Tax Review Class-Msu Case Digest

Taxation I Case Digest Compilation
College of Law, Silliman University

JD Class 2016
ENERAL PRINCIPLES & LIMITATIONS

# 45 Tan vs Del Rosario
GR 109290, 3 October 1994
Uniformity rule
FACTS: These two consolidated special civil actions for prohibition challenge, in G.R. No.
109289, the constitutionality of Republic Act No. 7496, also commonly known as the
Simplified Net Income Taxationn Scheme (SNIT), amending certain provisions of the
National Internal Revenue Regulations No. 293, promulgated by public respondents pursuant
to said law.
Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement
that taxation shall be uniform and equitable in that the law would now attempt to tax
single proprietorships and professionals differently from the manner it imposes the tax on
corporations and partnerships. Petitioners claim to be taxpayers adversely affected by the
continued implementation of the amendatory legislation.
ISSUE: Does Republic Act No. 7496 violate the Constitution for imposing taxes that are not
uniform
and
equitable.
RULING: The Petition is dismissed. Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of taxation, similarly situated, are to
be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91
Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are
used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve
the legislative purpose, (3) the law applies, all things being equal, to both present and future
conditions, and (4) the classification applies equally well to all those belonging to the same
class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 771).
What may instead be perceived to be apparent from the amendatory law is the legislative
intent to increasingly shift the income tax system towards the schedular approach in the
income taxation of individual taxpayers and to maintain, by and large, the present global
treatment on taxable corporations. We certainly do not view this classification to be arbitrary
and inappropriate.
Having arrived at this conclusion, the plea of petitioner to have the law declared
unconstitutional for being violative of due process must perforce fail. The due process clause
may correctly be invoked only when there is a clear contravention of inherent or
constitutional limitations in the exercise of the tax power.

JD Class 2016

JD Class 2016
#43 Shell Co. vs Vano

GR L-6093, 24 February 1954
Occupational tax via local ordinance; non-discrimination rule; uniformity rule; specific tax;
percentage tax
FACTS: The municipality of Cordova in Cebu adopted the following ordinances:

1. No. 10, series of 1946, which imposes an annual tax of P150 on occupation or
the exercise of the privilege of installation manager;
2. No. 9, series of 1947, which imposes an annual tax of P40 for local deposits in
drums of combustible and inflammable materials and an annual tax of P200
for tin can factories; and
3. No. 11, series of 1948, which imposes an annual tax of P150 on tin can
factories having a maximum output capacity of 30,000 tin cans.
Shell Co. of P.I. Ltd., a foreign corporation, filed suit for the refund of the taxes paid by it, on
the ground that the ordinances imposing such taxes are ultra vires. Defendant, as Municipal
Treasurer, denies such allegation.
ISSUES:
1. WON Ordinance No. 10 is ultra vires considering that installation manager is merely
a designation created by plaintiff and the same is a salaried employee which may not
be taxed by the municipality under CA No. 472?
2. WON Ordinance No. 10 is discriminatory and hostile because there is no other person
in the locality who is an installation manager?
3. WON Ordinance No. 9 is ultra vires considering that the same is in violation of Sec.
2244 of the Revised Administrative Code limiting the amount of the permit to P10 per
annum?
4. WON Ordinance No. 11 is ultra vires?
RULING: 1. The ordinance is not ultra vires. The municipal ordinance was enacted in
pursuance of CA 472 which authorizes municipal councils and municipal district councils "to
impose license taxes upon persons engaged in any occupation or business, or
exercising privileges in the municipality or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council or municipal district council, xxx." Even if the
installation manager is a salaried employee, it does not take away the fact that it is an
occupation. Further, the fact that the occupation is exercised in relation to another
occupation which pays an occupation tax does not exempt an individual exercising the
occupation to pay a separate occupation tax.
2. No, it is not discriminatory and hostile. The fact that there is no other person in the
locality who exercises such a "designation" or calling does not make the ordinance

JD Class 2016
discriminatory and hostile for the ordinance is and will be applicable to any person or firm
who exercises such calling or occupation named or designated as "installation manager."
3. The ordinance is not ultra vires. It was enacted by the municipality in the exercise of its
regulative authority as supported by the aforementioned provision of CA 472 and as long as
they are just and uniform and not percentage taxes and taxes on specified articles.
4. The ordinance is not ultra vires. It is neither a percentage tax nor a tax on specified
articles. Specific tax under the NIRC are those imposed on things manufactured or
produced in the Philippines for domestic sale or consumption" and upon "things imported
from the United States and foreign countries," such as distilled spirits, domestic denatured
alcohol, fermented liquors, products of tobacco, cigars and cigarettes, matches, mechanical
lighters, firecrackers, skimmed milk, manufactured oils and other fuels, coal, bunker fuel oil,
diesel fuel oil, cinematographic films, playing cards, saccharine. Tin can factories do not fall
under any of these as enumerated. It is also not a percentage tax as it is tax on business
and the maximum annual output capacity is not a percentage, because it is not a share or a
tax based on the amount of the proceeds realized out of the sale of the tin cans
manufactured [Not x% of the total gross sales of the business] but on the business of
manufacturing tin cans having a maximum annual output capacity of 30,000 tin cans.

JD Class 2016
#50 Tolentino vs Sec. of Finance

GR 115455, 30 October 1995
VAT vs license tax; tax exemption is a privilege; equality and uniformity
FACTS: The Value Added Tax (VAT) is levied on the sale, barter, or exchange of goods as
well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price
or gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic Act No 7716 seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code.
Among the petitioners was the Philippine Press which claims RA 7716 violates their press
freedom and liberty having removed them from the exemption to pay Value Added Tax. They
maintain that by withdrawing the exemption granted to print media transactions involving
printing, publication, importation or sale of newspapers, R.A. No. 7716 is a license tax which
singled out the press for discriminatory treatment and that within the class of mass media
the law discriminates against print media by giving broadcast media favoured treatment.
ISSUE: Whether or not the purpose of the VAT is similar to a license tax.
RULING: No. A license tax, unlike any ordinary tax, is mainly for regulation. Its imposition
on the press is unconstitutional because it lays a prior restraint on the exercise of
its right. Hence, although its application to others, such those selling goods, is valid,
its application to the press or to religious groups, such as the Jehovah' s Witnesses, in
connection with the latter' s sale of religious books and pamphlets, is unconstitutional.
As the U.S. Supreme Court put it, "it is one thing to impose a tax on income or
property of a preacher. I t is quite another thing to ex act a tax on him for delivering a
sermon." In withdrawing the exemption, the law merely subjects the press to the
same tax burden to which other businesses have long ago been subject.
The VAT is, however, different. It is not a license tax, it is not a tax on the exercise
a privilege, much less than a constitutional right. It is imposed on the sale, barter, lease,
exchange of goods or properties or the sale or exchange of services and the lease
properties purely for revenue purposes. To subject the press to its pay its income tax
subject it to general regulation is not to violate its freedom under the Constitution.
of
or
of
or
The exemption of the press was a privilege granted by the State, which has
the right to revoke it by including the Press under the VAT system without offending press
freedom under the Constitution.
Equality and uniformity of taxation means that all taxable articles or kinds of
property of the same class be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance applies equally to all persons, forms
and corporations placed in similar situation.

JD Class 2016
The VAT is regressive, because it is indirectin other words, its imposition may
be transferred to a person other than it is directed to. In comparison, income tax is
progressive, because it is directit is imposed directly on a person and his ability to
pay, which accordingly puts him in the proper bracket on a previously-fixed scale.

JD Class 2016
#60 ABAKADA vs Ermita

GR 168056, 1 September 2005
Delegation of taxation power; input and output tax; uniform and equitability of EVAT
FACTS: Before R.A. No. 9337 took effect (July 1, 2005, petitioners ABAKADA GURO Party List,
et al., filed a petition for prohibition. Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under
Article VI, Section 28(2) of the 1987 Philippine Constitution. They further contend that
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12%
when a certain condition is met, constitutes undue delegation of the legislative power to tax.
It states
. . . That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
(ii) National government deficit as a percentage of GDP of the previous
year exceeds one and one-half percent (1 %).
ISSUE: Do Sections 4, 5 and 6 of R.A. No. 9337, giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes
undue delegation of the legislative power to tax?
RULING: There is no undue delegation of legislative power but only of the discretion as to
the execution of a law. Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the scope of his
authority. It is simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. A (permissible delegation) is
valid only if the law (a) is complete in itself, setting forth therein the policy to be executed,
carried out, or implemented by the delegate; and (b) fixes a standard the limits of which
are sufficiently determinate and determinable to which the delegate must conform in the
performance of his functions. In this case, the legislature has made the operation of the 12%
rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the
entire operation or non-operation of the 12% rate upon factual matters outside of the control
of the executive. No discretion would be exercised by the President. Thus, it is the ministerial
duty of the President to immediately impose the 12% rate upon the existence of any of the
conditions specified by Congress.

JD Class 2016
Notes: There was no delegation of legislative power at all, because the legislature merely
specified factual conditions that must concur before the executive may apply the provision
of the law. Fact-finding processes may be delegated by the Congress to the Executive. The
phrase upon the recommendation of the Sec. of Finance makes the latter an agent of the
Legislature, so his functions as an alter-ego of the Executive are not necessarily affected by
the provision.
FISCAL ADEQUACYthe sources of tax should coincide with the needs of government
expenditures. This is a question of wisdom, which the judiciary cannot take cognizance of.
Output vs Input Tax
OUTPUT VATtax paid when selling a product

INPUT VATtax paid when buying the materials of the thing sold; it is not a property, it is a
statutory privilege which the legislative may remove at any time
VAT Payable = Output VAT - Input VAT
Is the EVAT uniform and equitable?
Yes. A uniform rate of 0%, 12%, or exemption, are respectively imposed on the same
class of goods.
#77 John Hay Alternative vs Lim

GR 119775, 19 March 2002
Strict application of tax exemption; power to exempt comes from power to tax
FACTS: Then President Ramos issued Proclamation No. 420 which created the John Hay
Special Economic Zone pursuant to Republic Act No. 7227 entitled Bases and Development
Act of 1992. Said Republic Act created the Subic Special Economic Zone and also granting it
exemptions from local and national taxes. Proclamation No. 420 also grants tax exemptions
similar to that which is granted to the Subic SEZ by RA 7227.
ISSUE: Is this constitutional?
RULING: No. Under RA 7227 it is only the Subic SEZ 1 which was granted by Congress with
tax exemptions, investment incentives and the like. The grant of economic incentives to John
Hay SEZ cannot be sustained. The incentives under RA 7227 are exclusive only to Subic SEZ,
1 Special Economic Zones are made to encourage investment. They are considered separate
tax customs territory and follow different rules. Buying in SEZs has a similar effect of
importing into the Philippines.

JD Class 2016
hence the extension of the same to the John Hay SEZ finds no support. More importantly, the
nature of most of the assailed privileges is one of tax exemption. It is the legislature
unless limited by the provision of the state Constitutionthat has full power to
exempt any person or corporation or class of property from taxation, its power to
exempt2 being as broad as its power to tax. Other than Congress, the Constitution may
itself provide for specific tax exemptions, or local governments may pass ordinance on
exemption only from local taxes. The challenged grant of tax exemption would circumvent
the Constitutions imposition that a law granting any tax exemption must have the
concurrence of a majority of all the members of Congress.
Tax exempt character of an SEZ proceeds from statutory provision; hence, an SEZ may not
necessarily be tax exempt
2 In the same way that the imposition of a tax must be explicit, the provisions for a tax
exemption must also be explicit. No law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of Congress. Art VI, Sec. 28, 1987
Charter

JD Class 2016
#23 Southern Cross vs CMAP

GR 158540, 3 August 2005
Jurisdiction of Court on Tax Appeals; Delegability of tariff power to President
FACTS: Philcemcor, an association of at least eighteen (18) domestic cement manufacturers

filed with the Department of Trade and Industry (DTI) a petition seeking the imposition of
safeguard measures on gray Portland cement, in accordance with the Safeguard Measures
Act (SMA). After the (DTI) issued a provisional safeguard measure, the application was
referred to the Tariff Commission for a formal investigation pursuant to Section 9 of the SMA
and its Implementing Rules and Regulations, in order to determine whether or not to impose
a definitive safeguard measure on imports of gray Portland cement. The Tariff Commission
held public hearing and conducted its own investigation and issued its Formal Investigation
Report that no definitive general safeguard measure be imposed on the importation of gray
Portland cement. The DTI Secretary then promulgated a decision expressing its
disagreement with the conclusions of the Tariff Commission but at the same time denying
Philcemcors application for safeguard measures in light of the Tariff Commissions negative
findings. Philcemcor challenged this decision of the DTI Secretary by filing with the Court of
Appeals a petition for certiorari, Prohibition and Mandamus seeking to set aside the DTI
Decision as sell as the Tariff Commissions Report. The appellate court partially granted the
petition and ruled that it had jurisdiction over the petition for certiorari since it alleged grave
abuse of discretion and also held that DTI Secretary was not bound by the factual findings of
the Tariff Commission. The Southern Cross then filed the present petition, arguing that the
Court of Appeals has no jurisdiction over Philcemcors petition. Despite the fact the Court of
Appeals Decision had not yet became final, its binding force was cited by the DTI Secretary
when he issued a new Decision, wherein he imposed a definitive safeguard measure on
the importation of gray Portland cement, in the form of a definitive safeguard duty in the
amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.
Southern Cross filed a Temporary Restraining Order and/or A Writ of Preliminary Injunction
with the Court, seeking to enjoin the DTI Secretary from enforcing his new issued
Decision. Philcemcor then filed its opposition stating that it is not the CA but the Court of
Tax Appeals (CTA) that has jurisdiction over the application under the law.
Southern Cross then filed with the CTA a Petition for Review against the Decision which
imposed the definite safeguard measure but did not promptly inform CA about the filing.
Philcemcor argued with the CTA that Southern Cross resorted to forum shopping. The Court
in its decision granted Southern Crosss Petition which nullified the Decision of the DTI
secretary and declared the Decision of the Court of Appeals null and void, and also
concluded that the same had not committed forum shopping for there was no malicious
intent to subvert procedural rules.
Philcemcor and the DTI Secretary then promptly filed their respective motions for
reconsideration. The Court En Banc then resolve the two central issues pertaining to the
jurisdictional aspect and to the substantive aspect of whether the DTI Secretary may impose
a general safeguard measure despite a negative determination by the Tariff Commission and
10

JD Class 2016
whether the Tariff Commission could validly exercise quasi-judicial powers in the exercise of
its mandate under the SMA. In its resolution, the Court directed the parties to maintain the
status quo and until further orders from this Court.
ISSUES: I. Jurisdiction to Review the Secretarys Decisions
II. Reviewability of the Tariff Commissions Report
RULING:
I. On the Issue of jurisdiction, the DTI secretarys decisions - whether imposing
safeguard measures or not are subject to review by the Court of Tax Appeals
pursuant to Section 29 of RA 8800. Under section 29, there are three requisites to
enable the CTA to acquire jurisdiction over the petition for review contemplated
therein (1) there must be a ruling by the DTI Secretary (2) the petition must be filed
by an interested party adversely affected by the ruling and (3) such ruling must be in
in connection with the imposition of a safeguard measure. Obviously, there are
differences between a ruling for the imposition of a safeguard measure, and one
issued in connection with imposition of a safeguard measure. The first adverts to a
singular type of ruling, namely one that imposes a safeguard measure. The second
does not contemplate only one kind of ruling, but a myriad of rulings issued in
connection with the imposition of a safeguard measure.
II. The DTI Secretary is not bound by the Tariff Commissions recommendations. The
Power to impose Tariffs is essentially legislative; it is delegable only to the
president. The application of safeguard measures, while primarily intended to
protect domestic industries, is essentially in the nature of a tariff imposition. Pursuant
to the Constitution, the imposition of tariffs and taxes is a highly prized legislative
prerogative. Pursuant also to the Constitution, such power to fix tariffs may as an
exception, be delegated by Congress to the President. Section 28 of Article VI of the
Constitution provides for that exception.
*The motivation behind many taxation measures is the implementation of police power
goals. Progressive income taxes alleviate the margin between the rich and the poor. Taxation
is distinguishable from police power as to the means employed to implement these public
good goals. Those doctrines that are unique to taxation arose from peculiar considerations
such as those especially punitive effects of taxation, and the belief that taxes are the
lifeblood of the state. These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. Yet at the same time, it has been recognized that
taxation may be made the implement of the states police power.*
11

JD Class 2016
Pepsi vs Municipality of Tanauan

GR L-31156, 27 February 1976
Double taxation; delegation of tax powers
FACTS: In 1963 Pepsi-Cola Bottling Company of the Philippines, Inc., (herein petitioner)
commenced a complaint with preliminary injunction before the CFI Leyte to declare Section
2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, unconstitutional as
an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27,
series of 1962, of the municipality of Tanauan, Leyte, null and void. Municipal Ordinance No.
23 levies and collects on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of volume
capacity while Municipal Ordinance No. 27 levies and collects on soft drinks produced or
manufactured within the territorial jurisdiction of this municipality a tax of one centavo
P0.01) on each gallon of volume capacity. The tax imposed in both Ordinances Nos. 23 and
27 is denominated as "municipal production tax.
It was also alleged by petitioner that the aforementioned municipal ordinances constitute
double taxation in two instances: a) double taxation because Ordinance No. 27 covers the
same subject matter and impose practically the same tax rate as with Ordinance No. 23, b)
double taxation because the two ordinances impose percentage or specific taxes.
The CFI of Leyte dismissed the complaint and upheld the constitutionality of [Section 2,
Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional. From
this judgment, Pepsi-Cola Bottling Company appealed to the CA which, in turn elevated the
case to the SC.
ISSUES:
a. Whether or not there is undue delegation of taxing powers
b. Whether or not there is double taxation.
RULING:
A. No. The Constitution even allows such delegation. Legislative powers may be
delegated to local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for purposes of local
self-government carries with it the power to confer on such local governmental
agencies the power to tax. Under the New Constitution, local governments are
granted the autonomous authority to create their own sources of revenue and to levy
taxes. Section 5, Article XI provides: Each local government unit shall have the
power to create its sources of revenue and to levy taxes, subject to such limitations
as may be provided by law. Withal, it cannot be said that Section 2 of Republic Act
No. 2264 emanated from beyond the sphere of the legislative power to enact and
vest in local governments the power of local taxation.
12

JD Class 2016
B. No. The argument of the Municipality is well taken. Further, Pepsi Colas assertion
that the delegation of taxing power in itself constitutes double taxation cannot be
merited. It must be observed that the delegating authority specifies the limitations
and enumerates the taxes over which local taxation may not be exercised. The
reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law unlike
in other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by the same
jurisdiction for the same purpose, but not in a case where one tax is imposed by the
State and the other by the city or municipality.
13

JD Class 2016
Planters Products vs Fertiphil

GR 166006, 14 March 2008
Police power and power to tax distinguished; tests to determine which power is used
FACTS: On June 3, 1985, for the purpose of rehabilitating Philippine Planters, Inc., the then
President Ferdinand E. Marcos issued Letter of Instruction (LOI) No. 1465 which imposed a
charge of P10.00 per bag of fertilizer on all domestic sales of fertilizer in the Philippines.
Respondent Fertiphil Corporation, a domestic entity engaged in the fertilizer business,
questioned the constitutionality of LOI NO. 1465 and brought an action to recover its
accumulated payment thereunder in the amount of P6,698,144.00, the case docketed as
Civil Case No. 17835 before Branch 147 of the Regional Trial Court of Makati.
ISSUE: Whether or not, LOI 1465 constitutes valid legislation pursuant to the exercise of the
power of taxation and police power of the state
RULING: No. Court said, "It is clear from the Letter of Understanding that the levy was
imposed precisely to pay the corporate debts of PPI. We cannot agree with PPI that the levy
was imposed to ensure the stability of the fertilizer industry in the country. The letter of
understanding and the plain text of the LOI clearly indicate that the levy was exacted for the
benefit of a private corporation, therefore not for public purpose. Also, even if We consider
LOI No. 1465 enacted under the police power of the State, it would still be invalid for failing
to comply with the test of lawful subjects and lawful means. Jurisprudence states the
test as follows: (1) the interest of the public generally, as distinguished from those of
particular class, requires its exercise; and (2) the means employed are reasonably necessary
for the accomplishment of the purpose and not unduly oppressive upon individuals. For the
same reasons as discussed, LOI No. 1465 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation."
14

JD Class 2016
CIR vs Central Luzon Drug

GR 148512, 26 June 2006
Tax credit and tax deductions in Senior Citizens Act
FACTS: Central Luzon Drug Corporation is a retailer of medicines and other pharmaceutical
products. Pursuant to the mandate of Section 4(a) of Republic Act No. 7432, otherwise
known as the Senior Citizens Act, it granted a twenty percent (20%) discount on the sale of
medicines to qualified senior citizens amounting to P219,778.00 (for the period January 1995
- December 1995). It then deducted the same amount from its gross income for the taxable
year 1995, pursuant to Revenue Regulations No. 2-94 implementing the Senior Citizens Act,
which states that the discount given to senior citizens shall be deducted by the
establishment from its gross sales for value-added tax and other percentage tax purposes.
For the said taxable period, Central Luzon Drug reported a net loss of P20, 963.00 in its
corporate income tax return, and as a result, it did not pay income tax for 1995.
Central Luzon Drug filed a claim for refund in the amount of P150,193.00, claiming that
according to Sec. 4(a) of the Senior Citizens Act, the amount of P219,778.00 should be
applied as a tax credit.
ISSUE: Whether or not the 20% discount granted by the respondent to qualified senior
citizens may be claimed as tax credit or as deduction from gross sales?
RULING: Tax credit is explicitly provided for in Sec4 of RA 7432. Nothing in the provision
suggests for it to mean a deduction from gross sales. Thus, the 20% discount required by
the law to be given to senior citizens is a tax credit, not a deduction from the gross sales of
the establishment concerned. As a corollary to this, the definition of tax credit found in
Sect. 2(1) of Revenue Regulations No. 2-94 is erroneous as it refers to tax credit as the
amount representing the 20% discount that shall be deducted by the said establishment
from their gross sales for value added tax and other percentage tax purposes. When the
law says that the cost of the discount may be claimed as a tax credit, it means that the
amount, when claimed, shall be treated as a reduction from any tax liability. The law cannot
be amended by a mere regulation.
Sec. 229 of the Tax Code does not apply to cases that fall under Sec. 4 of the Senior Citizens
Act. Under the Senior Citizens Act, tax credit is considered a form of just compensation, not
a remedy for taxes that were erroneously or illegally assessed and collected. In the same
vein, prior payment of any tax liability is not a precondition before a taxable entity can
benefit from the tax credit. The credit may be availed of upon payment of the tax due, if any.
Where there is no tax liability or where a private establishment reports a net loss for the
period, the tax credit can be availed of and carried over to the next taxable year.
15

JD Class 2016
Carlos Superdrug vs DSWD

GR 166494, 29 June 2007
Tax credits vs tax deductions; superiority of general welfare over property rights
FACTS: This is a petition for Prohibition with Prayer for Preliminary Injunction assailing the
constitutionality of Sec. 4(a) of RA 9257 (Expanded Senior Citizens Act of 2003) based on the
grounds that (1) the law is confiscatory; (2) it violates the equal protection clause; and, (3)
the 20% discount on medicines violates the constitutional guarantee in Article XIII, Section
11 that makes "essential goods, health and other social services available to all people at
affordable cost."
Sec. 4(a) of the Act states that the senior citizens shall be entitled to 20% discount from all
establishments relative to the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers, and purchase of medicines in all
establishments for the exclusive use or enjoyment of senior citizens, including funeral and
burial services for the death of senior citizens; and, the establishment may claim the
discounts as tax deduction based on the net cost of the goods sold or services rendered.
ISSUES:
1) What is a tax credit and what are its effects
2) What is a tax deduction and what are its effects
3) Whether the State, in promoting the health and welfare of a special group of citizens,
can impose upon private establishments the burden of partly subsidizing a
government program
RULING:
1)
Under RA 7432 (the old Senior Citizens Act) the 20% discount may be claimed by the
private establishments concerned as tax credit. A tax credit is a peso-for-peso
deduction from a taxpayers tax liability due to the government of the amount of
discounts such establishment has granted to a senior citizen. The establishment
recovers the full amount of discount given to a senior citizen and hence, the
government shoulders 100% of the discounts granted. A tax credit scheme under the
Philippine tax system, necessitates that prior payments of taxes have been made and
the taxpayer is attempting to recover this tax payment from his/her income tax due.
2)
Under RA No. 9257, the establishment concerned may claim the 20% discounts as tax
deduction from gross income, based on the net cost of goods sold or services
rendered. Under this scheme, the establishment concerned is allowed to deduct from
gross income, in computing for its tax liability, the amount of discounts granted to
senior citizens. Effectively, the government loses in terms of foregone revenues an
amount equivalent to the marginal tax rate the said establishment is liable to pay the
government. This will be an amount equivalent to 32% of the 20% discounts so granted.
The establishment shoulders the remaining portion of the granted discount
16

JD Class 2016
3)
A tax deduction does not offer full reimbursement of the senior citizen discount. As
such, it would not meet the definition of just compensation. However, the Senior
Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and
well-being as the State considers them an integral part of our society, as provided for in
Art. XV, Sec. 4 of the Constitution. The law is a legitimate exercise of police power which
has general welfare for its object. When the conditions so demand as determined by the
legislature, property rights must bow to the primacy of police power because property
rights, though sheltered by due process, must yield to general welfare.
17

JD Class 2016
Diaz vs Sec. of Finance

GR 193007, 19 July 2011
FACTS: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for
declaratory relief assailing the validity of the impending imposition of value-added tax (VAT)
by the Bureau of Internal Revenue (BIR) on the collections of tollway operators. Court
treated the case as one of prohibition. Petitioners hold the view that Congress did not, when
it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that
are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT
on toll fees would amount to a tax on public service; and that, since VAT was never factored
into the formula for computing toll fees, its imposition would violate the non-impairment
clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations; that the Court should seek the
meaning and intent of the law from the words used in the statute; and that the imposition of
VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars. The government also argues that petitioners have no right to invoke the nonimpairment of contracts clause since they clearly have no personal interest in existing toll
operating agreements (TOAs) between the government and tollway operators. At any rate,
the non-impairment clause cannot limit the State's sovereign taxing power which is
generally read into contracts.
ISSUE: May toll fees collected by tollway operators be subjected to VAT (Are tollway
operations a franchise and/or a service that is subject to VAT)?
RULING: When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latter's use of the tollway facilities over which the operator enjoys private proprietary rights
that its contract and the law recognize. In this sense, the tollway operator is no different
from the service providers under Section108 who allow others to use their properties or
facilities for a fee. Tollway operators are franchise grantees and they do not belong to
exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly
covers government grants of a special right to do an act or series of acts of public concern.
Tollway operators are, owing to the nature and object of their business, "franchise grantees."
The construction, operation, and maintenance of toll facilities on public improvements are
activities of public consequence that necessarily require a special grant of authority from the
state. A tax is imposed under the taxing power of the government principally for the purpose
of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income. Although toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can be properly treated as a tax. Taxes
may be imposed only by the government under its sovereign authority, toll fees may be
18

JD Class 2016
demanded by either the government or private individuals or entities, as an attribute of
ownership.
19

