlement but the same was denied. It elevated the case to the CTA which canceled the deficiency assessments.

The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled that the requirements before a person may be excluded from the coverage of the VAP are:

a. The person(s) must be under investigation by the Tax Fraud Division and/or the regional Special Investigation Division;

b. The investigation must be as a result of a verified information filed by an informer under Section 281 of the NIRC, as amended; and

c. The investigation must be duly registered in the Official Registry Book of the Bureau before the date of availment under the VAP The CTA also stated that the rationale behind the VAP is to give taxpayers a final opportunity to come up with a clean slate before they will be dealt with strictly for not paying their correct taxes. The CTA noted that under the RMOs, among the benefits that can be availed by the taxpayer-applicant are:

1) A bona fide rectification of filing errors and assessment of tax liabilities under the VAP shall relieve the taxpayer-applicant from any criminal or civil liability incident to the misdeclaration of incomes, purchases, deductions, etc., and non-filing of a return.

2) The taxpayer who shall avail of the VAP shall be liable only for the payment of the basic tax due.

The CTA ruled that even if respondent violated the National Internal Revenue Code (Tax Code), she was given the chance to rectify her fault and be absolved of criminal and civil liabilities incident to her non-filing of income tax by virtue of the VAP. The CTA held that respondent is not disqualified to avail of the VAP. Hence, respondent has no more liabilities after paying the corresponding taxes due.

ARGUMENTS

Petitioner contends that the VAP, being in the nature of a tax amnesty, must be strictly construed against the taxpayer-applicant such that petitioner’s failure to record the information in the Official Registry Book of the BIR does not affect respondent’s disqualification from availment of the benefits under the VAP. Petitioner argues that taxpayers who are under investigation for non-filing of income tax returns before their availment of the VAP are not covered by the program and are not entitiled to its benefits. Petitioner alleges that the underlying reason for the disqualification is that availment of the VAP by such taxpayer is no longer voluntary. Petitioner asserts that voluntariness is the very essence of the Voluntary Assessment Program.

Respondent claims that where the terms of a statute are clear and unambiguous, no interpretation is called for, and the law is applied as written, for application is the first duty of the court, and interpretation, only where literal application is impossible or inadequate.

SUPREME COURT’S RULING

On 27 October 1997, the CIR, in implementing the VAP, issued RMO No. 59-97 to give erring taxpayers a final opportunity to come up with a clean slate. Any person liable to pay income tax on business and compensation income, value-added tax and other percentage taxes under Titles II, IV and V, respectively, of the Tax Code for the taxable years 1993 to 1996, who due to inadvertence or otherwise, has not filed the required tax return may avail of the benefits under the VAP.


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It is evident from these RMOs that the CIR was consistent in using the word “and” and has even underscored the word in RMO No. 63-97. This denotes that in addition to the filing of the verified information, the same should also be duly recorded in the Official Registry Book of the BIR. It is sufficiently clear that for a person to be excluded from the coverage of the VAP, the verified information must not only be filed under Section 281of the Tax Code, it must also be duly recorded in the Official Registry Book of the BIR before the date of availment under the VAP.

Petitioner’s failure to effect compliance with the requirement of recording the verified information or investigation in the Official Registry Book of the BIR means that respondent, even if under investigation, can avail of the benefits of the VAP. Consequently, respondent is relieved from any criminal or civil liability incident to the non-filing of a return.

CIR v. PHILEX MINING CORPORATION (2010) — “Availment of tax amnesty does not mean admission of validity of assessments made" "Presumption of correctness of SALN submitted to avail of tax amnesty, applies even against CIR” In 2002 The CIR assessed deficiency taxes and sent a Formal Letter of Demand against PMC for the year 1998 (not under this topic: assessments void, issued beyond prescriptive period of 3 yrs; Although 2 waivers were signed by PMC, CTA division held these to be invalid for being defective, not strictly complying with the form the RMO prescribed, therefore did not toll prescriptive period). Furthermore, PMC in 2008 availed of the tax amnesty program RA 9480, which granted amnesty on all unpaid internal revenue taxes for 2005 and prior years, which was approved. CIR contended its availment of the tax amnesty amounts to admitting the validity of the assessments made. Section 1 of R.A. No. 9480 provides that the tax amnesty covers all national internal revenue taxes for taxable year 2005 and prior years, with or without assessments, that have remained unpaid as of December 31, 2005. It does not necessarily mean that a taxpayer admits the validity of any prior assessments and waivers, since the tax amnesty covers even those without any assessment. The law does not impose such conditions, save for the taxpayer to satisfy all the qualification requirements. Said law also requires applicants to fill up an SALN form, to be given to the Revenue District Officer of the BIR. The BIR is presumed by law to have sufficiently passed upon taxpayer's compliance, it cannot belatedly question the correctness of PMC's SALN at this point in time, after it has already failed to even file a timely MR when the CTA resolved PMC's availment of the tax amnesty. Moreover, there is a presumption created by law of the correctness of the SALN, and those who can question this are parties OTHER than the BIR or its agents.

X. DECLARATORY RELIEF, CERTIORARI, PROHIBITION, AND MANDAMUS

BRITISH AMERICAN TOBACCO v. CAMACHO (2008) — “issue on constitutionality not within the jurisdiction of CTA” A petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction was filed by petitioner to enjoin the implementation of Section 145 of the NIRC, RR Nos. 1-97, 9-2003, 22-2003 and RMO No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. Lower court upheld the constitutionality and this prompted the filing of a petition for review to SC. While the petition was pending, RA 9334 took effect which effectively increased the excise tax of petitioner’s products. Commissioner assessed petitioner’s importation of 911,000 packs of Lucky Strike cigarettes liable for taxes in the total sum of P22.775M. Thus petitioner filed a Supplement to Petition for Review which assailed the constitutionality of RA 9334 insofar as it retained Annex “D” (classification of brand of cigarettes based on average net retail price as of Oct 1996) and praying for the classification of Lucky Strike products at a lower tax bracket. Fortune Tobacco intervened and contended that petitioner should have brought its petition before the CTA rather than the RTC. Sec 7 of RA 1125 provides for the jurisdiction of CTA which includes exclusive appellate jurisdiction to review by appeal the decisions or the inaction deemed as denial of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue. While the CTA has jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The petition for injunction


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filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. Petitioner, therefore, properly filed the subject case before the RTC.

CJH (Camp John Hay) DEVELOPMENT CORPORATION v. BIR, BOC (2008)

Facts: Proclamation No. 420 was issued by President FVR to create a Special Economic Zone (SEZ) in a portion of Camp John Hay in Baguio City. Section 3 of the Proclamation granted incentives to the SEZ, such as tax exemptions for businesses located inside the SEZ, and the operation of the SEZ as a special customs territory providing for tax and duty free importations of certain goods. In line with the Proclamation, the BIR issued its Revenue Regulations while the BOC issued its Customs Administrative Order. The two issuances provided the rules and regulations to be implemented within the Camp John Hay SEZ. Subsequently, however, Section 3 of the Proclamation was declared unconstitutional by the SC. Thus, the Office of the City Treasurer sent a demand letter for real property taxes. The BOC followed suit and demanded from CJH unpaid duties and taxes due on all the importations made by CJH in the previous years. The BIR also sent a letter to CJH stating that CJH will be considered as an ordinary corporation subject to the regular corporate income tax. CJH then filed before the RTC a declaratory relief questioning the retroactive application by the BOC of the decision of the Court in voiding Sec. 3 of Proc. No.420. CJH claimed that the assessment was null and void because it violated the non-retroactive principle under the Tariff and Customs Code.

The RTC rendered its order denying the petition of CJH, ruling that the decision of the Court applies retroactively because the tax exemption granted by Proclamation No. 420 is null and void from the beginning. (1) The RTC also ruled that the petition for declaratory relief is not the appropriate remedy. (2) A judgment of the court cannot be the proper subject of a petition for declaratory relief; (3) Also, the RTC held that Commonwealth Act No. 55 (CA No. 55), which forbids the use of declaratory relief in cases where a taxpayer questions his tax liability, is still in force and effect.

Held: The SC upheld the decision of the RTC, expounding on the ruling of the RTC, as follows:

(1) There are other remedies available to a party who is not agreeable to a decision by a court. If it involves a decision of an appellate court, the party may file a motion for reconsideration or new trial in order that the defect may be corrected. In case of ambiguity of the decision, a party may file a motion for a clarificatory judgment. CJH is not left without recourse. The Tariff and Customs Code (TCC) provides for the administrative and judicial remedies available to a taxpayer who is minded to contest an assessment, subject of course to certain reglementary periods.

(2) The proper subject matter of a declaratory relief is a deed, will, contract, or other written instrument, or the construction or validity of statute or ordinance. (CJH is claiming that the petition questions the validity of the demand letter or assessment sent to it by the BOC.) The SC ruled that it is really not the demand letter which is the subject matter of the petition. The court is asked to determine whether the decision of the SC (declaring Sec. 3 as null and void) has a retroactive effect. A petition for declaratory relief cannot properly have a court decision as its subject matter.

(3) The SC said that CA No. 55 is still in effect since it was not yet repealed by a subsequent law. (CJH is claiming that CA No. 55 has been repealed by the Rules on Declaratory Relief in the Rules of Court since the said provision was not included in the instances where declaratory relief will lie.) The Court cannot repeal, modify or alter an act of the Legislature.

NOTES: Requisites for a petition for declaratory relief to prosper are: (1) there must be a justiciable controversy; (2) the controversy must be between persons whose interests are adverse; (3) the party seeking declaratory relief must have a legal interest in the controversy; and (4) the issue involved must be ripe for judicial determination.

Taxation II Digests - Midterms

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prescribed zonal values

corresponding zonal

p2000 zonal value

zonal value of p650

zonal valuation guidelines

purposes of zonal valuation

higher zonal value p2000

real properties