JD Class 2016
South African Airways vs CIR

GR 180356, 16 February 2010
Income tax liability of international carriers; off-setting of tax deficiency and tax refund
FACTS: Petitioner is a foreign corporation duly established under the laws of South Africa,
having its principal office at Johannesburg International Airport. It has no landing rights in
the Philippines, being merely an internal carrier. It is not registered with the SEC and is not
licensed to do business in the Philippines, but has a general sales agent in the Philippines,
Aerotel Ltd. Corp, which sells passage documents for compensation or commission for
petitioners off-line flights for the carriage of passengers and cargo between ports or points
outside Philippine territory.
In 2000, petitioner paid about Php 1.7 million in taxes as 2.5% of its GPB (Gross Philippine
Billings). The definition of GPB has changed over the years. Under the 1939 NIRC, 2.5% tax
on GPB was imposed on international carriers existing under foreign laws but engaged in
business within the Philippines. Under the 1977 NIRC, it was imposed on international
carriers selling passage documents in the Philippines provided the cargo/mail is of Philippine
origin. Under the 1986 and 1993 NIRC, it was imposed on gross revenue realized from
uplifts of passengers anywhere in the world and excess baggage, cargo, and mail of
Philippine origin covered by passage documents sold in the Philippines. Under the 1997
NIRC, it refers to gross revenue from carriage of persons, excess baggage, cargo and mail
of Philippine origin in a continuous and uninterrupted flight irrespective of where the
passage document for such was sold.
In 2003, petitioner filed for a tax refund with the BIR, claiming that Php 1.7 million was
erroneously paid on the ground that it is not liable for tax on its GPB or for any other income
tax. The claim, however, was not answered, prompting petitioner to file for a review before
the CTA.
The CTA denied the petition on the ground that although petitioner was not liable for 2.5% of
GPB, it was liable to pay 32% income tax because it was engaged in a business in the
Philippines. Hence, petitioner appeals before the SC, arguing that granting that it is liable for
the 32% income tax, it is nevertheless has the right to be refunded of the taxes it wrongly
paid for 2.5% of its GPB or that such amount should be offset from its 32% income tax
liability as a matter of legal compensation.
ISSUES:
1. What tax is petitioner liable for?
2. Can there be off-setting where taxpayer, who has not paid taxes it is liable for
(tax deficiency), has paid taxes it is not liable for (tax refund)?
RULING:
20

JD Class 2016
1.
2.
Petitioner is not liable for the 2.5% tax on GPB because it does not maintain flights to
or from the Philippinesit is merely selling passage documents for the transfer of
such on flights outside Philippine territory. However, it is liable for the 32% income
tax because off-line air carriers having general sales agents in the Philippines are
engaged in or doing business in the Philippines, and that their income from sales of
passage documents here is income from within the Philippines (CIR vs British
Overseas Airways).
The general rule is that under Sec. 28 (A) (1) of the 1997 NIRC, resident foreign
corporations are liable for 32% tax on all income from sources within the Philippines.
The exception is that under Sec. 28 (A) (3) of the 1997 NIRC, they are only liable for
2.5% on their GBP if such foreign corporation is an international carrier maintaining
flights to and from the Philippines lifting persons, excess baggage, cargo, or mail,
originating from the Philippines. Petitioner does not belong to the latter category;
hence the general rule applies to it.
Yes. The general rule is that taxes cannot be subject to compensation because the
government and the taxpayer are not creditors and debtors of each other. Taxes are
not debts to the government. Debts are due to the government in its corporate
capacity, while taxes are due to the government in its sovereign capacity. There can
be no off-setting of taxes against the claims that the taxpayer may have against the
government in its corporate capacity. A person cannot refuse to pay taxes on the
ground that the government owes him an amount equal to or greater than the tax to
be collected. The collection of a tax cannot await the results of a lawsuit against the
government.
However, in CIR vs CTA (GR 106611, 21 July 1994), a tax refund may be off-set with a
tax deficiency to avoid multiplicity of suits and for efficiencys sake, provided that no
doubt is created as the accuracy of the facts in the tax return since a refund assumes
a valid tax return. In this case, there is doubt to the validity of petitioners tax return
as it has been found that it is liable for one tax but not for another. Hence, the case
was remanded for retrial to establish the correct amount that should have been in
petitioners tax return for year 2000.
21

JD Class 2016
CIR vs Solidbank
GR 148191, 25 November 2003
FACTS: Solid Bank declared gross receipts included the amount from passive income which
was already subjected to 20% final withholding tax (FWT). CTA affirmed that the 20% FWT
should not form part of its taxable gross receipts for purpose of computing the gross receipts
tax on such basis; Solid Bank filed a request for refund. CTA ordered the refund while CA
held that indeed, the 20% FWT on a banks interest income does not form part of the taxable
gross receipts in computing the 5% Gross Receipt tax (GRT) because the FWT was not
actually received by the bank, but was directly remitted to the government.
ISSUE: Whether or not the 20% FWT on a banks interest income forms part of the taxable
gross receipts in computing the 5% gross receipts tax? And whether there is a double
taxation?
RULING: Yes. The amount of interest income, withheld in payment of the 20% Final
Withholding Tax (FWT), forms part of gross receipts in computing for the GRT on banks.
Although the 20% FWT on respondents interest income was not actually
received
by
respondent because it was remitted directly to the government the fact that the amount
redounded to the banks benefit makes it part of the taxable gross receipts in computing the
5% GRT.
The argument that there is double taxation cannot be sustained, as the two taxes are
different. The one is a business tax which is not subject to withholding while the other is
an income tax subject to withholding.
In China Banking vs. CA, the Court ruled that the amount of interest income withheld in
payment of 20% FWT forms part of the gross receipts in computing for the GRT on banks. A
percentage tax is a national tax measured by a certain percentage of the gross selling price
or gross value in money of goods sold, bartered or imported; or of the gross receipts or
earnings derived by any person engaged in the sale of services. It is not subject to
withholding. An income tax is national tax imposed on the net or the gross income realized
in a taxable year.
It is subject to withholding. In a withholding tax system, the payee is the taxpayer, the
person on whom tax is reposed, the payer, a separate entity, acts as no more than an agent
of the government for the collection of taxes. Possession is acquired by the payer as the
withholding agent of the government because the taxpayer ratifies the very act of
possession for the government. There is constructive receipt, of such income and is included
as part of the tax base.
22

JD Class 2016
CIR vs BPI
GR 134062, 17 April 2007
FACTS: On 28 October 1988 petitioner Commissioner of Internal Revenue (CIR) assessed

respondent Bank of the Philippine Islands (BPI) deficiency percentage and documentary
stamp taxes in the total amount of P129,488,656.63.
In a letter dated 10 December 1988, BPI requested for the CIR to state or to inform the
taxpayer why he is being assessed a deficiency, and as to what particular percentage tax
the assessment refers to.
Subsequently, BPI received a letter on 27 June 1991 dated May 8, 1991 from CIR stating
that it constitutes the final decision on the matter, and the basis of the assessments.
BPI filed a petition for review in the CTA but the latter dismissed the case for lack of
jurisdiction since the subject assessments had become final and unappealable. The CTA
ruled that BPI failed to protest on time under Section 270 of the National Internal Revenue
Code (NIRC) and Section 7 in relation to Section 11 of RA 1125.
On appeal, the CA reversed the tax courts decision and resolution and remanded the case
to the CTA for a decision on the merits. It ruled that the October 28, 1988 notices were not
valid assessments because they did not inform the taxpayer of the legal and factual bases. It
declared that the proper assessments were those contained in the May 8, 1991 letter which
provided the reasons for the claimed deficiencies. Thus, it held that BPI filed the petition for
review in CTA on time.
Hence, CIR filed this case.
ISSUES:
1) Were the October 28, 1988 notices valid assessments?
RULING: Yes the notices sufficiently met the requirements of a valid assessment under the
old law and jurisprudence. The CIR merely relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (Tax Reform Act of 1997). Accordingly, when the
assessments were made pursuant to the former Section 270, the only requirement was for
the CIR to notify or inform the taxpayer of his findings. Nothing in the old law required a
written statement to the taxpayer of the law and facts on which the assessments were
based.
Jurisprudence, on the other hand, simply required that the assessments contain a
computation of tax liabilities, the amount the taxpayer was to pay and a demand for
payment within a prescribed period.
The sentence The taxpayers shall be informed in writing of the law and the facts on which
the assessments is made; otherwise, the assessments shall be void was not in the old
23

JD Class 2016
Section of 270 but was later on inserted in the renumbered Section 228 in 1997. Evidently,
the legislature saw the need to modify the former Section 270 by inserting the aforequoted
sentence. The fact that the amendment was necessary showed that, prior to the introduction
of the amendment, the statute had an entirely different meaning. The amendment
introduced by RA 8424 was an innovation and could not be reasonably inferred from the old
law. Clearly, the legislature intended to insert a new provision regarding the form and
substance of assessments issued by the CIR.
Under the former Section 270, there were two instances when an assessment became final
and unappealable: 1) when it was not protested within 30 days and 2) when the adverse
decision on the protest was not appealed to the CTA within 30 days from receipt of the final
decision.
2) Whether or not the assessments made by the CIR were valid, final, and
unappealable?
Failure to protest within the 30-day period: 1)final and unappealable; 2)
presumption of correctness
RULING: Yes, BPI should have protested within 30 days from receipt of the notices dated
October 28, 1988. BPIs failure to protest meant that the assessments made are final and
unappealable. The December 10, 1988 reply it sent to the CIR did not qualify as a protest
since BPI did not even consider the October 28, 1988 notices as valid or proper
assessments.
Moreover, BPI was from then on barred from disputing the correctness of the assessments or
invoking any defense that would reopen the question of its liability on the merits.
Presumption of Correctness. There arose a presumption of correctness when BPI failed to
protest the assessments: 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 an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All presumptions are in favor of
the correctness of tax assessments.
Even if we consider the December 10, 1988 letter as a protest, BPI must nevertheless be
deemed to have failed to appeal the CIRs final decision within the 30-day period. The CIR, in
his May 8, 1991 response, stated that it was his final decision on the matter. BPI therefore
had 30 days from the time it received the decision on June 27, 1991 to appeal but it did not.
Instead, it filed a request for reconsideration and lodged its appeal in the CTA.
BPI is still liable under the subject tax assessments: That state will be deprived of the
taxes validly due it and the public will suffer if taxpayers will not be held liable for the proper
taxes assessed against them: Taxes are the lifeblood of the government, for without taxes,
the government can neither exist nor endure. A principal attribute of sovereignty, the
exercise of taxing power derives its source from the very existence of the state whose social
contract with its citizens obliges it to promote public interest and common good. The theory
behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting general welfare and well-being of the
people.
24

JD Class 2016
25

JD Class 2016
CIR vs BPI
GR 134062, 17 April 2007
FACTS: In two notices dated October 28, 1988, petitioner Commissioner of Internal
Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPI s) deficiency
percentage and documentary stamp taxes for the year 1986 in the total amount of
P129,488,656.63. BPI sent a reply letter. in its reply, BPI stated that, As to the alleged
deficiency percentage tax, we are completely at a loss on how such assessment may be
protested since your letter does not even tell the tax payer what particular percentage
tax is involved and how your examiner arrived at the deficiency. As soon as this is
explained and clarified in a proper letter of assessment, we shall inform you of t h
e tax payer s decision on whether to pay or protest the assessment .
ISSUE: Whether or not the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 had already become final and unappealable and
RULING: BPI contends that it was not properly informed and notified of how the assessment
was arrived at and what legal basis the CIR had for those assessments. The ruling of the
CTA, which was agreed by the Supreme court, stated that BPI was not only sent a notice
regarding the assessment, but examiners from the CIR themselves went to BPI in order to
talk with them regarding the issue and find a solution. From this, the SC ruled that From all
the foregoing discussions, We can now conclude that [BPI ] was indeed aware of
the nature and basis of the assessments, and was given all the opportunity to contest the
same but ignored it despite the notice conspicuously written on the assessments which
states that "this ASSESSMENT becomes final and unappealable if not protested within 30
days after receipt." Counsel resorted to dilatory tactics and dangerously played with time.
Unfortunately, such strategy proved fatal to the cause of his client .
26

JD Class 2016
Silkair PTE, Ltd. vs CIR

GR 173594, 6 February 2008
FACTS: Silkair Pte. Ltd., a corporation organized under the laws of Singapore which has a
Philippine representative office, is an online international air carrier. On Dec. 19, 2001, Silkair
filed with the BIR a written application for the refund of P4,567,450.79 excise taxes it
claimed to have paid on its purchase of jet fuel from Petron Corporation from January-June
2000. Silkair then filed a petition for review before the CTA since the BIR had not acted on
the application yet. The Commission on Internal Revenue (CIR) opposed Silkairs petition on
the ground that the excise tax on petroleum products once added to the cost of the goods
sold to the buyer, is no longer a tax but part of the price which the buyer has to pay to
obtain the article.
CTA ruled that any claim for refund of the subject excise taxes should be filed by Petron
Corporation as taxpayer since the excise tax was imposed upon it as the manufacturer of
petroleum products, and not petitioner Silkair since it cannot be considered as the taxpayer
because it merely shouldered the burden of the excise tax and not the excise tax itself; but
Silkair may only claim from Petron the reimbursement of the tax burden shifted to the
former by the latter; the amount passed on to purchaser Silkair is no longer a tax but an
added cost on the goods purchased which constitutes a part of the purchase price.
ISSUE:
a
Is Silkair entitled to a refund?
Whether or not Silkair is exempt from indirect taxes.
RULING:
(a) No. The proper party to question or seek refund of an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even if he
shifts the burden thereof to another. Sec. 130(A)(2) of the NIRC provides that unless
otherwise specifically allowed, the return shall be filed and the excise tax paid by the
manufacturer or producer before removal of domestic products from place of production.
Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a
refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport
Agreement between RP and Singapore.
Even if Petron passed on to Silkair the burden of the tax, the additional amount billed
to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.
(b) No. The exemption granted under Section 135(b) of the NIRC of 1997 and Article
4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear
showing of legislative intent, be construed as including indirect taxes. Statutes granting tax
exemptions must be construed in strictissimi juris against the taxpayer ad liberally in favour
27

JD Class 2016
of the taxing authority, and if an exemption is found to exist, it must not be enlarged by
construction.
28

JD Class 2016
CIR vs Fortune Tobacco Corp.

GR 157274-75, 21 July 2008
FACTS: Fortune Tobacco Corporation is a domestic corporation duly organized and existing
under and by virtue of the laws of the Republic of the Philippines andis the
manufacturer/producer of, among others, the cigarette brands, Champion, Salem, Camel,
and Winston.
However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the
ad valorem tax (AVT) system to the specific tax system was made and subjecting the
aforesaid cigarette brands to specific tax under Section 142 thereof, now renumbered as
Sec. 145 of the Tax Code of 1997, pertinent provisions of which are quoted thus:
Section 145. Cigars and Cigarettes(A) Cigars. There shall be levied, assessed and collected on cigars a tax of One peso
(P1.00) per cigar.
(B) Cigarettes packed by hand. There shall be levied, assessed and collected on
cigarettes packed by hand a tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. There shall be levied, assessed and collected on
cigarettes packed by machine a tax at the rates prescribed below:
(1) If the net retail price is above Ten pesos (P10.00) per pack, the tax shall be Twelve
(P12.00) per pack;
(2) If the net retail price exceeds Six pesos and Fifty centavos (P6.50) but does not
exceed Ten pesos (P10.00) per pack, the tax shall be Eight Pesos (P8.00) per pack.
(3) If the net retail price is Five pesos (P5.00) but does not exceed Six Pesos and fifty
centavos (P6.50) per pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price is below Five pesos (P5.00) per pack, the tax shall be One peso
(P1.00) per pack;
xxx
The excise tax from any brand of cigarettes within the next three (3) years from the
effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each brand
on October 1, 1996. xxx
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and
(4) hereof, shall be increased by twelve percent (12%) on January 1, 2000.
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof,
(t)hat the new specific tax rate for any existing brand of cigars, cigarettes
29

JD Class 2016
packed by machine, distilled spirits, wines and fermented liquor shall not be
lower than the excise tax that is actually being paid prior to January 1, 2000.
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all
brands manufactured and removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondents Appellate Division a claim for refund
or tax credit of its purportedly overpaid excise tax for the month of January 2000 in the
amount ofP35,651,410.00. The Tax Court granted the refund.
ISSUES:
1. Whether or not Fortune Tobacco (respondent) is granted a tax refund.
2. Whether or not a tax refund partakes the nature of a tax exemption.
3. Whether or not the Government is exempt from the application of solutio indebiti.
RULING:
1. Yes. Section 145 states that during the transition period, i.e., within the next three
(3) years from the effectivity of the Tax Code, the excise tax from any brand of cigarettes
shall not be lower than the tax due from each brand on 1 October 1996. This qualification,
however, is conspicuously absent as regards the 12% increase which is to be applied on
cigars and cigarettes packed by machine, among others, effective on 1 January
2000. Clearly and unmistakably, Section 145 mandates a new rate of excise tax for
cigarettes packed by machine due to the 12% increase effective on 1 January 2000 without
regard to whether the revenue collection starting from this period may turn out to be lower
than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes effective
shall not be lower than the tax actually paid prior to 1 January 2000, Revenue Regulation No.
17-99 effectively imposes a tax which is the higher amount between the ad valorem tax
being paid at the end of the three (3)-year transition period and the specific tax under
paragraph C, sub-paragraph (1)-(4), as increased by 12%a situation not supported by the
plain wording of Section 145 of the Tax Code.
As we have previously declared, rule-making power must be confined to details for
regulating the mode or proceedings in order to carry into effect the law as it has been
enacted, and it cannot be extended to amend or expand the statutory requirements or to
embrace matters not covered by the statute. Administrative regulations must always be in
harmony with the provisions of the law because any resulting discrepancy between the two
will always be resolved in favor of the basic law.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly
flawed. The Commissioner cannot seek refuge in his claim that the purpose behind the
passage of the Tax Code is to generate additional revenues for the government. Revenue
30

JD Class 2016
generation has undoubtedly been a major consideration in the passage of the Tax
Code. However, as borne by the legislative record, the shift from the ad valorem system to
the specific tax system is likewise meant to promote fair competition among the
players in the industries concerned, to ensure an equitable distribution of the tax burden
and to simplify tax administration by classifying cigarettes, among others, into high, medium
and low-priced based on their net retail price and accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we
have held, the meaning of the law is clear on its face and free from the ambiguities that the
Commissioner imputes. We simply cannot disregard the letter of the law on the pretext of
pursuing its spirit.
Fortune Tobacco was granted a P680,387,025.00 tax refund.
2. No. A tax refund does not partake the nature of a tax exemption. There is parity between
tax refund and tax exemption only when the former is based either on a tax exemption
statute or a tax refund statute. Obviously, that is not the situation here. Quite the contrary,
Fortune Tobaccos claim for refund is premised on its erroneous payment of the tax, or better
still the governments exaction in the absence of a law.
Tax exemption is a result of legislative grace. And he who claims an exemption from the
burden of taxation must justify his claim by showing that the legislature intended to exempt
him by words too plain to be mistaken. The rule is that tax exemptions must be strictly
construed such that the exemption will not be held to be conferred unless the terms under
which it is granted clearly and distinctly show that such was the intention.
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative
grace but on the legal principle which underlies all quasi-contracts abhorring a persons
unjust enrichment at the expense of another. The dynamic of erroneous payment of tax fits
to a tee the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact
but also mistake in law.
3. No. The Government is not exempt from the application of solutio indebiti. Indeed, the
taxpayer expects fair dealing from the Government, and the latter has the duty to refund
without any unreasonable delay what it has erroneously collected. If the State expects its
taxpayers to observe fairness and honesty in paying their taxes, it must hold itself against
the same standard in refunding excess (or erroneous) payments of such taxes. It should not
unjustly enrich itself at the expense of taxpayers. And so, given its essence, a claim for tax
refund necessitates only preponderance of evidence for its approbation like in any other
ordinary civil case.
31

JD Class 2016
CIR vs Acosta
GR 154068, 3 August 2007
FACTS: Respondent is an employee of Intel Manufacturing Phils., Inc and was assigned in a
foreign country. For the period January 1, 1996 to December 31, 1996, Intel withheld the
taxes due on respondents compensation income and remitted to the BIR the amount
ofP308,084.56. On March 21, 1997, respondent and her husband filed with the BIR their Joint
Individual Income Tax Return for the year 1996. Later, on June 17, 1997, respondent, through
her representative, filed an amended return and a Non-Resident Citizen Income Tax Return,
and paid the BIR P17,693.37 plus interests. On October 8, 1997, she filed another amended
return indicating an overpayment of P358,274.63. Claiming that the income taxes withheld
and paid by Intel and respondent resulted in an overpayment, respondent filed on April 15,
1999 a petition for with the CTA. In its Resolution, the CTA dismissed respondents petition.
The CTA ruled that respondent failed to file a written claim for refund with the CIR, a
condition precedent to the filing of a petition for review before the CTA. Upon review, the CA
reversed the CTA and directed the latter to resolve respondents petition for review.
Petitioner sought reconsideration, but it was denied. Hence, this instant petition.
ISSUE: Whether or not the amended return filed by respondent indicating an overpayment
constitute the written claim for refund required by law.
RULING: The requirements under Section 230 for refund claims are as follows:
1. A written claim for refund or tax credit must be filed by the taxpayer with the
Commissioner;
2. The claim for refund must be a categorical demand for reimbursement;
3. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be
commenced in court within two (2) years from date of payment of the tax or penalty
regardless of any supervening cause.
The Court ruled in the negative. In its view, Section 230 of the Tax Code is clear. A claimant
must first file a written claim for refund, categorically demanding recovery of overpaid taxes
with the CIR, before resorting to an action in court. This obviously is intended, first, to afford
the CIR 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. Entrenched in our jurisprudence is
the principle that tax refunds are in the nature of tax exemptions which are
construed strictissimi juris against the taxpayer and liberally in favor of the government. As
tax refunds involve a return of revenue from the government, the claimant must show
indubitably the specific provision of law from which her right arises; it cannot be allowed to
32

JD Class 2016
exist upon a mere vague implication or inference nor can it be extended beyond the ordinary
and reasonable intendment of the language actually used by the legislature in granting the
refund.
Moreover, under the circumstances of this case, the Court cannot agree that the amended
return filed by respondent constitutes the written claim for refund required by the old Tax
Code, the law prevailing at that time.
33

JD Class 2016
Filinvest Dev. Corp. vs CIR & CTA

GR 146941, 9 August 2007
FACTS: Petitioner Filinvest filed for a claim for refund, or in the alternative the issuance of a
tax credit certificate (TCC) with respondent CIR in the amount of P 4,178,134.00
representing excess creditable withholding taxes for taxable years 1994, 1995 and 1996. CIR
had not resolved petitioners claim for refund and the two-year prescriptive period lapsed.
Filinvest then filed a petition before the CTA which the latter dismissed due to insufficiency
of evidence because of the formers failure to present its 1997 income tax return. CA
assailed the decision of CTA and denied petition of Filinvest. The SC initially denied petition
for review but on April 3, 2002, case was re-filed on a petition for reconsideration.
ISSUE: Whether or not petitioner is entitled to tax credit even without a written claim.
RULING: Yes. It is worth nothing that under Section 230 of NIRC and Section 10 of Revenue
Regulation No. 12-84, the CIR is given the power to grant a tax credit or refund even without
a written claim therefore, if the former determines from the face of the return that payment
had clearly been erroneously made. The CIRs function is not merely to receive the claims for
refund but it is also given the positive duty to determine the veracity of such claim. Simply
by exercising the CIRs power to examine and verify petitioners claim for tax exemption as
granted by law, respondent CIR could have easily verified petitioners claim by presenting
the latters 1997 Income Tax Return, the original of which it has in its files. Moreover, in the
field of taxation where the State exacts strict compliance upon its citizens, the State must
likewise deal with taxpayers with fairness and honesty. Hence, under the principle of solutio
indebiti the Government has to restore to petitioner the sums representing erroneous
payments of taxes.
34

JD Class 2016
ME Holding Corp vs CA & CIR

GR 160193, 3 March 2008
FACTS: This case involves Republic Act No. (RA) 7432, otherwise known as An Act to
Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special
Privileges and for Other Purposes, granting, among others, a 20% sales discount on
purchases of medicines by qualified senior citizens.
On April 15, 1996, petitioner M.E. Holding Corporation (M.E.) filed its 1995 Corporate Annual
Income Tax Return, claiming the 20% sales discount it granted to qualified senior citizens.
M.E. declared that the deduction in the form of refund, amounted to PhP 603,424 in
pursuance to RA 7432 and not under BIR-RR No. 2-94.
Since BIR disregarded the request of M.E. Holding Corp., M.E. filed an appeal before the
Court of Tax Appeals (CTA), reiterating its position that the sales discount should be treated
as tax credit, and that RR 2-94, particularly Section 2(i), was without effect for being
inconsistent with RA 7432.
CTA then rendered a Decision partially granting the petition and ordering the
respondent(CIR) to refund in favor of petitioner the amount of P122,195.74 representing
overpaid income tax for the year 1995.
Aggrieved with the amount, M.E. went to the CA on a petition for review, but CA dismissed
it.
Hence, this petition arise.
ISSUE: Whether or not the term cost under par.(a), Sec. 4 of RA 7432 is equivalent only to
acquisition cost.
RULING: RA 7432 expressly provides that the sales discount may be claimed as tax credit,
not as tax refund.
In Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. Commissioner of
Internal Revenue, the Court interpreted the term "cost" found in Sec. 4(a) of RA 7432 as
referring to the amount of the 20% discount extended by a private establishment to senior
citizens in their purchase of medicines. The Court categorically said that it is the
Government that should fully shoulder the cost of the sales discount granted to senior
citizens. Thus, CA's Decision in CA-G.R. SP No. 49946, which construed the same word "cost"
to mean the theoretical acquisition cost of the medicines purchased by qualified senior
citizens was reversed and set aside.
Accordingly, M.E. is entitled to a tax credit equivalent to the actual 20% sales discount it
granted to qualified senior citizens.
35

JD Class 2016
With the disallowance of PhP 241,348.89 for being unsupported, and the net amount of PhP
362,574.57 for the actual 20% sales discount granted to qualified senior citizens properly
allowed by the CTA and fully appreciated as tax credit, the amount due as tax credit in favor
of M.E. Holding Corporation is PhP 151,201.71.
36

JD Class 2016
CIR vs FMF Dev. Corp.

GR 167765, 30 June 2008
FACTS: On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable year
1995 and declared a loss of P3,348,932. The BIR sent FMF pre-assessment notices informing
it of its alleged tax liabilities. FMF filed a protest against these notices with the BIR and
requested for a reconsideration/reinvestigation. RDO Rogelio Zambarrano informed FMF that
the reinvestigation had been referred to Revenue OfficerAlberto Fortaleza.
On February 9, 1999, FMF President executed a waiver of the three-year prescriptive period
for the BIR to assess internal revenue taxes to extend 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 BIRs Demand Letter and Assessment Notice dated October 25,
1999reflecting FMFs alleged deficiency taxes and accrued interests the total of which
amounted to P2,053,698.25. FMF filed a letter of protest on the assessment invoking the
defense of prescription by reason of the invalidity of the waiver. The BIR insisted that the
waiver is valid. It ordered FMF to immediately settle its tax liabilities, otherwise, judicial
action will be taken. Treating this as BIRs final decision, FMF filed a petition for review with
the CTA.
The CTA granted the petition and cancelled Assessment Notice made by the BIR because it
was already time-barred. The CTA ruled that the waiver did not extend the threeyear prescriptive period within which the BIR can make a valid assessment because it did
not comply with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-90.
On appeal, the Court of Appeals affirmed the decision of the CTA.
ISSUES:
1. Was the waiver valid?
2. Did the three-year period to assess internal revenue taxes already prescribe?
RULING:
1. Petitioner contends that the waiver was validly executed mainly because it complied
with Section 222 (b) of the National Internal Revenue Code (NIRC). On the other hand,
respondent counters that the waiver is void because it did not comply with RMO No.
20-90Moreover, a waiver of the statute of limitations is not a waiver of the right to
invoke the defense of prescription. Petition lacks merit. Under Section 203 of the
NIRC, internal revenue taxes must be assessed within three years counted from the
period fixed by law for the filing of the tax return or the actual date of filing,
whichever is later. This mandate governs the question of prescription of the
governments right to assess internal revenue taxes primarily to safeguard the
interests of taxpayers from unreasonable investigation. Accordingly, the government
37

JD Class 2016
must assess internal revenue taxes on time so as not to extend indefinitely the period
of assessment and deprive the taxpayer of the assurancethat it will no longer be
subjected to further investigation for taxes after the expiration of reasonable period
of time.
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. Under RMO No. 20-90, which implements Sections 203
and 222 (b), the following procedures should be followed:
1. The waiver must be in the form identified as Annex "A" hereof.
2. 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.
2. Firstly, it was not proven that respondent was furnished a copy of the BIR-accepted
waiver. Secondly, 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. Lastly, 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.
The waiver of the statute of limitations under the NIRC, to a certain extent being a
derogation of the taxpayers right to security against prolonged and unscrupulous
investigations, must be carefully and strictly construed. The waiver of the statute
38

JD Class 2016
of limitations does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally, particularly where the language of the
document is equivocal. 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. On
this basis, no implied consent can be presumed, nor can it be contended that the
concurrence to such waiver is a mere formality. Consequently, petitioner cannot rely
on its invocation of the rule that the government cannot be estopped by the mistakes
of its revenue officers in the enforcement of RMO No. 20-90 because the law on
prescription 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 recommended the approval of the law.
39

JD Class 2016
CIR vs PERF Realty Corp

GR 163345, 4 July 2008
FACTS: Respondent PERF is a domestic corporation engaged in the business of leasing

properties to various clients including the Philippine American Life and General Insurance
Company (Philamlife) and Read-Rite Philippines (Read-Rite). On April 14, 1998, PERF filed its
Annual Income Tax Return (ITR) for the year 1997 which showed that its tenants, Philamlife
and Read-Rite, withheld and subsequently remitted creditable withholding taxes. After
deducting such creditable withholding taxes in from its total income tax due, PERF showed in
its 1997 ITR an overpayment.
PERF filed an administrative claim with the appellate division of the BIR for the refund of said
overpaid income taxes and further filed a Petition for Review with the Court of Tax Appeals
(CTA) when said claim remained unheeded. The CTA denied the claim on the ground of
insufficiency of evidence, noting that PERF did not indicate in its 1997 ITR the option to
either claim the excess income tax as a refund or tax credit. In addition, the CTA likewise
found that PERF failed to present in evidence its 1998 annual ITR.
ISSUES:
(a)
WON the respondent substantially complied with the requisites for claim of
refund.
(b)
WON the failure of respondent to indicate its option in its annual ITR to avail itself
of either the tax refund or tax credit is fatal to its claim for refund.
(c)
WON the failure of respondent to present in evidence the 1998 ITR is fatal to its
claim for refund.
RULING:
(a)
Yes. PERF had complied with the requirements set forth by law through Section 10
of the Revenue Regulations. It was found that PERF filed its administrative and
judicial claims for refund within the two-year prescriptive period under Section
230 (now 229) of the National Internal Tax Code.
Also, PERF presented certificates of creditable withholding tax at source reflecting
creditable withholding taxes withheld from PERF's rental income. In addition, it
submitted in evidence the Monthly Remittance Returns of its withholding agents
to prove the fact of remittance of said taxes to the BIR.
40

JD Class 2016
(b)
No. One cannot get a tax refund and a tax credit at the same time for the same
excess income taxes paid. However, 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. This requirement is only for the purpose of facilitating
tax collection.
The Tax Code allows the refund of taxes to a taxpayer that claims it in writing
within two years after payment of the taxes erroneously received by the BIR.
Despite the failure of petitioner to make the appropriate marking in the BIR form,
the filing of its written claim effectively serves as an expression of its choice to
request a tax refund, instead of a tax credit. To assert that any future claim for a
tax refund will be instantly hindered by a failure to signify one's intention in the
FAR is to render nugatory the clear provision that allows for a two-year
prescriptive period.
In the present case, although petitioner did not mark the refund box in its 1997
FAR, neither did it perform any act indicating that it chose a tax credit. On the
contrary, it filed on September 11, 1998, an administrative claim for the refund of
its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it
apply the excess creditable taxes. Under these circumstances, petitioner is
entitled to a tax refund of its 1997 excess tax credits.
(c)
No. PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR
became part of the records of the case then and it clearly showed that income
taxes were not claimed as tax credit in 1998. Moreover, technicalities should not
be used to defeat substantive rights, especially those that have been held as a
matter of right. Thus, it was held that petitioner has complied with all the
requirements to prove its claim for tax refund.
It was also pointed out that, simply by exercising the CIR's power to examine and
verify petitioner's claim for tax exemption as granted by law, respondent CIR
could have easily verified petitioner's claim by presenting the latter's 1997
Income Tax Return, the original of which it has in its files. However, records show
that in the proceedings before the CTA, respondent CIR failed to comment on
petitioner's formal offer of evidence, waived its right to present its own evidence,
and failed to file its memorandum. Neither did it file an opposition to petitioner's
motion to reconsider the CTA decision to which the 1997 Income Tax Return was
appended.
41

JD Class 2016
Pilipinas Shell vs CIR

GR 172598, 21 December 2007
FACTS: Respondent is engaged in the business of processing, treating and refining

petroleum for the purpose of producing marketable products and the subsequent sale
thereof.
On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation Division II
of the Bureau of Internal Revenue (BIR) a formal claim for refund or tax credit in the total
amount of P28,064,925.15, representing excise taxes it allegedly paid on sales and
deliveries of gas and fuel oils to various international carriers during the period October to
December 2001. Subsequently, on October 21, 2002, a similar claim for refund or tax credit
was filed by respondent with the BIR covering the period January to March 2002 in the
amount of P41,614,827.99. Again, on July 3, 2003, respondent filed another formal claim for
refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June
2002.
ISSUE: Whether or not respondent is entitled to a tax refund because allegedly, those
petroleum products it sold to international carriers are not subject to excise tax, hence the
excise taxes it paid upon withdrawal of those products were erroneously or illegally collected
and should not have been paid in the first place. Since the excise tax exemption attached to
the petroleum products themselves, the manufacturer or producer is under no duty to pay
the excise tax thereon.
RULING: No. Court said, We disagree. Under Chapter II Exemption or Conditional Tax-Free
Removal of Certain Goods of Title VI, Sections 133, 137, 138, 139 and 140 cover conditional
tax-free removal of specified goods or articles, whereas Sections 134 and 135 provide for tax
exemptions. While the exemption found in Sec. 134 makes reference to the nature and
quality of the goods manufactured (domestic denatured alcohol) without regard to the tax
status of the buyer of the said goods, Sec. 135 deals with the tax treatment of a specified
article (petroleum products) in relation to its buyer or consumer. Respondents failure to
make this important distinction apparently led it to mistakenly assume that the tax
exemption under Sec. 135 (a) attaches to the goods themselves such that the excise tax
should not have been paid in the first place. Thus, if an airline company purchased jet fuel
from an unregistered supplier who could not present proof of payment of specific tax, the
company is liable to pay the specific tax on the date of purchase. Since the excise tax must
be paid upon withdrawal from the place of production, respondent cannot anchor its claim
for refund on the theory that the excise taxes due thereon should not have been collected or
paid in the first place. Sec. 229 of the NIRC allows the recovery of taxes erroneously or
illegally collected. An erroneous or illegal tax is defined as one levied without statutory
authority, or upon property not subject to taxation or by some officer having no authority to
levy the tax, or one which is some other similar respect is illegal. Respondents locally
manufactured petroleum products are clearly subject to excise tax under Sec. 148. Hence,
its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of
42

JD Class 2016
erroneous or excess payment of tax. Respondents claim is premised on what it determined
as a tax exemption attaching to the goods themselves, which must be based on a statute
granting tax exemption, or the result of legislative grace. Such a claim is to be construed
strictissimi juris against the taxpayer, meaning that the claim cannot be made to rest on
vague inference. Where the rule of strict interpretation against the taxpayer is applicable as
the claim for refund partakes of the nature of an exemption, the claimant must show that he
clearly falls under the exempting statute.
43

JD Class 2016
State Land Inv. Corp vs CIR

GR 171956, 18 January 2008
FACTS: State Land Investment Corporation is a real estate developer corporation engaged
in the development and marketing of low, medium and high cost subdivision projects in the
different cities of the Philippines.
It filed with BIR its annual income tax return for the calendar year ending December 31,
1997. Its taxable income was P27,723,328.00 with tax due in the amount ofP9,703,165.54.
Its total tax credits for the same year amounted to P23,632,959.05, inclusive of its prior
years excess tax credits of P9,289,084.00. Thus, after applying its total tax credits
of P23,632,959.05 against its income tax liability of P9,703,165.54, the amount
of P13,929,793.51 remained unutilized. State Land Investment Co. chose to apply the
amount as tax credit to the next taxable year, 1998.
On April 1998, it again filed with the BIR its annual income tax return for the calendar
year ending December 31, 1998, declaring a minimum corporate income tax due in the
amount of P4,187,523.00. Petitioner charged the said amount against its 1997 excess credit
of P13,929,793.51, leaving a balance ofP9,742,270.51.
Subsequently on April 7, 2000, it filed with the BIR a claim for refund of its unutilized tax
credit for the year 1997 in the amount P9,742,270.51.
ISSUE: Whether petitioner is entitled to the refund of P9,742,270.51 representing the excess
creditable withholding tax for taxable year 1997.
RULING: Yes. Section 69 (now Section 76) of the Tax Code clearly provides that a taxable
corporation is entitled to a tax refund when the sum of the quarterly income taxes it paid
during a taxable year exceeds its total income tax due also for that year. Consequently, the
refundable amount that is shown on its final adjustment return may be credited, at its
option, against its quarterly income tax liabilities for the next taxable year. Excess income
taxes paid in a year that could not be applied to taxes due the following year may be
refunded the next year. Thus, if the excess income taxes paid in a given taxable year have
not been entirely used by a taxable corporation against its quarterly income tax liabilities for
the next taxable year, the unused amount of the excess may still be refunded, provided that
the claim for such a refund is made within two years after payment of the tax.
44

JD Class 2016
Allied Bank vs CIR

GR 175097, 5 February 2010
FACTS: In April 2004, the Bureau of Internal Revenue (BIR) issued a preliminary assessment
notice (PAN) to Allied Banking Corporation (ABC) demanding payment of P50 million in taxes.
ABC then filed a protest in May 2004. In July 2004, the BIR issued a formal assessment
notice (FAN). The FAN included a formal demand as well as this phrase:
This is our final decision based on investigation. If you disagree, you may appeal this final
decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable.
Instead of filing a protest an administrative protest on the formal letter demand Allied
Banking Corporation appealed on the court of tax appeals (CTA). Respondent CIR filed a
motion to dismiss for lack of jurisdiction, were the court granted the dismissal of the case.
Petitioner ABC files a motion for reconsideration but was denied. Petitioner ABC appealed
the dismissal to the CTA en banc. The CTA En Banc declared that it is absolutely necessary
for the taxpayer to file an administrative protest in order for the CTA to acquire jurisdiction.
It emphasized that an administrative protest is an integral part of the remedies given to a
taxpayer in challenging the legality or validity of an assessment. According to the CTA En
Banc, although there are exceptions to the doctrine of exhaustion of administrative
remedies, the instant case does not fall in any of the exceptions.
ISSUE: Whether or not, the formal letter of demand issued by the BIR can be construed as
final decision of the CIR appealable to CTA under RA 9282?
RULING: Yes. A careful reading of the Formal Letter of Demand with Assessment Notices
leads us to agree with petitioner that the instant case is an exception to the rule on
exhaustion of administrative remedies, i.e., estoppel on the part of the administrative
agency concerned. In this case, records show that petitioner disputed the PAN but not the
Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame
petitioner for not filing a protest against the Formal Letter of Demand with Assessment
Notices since the language used and the tenor of the demand letter indicate that it is the
final decision of the respondent on the matter. We have time and again reminded the CIR to
indicate, in a clear and unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer concerned to determine
when his or her right to appeal to the tax court accrues. Respondent is now estopped from
claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be
a final decision.
Formal Letter of Demand with Assessment Notices, respondent used the word "appeal"
instead of "protest", "reinvestigation", or "reconsideration". Although there was no direct
reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the
45

JD Class 2016
word "appeal" under prevailing tax laws refers to the filing of a Petition for Review with the
CTA.
Under Section 228 of the NIRC, the terms "protest", "reinvestigation" and
"reconsideration" refer to the administrative remedies a taxpayer may take before the CIR,
while the term "appeal" refers to the remedy available to the taxpayer before the CTA.
Section 9 of RA 9282, amending Section 11 of RA 1125.
The Supreme Court said that, the Formal Letter of Demand with Assessment Notices which
was not administratively protested by the petitioner can be considered a final decision of the
CIR appealable to the CTA because the words used, specifically the words "final decision"
and "appeal", taken together led petitioner to believe that the Formal Letter of Demand with
Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and
that the available remedy was to appeal the same to the CTA.
46

JD Class 2016
CIR vs Kudos Metal

GR 178087, 5 May 2010
FACTS: On April 15, 1999, Kudos Metal Corporation filed its Annual Income Tax Return for
the taxable year 1998. The BIR served upon respondent 3 Notices of Presentation of Records
which the latter failed to comply. The BIR issued a Subpeona Duces Tecum which was
acknowledged by respondents President on October 20, 2000. On December 10, 2001 and
February 18, 2003, respondents accountant, executed two Waiver of the Defense of
Prescription, respectively. 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 for taxable year 1998, dated September 26,
2003 which was received by respondent on November 12, 2003. Respondent challenged the
assessments arguing that the governments right to assess has already prescribed.
Petitioner, on the other hand, does not deny that the assessment notices were issued
beyond the three-year prescriptive period but claims that the period was extended by such
two waivers.
ISSUES:
1. Whether or not the governments right to assess unpaid taxes of the respondent has
already prescribed despite the Waiver of Prescription executed by the respondent
2. Whether or not respondent is estopped from claiming prescription since by executing
the waivers, it was the one which asked for additional time to submit the required
documents
RULING:
1. Yes. Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the
government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Hence, an assessment notice issued after the threeyear prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222 of the NIRC, to wit, 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 (April 4, 1990) and RDAO 05-01 (August 2, 2001) lay down the procedure
for the proper execution of the waiver, to wit:
47

JD Class 2016
i.
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.
ii.
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.
iii.
The waiver should be duly notarized.
iv.
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.
v.
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.
vi.
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.19
In the case at bar, the waivers executed by respondents accountant, however, were
(1) executed without the notarized written authority of the latter to sign the waiver in
behalf of respondent; (2) failed to indicate the date of acceptance; and, (3) the fact of
receipt by the respondent of its file copy was not indicated in the original copies of
the waivers. Due to the defects in the waivers, the period to assess or collect taxes
was not extended. Consequently, the assessments were issued by the BIR beyond
the three-year period and are void.
2. The doctrine of estoppel cannot be applied in this case as an exception to the statute
of limitations on the assessment of taxes considering that there is a detailed
48

JD Class 2016
procedure for the proper execution of the waiver, which the BIR must strictly follow.
The doctrine of estoppel is predicated on, and has its origin in, equity which, broadly
defined, is justice according to natural law and right. As such, the doctrine cannot
give validity to an act that is prohibited by law or one that is against public policy.
The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply
with RMO 20-90 and RDAO 05-01. 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 taxpayers right to
security against prolonged and unscrupulous investigations, must be carefully and
strictly construed.
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as
an excuse for issuing the assessments beyond the three-year period because with or
without the required documents, the CIR has the power to make assessments based
on the best evidence obtainable.
49

JD Class 2016
CIR vs Far East Bank/BPI

GR 173852, 15 March 2010
FACTS: Far East filed Corporate Annual Income Tax Return for 1994 for Corporate Banking
Unit and Foreign Currency Deposit Unit with reflected refundable income tax of P12M. The
P12M refund was carried over and applied for the1995 income tax return. In 1995, Far East
claimed that it overpaid tax payments by P17M. P13M is being sought for refund and chose
that the remaining will be carried over. FarEast then claimed for the refund of the P13.6M,
which the CIR did not act upon. Far East filed a claim for refund.CTA denied claim for refund.
CA reversed the CTA, ruling that Far East duly proved that the income derived from rentals
and sale of real property upon which the taxes were withheld were included in the return as
part of the gross income.
ISSUE: WON respondent is entitled to the refund.

RULING: NO, The burden of proof for the claim is with the claimant which it failed to
establish. A taxpayer claiming for a tax credit or refund of creditable withholding tax must
comply with the following requisites:1) The claim must be filed with the CIR within the twoyear 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; and3) 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. Moreover, the fact that the petitioner
failed to present any evidence or to refute the evidence presented by respondent does not
ipso facto entitle the respondent to a tax refund. It is not the duty of the government to
disprove a Taxpayes claim for refund. Rather, the burden of establishing the factual basis of
a claim for a refund rests on the taxpayer.
And while the petitioner has the power to make an examination of the returns and to assess
the correct amount of tax, his failure to exercise such powers does not create a presumption
in favor of the correctness of the returns. The taxpayer must still present substantial
evidence to prove his claim for refund.
As we have said, there is no automatic grant of a tax refund.
50

JD Class 2016
Lascona Land vs CIR

GR 171251, 5 March 2012
FACTS: On March 27, 1998, CIR issued Assessment Notice No. 0000047-93-407 against
Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax for
the year 1993 in the amount of P753,266.56.
Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto
R. Odulio, Officer-in-Charge , Regional Director, Bureau of Internal Revenue, Revenue Region
No. 8, Makati City, stating that by virtue of the last paragraph of Section 228 of the Tax
Code, the assessment notice has become final, executory and demandable.
ISSUE: Whether or not the subject assessment has become final, executory and
demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30)
days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of
the NIRC.
RULING: No, Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals, maintains
that in case of inaction by the CIR on the protested assessment, it has the option to either:
(1) appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the
final decision of the Commissioner on the disputed assessment even beyond the 180-day
period in which case, the taxpayer may appeal such final decision within 30 days from the
receipt of the said decision. Corollarily, petitioner posits that when the Commissioner failed
to act on its protest within the 180-day period, it had the option to await for the final
decision of the Commissioner on the protest.
When the law provided for the remedy to appeal the inaction of the CIR, it did not intend to
limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed
period. . A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the
CIR on the protested assessment.
It must be emphasized, however,
bars the application of the other.
these options are mutually exclusive and resort to one
51

JD Class 2016
CTA CASES
Meralco vs Savellano
FACTS: These are original actions for certiorari to set aside and annul the writ of mandamus
issued by Judge Victorino A. Savellano of the Court of First Instance of Manila in Civil Case
No. 80830 ordering petitioner Meralco Securities Corporation (now First Philippine Holdings
Corporation) to pay, and petitioner Commissioner of Internal Revenue to collect from the
former, the amount of P51,840,612.00, by way of alleged deficiency corporate income tax,
plus interests and surcharges due thereon and to pay private respondents 25% of the total
amount collectible as informer's reward.
Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation
after which he found and held that no deficiency corporate income tax was due from the
Meralco Securities Corporation on the dividends it received from the Manila Electric Co.,
since under the law then prevailing (section 24[a] of the National Internal Revenue Code) "in
the case of dividends received by a domestic or foreign resident corporation liable to
(corporate income) tax under this Chapter . . . .only twenty-five per centum thereof shall be
returnable for the purposes of the tax imposed under this section." The Commissioner
accordingly rejected Maniago's contention that the Meralco from whom the dividends were
received is "not a domestic corporation liable to tax under this Chapter." In a letter dated
April 5, 1968, the Commissioner informed Maniago of his findings and ruling and therefore
denied Maniago's claim for informer's reward on a non-existent deficiency. This action of the
Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated May
11, 1971.
ISSUE: Whether or not the appeal to and corresponding decision made by the respondent
judge was valid
RULING: No. Respondent judge has no jurisdiction to take cognizance of the case because
the subject matter thereof clearly falls within the scope of cases now exclusively within the
jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16,
1954, granted to the Court of Tax Appeals exclusive appellate jurisdiction to review by
appeal, among others, 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 or part of law administered by the Bureau of Internal Revenue. The law
transferred to the Court of Tax Appeals jurisdiction over all cases involving said assessments
previously cognizable by courts of first instance, and even those already pending in said
courts. The question of whether or not to impose a deficiency tax assessment on Meralco
Securities Corporation undoubtedly comes within the purview of the words "disputed
assessments" or of "other matters arising under the National Internal Revenue Code . . . .
52

JD Class 2016
In the case of Blaquera vs. Rodriguez, et al, the Court ruled that "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."
53

JD Class 2016
Yamane vs BA Lepanto
GR 154993
FACTS:
In 1998, BA Lepanto Condominium Corporation (Lepanto) received a tax
assessment in the amount of P1.6 million from Luz Yamane, the City Treasurer of Makati, for
business taxes. Lepanto protested the assessment as it averred that Lepanto, as a
corporation, is not organized for profit; that it merely exists for the maintenance of the
condominium. Yamane denied the protest. Lepanto then appealed the denial to the RTC of
Makati. RTC Makati affirmed the decision of Yamane. Lepanto then filed a petition for review
under Rule 42 with the Court of Appeals. The Court of Appeals reversed the RTC.
Yamane now filed a petition for review under Rule 45 with the Supreme Court. Yamane avers
that a.) Lepanto is liable for local taxation because its act of maintaining the condominium is
an activity for profit because the end result of such activity is the betterment of the market
value of the condominium which makes it easier to sell it; that Lepanto is earning profit from
fees collected from condominium unit owners; and that b.) Lepantos petition for review of
the decision of the RTC to the CA is erroneous because when the RTC decided on the appeal
brought to it by Lepanto, the RTC was exercising its original jurisdiction and not its appellate
jurisdiction; that as such, what Lepanto should have done is to file an ordinary appeal under
Rule 41.
ISSUE: Whether or not a RTC deciding an appeal from the decision of a city treasurer on tax
protests is exercising original jurisdiction.
RULING: Yes. Although the LGC (Section 195) provides that the remedy of the taxpayer
whose protest is denied by the local treasurer is to appeal with the court of competent
jurisdiction or in this case the RTC (considering the amount of tax liability is P1.6 million),
such appeal when decided by the RTC is still in the exercise of its original jurisdiction and not
its appellate jurisdiction. This is because appellate jurisdiction is defined as the authority of a
court higher in rank to re-examine the final order or judgment of a lower court which tried
the case now elevated for judicial review. Here, the City Treasurer is not a lower court. The
Supreme Court however clarifies that this ruling is only applicable to similar cases before the
passage of Republic Act 9282 (effective April 2004). Under RA 9282, the Court of Tax Appeals
(CTA), not CA, exercises exclusive appellate jurisdiction to review on appeal decisions, orders
or resolutions of the Regional Trial Courts in local tax cases whether originally decided or
resolved by them in the exercise of their original or appellate jurisdiction.
54

JD Class 2016
P vs Sandiganbayan 467 SCRA 137LENTORIO
55

JD Class 2016
PPA vs Fuentes
GR 91259, 16 April 1991
FACTS: This petition for review with prayer for a writ of preliminary injunction and/or
restraining order filed by petitioners, Philippine Ports Authority ("PPA" for brevity), Port
Manager Bienvenido Basco and the Port District Manager, Ernesto Fernando of Davao City,
challenges the jurisdiction of the Regional Trial Court of Davao City, Branch 17, in a case
involving the legality of port charges imposed by the PPA on the respondent Terminal
Facilities and Services Corporation ("TEFASCO" for brevity). The port charges in question
include: (1) 100% wharfage dues and berthing fees and (2) the 10% government share in
arrastre/stevedoring revenues and/or privilege fee, pursuant to Section 1213 of the Tariff and
Customs Code.
On July 11, 1974, P.D. No. 505 was promulgated, creating the Philippine Ports Authority
(PPA). The Decree was later amended by P.D. No. 857 dated December 23, 1975 (otherwise
known as the Revised PPA Charter). Under the Decree, the PPA is entrusted with the function
of carrying out an integrated program for the planning, development, financing and
operation of ports and port districts throughout the country. The powers, duties and
jurisdiction of the Bureau of Customs concerning arrastre operations were transferred to and
vested in the petitioner PPA (Philippine Ports Authority vs. Mendoza, 138 SCRA 496, 503).
Pursuant to said decree, PPA was authorized to "regulate the rates or charges for port
services or port related services so that, taking one year with another, such rates or charges
furnish adequate working capital and produce an adequate return on the assets of the
Authority" (PPA) (Section 20[b] and "to levy dues, rates, or charges for the use of the
premises, works, appliances, facilities, or for services provided by or belonging to the
Authority or any other organization concerned with port operations" (Section 6[b] [IX]).
Furthermore, the PPA was authorized to impose a ten percent (10%) charge on the monthly
gross earnings of the operators of arrastre and stevedoring services (also known as
Government Share).
In its Board Resolution No. 7 dated April 21, 1976 embodying the "Memorandum
Agreement," PPA laid down the terms and conditions under TEFASCO was allowed to
construct specialized port and terminal facilities for incoming and outgoing foreign and
domestic vessels and authorized to render port services, particularly, arrastre and
stevedoring services on incoming and outgoing cargoes loaded on or unloaded from foreign
and domestic vessels. On August 30, 1988, TEFASCO filed in the trial court a complaint for
"declaration of nullity, prohibition, mandamus and damages with writ of preliminary
injunction" against PPA.
In an order dated December 14, 1988 , the trial court granted TEFASCO's application for a
writ of preliminary injunction. In an order dated June 21, 1989, Judge Fuentes denied the
motion.
On September 11, 1989, PPA filed an "Urgent Motion to Dismiss" the case on the ground
among others that the trial court has no jurisdiction over the subject matter of the action
56

JD Class 2016
which is essentially an action for injunction to restrain the collection of dues, fees, and other
assessments in the nature of taxes or charges under the Customs law
TEFASCO opposed the Motion to Dismiss, alleging mainly that it is the trial court, not the
Court of Tax Appeals, which has jurisdiction over its causes of action In an order dated
October 5, 1989, Judge Fuentes denied the Motion to Dismiss for lack of merit. On December
15, 1989, PPA filed this petition for certiorari and prohibition with prayer for the issuance of a
writ of preliminary injunction and/or restraining order.
On December 21, 1989, the First Division of this Court, without giving due course to the
petition, required TEFASCO to comment (not to file a motion to dismiss) and issued a
temporary restraining order, effective immediately and until further orders from this Court,
enjoining the trial court from enforcing and/or implementing the Orders dated December 14,
1988, June 21, 1989, and October 5, 1989, and the writ of preliminary injunction dated
January 10, 1989.The petition is without merit.
PPA anchors its petition on Sections 39 and 29 of PD 857, in conjunction with Sections 7, 11
and 18 of Title VII, Book II of Republic Act 1125 to support its theory that wharfage dues,
berthing fees, and the so-called "government share" are customs charges that fall under the
exclusive appellate jurisdiction of the Court of Tax Appeals.
ISSUE: WON Jurisdiction is upon the Court of Tax Appeals to review appeals from decisions
or rulings of the Philippine Ports Authority?
RULING: Since jurisdiction is conferred by law (Commissioner of Internal Revenue vs. Villa,
22 SCRA 4); and under P.D. 857, the collection of port charges ceased to be an
administrative function of the Bureau of Customs and was transferred to the PPA; that
neither P.D. 857 nor R.A. 1125 contains a provision for an appeal to the Court of Tax Appeals
from decisions of the PPA; and further considering that the Court of Tax Appeals is a
specialized court of limited jurisdiction, no appellate jurisdiction over PPA decisions may be
vested in the Court of Tax Appeals by mere implication. This issue was set at rest by the
decision of this Court in Victorias Milling Co., Inc. vs. Court of Tax Appeals (CTA Case No.
3466, Victorias Milling Co., Inc. vs. PPA), G.R. No. 66381, February 29, 1984, where we ruled:
There is no law or statute which expressly vests jurisdiction upon the Court of Tax Appeals to
review appeals from decisions or rulings of the Philippine Ports Authority . . . . The
jurisdiction of a court to take cognizance of a case, we believe, should be clearly conferred
and should not be deemed to exist on mere implication, specifically with respect to the
Court of Tax Appeals which is a specialized court of limited jurisdiction. (Emphasis supplied.)
In view of the foregoing, we deem it unnecessary to discuss the other issues raised in the
petition.
WHEREFORE, the petition for certiorari and prohibition is DENIED for lack of merit, with costs
against the petitioners. The temporary restraining order.
57

JD Class 2016
TFS Inc. vs CIR

GR 166829, 19 April 2010
FACTS: Petitioner TFS, engaged in the pawnshop business, received a Preliminary

Assessment Notice for deficiency VAT, EWT and compromise penalty for the taxable year
1998. It requested the BIR to withdraw and set aside the assessments. However, CIR
informed TFS that a Final Assessment Notice was issued. TFS protested the FAN. There being
no action taken by the CIR, TFS filed a Petition for Review with the CTA.
During trial, petitioner offered to compromise and to settle the assessment for deficiency
EWT with the BIR, leaving only the issue of VAT on pawnshops to be threshed out. Since no
opposition was made by the CIR to the Motion, the same was granted by the CTA but the
latter rendered a Decision upholding the assessment for the deficiency VAT for 1998,
inclusive of 25% surcharge and 20% deficiency interest, plus 20% delinquency interest. The
CTA ruled that pawnshops are subject to VAT under Section 108(A) of the NIRC as they are
engaged in the sale of services for a fee, remuneration or consideration.
TFS filed before the Court of Appeals a Motion for Extension of Time to File Petition for
Review, but it was dismissed by the CA for lack of jurisdiction in view of the enactment of RA
9282. TFS then filed a Petition for Review with the CTA En Banc, but was dismissed for
having been filed out of time. Hence, this petition.
ISSUES:
1
Whether the CTA en banc should have given due course to the petition for review and
not strictly apply the technical rules of procedure to the detriment of justice
Whether or not petitioner is subject to the 10% VAT
RULING:
1
Jurisdiction to review decisions or resolutions issued by the Divisions of the CTA is no

longer with the CA but with the CTA En Banc, as embodied in Section 11 of RA 9282.
An appeal must be perfected within the reglementary period provided by law;
otherwise, the decision becomes final and executory. In the instant case, RA 9282
took effect on April 23, 2004, while petitioner filed its Petition for Review on Certiorari
with the CA on August 24, 2004. By then, petitioners counsel should have been
aware of and familiar with the changes introduced by RA 9282. Petitioner likewise
cannot validly claim that its erroneous filing of the petition with the CA was justified
by the absence of the CTA rules and regulations and the incomplete membership of
the CTA En Banc as these did not defer the effectivity and implementation of RA
9282.
58

JD Class 2016
However, the court overlooks such procedural lapse in the interest of substantial justice.
Although a client is bound by the acts of his counsel, including the latters mistakes and
negligence, a departure from this rule is warranted where such mistake or neglect would
result in serious injustice to the client. Procedural rules may thus be relaxed for persuasive
reasons to relieve a litigant of an injustice not commensurate with his failure to comply with
the prescribed procedure.
Procedural rules can be disregarded because the court cannot, in conscience, allow the
government to collect deficiency VAT from petitioner considering that the government has
no right at all to collect or to receive the same. Besides, dismissing this case on a mere
technicality would lead to the unjust enrichment of the government at the expense of
petitioner, which the court cannot permit. Technicalities should never be used as a shield to
perpetrate or commit an injustice.
Imposition of VAT on pawnshops for the tax years 1996 to 2002 was deferred. Petitioner is
not liable for VAT for the year 1998. Consequently, the VAT deficiency assessment issued by
the BIR against petitioner has no legal basis and must therefore be cancelled. In the same
vein, the imposition of surcharge and interest must be deleted.
59

JD Class 2016
CIR vs Fort Bonifacio Dev. Corp

GR 167606, 11 August 2010
FACTS: Commissioner of Internal Revenue (CIR) filed a petition for review under Rule 45 of
the Rules of Court against Fort Bonifacio Development Corporation (FBDC), challenging the
Resolutions of the Court of Appeal as follows: (1) January 27, 2003, denying the prayer of
petitioner CIR and the Revenue District Officer, Revenue District No. 44, Taguig and Pateros,
Bureau of Internal Revenue (BIR), to admit the Amended Petition for Review; and (2) March
18, 2005, denying their motion for the reconsideration thereof.
In its assailed January 27, 2003 Resolution, the CA denied the prayer of petitioners to admit
the amended petition for review, thus, reiterating the dismissal of the petition for review.
The second motion for extension was filed after the expiration of the first extension; hence,
no more period to extend. When petitioners received the Resolution dismissing the petition
for review, they did not file a motion for reconsideration. Said resolution, therefore, had
already become final and executory.
The last day of filing of the petition for review was beyond the extension prayed for; the
timeliness of the appeal is jurisdictional caveat.
The proper officer that should have filed the case was the Solicitor General, citing the case
of not an officer of the BIR (CIR v. La Suerte Cigar and Cigarette Factory).
ISSUE: Whether or not the Court of Appeals correctly dismissed the original Petition for
Review, and denied admission of the Amended Petition for Review.
RULING: Yes. The failure to timely perfect an appeal cannot simply be dismissed as a mere
technicality, for it is jurisdictional and it becomes a problem as it deprives the appellate
court of jurisdiction over the appeal. The failure to file the notice of appeal within the
reglementary period is akin to the failure to pay the appeal fee within the prescribed period.
In both cases, the appeal is not perfected in due time.
It bears emphasizing that the dismissal of the petition for review and the denial of the
amended petition were premised rather on (January 27, 2003 Resolution):
(1) the late filing of the original petition for review by the CIR;
(2) the absence of a motion for reconsideration of the January 29, 2002 Resolution; and
(3) lack of authority of Atty. Alberto R. Bomediano, Jr., legal officer of the BIR Region 8,
Makati City, to pursue the case on behalf of petitioner CIR.
60

JD Class 2016
INCOME TAX CASES

Conwi vs CTA
GR 48532-33, 31 August 1992
FACTS: Petitioners (Conwi, et al.) were Filipino citizens who were employees of P & G
Philippines. From 1970 to 1971, they were temporarily assigned to other subsidiaries of P &
G outside RP specifically in the US, and were thus paid in US dollars as compensation for
services in their foreign assignments. So when they filed their income tax returns (ITR) for
1970, they computed the tax due by applying the dollar-to-peso conversion on the basis of
the floating rate ordained under BIR Ruling No. 70-27 (rates under Revenue Memorandum
Circulars Nos. 7-71 and 41-71) dated May 14, 1970. The same conversion rate was used for
their 1971 ITR. However, on February 8, 1973, the petitioners filed with CIR an amended ITR
for 1970 & 1971 which used par value of the peso as prescribed in RA 265, Sec.48 in relation
to CA 699, Sec.6 for converting their dollar income into pesos for purposes of computing and
paying the corresponding income tax due from them.
Petitioners claimed that since the dollar earnings did not fall within the classification of
foreign exchange transactions, there occurred no actual inward remittances, and, therefore,
they are not included in the coverage of Central Bank Circular No. 289 which provides for the
specific instances when the par value of the peso shall not be the conversion rate used.
They concluded that their earnings should be converted for income tax purposes using the
par value of the Philippine peso.
The amended ITR resulted into alleged overpayments/refund and/or tax credit. Therefore,
the petitioners claimed for refund from CIR. CTA ruled that the proper conversion rate for the
purpose of reporting and paying the Philippine income tax on the dollar earnings of
petitioners are the rates prescribed under RMC Nos. 7-71 and 41-71. Consequently, the
claim for refund was denied.
ISSUE: WON the petitioners are entitled to a refund. (What exchange rate should be used to
determine the peso equivalent of the foreign earnings of petitioners for income tax
purposes.)
RULING: No. Income may be defined as an amount of money coming to a person or
corporation within a specified time, whether as payment for services, interest, or profit from
investment. Income can also be thought of as a flow of the fruits of ones labor. The dollar
earnings of Conwi et al. are fruits of their labor in the foreign subsidiaries of Procter &
Gamble. They were given a definite amount of money which came to them within a specified
period of time as payment for their services.
Sec. 21, NIRC, states: A tax is hereby imposed upon the taxable net income received from
all sources by every individual, whether a citizen of the Philippines residing therein or
abroad. As such, their income is taxable even if there were no inward remittances during
the time they were earning in dollars abroad.
61

JD Class 2016
Moreover, a careful reading of said CB Circular No. 289 shows that the subject matters
involved therein are export products, invisibles, receipts of foreign exchange, foreign
exchange payments, new foreign borrowing and investments nothing by way of income
tax payments. Thus, petitioners are in error by concluding that since C.B. Circular No. 289
does not apply to them, the par value of the peso should be the guiding rate used for
income tax purposes.
The ruling and the circulars are a valid exercise of power on the part of the Secretary of
Finance by virtue of Sec. 338, NIRC, which empowers him to promulgate all needful rules
and regulations to effectively enforce its provisions. Besides, they have already paid their
taxes using the prescribed rate of conversion. There is no need for the CIR to give them a
tax refund and/or credit.
62

JD Class 2016
CIR vs British Airways
FACTS:
Private respondent BOAC is a 100% British Government-owned corporation
organized and existing under the laws of the UK. Engaged in the international airline
business, it operates air transportation service and sells transportation tickets over the
routes of the other airline members. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic purposes in the
Philippines. Moreover, it did not carry passengers and/or cargo to or from the Philippines,
although during the period covered by the assessments, it maintained a general sales agent
in the Philippines. In May 1968, petitioner CIR assessed BOAC for deficiency income taxes
covering the years 1959 to 1963. This was protested by BOAC. Subsequent investigation
resulted in the issuance of a new assessment, for the years 1959 to 1967 which BOAC paid
under protest. In 1970, BOAC filed a claim for refund which claim was denied by the CIR.
On 25 November 1971, BOAC requested that the assessment be countermanded and set
aside. However, the CIR not only denied the BOAC request for refund in the First Case but
also re-issued in the Second Case the deficiency income tax assessment. The Tax Court held
that the proceeds of sales of BOAC passage tickets in the Philippines do not constitute BOAC
income from Philippine sources "since no service of carriage of passengers or freight was
performed by BOAC within the Philippines" and, therefore, said income is not subject to
Philippine income tax. With the adverse decision of the tax court, hence, this Petition for
Review on certiorari.
ISSUE: Whether or not the revenue derived by BOAC from sales of tickets in the Philippines
for air transportation, while having no landing rights here, constitute income of BOAC from
Philippine sources.
RULING: Yes. The absence of flight operations to and from the Philippines is not
determinative of the source of income or the site of income taxation. Admittedly, BOAC was
an off-line international airline at the time pertinent to this case.
The test of taxability is the "source"; and the source of an income is that activity ... which
produced the income.
Unquestionably, the passage documentations in these cases were sold in the Philippines and
the revenue therefrom was derived from an activity regularly pursued within the Philippines.
And even if the BOAC tickets sold covered the "transport of passengers and cargo to and
from foreign cities", it cannot alter the fact that income from the sale of tickets was derived
from the Philippines. The word "source" conveys one essential idea, that of origin and the
origin of the income herein is the Philippines. It should be pointed out, however, that the
assessments upheld herein apply only to the fiscal years covered by the questioned
deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 197071. Pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972,
international carriers are now taxed. The 2- % tax on gross Philippine billings is an income
tax. If it had been intended as an excise or percentage tax it would have been place under
Title V of the Tax Code covering Taxes on Business.
63

JD Class 2016
CIR vs CA & Soriano

GR 108576
FACTS: Don Andres Soriano (American), founder of A. Soriano Corp. (ASC) had a total
shareholdings of 185,154 shares. Broken down, the shares comprise of 50,495 shares which
were of original issue when the corporation was founded and 134,659 shares as stock
dividend declarations. So in 1964 when Soriano died, half of the shares he held went to his
wife as her conjugal share (wifes legitime) and the other half (92,577 shares, which is
further broken down to 25,247.5 original issue shares and 82,752.5 stock dividend shares)
went to the estate. For sometime after his death, his estate still continued to receive stock
dividends from ASC until it grew to at least 108,000 shares.
In 1968, ASC through its Board issued a resolution for the redemption of shares from
Sorianos estate purportedly for the planned Filipinization of ASC. Eventually, 108,000
shares were redeemed from the Soriano Estate. In 1973, a tax audit was conducted.
Eventually, the Commissioner of Internal Revenue (CIR) issued an assessment against ASC
for deficiency withholding tax-at-source. The CIR explained that when the redemption was
made, the estate profited (because ASC would have to pay the estate to redeem), and so
ASC would have withheld tax payments from the Soriano Estate yet it remitted no such
withheld tax to the government.
ASC averred that it is not duty bound to withhold tax from the estate because it redeemed
the said shares for purposes of Filipinization of ASC and also to reduce its remittance
abroad.
ISSUE: Whether or not ASCs arguments are tenable.
RULING: No. The reason behind the redemption is not material. The proceeds from a
redemption is taxable and ASC is duty bound to withhold the tax at source. The Soriano
Estate definitely profited from the redemption and such profit is taxable, and again, ASC had
the duty to withhold the tax. There was a total of 108,000 shares redeemed from the estate.
25,247.5 of that was original issue from the capital of ASC. The rest (82,752.5) of the shares
are deemed to have been from stock dividend shares. Sale of stock dividends is taxable. It is
also to be noted that in the absence of evidence to the contrary, the Tax Code presumes that
every distribution of corporate property, in whole or in part, is made out of corporate
profits such as stock dividends.
It cannot be argued that all the 108,000 shares were distributed from the capital of ASC and
that the latter is merely redeeming them as such. The capital cannot be distributed in the
form of redemption of stock dividends without violating the trust fund doctrine wherein
the capital stock, property and other assets of the corporation are regarded as equity in trust
for the payment of the corporate creditors. Once capital, it is always capital. That doctrine
was intended for the protection of corporate creditors.
64

JD Class 2016
Redemption of stock dividends is taxable income (considering that a dividend is only made
possible by income, although such is not yet realized because the surplus is retained as
stock dividends). See Sec. 73, NIRC.
65

JD Class 2016
CIR vs Solidbank
Reynils Digest
FACTS: Under the Tax Code, the earnings of banks from passive income are subject to a
twenty percent final withholding tax (20% FWT). This tax is withheld at source and is thus
not actually and physically received by the banks, because it is paid directly to the
government by the entities from which the banks derived the income. Apart from the 20%
FWT, banks are also subject to a five percent gross receipts tax (5% GRT) which is imposed
by the Tax Code on their gross receipts, including the passive income.
Since the 20% FWT is constructively received by the banks and forms part of their gross
receipts or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld
is paid to the government on their behalf, in satisfaction of their withholding taxes. That
they do notactually receive the amount does not alter the fact that it is remitted for their
benefit in satisfaction of their tax obligations.
Stated otherwise, the fact is that if there were no withholding tax system in place in this
country, this 20 percent portion of the passive income of banks would actually be paid to
the banks and then remitted by them to the government in payment of their income
tax. The institution of the withholding tax system does not alter the fact that the 20 percent
portion of their passive income constitutes part of their actual earnings, except that it is
paid directly to the government on their behalf in satisfaction of the 20 percent final income
tax due on their passive incomes. The trial court rendered judgment against the petitioner.
Hence, this petition.
ISSUE: Whether or not the 20% final withholding tax on [a] banks interest income forms
part of the taxable gross receipts in computing the 5% gross receipts tax
RULING: We agree with petitioner. In fact, the same issue has been raised recently in China
Banking Corporation v. CA where this Court held that the amount of interest income withheld
in payment of the 20% FWT forms part of gross receipts in computing for the GRT on banks.
Francis Digest (reproduced)

FACTS: Solid Bank declared gross receipts included the amount from passive income which
was already subjected to 20% final withholding tax (FWT). CTA affirmed that the 20% FWT
should not form part of its taxable gross receipts for purpose of computing the gross receipts
tax on such basis; Solid Bank filed a request for refund. CTA ordered the refund while CA
held that indeed, the 20% FWT on a banks interest income does not form part of the taxable
gross receipts in computing the 5% Gross Receipt tax (GRT) because the FWT was not
actually received by the bank, but was directly remitted to the government.
66

JD Class 2016
ISSUE: Whether or not the 20% FWT on a banks interest income forms part of the taxable
gross receipts in computing the 5% gross receipts tax? And whether there is a double
taxation?
RULING: Yes. The amount of interest income, withheld in payment of the 20% Final
Withholding Tax (FWT), forms part of gross receipts in computing for the GRT on banks.
Although the 20% FWT on respondents interest income was not actually
received
by
respondent because it was remitted directly to the government the fact that the amount
redounded to the banks benefit makes it part of the taxable gross receipts in computing the
5% GRT.
The argument that there is double taxation cannot be sustained, as the two taxes
are different. The one is a business tax which is not subject to withholding while
the other is an income tax subject to withholding.
In China Banking vs. CA, the Court ruled that the amount of interest income withheld in
payment of 20% FWT forms part of the gross receipts in computing for the GRT on banks. A
percentage tax is a national tax measured by a certain percentage of the gross selling price
or gross value in money of goods sold, bartered or imported; or of the gross receipts or
earnings derived by any person engaged in the sale of services. It is not subject to
withholding. An income tax is national tax imposed on the net or the gross income realized
in a taxable year.
It is subject to withholding. In a withholding tax system, the payee is the taxpayer, the
person on whom tax is reposed, the payer, a separate entity, acts as no more than an agent
of the government for the collection of taxes. Possession is acquired by the payer as the
withholding agent of the government because the taxpayer ratifies the very act of
possession for the government. There is constructive receipt, of such income and is included
as part of the tax base.
67

JD Class 2016
Mobil vs City Treasurer
FACTS: Mobil Philippines Inc is a domestic corporation engaged in the manufacturing,

importing, exporting and wholesaling of petroleum products, while respondents are the local
government officials of the City of Makati charged with the implementation of the Revenue
Code of the City of Makati, as well as the collection and assessment of business taxes,
license fees and permit fees within said city. Prior to September 1998, petitioners principal
office was in Makati City. On August 20, 1998, petitioner filed an application with the City
Treasurer of Makati for the retirement of its business within the City of Makati as it moved its
principal place of business to Pasig City.
The OIC of the License Division issued a billing slip of business taxes amounting to
P 1,898,106.96 which the petitioner paid under protest on September 1998. In 1999,
petitioner filed a claim for refund but was denied. The trial court rules that the payments
made by the petitioner in 1998 are payments for the business taxes in 1997.
ISSUE: Are the business taxes paid by petitioner in 1998, business taxes for 1997 or 1998?
RULING: The trial court erred when it said that the payments made by petitioner in 1998
are payments for business tax incurred in 1997 which only accrued in January 1998.
Business taxes imposed in the exercise of police power for regulatory purposes are paid for
the privilege of carrying on a business in the year the tax was paid. It is paid at the
beginning of the year as a fee to allow the business to operate for the rest of the year. It is
deemed a prerequisite to the conduct of business.
Income tax, on the other hand, is a tax on all yearly profits arising from property,
professions, trades or offices, or as a tax on a persons income, emoluments, profits and the
like. It is tax on income, whether net or gross realized in one taxable year. It is due on or
before the 15th day of the 4th month following the close of the taxpayers taxable year .
Under the Makati Revenue Code, it appears that the business tax, like income tax, is
computed based on the previous years figures. In computing the amount of tax due for the
first quarter of operations, the business capital investment is used as the basis. For the
subsequent quarters of the first year, the tax is based on the gross sales/receipts for the
previous quarter. The business taxes paid in the year 1998 is for the privilege of engaging in
business for the same year, and not for having engaged in business for 1997.
Under the same Code, on the year an establishment retires or terminates its business within
the municipality, it would be required to pay the difference in the amount if the tax
collected, based on the previous years gross sales or receipts, is less than the actual tax
due based on the current years gross sales or receipts. For the year 1998, petitioner paid a
total of P2,262,122.48 to the City Treasurer of Makati as business taxes for the year 1998.
The amount of tax as computed based on petitioners gross sales for 1998 is
only P1,331,638.84. Since the amount paid is more than the amount computed based on
68

JD Class 2016
petitioners actual gross sales for 1998, petitioner upon its retirement is not liable for
additional taxes to the City of Makati. Thus, the Court ruled that the respondent erroneously
treated the assessment and collection of business tax as if it were income tax, by rendering
an additional assessment of P1,331,638.84 for the revenue generated for the year 1998.
Therefore, respondents City Treasurer and Chief of the License Division of Makati City are
ordered to refund to petitioner business taxes paid in the amount of P1,331,638.84.
69

JD Class 2016
CIR vs CA & Castaneda

GR 96016, 17 October 1991
FACTS: Private respondent Efren P. Castaneda retired from the government service as
Revenue Attache in the Philippine Embassy in London, England, on December 10, 1982
under the provisions of Section 12(c) of CA 186. Upon retirement, he received terminal leave
pay from which petitioner CIR withheld P12,557.13 allegedly representing income tax
thereon.
Castanada filed with the CTA a petition for review, seeking refund of income tax withheld
from his terminal leave pay, within the two-year prescriptive period within which claims for
refund may be filed.
The CTA ordered the CIR to refund Castaneda the P12,557.13.
ISSUE: Whether or not terminal leave pay received by a government official of employee on
the occasion of his compulsory retirement from the government service is subject to
withholding income tax.
RULING: No. The Court has already ruled that the terminal leave pay received by a
government official or employee is not subject to withholding income tax. In the recent case
of Jesus N. Borromeo vs. The Hon. Civil Service Commission, et al., GR NO. 96032, July 31,
1991, the Court explained the rationale behind the employees entitlement to an exemption
from withholding income tax on his terminal leave pay as follows:
. . . commutation of leave credits, more commonly known as terminal leave, is applied for by
an officer or employee who retires, resigns or is separated from the service through no fault
of his own. (Manual on Leave Administration Course for Effectiveness published by the Civil
Service Commission, pages 16-17). In the exercise of sound personnel policy, the
Government encourages unused leaves to be accumulated. The Government recognizes that
for most public servants, retirement pay is always less than generous if not meager and
scrimpy. A modest nest egg which the senior citizen may look forward to is thus avoided.
Terminal leave payments are given not only at the same time but also for the same policy
considerations governing retirement benefits.
In fine, not being part of the gross salary or income of a government official or employee but
a retirement benefit, terminal leave pay is not subject to income tax.
70

JD Class 2016
Abello vs CIR
452 SCRA 162, 23 February 2005
FACTS: During the 1987 national elections, petitioners, who are partners in the ACCRA law
firm, contributed P882, 661.31 each to the campaign funds of Senator Edgardo Angara, then
running for the Senate. BIR assessed each of the petitioners P263, 032.66 for their
contributions. Petitioners questioned the assessment to the BIR, claiming that political or
electoral contributions are not considered gifts under the NIRC so they are not liable for
donors tax. The claim for exemption was denied by the Commissioner. The CTA ruled in
favor of the petitioners, but such ruling was overturned by the CA, thus this petition for
review.
ISSUE: Whether or not political contributions are subject to donors tax?
RULING: Yes. The Supreme Court laid down several reasons why political contributions are
subject to donors tax:
Section 91 of the NIRC levies tax to the transfer of property by gift. Though transfer
of property by gift was not defined by the NIRC, Article 725 of the Civil Code
supplements the deficiency of the NIRC (by virtue of Article 18 of the Civil Code
stating: In matters which are governed by the Code of Commerce and special laws,
their deficiency shall be supplied by the provisions of this Code.) which defines
donation as: an act of liberality whereby a person disposes gratuitously of a thing
or right in favor of another, who accepts it. Donation has the following elements: (a)
the reduction of the patrimony of the donor; (b) the increase in the patrimony of the
donee; and, (c) the intent to do an act of liberality or animus donandi. The present
case falls squarely within the definition of a donation. All three elements of a
donation are present. a) The patrimony of the four petitioners was reduced by P
882,661.31 each. b) Correspondingly, Senator Angaras patrimony was increased by
P 3,530,645.24. c) There was intent to do an act of liberality since each of the
petitioners gave their contributions without any consideration. Thus being a donation,
the political contributions are subject to donors tax.
Petitioners contribution of money without any material consideration evinces animus

donandi. Donative intent is presumed present when one gives a part of ones
patrimony to another without consideration. Furthermore, donative intent is not
negated when the person donating has other intentions, motives or purposes
which do not contradict donative intent. The fact that petitioners purpose for
donating was to aid in the election of the donee does not negate the presence of
donative intent.
The fact that petitioners will somehow in the future benefit from the election of
the candidate to whom they contribute, in no way amounts to a valuable
71

JD Class 2016
material consideration so as to remove political contributions from the purview
of a donation. Senator Angara was under no obligation to benefit the petitioners.
The proper performance of his duties as a legislator is his obligation as an
elected public servant of the Filipino people and not a consideration for the
political contributions he received. In fact, as a public servant, he may even be
called to enact laws that are contrary to the interests of his benefactors, for
the benefit of the greater good.
BIR is not precluded from making a new interpretation of the law, especially when the
old interpretation was flawed. The fact that since 1939 when the first Tax Code
was enacted, up to 1988 the BIR never attempted to subject political
contributions to donors tax does not block the subsequent correct application of the
statute.
Section 91 of the N I RC is clear and unambiguous, thereby leaving no room

for construction. The rule that tax laws are construed liberally in favor of the
taxpayer and strictly against the government only applies when the statute is
doubtful and ambiguous.
Republic Act No.

7166 enacted on November 25, 1991, which exempts
political/electoral contributions, duly reported to the Commission on Elections, from
tax has no retroactive effect. Only political contributions made subsequent to this
exempting legislation are covered. The political contributions in this case were made
in 1987. Thus, they are still subject to donors tax.
72

JD Class 2016
CIR vs BPI 492 SCRA 551
FACTS: In two notices dated October 28, 1988, petitioner Commissioner of Internal
Revenue (CIR) assessed respondent Bank of the Philippine Islands (BPI s) deficiency
percentage and documentary stamp taxes for the year 1986 in the total amount of
P129,488,656.63. BPI sent a reply letter. in its reply, BPI stated that, As t o t h e alleged
deficiency percentage tax , we are completely at a loss on how such assessment
may be protested since y our letter does not even tell t h e tax payer what
particular percentage tax is involved an d how y our examiner arrived at t h e
deficiency .
As soon as this is explained an d clarified in a proper letter of
assessment , we shall inform you of t h e tax payer s decision on whether to pay
or protest t h e assessment .
ISSUE: Whether or not the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 had already become final and unappealable and
RULING: BPI contends that it was not properly informed and notified of how the assessment
was arrived at and what legal basis the CIR had for those assessments. The ruling of the
CTA, which was agreed by the Supreme court, stated that BPI was not only sent a notice
regarding the assessment, but examiners from the CIR themselves went to BPI in order to
talk with them regarding the issue and find a solution. From this, the SC ruled that From al l
t h e f oregoi n g di scu ssi on s, We can n ow con cl u de t h at [BPI ] was i n deed
aware of t h e n at u re an d basi s of t h e assessmen t s, an d was gi v en al l t h
e opport u n i t y t o con t est t h e same bu t i gn ored i t despi t e t h e n ot i ce
con spi cu ou sl y wri t t en on t h e assessments which st at es t h at "t h i s
ASSESSMENT becomes f i n al an d u n appeal abl e i f n ot prot est ed wi t h i n 30
day s af t er recei pt . " Cou n sel resort ed t o di l at ory t act i cs an d dan gerou sl y
pl ay ed wi t h t i me. Un f ort u n at el y , su ch st rat egy prov ed f at al t o t h e
cau se of h i s cl i en t .
73

JD Class 2016
Cyanamid vs CA
FACTS: Petitioner is a corporation organized under Philippine laws and is a wholly owned
subsidiary of American Cyanamid Co. based in Maine, USA. It is engaged in the manufacture
of pharmaceutical products and chemicals, a wholesaler of imported finished goods and an
imported/indentor. In 1985 the CIR assessed on petitioner a deficiency income tax of
P119,817) for the year 1981. Cyanamid protested the assessments particularly the 25%
surtax for undue accumulation of earnings. It claimed that said profits were retained to
increase petitioners working capital and it would be used for reasonable business needs of
the company. The CIR refused to allow the cancellation of the assessments, petitioner
appealed to the CTA. The CTA denied the petition stating that the law permits corporations
to set aside a portion of its retained earnings for specified purposes. It found that there was
no need to set aside such retained earnings as working capital as it had considerable liquid
funds. Those corporations exempted from the accumulated earnings tax are found under
Sec. 25 of the NIRC, and that the petitioner is not among those exempted. The CA affirmed
the CTAs decision.
ISSUE: Whether or not the accumulation of income was justified.
RULING: In order to determine whether profits are accumulated for the reasonable needs of
the business to avoid the surtax upon the shareholders, it must be shown that the
controlling intention of the taxpayer is manifested at the time of the accumulation, not
intentions subsequently, which are mere afterthoughts. The accumulated profits must be
used within reasonable time after the close of the taxable year. In the instant case,
petitioner did not establish by clear and convincing evidence that such accumulated was for
the
immediate
needs
of
the
business.
To determine the reasonable needs of the business, the United States Courts have invented
the Immediacy Test which construed the words reasonable needs of the business to
mean the immediate needs of the business, and it is held that if the corporation did not
prove an immediate need for the accumulation of earnings and profits such was not for
reasonable needs of the business and the penalty tax would apply. The working capital
needs of a business depend on the nature of the business, its credit policies, the amount of
inventories, the rate of turnover, the amount of accounts receivable, the collection rate, the
availability
of
credit
and
other
similar
factors.
74

JD Class 2016
Republic vs Meralco
FACTS: On December 23, 1993, MERALCO filed with ERB an application for the revision of its
rate schedules. The application reflected an average increase of 21 centavos per kilowatthour (kwh) in its distribution charge.
On January 28, 1994, the ERB issued an Order granting a provisional increase of P0.184 per
kwh, subject to the following condition: In the event, however, that the Board finds, after
hearing and submission by the Commission on Audit of an audit report on the books and
records of the applicant that the latter is entitled to a lesser increase in rates, all excess
amounts collected from the applicants customers as a result of this Order shall either be
refunded to them or correspondingly credited in their favor for application to electric bills
covering future consumptions.
In the same Order, the ERB requested the Commission on Audit (COA) to conduct an audit
and examination of the books and other records of account and to submit a copy to the ERB
immediately upon completion.
On February 11, 1997, the COA submitted its Audit Report SAO No. 95-07 (the COA Report)
which contained the recommendation:
1
not to include income taxes paid by MERALCO as part of its operating expenses for
purposes of rate determination and
not to include the use of the net average investment method for the computation of
the proportionate value of the properties used by MERALCO during the test year for
the determination of the rate base.
ERB rendered its decision adopting COAs recommendations and authorized MERALCO to
implement a rate adjustment in the average amount of P0.017 per kwh, and the provisional
relief in the amount of P0.184 per kilowatt-hour is superseded and modified and the excess
average amount of P0.167 be refunded to the customers or correspondingly credited in their
favor for future consumption (from February 1994 to February 1998).
ERB held that income tax should not be treated as operating expense as this
should be borne by the stockholders who are recipients of the income or profits
realized from the operation of their business hence, should not be passed on to
the customers. ERB also adopted COAs recommendation in computing the rate base
which should only include the proportionate value of the property, determined in accordance
with the number of months the same was actually used in service during the test year.
ISSUE: 1) Whether or not the income tax paid by MERALCO should be treated as part of its
operating expenses (and thus considered in determining the amount of increase in rates
imposed by MERALCO)?
75

JD Class 2016
2) Whether or not the net average method used by COA and the ERB should be adopted,
and not the average investment method used by MERALCO?
RULING:
1) No, income tax should not be included in the computation of operating expenses of public
utility. Income tax paid by a public utility is inconsistent with the nature of operating
expenses. In general, operating expenses are those which are reasonably incurred in
connection with business operations to yield revenue or income. They are items of expenses
which contribute or are attributable to the production of income or revenue. As correctly put
by the ERB, operating expenses should be a requisite of or necessary in the operation of a
utility, recurring, and that it redounds to the service or benefit of customers.
Income tax is imposed on an individual or entity as a form of excise tax or a tax on the
privilege of earning income. In exchange for the protection extended by the State to the
taxpayer, the government collects taxes as a source of revenue to finance its activities.
Clearly, by its nature, income tax payments of a public utility are not expenses which
contribute to or are incurred in connection with the production of profit of a public utility.
Income tax should be borne by the taxpayer alone as they are payments made in
exchange for benefits received by the taxpayer from the State. No benefit is derived by the
customers of a public utility for the taxes paid by such entity and no direct contribution is
made by the payment of income tax to the operation of a public utility for purposes of
generating revenue or profit. Accordingly, the burden of paying income tax should be
Meralcos alone and should not be shifted to the consumers by including the same in the
computation of its operating expenses.
The principle behind the inclusion of operating expenses in the determination of a just and
reasonable rate is to allow the public utility to recoup the reasonable amount of expenses it
has incurred in connection with the service it provides. It does not give the public utility the
license to indiscriminately charge any and all types of expenses incurred without regard to
the nature thereof, i.e., whether or not the expense if attributable to the production of
services by the public utility. To charge consumers for expenses incurred by a public utility
which are not related to the service or benefit derived by the customers from the public
utility is unjustified and inequitable.
Explanation given by the Court: The regulation of rates to be charged by public utilities is
founded upon the police powers of the State. When private property is used for a public
purpose and is affected with public interest, it ceases to be juris privati and becomes subject
to regulation. In regulating rates charged by public utilities, the State protects the public
against arbitrary and excessive rates. However, the power to regulate rates does not give
the State the right to prescribe rates which are so low as to deprive the public utility of a
reasonable return on investment. The rates must be one that yields a fair return and one
that is reasonable to the public for the services rendered. In the case of Southwestern Bell
Tel Co. v. Public Service Commission, it was held that charges to the public shall be
reasonable since the company is the substitute for the State in the performance of the
public service, thus becoming a public servant.
Who determines whether rates fixed are reasonable? The judiciary; it is purely judicial
question and is subject to the review of the courts.
76

JD Class 2016
Implied standard in fixing rates: rate be reasonable and just. The requirement of
reasonableness comprehends such rates which must not be so low as to be confiscatory, or
too high as to be oppressive. In determining whether a rate is confiscatory, it is essential
also to consider the given situation, requirements and opportunities of the utility.
Three (3) major factors in determining the just and reasonable rates to be charged by a
public utility:
1
rate of return judgment percentage which, if multiplied with the rate base,
provides a fair return on the public utility for the use of its property for service to the
public. Prescribed by administrative and judicial pronouncements.
rate base evaluation of the property devoted by the utility to the public service or
the value of invested capital or property which the utility is entitled to a return.
return itself or the computed revenue to be earned by the public utility based on
the rate of return and rate base
In determining whether or not a rate yields a fair return to the utility, the operating expenses
of the utility must be considered. The return must be sufficient to provide for the payment of
such reasonable operating expenses incurred by the public utility.
2) The Net Average Investment Method used by the ERB and COA should be adopted. In the
determination of the rate base, property used in the operation must be subject to appraisal
and evaluation. Under the net average investment method, properties and equipment used
in the operation are entitled to a return only on the actual number of months they are in
service. In contrast, the average investment method computes the proportionate value of
the property by adding the value of the property at the beginning and at the end of the test
year with the resulting sum divided by two. By using the net average investment method,
the ERB and COA considered for determination of the rate base the value of properties and
equipment used by MERALCO in proportion to the period that the same were actually used
during the period in question. This treatment is consistent with the rule that the
determination of the rate base of a public utility must be based on properties and equipment
actually being used or are useful to the operation of the public utility.
Further, computing the proportionate value of assets used in service in accordance with the
actual number of months the same is used during the test year is a more accurate method
of determining the value of the properties of a public utility entitled to a return.
If the Court sustains the application of the trending method or the average investment
method, the public utility may easily manipulate the valuation of its property entitled to a
return by simply including a highly capitalized assed even if the same was used for a limited
period of time. With the inexactness of the trending method and the possibility that the
valuation may be subject to the control of and abuse by the public utility, the Court finds no
reasonable basis to overturn the recommendation of COA and ERB.
77

JD Class 2016
Esso vs CIR
FACTS: The case is an appeal on the decision of the Court of Tax Appeals denying
petitioners claims for refund of overpaid income taxes of P102,246.00 for 1959 and
P434,234.93 for 1960 in CTA Cases No. 1251 and 1558 respectively.
ISSUE: Whether or not the margin fees paid by the petitioner be considered necessary and
ordinary business expenses and therefore still deductible from its gross income.
RULING: The court ruled in the negative. In the case of Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal Revenue, 4 the Court laid down the
rules on the deductibility of business expenses. To be deductible as a business expense,
three conditions are imposed mainly. (1) The expense must be ordinary and necessary, (2) it
must be paid or incurred within the taxable year, and (3) it must be paid or incurred in
carrying on a trade or business. In addition, not only must the taxpayer meet the business
test, he must substantially prove by evidence or records the deductions claimed under the
law, otherwise, the same will be disallowed.
ESSO has not shown that the remittance to the head office of part of its profits was made in
furtherance of its own trade or business. The petitioner merely presumed that all corporate
expenses are necessary and appropriate in the absence of a showing that they are illegal
or ultra vires. This is error. The public respondent is correct when it asserts that "the
paramount rule is that claims for deductions are a matter of legislative grace and do not turn
on mere equitable considerations The taxpayer in every instance has the burden of
justifying the allowance of any deduction claimed."
It is clear that ESSO, having assumed an expense properly attributable to its head office,
cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on
its own trade or business.
78

JD Class 2016
Aguinaldo vs. CIR
FACTS: Aguinaldo Industries is engaged in the manufacture of fishing nets (a tax exempt
industry), which is handled by its Fish Nets Division. It is also engaged in the manufacture of
furniture which is operated by its Furniture Division. Each division is provided with separate
books of accounts.
The income from the Fish Nets Division, miscellaneous income of the Fish Nets Division, and
and the income from the Furniture Division are computed individually. Petitioner acquired a
parcel of land in Muntinlupa Rizal as site for its fishing net factory. The transaction was
entered in the books of the Fish Nets Division. The company then found another parcel of
land in Marikina Heights, which was more suitable. They then sold the Muntinlupa property
and the profit derived from the sale was entered in the books of the Fish Nets Division as
miscellaneous income to separate it from its tax exempt income.
For 1957, petitioner filed 2 separate ITRs (one for Fish Nets and one for Furniture). After
investigation, BIR examiners found that the Fish Nets Div deducted from its gross income
PhP 61k as additional remuneration paid to the companys officers. Such amount was taken
from the sale of the land and was reported as part of the selling expenses.
The examiners recommended that such deduction be disallowed. Petitioner then asserted in
its letter that it should be allowed because it was paid as bonus to its officers pursuant to
Sec.3 of its by-laws: From the net profits shall be deducted for allowance of the Pres. - 3%,
VP - 1%, members of the Board - 10%. CTA imposed a 5% surcharge and 1% monthly
interest for the deficiency assessment.
Petitioner then stressed that the profit derived from the sale of the land is not taxable
because the Fish Nets Div enjoys tax exemption under RA 901.
ISSUES:
(1) Whether the bonus given to the officers of the petitioner upon the sale of its
Muntinlupa land is an ordinary and necessary business expense deductible for income tax
purposes; and
(2) Whether petitioner is liable for surcharge and interest for late payment.
RULING:
4)
YES. These extraordinary and unusual amounts paid by petitioner to these directors in
the guise and form of compensation for their supposed services as such, without any
relation to the measure of their actual services, cannot be regarded as ordinary and
necessary expenses within the meaning of the law. This posture is in line with the
doctrine in the law of taxation that the taxpayer must show that its claimed deductions
clearly come within the language of the law since allowances, like exemptions, are
matters of legislative grace.
79

JD Class 2016
Moreover, petitioner cannot now claim that the profit from the sale is tax exempt. At the
administrative level, the petitioner implicitly admitted that the profit it derived from the
sale of its Muntinlupa land, a capital asset, was a taxable gain which was precisely
the reason why for tax purposes the petitioner deducted therefrom the questioned
bonus to its corporate officers as a supposed item of expense incurred for the sale of
the said land, apart from the P51,723.72 commission paid by the petitioner to the real
estate agent who indeed effected the sale. The BIR therefore had no occasion to pass
upon the issue. To allow a litigant to assume a different posture when he comes before
the court and challenge the position he had accepted at the administrative level, would
be to sanction a procedure whereby the court which is supposed to review
administrative determinations would not review, but determine and decide for the
first time, a question not raised at the administrative forum.
The requirement of prior exhaustion of administrative remedies gives administrative
authorities the prior opportunity to decide controversies within its competence, and in
much the same way that, on the judicial level, issues not raised in the lower court
cannot be raised for the first time on appeal. Up to the time the questioned decision of
the respondent Court was rendered, the petitioner had always implicitly admitted that
the disputed capital gain was taxable, although subject to the deduction of the bonus
paid to its corporate officers. It was only after the said decision had been rendered and
on a motion for reconsideration thereof, that the issue of tax exemption was raised by
the petitioner for the first time. It was thus not one of the issues raised by petitioner in
his petition and supporting memorandum in the CTA.
5)
YES. Interest and surcharges on deficiency taxes are imposable upon failure of the
taxpayer to pay the tax on the date fixed in the law for the payment thereof, which was,
under the unamended Section 51 of the Tax Code, the 15th day of the 5th month
following the close of the fiscal year in the case of taxpayers whose tax returns were
made on the basis of fiscal years. A deficiency tax indicates non-payment of the correct
tax, and such deficiency exists not only from the assessment thereof but from the very
time the taxpayer failed to pay the correct amount of tax when it should have been paid
and the imposition thereof is mandatory even in the absence of fraud or willful failure to
pay the tax is full.
80

JD Class 2016
PRC vs. CA
GR 118794
FACTS: This is an appeal by certiorari from the decision of respondent Court of Appeals
affirming the decision of the Court of Tax Appeals which disallowed petitioners claim for
deduction as bad debts of several accounts in the total sum of P395,324.27, and imposing a
25% surcharge and 20% annual delinquency interest on the alleged deficiency income tax
liability of petitioner.
ISSUE: Was PRC able to establish the worthlessness of the debts thereby qualifying these
debts as bad debts making them deductible?
RULING: No. For debts to be considered as worthless, and thereby qualify as bad debts
making them deductible, the taxpayer should show that 1) there is a valid and subsisting
debt; 2) the debt must be actually ascertained to be worthless and uncollectible during the
taxable year; 3) the debt must be charged off during the taxable year; and 4) the debt must
arise from the business or trade of the taxpayer. Additionally, before a debt can be
considered worthless, the taxpayer must also show that it is indeed uncollectible even in the
future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he
exerted diligent efforts to collect the debts: 1) sending of statement of accounts; 2) sending
of collection letters; 3) giving the account to a lawyer for collection; and 4) filing a collection
case in court.
Petitioner did not satisfy the requirements of worthlessness of a debt as to the accounts
disallowed as deductions. There was no documentary evidence to give support to the
testimony of an employee of the Petitioner. Mere allegations cannot prove the worthlessness
of such debts. Hence, the claim for deduction of these debts should be rejected.
81

JD Class 2016
China Bank vs CA
FACTS: CBC is a universal banking corporation organized and existing under Philippine law.
CBC paid P12,354,933.00 as gross receipts tax in 1994. On 2006 CTA in Asian Bank
Corporation v. Commissioner of Internal Revenue ruled that the 20% final withholding tax on
a banks passive interest income does not form part of its taxable gross receipts.CBC now
claims for tax refund or credit of P1,140,623.82 from the P12,354,933.00 gross receipts tax
that CBC paid. Citing Asian Bank, CBC argued that it was not liable for the gross receipts tax
on the sums withheld by the Bangko Sentral ng Pilipinas as final withholding tax on CBCs
passive interest income in 1994.Commissioner claims that CBC paid the gross receipts tax
pursuant to Section 119 (now Section 121) of the NIRC.
The Commissioner argued that the final withholding tax on a banks interest income forms
part of its gross receipts in computing the gross receipts tax. The Commissioner contended
that the term gross receipts means the entire income or receipt, without any deduction.
CTA ruled in favor of CBC and held that 20% Final withholding tax on interest income does
not form part of CBCs taxable gross income based on the Asian Bank ruling.
ISSUE: Whether the 20% final withholding tax on interest income should form part of CBCs
gross receipts in computing the gross receipts tax on banks?
RULING: The amount of interest income withheld in payment of the 20% final withholding
tax forms part of CBCs gross receipts in computing the gross receipts tax on banks.
Principles in Taxation Definition of Gross Receipts
The Tax Code does not define the term gross receipts for purposes of the gross receipts
tax on banks. Absent a statutory definition, the BIR has applied the term in its plain and
ordinary meaning. In ordinary terms gross receipts means the entire receipts without any
deduction. Deducting any amount from the gross receipts changes the result, and the
meaning, to net receipts. Any deduction from gross receipts is inconsistent with a law that
mandates a tax on gross receipts, unless the law itself makes an exception. Under Revenue
Regulations Nos. 12-80 and 17-84, as well as in several numbered rulings, the BIR has
consistently ruled that the term gross receipts does not admit of any deduction.
The interpretation has yet to be changed until the present tax code. The legislature has
adopted the BIRs interpretation, following the principle of legislative approval by reenactment. The tax code does not define for gross receipts except for the amusement tax
which is also a business tax. It defines it as it embraces all receipts of the proprietor, lessee
or operator of the amusement place. The Tax Code further adds that [s]aid gross receipts
also include income from television, radio and motion picture rights, if any. This definition
merely confirms that the term gross receipts embraces the entire receipts without any
deduction or exclusion, as the term is generally and commonly understood.
82

JD Class 2016
Interest income forms part of Gross Receipts In Asian Bank, the Court of Tax Appeals held
that the final withholding tax is not part of the banks taxable gross receipts. In Collector of
Internal Revenue v. Manila Jockey Club, which held that gross receipts of the proprietor
should not include any money which although delivered to the amusement place has been
especially earmarked by law or regulation for some person other than the proprietor. The
tax court adopted the Asian Bank ruling in succeeding cases involving the same issue. CTA
reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v. Commissioner and Standard
Chartered Bank v. Commissioner,it ruled that the final withholding tax forms part of the
banks gross receipts in computing the gross receipts tax.
The tax court held that Section 4(e) of Revenue Regulations No. 12-80 did not prescribe the
computation of the gross receipts but merely authorized the determination of the amount
of gross receipts on the basis of the method of accounting being used by the taxpayer.
Section 121 of the Tax Code includes interest as part of gross receipts, it refers to the
entire interest earned and owned by the bank without any deduction. Interest means the
gross amount paid by the borrower to the lender as consideration for the use of the lenders
money. This definition does not allow any deduction. The entire interest paid by the
depository bank, without any deduction, is what forms part of the lending banks gross
receipts.
CBCs reliance of Collector of Internal Revenue v. Manila
Jockey Club CBC cites Collector of Internal Revenue v. Manila Jockey Club as authority that
the final withholding tax on interest income does not form part of a banks gross receipts
because the final tax is earmarked by regulation for the government. Manila Jockey Club
paid amusement tax on its commission in the total amount of bets called wager funds from
the period November 1946 to October 1950. But such payment did not include the 5 % of
the funds which went to the Board on Races and to the owners of horses and jockeys. We
ruled that the gross receipts of the Manila Jockey Club should not include the 5 % because
although delivered to the Club, such money has been especially earmarked by law or
regulation for other persons.
The Manila Jockey Club does not apply to the cases at bar because what happened there is
earmarking and not withholding. Earmarking is not the same as withholding. Amounts
earmarked do not form part of gross receipts because these are by law or regulation
reserved for some person other than the taxpayer, although delivered or received. On the
contrary, amounts withheld form part of gross receipts because these are in constructive
possession and not subject to any reservation In the instant case, CBC owns the interest
income which is the source of payment of the final withholding tax. The government
subsequently becomes the owner of the money constituting the final tax when CBC pays the
final withholding tax to extinguish its obligation to the government. This is the consideration
for the transfer of ownership of the money from CBC to the government. Thus, the amount
constituting the final tax, being originally owned by CBC as part of its interest income,
should form part of its taxable gross receipts. CBCs reliance on Asian Bank ruling CBC also
relies on the Tax Courts ruling in Asian Bank that Section 4(e) of Revenue Regulations No.
12-80 authorizes the exclusion of the final tax from the banks taxable gross receipts.
Section 4(e) states that the gross receipts shall be based on all items of income actually
received.
83

JD Class 2016
The Tax Court erred in interpreting Section 4(e) of Revenue Regulations No. 12-80. Income
may be taxable either at the time of its actual receipt or its accrual, depending on the
accounting method of the taxpayer. Thus, the interest income actually received by the
lending bank, both physically and constructively, is the net interest plus the amount
withheld as final tax. CBCs claim amount to a tax exemption CBCs contention that it can
deduct the final withholding tax from its interest income amounts to a claim of tax
exemption. The cardinal rule in taxation is exemptions are highly disfavored and whoever
claims an exemption must justify his right by the clearest grant of organic or statute law.
CBC must point to a specific provision of law granting the tax exemption. The tax exemption
cannot arise by mere implication and any doubt about whether the exemption exists is
strictly construed against the taxpayer and in favor of the taxing authority. CBC failed to cite
any provision of law allowing the final tax as an exemption, deduction or exclusion
84

JD Class 2016
CIR vs General Foods

GR 143672, 24 April 2003
FACTS: On June 14, 1985, respondent corporation filed its income tax return for the fiscal
year ending Feb 28, 1985. In the application, the amount of 9,461,246 as advertising
expense for Tang was claimed as deduction. The Commissioner disallowed 50% of the
deduction claimed and as a consequence, the respondent corporation was assessed
deficient in income taxes in the amount of 2,635,141.42. Respondent corporation filed an
MOR but was denied. Their appeal to the CTA was also dismissed. The decision stated that
the expense incurred was to create goodwill for the company. Aggrieved, respondent
corporation filed a petition for review at the Court of Appeals which rendered a decision
reversing and setting aside the decision of the Court of Tax Appeals. Hence this petition.
ISSUES: Whether or not the subject media advertising expense for Tang incurred by
respondent corporation was an ordinary and necessary expense fully deductible under the
National Internal Revenue Code (NIRC)
RULING: No. To be deductible from gross income, the subject advertising expense must
comply with the following requisites: (a) the expense must be ordinary and necessary; (b) it
must have been paid or incurred during the taxable year; (c) it must have been paid or
incurred in carrying on the trade or business of the taxpayer; and (d) it must be supported
by receipts, records or other pertinent papers.
The Court agreed with the Commissioner that the subject advertising expense was not
ordinary on the ground that it failed the two conditions set by U.S. jurisprudence: first,
reasonableness of the amount incurred and second, the amount incurred must not be a
capital outlay to create goodwill for the product and/or private respondents business.
The subject expense for the advertisement of a single product is inordinately large.
Therefore, even if it is necessary, it cannot be considered an ordinary expense deductible
under then Section 29 (a) (1) (A) of the NIRC.
The Court agreed with the CTA that the expense was intended to generate future sale of the
merchandise or use of services in order to protect the corporations brand franchise.
85

JD Class 2016
Gancayco vs CIR
FACTS: On May 10, 1950, Gancayco filed his income tax return for the year 1949. Two (2)
days later, respondent Collector of Internal Revenue issued the corresponding notice
advising him that his income tax liability for that year amounted P9,793.62, which he paid
on May 15, 1950. A year later, on May 14, 1951, respondent wrote the communication
Exhibit C, notifying Gancayco, inter alia, that, upon investigation, there was still due from
him, a efficiency income tax for the year 1949 amounting to P16,860.31. Gancayco argues
that the CIR failed to deduct two items from his return, namely: a. Farming expenses
amounting to P27,459.00; and b.For representation expenses amounting to P8,933.45.
ISSUE: WON the farming and representation expenses deductible from his gross income
tax?
RULING: Farming expenses are not deductible, not being an ordinary expense, but a capital
expenditure. Representation expenses are partially deductible only to the extent receipts
were presented Section 30 of the Tax Code partly reads:
(a) Expenses: (1) In General All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually rendered;
traveling expenses while away from home in the pursuit of a trade or business; and rentals
or other payments required to be made as a condition to the continued use or possession,
for the purposes of the trade or business, of property to which the taxpayer has not taken or
is not taking title or in which he has no equity . (Emphasis supplied.)
On farming expenses:
1
No evidence has been presented as to the nature of the said "farming expenses"
other than the bare statement of petitioner that they were spent for the
"development and cultivation of (his) property". No specification has been made as to
the actual amount spent for purchase of tools, equipment or materials, or the amount
spent for improvement. Respondent claims that the entire amount was spent
exclusively for clearing and developing the farm which were necessary to place it in
a productive state. It is not, therefore, an ordinary expense but a capital expenditure.
Accordingly, it is not deductible but it may be amortized, in accordance with section
75 of Revenue Regulations No. 2, cited above.
See also, section 31 of the Revenue Code which provides that in computing net
income, no deduction shall in any case be allowed in respect of any amount paid out
86

JD Class 2016
for new buildings or for permanent improvements, or betterments made to increase
the value of any property or estate.
3
Authorities on the subject state:
The cost of farm machinery, equipment and farm building represents a capital
investment and is not an allowable deduction as an item of expense. Amounts
expended in the development of farms, orchards, and ranches prior to the time when
the productive state is reached may be regarded as investments of capital.
(Merten'sLaw of Federal Income Taxation, supra, sec. 25.108, p. 525.)
Expenses for clearing off and grading lots acquired is a capital expenditure,
representing part of the cost of the land and was not deductible as an expense.
(Liberty Banking Co. v. Heiner 37 F [2d] 703 [8AFTR 100111] [CCA 3rd];
The B.L.Marble Chair Company v. U.S., 15 AFTR 746).
An item of expenditure, in order to be deductible under this section of the statute

providing for the deduction of ordinary and necessary business expenses must fall
squarely within the language of the statutory provision. This section is intended
primarily, although not always necessarily, to cover expenditures of a recurring
nature where the benefit derived from the payment is realized and exhausted within
the taxable year.
87

JD Class 2016
CIR vs CA & YMCA

GR 124043, 14 October 1998
FACTS: YMCA earned income from leasing a portion of its premises for shop owners and
from collecting parking fees. The CIR issued an assessment on YMCA for P400,000+ of tax
liability which the latter formally protested against.
YMCA bases its claim for exemption on both NIRC and the Constitution.
The case reached the CTA, which ruled in YMCAs favour on the ground that the amount
YMCA receive the rentals are only enough to pay the operational costs for such and that it is
not engaged in the business of contracting or operating a parking lot.
The CA initially ruled in favour of the CIR, following the jurisprudence in Province Abra vs.
Abra Volley College that leasing facilities to shop owners and the operation of a parking lot
produce taxable income.
In its motion for reconsideration, YMCA claimed that the CA departed from the factual
findings of the CTA by declaring that the incomes were tax exempt. The CA reversed itself
on the reason that, although there is income produced, such were not made for profitable
purposes considering the nature of the YMCA and affirmed the finding of the CTA that such
amounts were made only to keep the YMCAs head above the water.
Hence, this appeal by the CIR, claiming that the CA committed reversible error in departing
from the factual findings of the CTA and that the YMCAs income from the aforementioned
sources are indeed taxable.
ISSUES: 1) Did the CA depart from the CTAs factual finding? 2) Is YMCAs rental income
taxable? 2) How are constitutional precepts regarding taxation of charitable institutions
applied?
RULING: 1) No. What the CA reversed was not the factual finding of the CTA, which is
generally binding upon the appellate court. The question of whether an income is exempted
from tax is not a factual findingit is a legal conclusion, which the CA has power to reverse
or modify upon appeal.
The distinction between a question of law and a question of fact is clear-cut. It has been held
that [t]here is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or falsehood of alleged facts.
2) Yes. In spite of Sec. 26 (g) & (h) which would exempt YMCA as a non-profit civic
organization, the last paragraph of Sec. 26 of the NIRC is worded such that YMCA is still
taxable in two circumstances:
i.
its properties, whether real or personal, produces income; and/or
88

JD Class 2016
ii.
its activities, conducted for profit, produces income.
As such, applying the verbal egis rule in statutory construction, the rentals YMCA gained
from leasing their premises as well as the parking fees are considered taxable income.
2) Sec. 28, par. 3, Art. VI, of the 1987 Constitution, according to the intent of the framers
does not exempt the charitable institution per se. What it exempts from real estate taxes
are lands, buildings, and improvements thereon used for religious, charitable, or educational
purposes. At issue, however, is income taxes, not property taxes. Hence, the said
constitutional provision does not apply.
YMCAs argument grounded on Sec. 4, par. 3, Art. XIV, of the 1987 Constitution does not
convince either. For there to be a tax exemption based on that provision, two conditions
must be met:
i.
the institution in question is a non-stock, non-profit educational institution; and
ii.
the income it seeks to be exempted from taxation is used actually, directly, or

exclusively for educational purposes.
YMCA, however, has failed to present evidence proving either requisite. Considering the
strictissimi juris approach on tax exemptions, YMCAs claim without evidence that it is a nonstock, non-profit educational institution does not enough to warrant a tax exemption. It has
not proven that its income are used actually, directly, or exclusively for educational
purposes.
Moreover, YMCA cannot be considered an educational constitution, which has a technical
meaning under the law as referring to institutions that provide hierarchically structured and
chronological graded learnings organized and provided by [a] formal school system for which
certification is required in order for the learner to progress through the grades or move to
the higher levels. YMCAs articles on incorporation and by-laws, however, do not contain
anything that would hint at that technical meaning.
89

JD Class 2016
CIR vs CTA
127 SCRA 9
FACTS: Smith Kline and French Overseas Company is a multinational firm based in
Pennsylvania which is licensed to do business in the Philippines and is engaged in the
importation, manufacture and sale of pharmaceuticals drugs and chemicals. Because of an
audit received from its international auditors, the said firm found out that overhead costs
were understated which led to the overpayment of income tax. Hence, the latter filed for a
tax refund as there was an alleged underdeduction of home office overhead which resulted
to such overpayment.
ISSUE: Whether Smith Kline and French Overseas Company is entitled to the requested tax
refund?
RULING: Where an expense is clearly related to the production of Philippine-derived income

or to Philippine operations, that expense can be deducted from the gross income acquired in
the Philippines without resorting to apportionment. The overhead expenses incurred by the
parent company in connection with finance administration, and research and development,
all of which directly benefit its branches all over the world, including the Philippines, fall
under a different category however. These are items which cannot be definitely allocated or
identified with the operations of the Philippine branch. Under section 37(b) of the Revenue
Code and section 160 of the regulations, Smith Kline can claim its deductible share a ratable
part of such expenses based upon the ratio of the local branch's gross income to the total
gross income, worldwide, of the multinational corporation. The firm presented a statement
that the declared overhead of the local branch as per audit was based on the ratable share
of the company as a whole, which the court recognized. Hence, tax refund was granted to
the Smith Kline and French Overseas Company.
90

JD Class 2016
FEBTC vs CIR 488 SCRA 473

488 SCRA 473
FACTS: Petitioner (Far East Bank and Trust Company) FEBTC, is the trustee of various
retirement plans established by several companies for its employees. Petitioner FEBTC had
the authority to invest the retirement funds in various money market placements, bank
deposits, deposit substitute instruments and government securities. These investments
earned interest income of which tax was withheld for payment to the CIR. FEBTC and Private
Petitioners (depositors of the retirement plans) claimed for a tax refund for such withheld tax
from the earned interest income. The claim of refund was denied by the lower courts and the
CTA. Hence, this petition for review on Certiorari.
ISSUE: Whether Employees' Trusts are exempted from income tax? Whether a tax refund
should be granted to the petitioner (FEBTC and private petitioners)?
RULING: The court had first recognized the exemption in the case of CIR vs. CA, arising as it
did from the enactment of RA. No. 4917 which granted exemption from income tax to
employees' trusts. The same exemption was provided in RA. No. 8424 and may now be
found under Sec. 60(b) of the NIRC. Admittedly, such interest income of the petitioner was
not subject to income tax.
Tax refunds partake the nature of tax exemptions and are thus construed strictissimi
juris against the person or entity claiming the exemption. The burden in proving the claim
for refund necessarily falls on the taxpayer, and petitioner in this case failed to discharge the
necessary burden of proof.
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. We must emphasize that tax refunds, like tax exemptions,
are construed strictly against the taxpayer and liberally in favor of the taxing authority. In
the event, petitioner has not met its burden of proof in establishing the factual basis for its
claim for refund and we find no reason to disturb the ruling of the lower courts.
91

JD Class 2016
CIR vs Trustworthy Pawnshop Inc.

GR 149834, 2 May 2006
FACTS: In March 1991, the CIR issued a memorandum order classifying the pawnshop
business as akin to the lending investors business activity and on that basis subjected
pawnshops to the 5% lending investors tax on their gross income pursuant to the 1977
NIRC.
A memorandum circular was then issued. The circular provided for the following:
1. that pawnshops had until June 30, 1991 to pay the said tax considering that the usual
period for payment for the first quarter had already lapsed.
2. that failure to pay by June 30, 1991 will cause penalties to be computed from April
21, 1991.
3. that pawnshops, as lending investors, are also subject to the documentary stamp tax.
As such, an assessment was issued to Trustworthy Pawnshop Inc., who protested against the
memorandum order and circular.
The CTA ruled that for tax purposes, a pawnshop are not in the same class as lending
investors since they are subject to different tax treatments; hence, the 5% lending investors
tax does not apply to pawnshops.
The CA dismissed the CIRs appeal. Hence, this petition before the SC.
ISSUE: Were the CIR memorandum order and circular legally valid?
RULING: No. The Court ruled that pawnshops cannot be subject to the 5% lending investors
tax because it cannot be considered a lending investor for four reasons:
1. Sec. 192 of 1986 NIRC places lending investors and pawnshops in different
paragraphs (dd) and (ff) respectively, providing different fixed taxes for reach.
2. The congressional intent of the 1977 and 1986 NIRC was not to treat lending
investors and pawnshops in the same way.
3. Sec. 116 of the 1997 NIRC only mentions two classes that are subject to percentage
tax: dealers in securities and lending investors. Pawnshops apparently do not fall
under either class and as such, excluded.
4. The BIR itself, in its rulings, that pawnshops were not subject to the % percentage
tax.
92

JD Class 2016
The aforementioned reasons show that no legislation has ever indicated that pawnshops are
to be treated in the same way as lending investors for tax purposes. As such, there is
legislative fiat that serves as basis for the memorandum order and circular.
93

JD Class 2016
Lhuillier Pawnshop vs CIR

GR 166786, 3 May 2006
FACTS: Petitioner corporation received an Assessment Notice from the Chief Assessment
Division for deficiency VAT for the year 1997. Petitioner filed a motion for reconsideration of
said assessment notices but was denied by respondent Commissioner of Internal Revenue
(CIR). On petition, the CTA reversed and ruled in favor with the petitioner, holding that, the
subject of a Documentary Stamp Tax (DST) does not include the pawn ticket because it is
neither a security or evidence of indebtedness. Respondent filed a petition for review with
the CA which reversed the CTA decision holding that although the pawn ticket is not, per se,
subject to DST, the transaction involved in the ticket is the one being taxed. Hence the
assessment was proper.
ISSUE: Whether or not petitioners pawnshop transactions are subject to DST.
RULING: Yes. It is clear from Sections 173 and 195 from the NIRC that the DST is not limited
to the document embodying the enumerated transactions. A DST is an excise tax on the
exercise of a right or privilege to transfer obligations, rights or properties incident thereto.
Pledge, which is the business of a pawnshop, is among the exercises subject to DST. Even if
the law does not consider the pawn ticket as an evidence of security or indebtedness, for
purposes of taxation, the same ticket is proof of an exercise of a taxable privilege of
concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshops
obligation to pay DST but the exercise of the privilege to enter into a contract of pledge.
There is therefore no basis in petitioners assertion that a DST is literally a tax on a
document and that no tax may be imposed on a pawn ticket.
94

JD Class 2016
Systra vs CIR
533 SCRA 776
FACTS: Petitioner filed with the BIR its Annual ITR for the taxable year 2000 declaring
revenues in the amount of around P18.2 million, the bulk of which consists of income from
management consultancy services rendered to the Philippine Branch of Group Systra SA,
France. Such income was subjected to 5% CWT, consequently, an amount of around P4.7
million was declared by petitioner as CWTs for the taxable year 2000. Same period reflected
also total gross income of P3.7 million, net loss of P17.9 thousand and MCIT of P75 thousand.
The MCIT was offset against the reported CWTs for the year and as such, the remaining
unutilized CWTs amounted to P4.6 million. Petitioner then opted to carry over the said excess
tax credit to the succeeding taxable year 2001.
In year 2001, petitioner reported taxable income of P1.9 million with P619.7 thousand as the
corresponding normal income tax due. Considering the same, petitioner utilized its prior
year excess tax credits to pay for its current year tax due. By the end of 2001, petitioners
unutilized tax credits amounted to around P5.4 million (both from the 2000 and 2001
revenues). Petitioner indicated in the 2001 ITR the option "To be issued a Tax Credit
Certificate" relative to its tax overpayments.
In August 2002, petitioner filed a claim for tax refund on its unused tax credits. The BIR
failed to act on the same. Thus, petitioner filed a petition for review with the CTA to protect
its right to claim. The CTA then partially granted the petition and ordered the issuance of a
tax credit certificate amounting to P1.1 million which represented the unused tax credits
generated by the 2001 revenues. The other P4.6 million was denied the issuance of tax
credit certificate as petitioner exercised its option of carry over.
ISSUE: WON the exercise of the option to carry over excess income tax credits under
Section 76 of the National Internal Revenue Code of 1997, as amended (Tax Code) bars a
taxpayer from claiming the excess tax credits for refund even if the amount remains
unutilized in the succeeding taxable year?
RULING:
Yes, it does. Section 76 of the Tax Code provides:
SEC. 76. Final Adjustment Return. Every corporation liable to tax under Section
27 shall file a final adjustment return covering the total taxable income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire taxable net
income of that year the corporation shall either:
(A) Pay the balance of tax still due; or
95

JD Class 2016
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid, the excess amount shown on its final adjustment return may be carried
over and credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable years. Once the option to carry-over and apply the
excess quarterly income tax against income tax due for the taxable quarters of
the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance
of a tax credit certificate shall be allowed therefor.
A corporation entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the
issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the
excess credit is exercised, the same shall be irrevocable for that taxable period.
In exercising its option, the corporation must signify in its annual corporate adjustment
return (by marking the option box provided in the BIR form) its intention either to carry over
the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the
alternative and the choice of one precludes the other. This is known as the irrevocability
rule and is embodied in the last sentence of Section 76 of the Tax Code. The rule prevents a
taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against
taxes for the taxable quarters of the succeeding years for which no tax credit certificate has
been issued and (2) as a tax credit either for which a tax credit certificate will be issued or
which will be claimed for cash refund.
Section 76 of the present Tax Code formulates an irrevocability rule which stresses and
fortifies the nature of the remedies or options as alternative, not cumulative. It also provides
that the excess tax credits "may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable years"
until fully utilized.
Since petitioner elected to carry over its excess credits for the year 2000 in the amount of
P4.6 million as tax credits for the following year, it could no longer claim a refund. Again, at
the risk of being repetitive, once the carry over option was made, actually or constructively,
it became forever irrevocable regardless of whether the excess tax credits were actually or
fully utilized. Nevertheless, as held in Philam Asset Management, Inc., the amount will not be
forfeited in favor of the government but will remain in the taxpayers account. Petitioner
may claim and carry it over in the succeeding taxable years, creditable against future
income tax liabilities until fully utilized.
96

JD Class 2016
Philam Asset Mgt vs CIR

477 SCRA 761
Doctrine: Under Section 76 of the National Internal Revenue Code, a taxable corporation
with excess quarterly income tax payments may apply for either a tax refund or a tax credit,
but not both. The choice of one precludes the other. Failure to indicate a choice, however,
will not bar a valid request for a refund, should this option be chosen by the taxpayer later
on.
FACTS:
In April 1998, petitioner filed its 1997 annual ITR with the BIR reflecting a net loss of
P2.6 million. Consequently, it was unable to use its CWTs amounting to P522,092 which
arose out of professional fees. It filed a claim for refund but the same was left unacted by
the BIR. Thus, it filed a petition for review before the CTA which denied the same.
In April 1999, petitioner filed its 1998 annual ITR and declared a net loss of P1.5
million. Its unused CWT for that year amounted to P459,756. In the 2000, petitioner declared
in its 1999 annual ITR tax due amounting to P80,042 and unused CWT amounting to
P915,995 plus the P459,756 1998 CWTs.
In November 2000, petitioner filed a claim for tax refund with respect to the 1998
CWTs amounting to P459,756. No action was done by the BIR, thus a Petition for Review was
filed before the CTA. Such petition was denied by the CA.
ISSUE:
1. WON the failure of the petitioner to indicate in its annual ITR the option to refund its
creditable withholding tax is fatal to its claim for refund?
2. WON petitioner is entitled to a refund of its creditable taxes withheld for taxable
years 1997 and 1998?
RULING: (Section 76 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. The first option means
that any tax on income that is paid in excess of the amount due the government may be
refunded, provided that a taxpayer properly applies for the refund. The second option works
97

JD Class 2016
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 under Section 76 are alternative in nature. The choice of one
precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of
Internal Revenue, the Court ruled that a corporation must signify its intention -- whether to
request a tax refund or claim a tax credit -- by marking the corresponding option box
provided in the FAR. While a taxpayer is required to mark its choice in the form provided by
the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get
a tax refund and a tax credit at the same time for the same excess income taxes paid.
)
1. No, it is not. Failure to signify ones intention in the FAR does not mean outright
barring of a valid request for a refund, should one still choose this option later on. A
tax credit should be construed merely as an alternative remedy to a tax refund under
Section 76, subject to prior verification and approval by respondent.
The reason for requiring that a choice be made in the FAR upon its filing is to ease tax
administration, particularly the self-assessment and collection aspects. A taxpayer
that makes a choice expresses certainty or preference and thus demonstrates clear
diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack
of preference and hence shows simple negligence or plain oversight.
In the present case, although petitioner did not mark the refund box in its 1997 FAR,
neither did it perform any act indicating that it chose a tax credit. On the contrary, it
filed on September 11, 1998, an administrative claim for the refund of its excess
taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the
excess creditable taxes. Under these circumstances, petitioner is entitled to a tax
refund of its 1997 excess tax credits in the amount of P522,092.
2. Petitioner is entitled to tax refund for the 1997 CWTs but not for the 1998. For the
1997, refer to No.1 above.
The carry-over option under Section 76 is permissive. A corporation that is entitled to
a tax refund or a tax credit for excess payment of quarterly income taxes may carry
over and credit the excess income taxes paid in a given taxable year against the
estimated income tax liabilities of the succeeding quarters. Once chosen, the carryover option shall be considered irrevocable for that taxable period, and no application
for a tax refund or issuance of a tax credit certificate shall then be allowed.
According to petitioner, it neither chose nor marked the carry-over option box in its
1998 FAR. As this option was not chosen, it seems that there is nothing that can be
considered irrevocable. In other words, petitioner argues that it is still entitled to a
refund of its 1998 excess income tax payments. The court disagreed and considered
the subsequent acts of petitioner, which revealed that it has effectively chosen the
carry-over option.
98

JD Class 2016
Section 76 remains clear and unequivocal. Once the carry-over option is taken,
actually or constructively, it becomes irrevocable. Petitioner has chosen that option
for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund
of P459,756, which corresponds to its 1998 excess tax credit. Nonetheless, the
amount will not be forfeited in the governments favor, because it may be claimed by
petitioner as tax credits in the succeeding taxable years.
99

JD Class 2016
Delpher Trades vs IAC
FACTS: Pacheco siblings co-owned a piece of land in Bulacan. In 1974, they leased it
Construction Components International, Inc., granting the latter the right of first refusal
should the Pachecos choose to sell. CCII then assigned its rights to Hydro Pipes Phils., Inc.
with the consent of the Pachecos. In 1976, the Pachecos and petitioner Delpher Trades
executed a deed of exchange whereby the former exchanged the land for 2,500 no-par
value shares of stock in the latter corporation. It appears that Delpher Trade is a family
corporation organized by the children of the Pacheco siblings. By virtue of the exchange, the
siblings gained 55% control of the corporation. Hydro objected to the exchange, claiming it
to be actually a sale. Therefore, it shouldve been given the first option to buy. The trial court
ruled in favor of Hydro and ordered the Delpher to convey the property to Hydro. On appeal,
IAC affirmed the decision. Hence, this petition.
ISSUE: WON the Deed of Exchange of the properties executed by the Pachecos and the
Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect,
prejudiced the Hydro Phils right of first refusal over the leased property included in the
deed of exchange?
RULING: By their ownership of the 2,500 no par shares of stock, the Pachecos have control
of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who
also belong to the same family group. In effect, the Delpher Trades Corporation is a business
conduit of the Pachecos. What they really did was to invest their properties and change the
nature of their ownership from unincorporated to incorporated form by organizing Delpher
Trades Corporation to take control of their properties and at the same time save on
inheritance taxes.
The Deed of Exchange of property between the Pachecos and Delpher Trades Corporation
cannot be considered a contract of sale. There was no transfer of actual ownership interests
by the Pachecos to a third party. The Pacheco family merely changed their ownership from
one form to another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease contract.
Principles
- The Pachecos remained in control of the property being 55% stockholders of Delpher
- The fact that they tool no-par value shares is significant because they are owners of an
aliquot part of the assets, including the land.
- In effect, Delpher is a business conduit of the Pachecos. All the deed of exchange did was
change the nature of ownership from unincorporated to incorporated form.
10
0

JD Class 2016
- One of the reasons for this is to save on income tax. Sec, 35 of the NIRC exempts from
taxes an exchange of a persons property for stock in a corporation as a result of such
exchange said person (or persons not exceeding 4) gains control of the corporation.
- Another benefit would be that the corporation could hold on to the property instead of it
being tied down in succession proceedings and the consequential payment of estate and
inheritance taxes.
- There is nothing objectionable with the estate planning that the Pachecos resorted to.
- The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes
or altogether avoid them, by means which the law permits, cannot be doubted.
10
1

JD Class 2016
Campagnie vs CIR
GR 133834
FACTS: Compagnie Corp., petitioner, sold and transferred its interest in Makati Shangri-La
Hotel and Resort Inc. to Kerry Holdings Ltd. Petitioner paid the documentary stamps tax and
capital gains tax on protest. Subsequently, it filed with the CIR for refund. It alleges that the
transfer of deposits on stock subscriptions is not a sale/assignment of shares of stock
subject to documentary stamps tax and capital gains tax. CIR did not act on petitioners
claim so petitioner filed a petition for review with the CTA, which denied petitioners claim.
The CTA held that it is clear from Sec. 176 of the Tax Code that sales "to secure the future
payment of money or for the future transfer of any bond, due-bill, certificates of obligation or
stock" are taxable. Furthermore, petitioner admitted that it profited from the sale of shares
of stocks. Such profit is subject to capital gains tax. On appeal, CA affirmed CTAs decision.
ISSUE: Whether the assignment of deposits on stock subscriptions is subject to

documentary stamps tax and capital gains tax?
RULING: No. Tax refunds are a derogation of the States taxing power. Hence, like tax
exemptions, they are construed strictly against the taxpayer and liberally in favor of the
State. He who claims a refund or exemption from taxes has the burden of justifying the
exemption by words too plain to be mistaken and too categorical to be misinterpreted.
Significantly, petitioner cannot point to any specific provision of the National
Internal Revenue Code authorizing its claim for an exemption or refund. Rather,
Sec. 176 of the National Internal Revenue Code applicable to the issue provides that the
future transfer of shares of stocks is subject to documentary stamp tax, thus:
SEC. 176. Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer
of due-bills, certificates of obligation, or shares or certificates of stock. On all sales, or
agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates
of obligation, or shares or certificates of stock in any association, company, or corporation,
or transfer of such securities by assignment in blank, or by delivery, or by any paper or
agreement, or memorandum or other evidences of transfer or sale whether entitling the
holder in any manner to the benefit of such due bills, certificates of obligation or
stock, or to secure the future payment of money, or for the future transfer of any duebill, certificates of obligation or stock, there shall be collected a documentary stamp
tax of fifty centavos (P1.50) on each two hundred pesos(P200.00), or fractional part thereof,
of the par value of such due-bill, certificates of obligation or stock: Provided, That only one
tax shall be collected on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is issued,
indorsed, or delivered in pursuance of such sale or transfer; and Provided, further,
That in case of stock without par value the amount of the documentary stamp tax herein
10
2

JD Class 2016
prescribed shall be equivalent to twenty-five percentum (25%) of the documentary stamp
tax paid upon the original issue of the said stock.
Clearly, under the above provision, sales to secure "the future transfer of due-bills,
certificates of obligation or certificates of stock" are liable for documentary stamp tax. No
exemption from such payment of documentary stamp tax is specified therein.
Petitioner contends that the assignment of its "deposits on stock subscription" is not subject
to capital gains tax because there is no gain to speak of. In the Capital Gains Tax Return on
Stock Transaction, which petitioner filed with the BIR, the acquisition cost of the shares it
sold, including the stock subscription is P69,143,630.28. The transfer price to Kerry Holdings,
Ltd. is P70,332,869.92. Obviously, petitioner has a net gain in the amount of P1,189,239.64.
As the CTA aptly ruled, " a tax on the profit of sale on net capital gain is the very essence of
the net capital gains tax law. To hold otherwise will ineluctably deprive the government of its
due and unduly set free from tax liability persons who profited from said transactions."
10
3

JD Class 2016
B. Van Zuiden Bros vs GTVL
FACTS: A petition for review on certiorari of a decision of the Court of Appeals dismissing
the complaint for sum of money filed by B. Van Zuiden Bros., (petitioner) against GTVL
Manufacturing Industries, Inc. (respondent). ZUIDEN is a corporation, incorporated under the
laws of Hong Kong. It is not engaged in business in the Philippines, but is suing before the
Philippine Courts. On several occasions, GTVL purchased lace products from ZUIDEN.
However, GTVL has failed and refused to pay the agreed purchase price for several
deliveries ordered by it and delivered by ZUIDEN.
Respondent then filed a Motion to Dismiss against the complaint filed by the petitioner on
the ground that petitioner has no legal capacity to sue. Respondent alleged that petitioner is
doing business in the Philippines without securing the required license. Accordingly,
petitioner cannot sue before Philippine courts.
ISSUE: Whether or not the petitioner, an unlicensed foreign corporation, has legal capacity
to sue before Philippine courts. The resolution of this issue depends on whether petitioner is
doing business in the Philippines.
RULING: The court ruled in the affirmative. Section 133 of the Corporation Code provides:
Doing business without license. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine laws.
The law is clear. An unlicensed foreign corporation doing business in the Philippines cannot
sue before Philippine courts. On the other hand, an unlicensed foreign corporation not doing
business in the Philippines can sue before Philippine courts.
An essential condition to be considered as "doing business" in the Philippines under Section
3(d) of Republic Act No. 7042 (RA 7042) or "The Foreign Investments Act of 1991," is the
actual performance of specific commercial acts within the territory of the Philippines for the
plain reason that the Philippines has no jurisdiction over commercial acts performed in
foreign territories.
To be doing or "transacting business in the Philippines" for purposes of Section 133 of the
Corporation Code, the foreign corporation must actually transact business in the Philippines,
that is, perform specific business transactions within the Philippine territory on a continuing
basis in its own name and for its own account.
Considering that petitioner is not doing business in the Philippines, it does not need a license
in order to initiate and maintain a collection suit against respondent for the unpaid balance
of respondents purchases.
10
4

JD Class 2016
10
5

JD Class 2016
CIR vs Tulio
FACTS: On February 28, 1991, Arturo Tulio, respondent taxpayer, received from CIR a
demand letter with two final assessment notices requesting payment of his deficiency
percentage taxes for the taxable years 1986 and 1987; taxpayer failed to act on the
assessment notices. On October 15, 1991, to enforce the collection of the taxes, CIR issued
a warrant of distraint and/or levy against Tulio. However, he has no properties which can be
placed under distraint and/or levy. On 3 different dates, CIR sent letters to taxpayer giving
him the last opportunity to settle his deficiency tax liabilities; But the latter was obstinate.
Thus, on October 29, 1997, petitioner filed with the RTC of Baguio City a civil action for the
collection of the deficiency percentage taxes. Taxpayer filed a motion to dismiss alleging
that the complaint was filed beyond the three-year prescriptive period provided by Section
203 of the NIRC.
ISSUE: Whether the complaint in the said civil case may be dismissed on the ground of
prescription.
RULING: The lower court erroneously applied Section 203 of the same Code providing for
the three-year prescriptive period from the filing of the tax return within which internal
revenue taxes shall be assessed. It held that such period should be counted from the day
the return was filed, or from August 15, 1990 up to August 15, 1993. However, as shown by
the records, respondent failed to file a tax return, forcing petitioner to invoke the powers of
his office in tax administration and enforcement. Respondents failure to file his tax returns
is thus covered by Section 223 providing for a ten-year prescriptive period within which a
proceeding in court may be filed.
Here, respondent failed to file his tax returns for 1986 and 1987. On September 14, 1989,
petitioner found respondents omission. Hence, the running of the ten-year prescriptive
period within which to assess and collect the taxes due from respondent commenced on that
date until September 14, 1999. The two final assessment notices were issued on February
28, 1991, well within the prescriptive period of three (3) years. When respondent failed to
question or protest the deficiency assessments thirty (30) days therefrom, or until March 30,
1991, the same became final and executory.
10
6

JD Class 2016
CIRvs Citytrust
FACTS: Citytrust reported the amount of P110,788,542.30 as its total gross receipts and
paid the amount of P5,539,427.11 corresponding to its 5% GRT.
Meanwhile, the CTA in Asianbank case ruled that the 20% FWT on a banks passive income
does not form part of the taxable gross receipts.
CityTrust filed a claim for refund with the BIR and CTA claiming the refund of its income tax
overpayments.
CTA granted its claim.
CIR appealed to the CA which also affirmed the decision of the CTA; citing two cases, held
that monies or receipts that do not redound to the benefit of the taxpayer are not part of its
gross receipts.
The 20% final tax on the Respondents passive income was already deducted and withheld
by various withholding agents. Hence, the actual or the exact amount received by the
Respondent, as its passive income was less the 20% final tax already withheld.
Accordingly, the 20% final tax withheld against the Respondents passive income was
already remitted to the Bureau of Internal Revenue. Thus, to include the same to the
Respondents gross receipts for the year 1994 would be to tax twice the passive income
derived by Respondent for the said year, which would constitute double taxation anathema
to our taxation laws (Tours Specialist Inc. and Manila Jockey Club case)
ISSUE: Does the twenty percent (20%) final withholding tax (FWT) on a banks passive
income form part of the taxable gross receipts for the purpose of computing the five percent
(5%) gross receipts tax (GRT)?
RULING: Yes. Gross receipts is defined as the entire receipt without any deduction.
----Citytrust and Asianbank simply anchor their argument on Section 4(e) of Revenue
Regulations No. 12-80 stating that the rates of taxes to be imposed on the gross receipts of
such financial institutions shall be based on all items of income actually received. They
contend that since the 20% FWT is withheld at source and is paid directly to the government
by the entities from which the banks derived the income, the same cannot be considered
actually received, hence, must be excluded from the taxable gross receipts.
-- superseded by Revenue Regulations No. 17-84
Section 7(c) of Revenue Regulations No. 17-84 includes all interest income in computing the
GRT.
10
7

JD Class 2016
the current Revenue Regulations require interest income, whether actually received or
merely accrued, to form part of the banks taxable gross receipts.
No double taxation: Thus, there can be no double taxation here as the Tax Code imposes
two different kinds of taxes.
Double taxation means taxing for the same tax period the same thing or activity twice, when
it should be taxed but once, for the same purpose and with the same kind of character of
tax.
The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage
Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two
concepts are different from each other.
This Court defined that a percentage tax is a national tax measured by a certain percentage
of the gross selling price or gross value in money of goods sold, bartered or imported; or of
the gross receipts or earnings derived by any person engaged in the sale of services. It is not
subject to withholding. An income tax, on the other hand, is a national tax imposed on the
net or the gross income realized in a taxable year. It is subject to withholding.
Reliance of Manila Jockey Club ruling: not applicable.
The Manila Jockey Club does not apply to the cases at bar because what happened there is
earmarking and not withholding.
Earmarking is not the same as withholding. Amounts earmarked do not form part of gross
receipts because these are by law or regulation reserved for some person other than the
taxpayer, although delivered or received. On the contrary, amounts withheld form part of
gross receipts because these are in constructive possession and not subject to any
reservation, the withholding agent being merely a conduit in the collection process.
CIR vs Baier-Nickel
Armans Digest
FACTS: The Juliane Baier-Nickel, a non-resident German citizen, was appointed and engaged
as commission agent of a domestic corporation -JUBANITEX. It was agreed that respondent
will receive 10% sales commission on all sales actually concluded and collected through her
efforts. In 1995, respondent received the amount of P1,707,772.64, representing her sales
commission income from which JUBANITEX withheld the corresponding 10% withholding tax
amounting to P170,777.26, and remitted the same to the Bureau of Internal Revenue (BIR).
On April 14, 1998, respondent filed a claim to refund the amount of P170,777.26. Juliane
10
8

JD Class 2016
contends that her sales commission income is not taxable in the Philippines because the
same was a compensation for her services rendered in Germany and therefore considered as
income from sources outside the Philippines.
ISSUE: Whether or not respondents sales commission income is taxable in the Philippines?
RULING: Yes. It is taxable in the Philippines. The important factor which determines the
source of income of personal services is not the residence of the payor, or the place where
the contract for service is entered into, or the place of payment, but the place where the
services were actually rendered. The rule is that source of income relates to the property,
activity or service that produced the income. With respect to rendition of labor or personal
service, as in the instant case, it is the place where the labor or service was performed that
determines the source of the income. There is no merit in the interpretation which equates
source of income in labor or personal service with the residence of the payor or the place of
payment of the income. The decisive factual consideration here is not the capacity in which
Juliane Baier-Nickel received the income, but the sufficiency of evidence to prove that the
services she rendered were performed in Germany to entitle her to tax exemption since she
is a non-resident German citizen. Juliane did not prove by substantial evidence. She thus
failed to discharge the burden of proving that her income was from sources outside the
Philippines and exempt from the application of our income tax law.
Gestas Digest
FACTS: CIR appeals the CA decision, which granted the tax refund of respondent and
reversed that of the CTA. Juliane Baier-Nickel, a non-resident German, is the president of
Jubanitex, a domestic corporation engaged in the manufacturing, marketing and selling of
embroidered textile products. Through Jubanitexs general manager, Marina Guzman, the
company appointed respondent as commission agent with 10% sales commission on all
sales actually concluded and collected through her efforts. In 1995, respondent received P1,
707, 772. 64 as sales commission from w/c Jubanitex deducted the 10% withholding tax of
P170, 777.26 and remitted to BIR. Respondent filed her income tax return but then claimed a
refund from BIR for the P170K, alleging this was mistakenly withheld by Jubanitex and that
her sales commission income was compensation for services rendered in Germany not
Philippines and thus not taxable here. She filed a petition for review with CTA for alleged
non-action by BIR. CTA denied her claim but decision was reversed by CA on appeal, holding
that the commission was received as sales agent not as President and that the source of
income arose from marketing activities in Germany.
ISSUE: W/N respondent is entitled to refund
RULING: No. Pursuant to Sec 25 of NIRC, non-resident aliens, whether or not engaged in
trade or business, are subject to the Philippine income taxation on their income received
from all sources in the Philippines. In determining the meaning of source, the Court
resorted to origin of Act 2833 (the first Philippine income tax law), the US Revenue Law of
1916, as amended in 1917. US SC has said that income may be derived from three possible
sources only: (1) capital and/or (2) labor; and/or (3) the sale of capital assets. If the income
is from labor, the place where the labor is done should be decisive; if it is done in this
country, the income should be from sources within the United States. If the income is from
10
9

JD Class 2016
capital, the place where the capital is employed should be decisive; if it is employed in this
country, the income should be from sources within the United States. If the income is from
the sale of capital assets, the place where the sale is made should be likewise decisive.
Source is not a place, it is an activity or property. As such, it has a situs or location, and if
that situs or location is within the United States the resulting income is taxable to
nonresident aliens and foreign corporations. The source of an income is the property, activity
or service that produced the income. For the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from activity within the
Philippines. The settled rule is that tax refunds are in the nature of tax exemptions and are
to be construed strictissimi juris against the taxpayer. To those therefore, who claim a refund
rest the burden of proving that the transaction subjected to tax is actually exempt from
taxation. In the instant case, respondent failed to give substantial evidence to prove that
she performed the incoming producing service in Germany, which would have entitled her to
a tax exemption for income from sources outside the Philippines.
11
0

JD Class 2016
PDIC vs BIR
GR 158261, 18 December 2006
FACTS: Petitioner (Far East Bank and Trust Company) FEBTC, is the trustee of various
retirement plans established by several companies for its employees. Petitioner FEBTC had
the authority to invest the retirement funds in various money market placements, bank
deposits, deposit substitute instruments and government securities. These investments
earned interest income of which tax was withheld for payment to the CIR. FEBTC and Private
Petitioners (depositors of the retirement plans) claimed for a tax refund for such withheld tax
from the earned interest income. The claim of refund was denied by the lower courts and the
CTA. Hence, this petition for review on Certiorari.
ISSUE: Whether Employees' Trusts are exempted from income tax? Whether a tax refund
should be granted to the petitioner (FEBTC and private petitioners)?
RULING: The court had first recognized the exemption in the case of CIR vs. CA, arising as it
did from the enactment of RA. No. 4917 which granted exemption from income tax to
employees' trusts. The same exemption was provided in RA. No. 8424 and may now be
found under Sec. 60(b) of the NIRC. Admittedly, such interest income of the petitioner was
not subject to income tax.
Tax refunds partake the nature of tax exemptions and are thus construed strictissimi
juris against the person or entity claiming the exemption. The burden in proving the claim
for refund necessarily falls on the taxpayer, and petitioner in this case failed to discharge the
necessary burden of proof.
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. We must emphasize that tax refunds, like tax exemptions,
are construed strictly against the taxpayer and liberally in favor of the taxing authority. In
the event, petitioner has not met its burden of proof in establishing the factual basis for its
claim for refund and we find no reason to disturb the ruling of the lower courts.
11
1

JD Class 2016
Pansacola vs CIR
GR 159991, 16 November 2006
FACTS: On April 13, 1998, Pansacola filed his income tax return for the taxable year 1997
that reflected an overpayment of P5,950. In it he claimed the increased amounts of personal
and additional exemptions under Section 35 of the NIRC, although his certificate of income
tax withheld on compensation indicated the lesser allowed amounts on these exemptions.
He claimed a refund of P5,950 with the BIR, which was denied. Later, the CTA also denied his
claim because according to the tax court, it would be absurd for the law to allow the
deduction from a taxpayer's gross income earned on a certain year of exemptions availing
on a different taxable year.
CA denied his petition for lack of merit, ruling that the NIRC took effect on January 1, 1998,
thus te increased exemptions were effective only to cover taxable year 1998 and cannot be
applied retoractively.
ISSUE: Could the exemptions under Section 35 of the NIRC, which took effect on January 1,
1998, be availed of for the taxable year 1997?
RULING: No. The petition for refund should be denied.

Section 35 (A) and (B) allow the basic personal and additional exemptions ad deductions
from gross or net income, as the case maybe, to arrive at the correct taxable income of
certain individual taxpayers. Section 24 (A)(1)(a) imposed income tax on a resident citizen's
taxable income derived for each taxable year.
Taxable income is the pertinent items of gross income specified in the NIRC, less the
deductions and/or personal and additional exemptions, if any, authorized for such types of
income by the NIRC or other special laws (Section 31, NIRC).
Taxable year means the calendar year, upon the basis of which the net income is computed
under Title II of the NIRC [Section 22(P)].
Section 43 also supports the rule that the taxable income of an individual shall be computed
on the basis of the calendar year.
Section 45 provides that the deductions provided for under Title II of the NIRC shall be taken
for the taxable year in which they are paid or accrued or paid or incurred.
Moreover, Section 79(H) requires the employer to determine, on or before the end of the
calendar year but prior to the payment of the compensation for the last payroll period, the
tax due from each employee's taxable compensation income for the entire taxable year in
accordance with Section 24 (A). This is for the purpose of witholding from the employee's
11
2

JD Class 2016
December salary, or refunding to him not later than January 25 of the succeeding year, the
difference between the tax due and the tax withheld.
Therefore, as provided in Section 24 (A)(1)(A) in relation to Sections 31 and 22(P) and
Sections 43, 45, and 79(H) of the NIRC, the income subject to income tax is the taxpayer's
income as derived and computed during the calendar year, his taxable year. It is clear from
the cited provisions that what the law should consider for the purpose of determining the tax
due from an individual taxpayer is his status and qualified dependendts at the close of the
taxable year and not at the time the return is filed and the tax due thereon is paid.
Section 35(C) of the NIRC allows a taxpayer to still claim the corresponding full amount of
exemption for a taxable year, e.g. if he marries; have additional dependents; he, his spouse,
or any of his dependents die; and if any of his dependents marry, turn 21, or become
gainfully employed. It is as if the changes in his or his dependents' status took place at the
close of the taxable year.
Consequently, his correct taxable income and his corresponding allowable deductions e.g.
personal and additional deductions, if any, had already been determined as of the end of the
calendar year.
In the case of petitioner, the availability of the aforementioned deductions if he is thus
entitled, would be reflected on his tax return filed on or before the 15th day of April 1999 as
mandated by Section 51 (C) (1). Since the NIRC took effect on , the increased
amounts of personal and additional exemptions under Section 35, can only be
allowed as deductions from the individual taxpayers gross or net income, as the
case maybe, for the taxable year 1998 to be filed in 1999.The NIRC made no
reference that the personal and additional exemptions shall apply on income
earned before January 1, 1998. There is nothing in the NIRC that express any such
intent. The policy declarations in its enactment do not indicate it was a social
legislation that adjusted personal and additional exemptions according to the
povery threshold level (as in the case of RA 7167, as authorized by Section 29(1)
(4) of the NIRC) nor is there any indication that its application should retoract.
At the time petitioner filed his 1997 return and paid the tax due thereon in April
1998, the increased amounts of personal and additional exemptions in Section 35
were not yet available. It has not yet accrued as of December 31, 1997, the last
day of his taxable year. Petitioner's taxable income covers his income for the
calendar year 1997. The law cannot be given retoractive effect. It is established
that tax laws are prospective in application, unless it is expressly provided to
apply retroactively.
In the NIRC, there is no specific mention that the increased amounts of personal and
additional exemptions under Section 35 shall be given retroactive effect. Personal and
additional exemptions are considered as deductions from gross income. Deductions for
income tax purposes partake of the nature of tax exemptions, hence strictly construed
against the taxpayer and cannot be allowed unless expressly granted.
11
3

JD Class 2016
Intercontinental vs Amarillo
GR 162775, 27 October 2006
FACTS: Petitioner IBC employed the following persons at its Cebu station: Candido C.
Quiones, Jr., Corsini R. Lagahit, as Studio Technician, Anatolio G. Otadoy, as Collector, and
Noemi Amarilla, as Traffic Clerk. On March 1, 1986, the government sequestered the
station, including its properties, funds and other assets, and took over its management and
operations from its owner, Roberto Benedicto. On November 3, 1990, the Presidential
Commission on Good Government (PCGG) and Benedicto executed a Compromise
Agreement, where Benedicto transferred and assigned all his rights, shares and interests in
petitioner station to the government.
The four (4) employees retired from the company and received, on staggered basis, their
retirement benefits under the 1993 Collective Bargaining Agreement (CBA) between
petitioner and the bargaining unit of its employees. In the meantime, a P1,500.00 salary
increase was given to all employees of the company, current and retired, effective July
1994. However, when the four retirees demanded theirs, petitioner refused and instead
informed them via a letter that their differentials would be used to offset the tax due on their
retirement benefits in accordance with the National Internal Revenue Code (NIRC).
The four retirees filed separate complaints which averred that the retirement benefits are
exempt from income tax under Article 32 of the NIRC.
For its part, petitioner averred that under Section 21 of the NIRC, the retirement benefits
received by employees from their employers constitute taxable income. While retirement
benefits are exempt from taxes under Section 28(b) of said Code, the law requires that such
benefits received should be in accord with a reasonable retirement plan duly registered with
the Bureau of Internal Revenue (BIR). Since its retirement plan in the 1993 CBA was not
approved by the BIR, complainants were liable for income tax on their retirement benefits.
In reply, complainants averred that the claims for the retirement salary differentials of
Quiones and Otadoy had not prescribed because the said CBA was implemented only in
1997. They pointed out that they filed their claims with petitioner on April 3, 1999. They
maintained that they availed of the optional retirement because of petitioners inducement
that there would be no tax deductions. Petitioner countered that under Sections 72 and 73 of
the NIRC, it is obliged to deduct and withhold taxes determined in accordance with the rules
and regulations to be prepared by the Secretary of Finance.
The NLRC held that the benefits of the retirement plan under the CBAs between petitioner
and its union members were subject to tax as the scheme was not approved by the
BIR. However, it had also been the practice of petitioner to give retiring employees their
retirement pay without tax deductions and there was no justifiable reason for the respondent
to deviate from such practice.
11
4

JD Class 2016
ISSUES: 1. Whether the retirement benefits of respondents are part of their gross income.
2. Whether petitioner is estopped from reneging on its agreement with respondent to pay for
the taxes on said retirement benefits.
RULING:
1. Yes. Under the NIRC, the retirement benefits of respondents are part of their gross
income subject to taxes. Thus, for the retirement benefits to be exempt from the
withholding tax, the taxpayer is burdened to prove the concurrence of the following
elements: (1) a reasonable private benefit plan is maintained by the employer; (2)
the retiring official or employee has been in the service of the same employer for at
least 10 years; (3) the retiring official or employee is not less than 50 years of age at
the time of his retirement; and (4) the benefit had been availed of only once.
Respondents were qualified to retire optionally from their employment with
petitioner. However, there is no evidence on record that the 1993 CBA had been
approved or was ever presented to the BIR; hence, the retirement benefits of
respondents are taxable.
Under Section 80 of the NIRC, petitioner, as employer, was obliged to withhold the
taxes on said benefits and remit the same to the BIR. However, the Court agrees with
respondents contention that petitioner did not withhold the taxes due on their
retirement benefits because it had obliged itself to pay the taxes due thereon. This
was done to induce respondents to agree to avail of the optional retirement scheme.
2. Yes. Petitioner is estopped from doing so. It must be stressed that the parties are
free to enter into any contract stipulation provided it is not illegal or contrary to
public morals. When such agreement freely and voluntarily entered into turns out to
be advantageous to a party, the courts cannot rescue the other party without
violating the constitutional right to contract. Courts are not authorized to extricate
the parties from the consequences of their acts.
An agreement to pay the taxes on the retirement benefits as an incentive to
prospective retirees and for them to avail of the optional retirement scheme is not
contrary to law or to public morals. Petitioner had agreed to shoulder such taxes to
entice them to voluntarily retire early, on its belief that this would prove
advantageous to it. Respondents agreed and relied on the commitment of petitioner.
For petitioner to renege on its contract with respondents simply because its new
management had found the same disadvantageous would amount to a breach of
contract.
The well-entrenched rule is that estoppel may arise from a making of a promise if it
was intended that the promise should be relied upon and, in fact, was relied upon,
and if a refusal to sanction the perpetration of fraud would result to injustice. The
11
5

JD Class 2016
mere omission by the promisor to do whatever he promises to do is sufficient
forbearance to give rise to a promissory estoppel.
11
6

JD Class 2016
Security Bank
499 SCRA 453 (DST)--ARCIDE
11
7

JD Class 2016
Manila Banking Corp vs CIR

GR 168118, 28 August 2006
FACTS: The Manila Banking Corporation was incorporated in 1961 and since then had
engaged in the commercial banking industry until 1987. On May 22, 1987, the Monetary
Board of the Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 505, pursuant to
Section 29 of Republic Act (R.A.) No. 265 (the Central Bank Act), prohibiting petitioner from
engaging in business by reason of insolvency. Thus, petitioner ceased operations that year
and its assets and liabilities were placed under the charge of a government-appointed
receiver.
On June 23, 1999, after 12 years since petitioner stopped its business operations, the
BSP authorized it to operate as a thrift bank, which allows it a period of four(4) year
suspension of tax payment. Pursuant to the above ruling, petitioner filed with the BIR a claim
for refund of the sum of P33,816,164.00 erroneously paid as minimum corporate income tax
for taxable year 1999.
ISSUE: Whether or not petitioner is entitled to a refund of its minimum corporate income tax
paid to the BIR for taxable year 1999.
RULING: Yes, Manila Banking Corporation is entitled to a refund.
Clearly, under Revenue Regulations No. 4-95, being a thrift bank, the date of
commencement of operations is the date it was registered with the SEC or the date when
the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP,
whichever comes later.
The intent of Congress relative to the minimum corporate income tax is to grant a four (4)year suspension of tax payment to newly formed corporations. Corporations still starting
their business operations have to stabilize their venture in order to obtain a stronghold in
the industry. It does not come as a surprise then when many companies reported losses in
their initial years of operations. Apparently, it was shown in the case at bar that indeed,
Manila Banking Corporation is at a point of recovery from their insolvency in the previous
years. BSP is only giving it a chance to revive its business by granting the authority to
operate with a new identity under the classification of a thrift bank registered in the SEC,
and venture anew under such regulations.
Consequently, it should only pay its minimum corporate income tax after four(4) years from
year 1999.
11
8

JD Class 2016
Bicolandia Drug Corp vs CIR
FACTS: Petitioner Bicolandia Drug Corporation is a domestic corporation principally engaged

in the retail of pharmaceutical products. Pursuant to the provisions of R.A. No. 7432
otherwise known as the Senior Citizens Act, and Revenue Regulations No. 2-94, petitioner
granted to qualified senior citizens a 20% sales discount on their purchase of medicines
covering the period from July 19, 1993 to December 31, 1994. When petitioner filed its
corresponding corporate annual income tax returns for taxable years 1993 and 1994, it
claimed as a deduction from its gross income representing the 20% sales discount it granted
to senior citizens.
On March 28, 1995, however, alleging error in the computation and claiming that the
aforementioned 20% sales discount should have been treated as a tax credit pursuant to
R.A. No. 7432 instead of a deduction from gross income, petitioner filed a claim for refund or
credit of overpaid income tax for 1993 and 1994. On December 29, 1995, petitioner filed a
Petition for Review with the CTA in order to toll the running of the two-year prescriptive
period for claiming for a tax refund under Section 230, now Section 229, of the Tax Code.
The CTA ordered the refund but on lesser amount. The CTA made a re-computation of the
income tax liability of the petitioner by allowing as tax credit the cost of the discount only
which is computed by getting the percentage of cost of sales to total sales and multiplying it
with total discounts granted. This ruling was affirmed by the CA.
ISSUES: a.) What is the amount allowed as tax credit? b.) Can the discount be claimed by
the taxpayer as a tax refund?
RULING: Reading of the provisions of Section 4(a) of R.A. No. 7432, is as follows:
A
Sec. 4. Privilege for the Senior Citizens The senior citizens shall be entitled to the
following:
The grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishments, restaurants and
recreations centers and purchase of medicines anywhere in the country: Provided, That
private establishments may claim the cost as tax credit.
The term cost in the above provision refers to the amount of the 20% discount extended
by a private establishment to senior citizens in their purchase of medicines. This amount
shall be applied as a tax credit, and may be deducted from the tax liability of the entity
concerned. This is in line with the interpretation of this Court in Commissioner of Internal
Revenue v. Central Luzon Drug Corporation wherein it affirmed that R.A. No. 7432 allows
private establishments to claim as tax credit the amount of discounts they grant to senior
citizens.
B
As regards the second issue, the SC ruled that the remedy of refund is not available.
The law expressly provides that the discount given to senior citizens may be claimed
11
9

JD Class 2016
as a tax credit, and not a refund. Thus, where the words of a statute are clear, plain
and free from ambiguity, it must be given its literal meaning and applied without
attempted interpretation. Accordingly, the SC directed issuance of tax credit
certificates to petitioner instead of the refund prayed for.
12
0

JD Class 2016
Reyes vs. NLRC

GR 160233, 8 August 2007
FACTS: Petitioner was employed as a salesman at Universal Robinas Grocery Division in

Davao City on August 12, 1977. He was eventually appointed as unit manager of Sales
Department of the Southern Mindanao District, a position he held until his retirement on
November 30, 1997. Thereafter, he received a letter regarding his separation pay the
computation therein incongruent with petitioners suggested basis therefor. Also, the
company denied petitioners claim for Sales Commission and Tax Refund.
Insisting that his retirement benefits and 13th month pay must be based on the average
monthly salary of P42,766.19, which consists of P10,919.22 basic salary and P31,846.97
average monthly commission, petitioner refused to accept the check issued by private
respondent. Instead, he filed a complaint before the arbitration branch of the NLRC for
retirement benefits, 13th month pay, tax refund, earned sick and vacation leaves, financial
assistance, service incentive leave pay, damages and attorneys fees.
On March 15, 1999, the Labor Arbiter rendered a decision holding that sales commission is
part of the basic salary of a unit manager, ordering respondent Universal Robina
Corporation-Grocery Division to pay complainant the net amount representing his retirement
benefits, 13th month pay for 1997, 13th month pay differential for 1996 and 1995, VL and
SL Cash conversion, withheld commission for 1997, financial assistance and tax refund plus
attorneys fees equivalent to 5% of the total award. On appeal, the NLRC modified the
decision of the Labor Arbiter by excluding the overriding commission in the computation of
the retirement benefits and 13th month pay and deleted the award of attorneys fees.
ISSUE: WON the average monthly sales commission should be included in the computation
of the petitioners retirement benefits and 13th month pay.
RULING: No. The basis in computing petitioners retirement benefits is his latest salary rate
of P10,919.22 as the commissions he received are in the form of profit-sharing payments
specifically excluded by the existing rules regarding retirement plans.
The Court, citing Boie-Takeda and Philippine Duplicator, particularize the types of earnings
and remuneration that should or should not properly be included or integrated in the basic
salary and which questions are to be resolved or determined on a case-to-case basis, in the
light of the specific and detailed facts of each case. In other words, when these earnings and
remuneration are closely akin to fringe benefits, overtime pay or profit-sharing statements,
they are properly excluded in computing retirement pay. However, sales commissions which
are effectively an integral portion of the basic salary structure of an employee shall be
included in determining the retirement pay.
12
1

JD Class 2016
At bar, petitioner Rogelio J. Reyes was receiving a monthly sum of P10,919.22 as salary
corresponding to his position as Unit Manager. Thus, as correctly ruled by public respondent
NLRC, the "overriding commissions" paid to him by Universal Robina Corp. could not have
been sales commissions in the same sense that Philippine Duplicators paid its salesmen
sales commissions. Unit Managers are not salesmen; they do not effect any sale of article at
all. Therefore, any commission which they receive is certainly not the basic salary which
measures the standard or amount of work of complainant as Unit Manager. Accordingly, the
additional payments made to petitioner were not in fact sales commissions but rather
partook of the nature of profit-sharing business. Certainly, from the foregoing, the doctrine in
Boie-Takeda Chemicals and Philippine Fuji Xerox Corporation, which pronounced that
commissions are additional pay that does not form part of the basic salary, applies to the
present case.
Insofar as what constitutes "basic salary," the foregoing discussions equally apply to the
computation of petitioners 13th month pay.
ADDITIONAL INFO:
Aside from the fact that as unit manager petitioner did not enter into actual sale
transactions, but merely supervised the salesmen under his control, the disputed
commissions were not regularly received by him. Only when the salesmen were able to
collect from the sale transactions can petitioner receive the commissions. Conversely, if no
collections were made by the salesmen, then petitioner would receive no commissions at
all. In fine, the commissions which petitioner received were not part of his salary structure
but were profit-sharing payments and had no clear, direct or necessary relation to the
amount of work he actually performed. The collection made by the salesmen from the sale
transactions was the profit of private respondent from which petitioner had a share in the
form of a commission.
It may be argued that petitioner may have exerted efforts in pushing the salesmen to close
more sale transactions; however, it is not the criterion which would entitle him to a
commission, but the actual sale transactions brought about by the individual efforts of the
salesmen.
Finally, considering that the computations, as well as the propriety of the awards, are
unquestionably factual issues that have been discussed and ruled upon by NLRC and
affirmed by the Court of Appeals, we cannot depart from such findings. Findings of fact of
administrative agencies and quasi-judicial bodies, which have acquired expertise because
their jurisdiction is confined to specific matters, are generally accorded not only respect, but
finality when affirmed by the Court of Appeals. Such findings deserve full respect and,
without justifiable reason, ought not to be altered, modified or reversed.
12
2

JD Class 2016
Phil. Health Care Providers vs CIR

GR 167330, 18 September 2009
FACTS: The deficiency documentary stamp tax (DST) assessment was imposed on
petitioners (Phil Health) health care agreement with the members of its health care program
pursuant to Section 185 of the 1997 Tax Code.
Petitioner protested the assessment in a letter; however, respondent CIR ignored such.
Subsequently, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking
the cancellation of the deficiency VAT and DST assessments.
In turn, Respondent CIR appealed the CTA decision to the Court of Appeals insofar as it
cancelled the DST assessment. CIR claimed that petitioners health care agreement was a
contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
The CA later on that petitioners health care agreement was in the nature of a non-life
insurance contract subject to DST.
ISSUE: Whether Philippine Health Care Providers, Inc. is an Health Maintenance Organization
(HMO) or an insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements.
RULING: Philippine Health Care Providers, Inc is an HMO. It undertakes a business risk when
it offers to provide health services: the risk that it might fail to earn a reasonable return on
its investment. But it is not the risk of the type peculiar only to insurance companies.
Furthermore, petitioners objective is to provide medical services at reduced cost, not to
distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude
that it is not an insurance contract within the context of our Insurance Code.
There was no legislative intent to impose DST on health care agreements of HMOs. The fact
that the NIRC contained no specific provision on the DST liability of health care agreements
of HMOs at a time they were already known as such, disproves any legislative intent to
impose it on them. As a matter of fact, petitioner was assessed its DST liability only
on January 27, 2000, after more than a decade in the business as an HMO.
Taking into account that health care agreements are clearly not within the ambit of Section
185 of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.
12
3

JD Class 2016
Dizon vs CTA & CIR

GR 140944, 30 April 2008
FACTS: On November 7, 1987, Jose P. Fernandez died and an administrator was appointed.
Atty. Gonzales, as authorized by Special Administrator (Justice) Dizon, wrote a letter to the
BIR Regional Director and filed the estate tax return, showing therein a NIL estate tax
liability. The BIR Regional Director issued Certifications stating that the taxes due on the
transfer of real and personal properties of the deceased had been fully paid and said
properties may be transferred to his heirs.
Atty. Dizon, succeeding appointed administrator, requested the probate court's authority to
sell several properties forming part of the Estate, for the purpose of paying its creditors
excluding Manila Bank (as it did not file a claim with the probate court having security over
several real estate properties forming part of the Estate). However, the BIR issued Estate Tax
Assessment Notice demanding the payment of deficiency estate tax.
ISSUES: Whether actual claims of creditors, which were reduced or condoned through
compromise agreements entered into with the Estate, may be fully allowed as deductions
from the gross estate of the decedent
RULING: Yes. The court agrees with the date-of-death valuation rule, made pursuant to the
ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.
First. There is no law, nor any legislative intent in our tax laws, which disregards the date-ofdeath valuation principle and particularly provides that post-death developments must be
considered in determining the net value of the estate. It bears emphasis that tax burdens
are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against the government. Any
doubt on whether a person, article or activity is taxable is generally resolved against
taxation.
Second. Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a decedent's estate
is generally construed to mean debts or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime, or liability contracted by the deceased
before his death. Therefore, the claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable deductions.
Wherefore, the instant petition is granted and the assailed decision and resolution of the CA
are reversed and set aside. The BIRs deficiency estate tax assessment against the estate of
Jose P. Fernandez is hereby nullified.
12
4

JD Class 2016
PNB vs CIR
536 SCRA 628
FACTS: Petitioners motion to quash a notice of garnishment was denied for lack of merit.
What was sought to be garnished was the money of the People's Homesite and Housing
Corporation deposited at petitioner's branch in Quezon City, to satisfy a decision of
respondent Court which had become final and executory. A writ of execution in favor of
private respondent Gabriel V. Manansala had previously been issued. He was the counsel of
the prevailing party, the United Homesite Employees and Laborers Association. The validity
of the order assailed is challenged on two grounds:
(1) that the appointment of respondent Gilbert P. Lorenzo as authorized deputy sheriff
to serve the writ of execution was contrary to law and
(2) that the funds subject of the garnishment "may be public in character."
The order of August 26, 1970 of respondent Court denying the motion to quash,
subject of this certiorari proceeding, reads as follows: "The Philippine National Bank moves
to quash the notice of garnishment served upon its branch in Quezon City by the authorized
deputy sheriff of this Court. It contends that the service of the notice by the authorized
deputy sheriff of the court contravenes Section11 of Commonwealth Act No. 105, as
amended which reads:"
'All writs and processes issued by the Court shall be served and executed free of
charge by provincial or city sheriffs, or by any person authorized by this Court, in the same
manner as writs and processes of Courts of First Instance.' Following the law, the Bank
argues that it is the Sheriff of Quezon City, and not the Clerk of this Court who isits Ex-Officio
Sheriff, that has the authority to serve the notice of garnishment, and that the actual service
by the latter officer of said notice is therefore not in order.
The Court finds no merit in this argument. Republic Act No. 4201 has, since June 19,
1965, already repealed Commonwealth Act No. 103, and under this law, it is now the Clerk of
this Court that is at the same time the Ex-Officio Sheriff. As such Ex-Officio Sheriff, the Clerk
of this Court has therefore the authority to issue writs of execution and notices
of garnishment in an area encompassing the whole of the country, including Quezon City,
since his area of authority is coterminous with that of the Court itself, which is national in
nature. ... At this stage, the Court notes from the record that the appeal to the Supreme
Court by individual employees of PHHC which questions the award of attorney's fees to Atty.
Gabriel V. Manansala, has already been dismissed and that the same became final and
executory on August 9, 1970. There is no longer any reason, therefore, for withholding
action in this case. [Wherefore], the motion to quash filed by the Philippine National Bank is
denied for lack of merit. The said Bank is therefore ordered to comply within five days from
receipt with the 'notice of Garnishment' dated May 6, 1970."
There was a motion for reconsideration filed by petitioner, but in a resolution dated
September 22, 1970, it was denied. Hence, this certiorari petition.
12
5

JD Class 2016
ISSUE: WON the funds mentioned may be garnished
RULING: No. National Shipyard and Steel Corporation v. court of Industrial Relations is
squarely in point. As was explicitly stated in the opinion of the then Justice, later Chief
Justice, Concepcion: "The allegation to the effect that the funds of the NASSCO are public
funds of the government, and that, as such, the same may not be garnished, attached or
levied upon, is untenable for, as a government owned and controlled corporation. the
NASSCO has a personality of its own, distinct and separate from that of the Government. It
has pursuant to Section 2 of Executive Order No. 356, dated October 23, 1950 ..., pursuant
to which the NASSCO has been established 'all the powers of a corporation under the
Corporation Law ...' Accordingly, it may sue and be sued and may be subjected to court
processes just like any other corporation (Section 13, Act No. 1459), as amended."In a 1941
decision, Manila Hotel Employees Association v. Manila Hotel Company this Court, through
Justice Ozaeta, held: "On the other hand, it is well settled that when the government enters
into commercial business, it abandons its sovereign capacity and is to be treated like any
other corporation. (Bank of the United States v. Planters' Bank, Wheat, 904, 6 L. ed. 244). By
engaging in a particular business thru the instrumentality of a corporation, the government
divests itself pro hac vice of its sovereign character, so as to render the corporation subject
to the rules of law governing private corporations."Both the Palacio and the Commissioner of
Public Highways decisions, insofar as they reiterate the doctrine that one of the coronaries
of the fundamental concept of non-suability is that governmental funds are immune from
garnishment. It is an entirely different matter if, according to Justice Sanchez in Ramos v.
Court of Industrial Relations , the office or entity is "possessed of a separate and distinct
corporate existence." Then it can sue and be sued. Thereafter, its funds may be levied upon
or garnished
12
6

JD Class 2016
Sunlife 473 SCRA 129 (coops)LENTORIO
12
7

JD Class 2016
Tambunting Pawnshop Inc. vs CIR

GR 179085, 21 January 2010
FACTS: Tambunting, the petitioner in this case protested on an assessment. Without

response, the petitioner filed a petition for review with the CTA. One of the arguments raise
was that: the petitioners pawn tickets are not subject to documentary stamp tax pursuant
to existing laws and jurisprudence. The First Division of the CTA ruled that petitioner is liable
for VAT and documentary stamp tax but not for withholding tax on compensation and
expanded withholding tax. Petitioner is ordered to pay the respondent the amount of
P3,055,564.34 and P406,092.50 representing deficiency Value-Added Tax and Documentary
Stamp Tax, respectively, for the taxable year 1999, plus 20% delinquency interest from
February 18, 2003 up to the time such amount is fully paid pursuant to Section 249 (c) of the
1997 NIRC. Thus, petitioner moved to file a petition for review.
ISSUE: Whether or not, pawn tickets are subjected to documentary stamp tax.
RULING: In dodging liability for documentary stamp tax on its pawn tickets, petitioner
argues that such tickets are neither securities nor printed evidence of indebtedness. The
argument fails.
Section 195 of the National Internal Revenue Code provides:
On every mortgage or pledge of lands, estate or property, real or personal, heritable or
movable, whatsoever, where the same shall be made as a security for the payment of any
definite and certain sum of money lent at the time or previously due and owing or forborne
to be paid, being payable, and on any conveyance of land, estate, or property whatsoever,
in trust or to be sold, or otherwise converted into money which shall be and intended only as
security, either by express stipulation or otherwise, there shall be collected a documentary
stamp tax. The Court held in Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal
Revenue:
A Documentary stamp tax is an excise tax on the exercise of a right or privilege to transfer
obligations, rights or properties incident thereto.
Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be
defined as an accessory, real and unilateral contract by virtue of which the debtor or a third
person delivers to the creditor or to a third person movable property as security for the
performance of the principal obligation, upon the fulfillment of which the thing pledged, with
all its accessions and accessories, shall be returned to the debtor or to the third person. This
is essentially the business of pawnshops which are defined under Section 3 of Presidential
Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending
money on personal property delivered as security for loans.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
12
8

JD Class 2016
"Pawn ticket" is the pawnbrokers' receipt for a pawn. It is neither a security nor a printed
evidence of indebtedness." True, the law does not consider said ticket as an evidence of
security or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of
an exercise of a taxable privilege of concluding a contract of pledge. There is therefore no
basis in petitioner's assertion that a DST is literally a tax on a document and that no tax may
be imposed on a pawn ticket.
12
9

JD Class 2016
MJOPFI vs CA & CIR

GR 162175, 28 June 2010
FACTS: Petitioner alleges that on 25 March 1992, petitioner decided to invest part of the
Employees Trust Fund to purchase a lot in the Madrigal Business Park (MBP lot) in Alabang,
Muntinlupa. Petitioner bought the MBP lot through VMC. Petitioner alleges that its
investment in the MBP lot came about upon the invitation of VMC, which also purchased two
lots. Petitioner claims that its share in the MBP lot is 49.59%. Petitioners investment
manager, the Citytrust Banking Corporation (Citytrust), in submitting its Portfolio Mix
Analysis, regularly reported the Employees Trust Funds share in the MBP lot. The MBP lot is
covered by Transfer Certificate of Title No. 183907 (TCT 183907) with VMC as the registered
owner. Petitioner further contends that there is no dispute that the Employees Trust Fund is
exempt from income tax. Since petitioner, as trustee, purchased 49.59% of the MBP lot
using funds of the Employees Trust Fund, petitioner asserts that the Employees Trust Fund's
49.59% share in the income tax paid (or P3,037,697.40 rounded off to P3,037,500) should be
refunded.
ISSUE: If petitioner or the Employees Trust Fund is not estopped, whether they have
sufficiently established that the Employees Trust Fund is the beneficial owner of 49.59% of
the MBP lot, and thus entitled to tax exemption for its share in the proceeds from the sale of
the MBP lot.
RULING: Yes. Petitioner is a corporation that was formed to administer the Employees' Trust
Fund. Petitioner invested P5,504,748.25 of the funds of the Employees' Trust Fund to
purchase the MBP lot. When the MBP lot was sold, the gross income of the Employees Trust
Fund from the sale of the MBP lot was P40,500,000. The 7.5% withholding tax of P3,037,500
and brokers commission were deducted from the proceeds. In Commissioner of Internal
Revenue v. Court of Appeals, the Court explained the rationale for the tax-exemption
privilege of income derived from employees trusts: It is evident that tax-exemption is
likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those
earnings would result in a diminution of accumulated income and reduce whatever the trust
beneficiaries would receive out of the trust fund. This would run afoul of the very intendment
of the law. The tax-exempt character of the Employees' Trust Fund has long been settled. It
is also settled that petitioner exists for the purpose of holding title to, and administering, the
tax-exempt Employees Trust Fund established for the benefit of VMCs employees. As such,
petitioner has the personality to claim tax refunds due the Employees' Trust Fund.
13
0

JD Class 2016
CIR vs PHILAMGEN
GR 175124, 29 September 2010
FACTS: On 15 April 1998, The Philippine American Life and General Insurance Company
(respondent) filed with the Bureau of Internal Revenue (BIR) its Annual Income Tax Return
(ITR) for the taxable year 1997,6 declaring a net loss of P165,701,508.
On 16 December 1999, respondent filed with the BIR-Appellate Division a claim for refund in
the amount of P9,326,979.35, representing a portion of its represented a portion of its
overpaid and unapplied creditable taxes for the calendar year 1997. When the BIR-Appellate
Division failed to act on respondents claim, respondent filed with the CTA a petition for
review on 23 December 1999. Respondent attached its 1998 ITR 7 to its Memorandum dated
7 January 2002.
CTA denied the respondents motion stating that the 1997 overpaid tax was carried over and
now forms part of the 1998 total overpaid tax which petitioner opted again to carry over to
the next taxable year 1999. This further refutes its claim that the 1997 claimed amount was
unutilized.
The respondent, appealed to the CA, where the CTA decision was reversed and a new
decision was rendered in favor of the petitioner.
ISSUE: Whether respondent is entitled to a refund of its excess income tax credit in the
taxable year 1997 even if it had already opted to carry-over the excess income tax credit
against the tax due in the succeeding taxable years.
RULING: Once the taxpayer opts to carry-over the excess income tax against the taxes due
for the succeeding taxable years, such option is irrevocable for the whole amount of the
excess income tax, thus, prohibiting the taxpayer from applying for a refund for that same
excess income tax in the next succeeding taxable years. The unutilized excess tax credits
will remain in the taxpayers account and will be carried over and applied against the
taxpayers income tax liabilities in the succeeding taxable years until fully utilized.
The resolution of the case involves the application of Section 76 of the National Internal
Revenue Code (NIRC) of 1997.
Section 76 of the NIRC of 1997 clearly states: "Once the option to carry-over and apply the
excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable for
that taxable period and no application for cash refund or issuance of a tax credit certificate
shall be allowed therefore." The words "the option shall be considered irrevocable for that
taxable period," refers to the period comprising the "succeeding taxable years." Section 76
further states that "no application for cash refund or issuance of a tax credit certificate shall
be allowed therefore" referring to "that taxable period" comprising the "succeeding taxable
years."
13
1

JD Class 2016
13
2

JD Class 2016
CIR vs McGeorge GR174157 Oct20/10 (sec 76 irrevocable but

unused...)DONGGAY
13
3

JD Class 2016
Belle Corp vs CIR

GR 181298, 10 January 2011
FACTS: Petitioner Belle Corporation is a domestic corporation engaged in the real estate and
property business. On May 30, 1997, petitioner filed with the BIR its Income Tax Return for
the first quarter of 1997, showing a gross income of 741, 607, 495, a deduction of 65, 381,
054, a net taxable income of 676, 226, 441 and an income tax due of 236, 679, 254, which
petitioner paid on even date through PCI Bank, an Authorized Agent Bank of the BIR. On
August 14, 1997, petitioner filed with the BIR its second quarter ITR, declaring an
overpayment of income taxes in the amount of P66, 634,290.00.
In view of the
overpayment, no taxes were paid for the second and third quarters of 1997. 7 Petitioners ITR
for the taxable year ending December 31, 1997 thereby reflected an overpayment of income
taxes in the amount of 132, 043, 528.
Instead of claiming the amount as a tax refund, petitioner decided to apply it as a tax credit
to the succeeding taxable year by marking the tax credit option box in its 1997 ITR. For the
taxable year 1998, petitioners amended ITR showed an overpayment of 106, 447, 318.
Thus, petitioner filed with the BIR an administrative claim for refund of its unutilized excess
income tax payments for the taxable year 1997.
ISSUE: Whether or not, unutilized tax credits may be refunded as long as the claim is filed
within the two-year prescriptive period under section 69 of the old NIRC.
RULING: No. Section 76 of the 1997 NIRC applies in this case. The option to carry over
excess income tax payments is irrevocable under Section 76 of the 1997 NIRC.
Section 76. Final Adjustment Return:
Every corporation liable to tax under Section 24 shall file a final adjustment return covering
the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to the total tax due on the entire
taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated quarterly income
taxes paid, the refundable amount shown on its final adjustment return may be credited
against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable years. Once the option to carry over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable for that taxable period and no
application for tax refund or issuance of a tax credit certificate shall be allowed.
13
4

JD Class 2016
Under the new law, in case of overpayment of income taxes, the remedies are still the same;
and the availment of one remedy still precludes the other. But unlike Section 69 of the old
NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding
taxable year. Unutilized excess income tax payments may now be carried over to the
succeeding taxable years until fully utilized. In addition, the option to carry-over excess
income tax payments is now irrevocable. Therefore, unutilized excess income tax payments
may no longer be refunded.
CIR vs Aquafesh GR170389 Oct20/10 (sec 27 (1,5) CGT, Sec 196

DST)LENTORIO
13
5

JD Class 2016
CIR vs Sony Philippines, Inc.

GR 178697, 17 November 2010
FACTS: LOA was issued. The LOA issued by the BIR covered the period 1997 and
unverified prior years.
However, the LOA was invalidated by a prior Court of Tax Appeals (CTA) en banc decision
(CTA EB 90,July 5, 2007) because the taxpayer commenced business operations only on Oct.
1, 1997, indicating that the taxpayer was not yet operating during the period covered by the
examination. On Dec. 6, 1999 CIR issued a preliminary assessment for 1997 deficiency taxes
and penalties to Sony, which it protested. A petition for review was filed by Sony before the
CTA, within 30 days after the lapse of the 180 days from the submission of the supporting
documents to the CIR.CTA-1st
Division disallowed the deficiency VAT assessment the subsidized advertising expense paid
by Sony was duly covered by a VAT invoice resulted in an input VAT credit. However, for the
EWT, the deficiency assessment was upheld.CIR sought reconsideration on the ground that
Sony should be liable for the deficiency VAT. It contends that Sonys advertising expense
cannot be considered as an input VAT credit because the same was eventually reimbursed
by Sony International Singapore (SIS). As a result, Sony is not entitled to a tax credit and
that the said advertising expense should be for the account of SIS.
ISSUE:
1. W/N the source of the payment of tax is relevant to determine
2. WON the assessment is valid
RULING:
1. NO. Sonys deficiency VAT assessment derived from the CIRs allowance of the
input VAT credits that should have been realized from advertising expense of the latter.
Under Sec. 110 of the 1997 Tax Code, an advertising expense duly covered by a VAT invoice
is a legitimate business expense. It cannot be denied that Sony incurred advertising
expense. CIRs own witness Aluquin even testified that advertising companies issued
invoices in the name of Sony and the latter paid for the same. Hence, Sony incurred and
paid for advertising expense services. Where the money came from is another matter all
together. Before any VAT is levied, there must be sale, barter or exchange of goods or
property. In this case, there was no sale, barter, exchange in the subsidy given by SIS to
Sony. It was but a dole out and not in payment for the goods or properties sold, bartered or
exchanged by Sony.
13
6

JD Class 2016
2. The revenue examiner went beyond the authority conferred by LOA. A LOA
authorizes or empowers a designated revenue officer to examine, verify and scrutinize a
taxpayers books and records in relation to his internal revenue tax liability for a particular
period. The LOA, the examiners were authorize to examine Sonys book of accounts and
other accounting records for the period 1997 band unverified prior years.
However, CIRs basis for deficiency vat for 1997was 1998. They acted without authority in
arriving at the deficiency vat assessment. It should be considered without force and effect- a
nullity. Furthermore, the period 1997 and unverified prior years violates Revenue
Memorandum Order (RMO)
No. 43-90, which states that a LOA should cover a taxable period not exceeding one taxable
year. It also prohibits the issuance of LOAs covering the audit of unverified prior years.
Hence, the SC held that the deficiency assessment against the taxpayer was canceled.
13
7

JD Class 2016
CIR vs CA & Commonwealth Management & Services Corp

GR 125355, 30 March 2000
FACTS: Commonwealth Management and Services Corporation (COMASERCO), an affiliate of

Philamlife, is organized to perform collection, consultative and other technical services,
including functioning as an internal auditor of Philamlife and its other affiliates. The BIR
issued an assessment to COMASERCO for deficiency VAT for taxable year 1988.
COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a
net loss in its operations. It filed with the BIR, a letter-protest objecting to the latter's finding
of deficiency VAT, but the CIR sent a collection letter to COMASERCO demanding payment of
the deficiency VAT.
COMASERCO filed with the CTA a petition for review contesting the Commissioner's
assessment asserting that the services it rendered to Philamlife and its affiliates were on a
"no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged in the
business of providing services to Philamlife and its affiliates; not profit-motivated, thus not
engaged in business; and, it did not generate profit but suffered a net loss in taxable year
1988. It averred that since it was not engaged in business, it was not liable to pay VAT.
ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay
VAT thereon
RULING: Contrary to COMASERCO's contention, Sec. 105 of the National Internal Revenue
Code of 1997 clarifies that even a non-stock, non-profit, organization or government entity,
is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at
every stage of the distribution process on the sale, barter, exchange of goods or property,
and on the performance of services, even in the absence of profit attributable thereto. The
term "in the course of trade or business" requires the regular conduct or pursuit of a
commercial or an economic activity regardless of whether or not the entity is profit-oriented.
The definition applies to all transactions even to those made prior to its enactment.
Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of
services" as the "performance of all kinds of services for others for a fee, remuneration or
consideration." It includes "the supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific, industrial or
commercial undertaking or project."
BIR Ruling No. 010-98 12 emphasizes that a domestic corporation that provided technical,
research, management and technical assistance to its affiliated companies and received
payments on a reimbursement-of-cost basis, without any intention of realizing profit, was
subject to VAT on services rendered. In fact, even if such corporation was organized without
any intention realizing profit, any income or profit generated by the entity in the conduct of
its activities was subject to income tax.
13
8

JD Class 2016
Hence, it is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-on-cost basis
only, without realizing profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.
Any exemption from the payment of a tax must be clearly stated in the language of the law;
it cannot be merely implied therefrom. In the case of VAT, Section 109, Republic Act 8424
clearly enumerates the transactions exempted from VAT. The services rendered by
COMASERCO do not fall within the exemptions.
13
9

JD Class 2016
Exxon vs CIR
GR 180909, 19 January 2011
FACTS: Petitioner Exxon is a foreign corporation duly organized and existing under the laws
of the State of Delaware, United States of America. It is authorized to do business in the
Philippines through its Philippine Branch. Exxon is engaged in the business of selling
petroleum products to domestic and international carriers. In pursuit of its business, Exxon
purchased from Caltex Philippines, Inc. and Petron Corporation Jet A-1 fuel and other
petroleum products, the excise taxes on which were paid for and remitted by both Caltex
and Petron. Said taxes, however, were passed on to Exxon which ultimately shouldered the
excise taxes on the fuel and petroleum products.
Exxon filed a petition for review with the CTA claiming a refund or tax credit.
ISSUE: Whether or not Exxon was the proper party to ask for a refund of excise taxes.
RULING: Exxon is not entitled to claim a refund of excise taxes paid. The Court has ruled
that the proper party to question, or to seek a refund of, an indirect tax, is the statutory
taxpayer, or the person on whom the tax is imposed by law and who paid the same, even if
he shifts the burden thereof to another. Therefore, as Exxon is not the party statutorily liable
for payment of excise taxes under Section 130, in relation to Section 129 of the NIRC, it is
not the proper party to claim a refund of any taxes erroneously paid.
The exemption granted under Section 135 attaches to the petroleum products and not to the
seller, the exemption will apply regardless of whether the same were sold by its
manufacturer or its distributor for two reasons, as follows:
1
Section 135 does not require that to be exempt from excise tax, the products should
be sold by the manufacturer or producer.
The legislative intent was precisely to make Section 135 independent from Sections
129 and 130 of the NIRC, stemming from the fact that unlike other products subject
to excise tax, petroleum products of this nature have become subject to preferential
tax treatment by virtue of either specific international agreements or simply of
international reciprocity
NOTE: The confusion here stems from the fact that excise taxes are of the nature of indirect
taxes, the liability for payment of which may fall on a person other than he who actually
bears the burden of the tax.
14
0

JD Class 2016
V.A.T. CASES
CIR vs Seagate 451 SCRA 132KHIO
Atlas vs CIR GR 146221, 25 Sep 2007 (proof of excess input
VAT)YBIO
14
1

JD Class 2016
CIR vs Cebu Toyo

451 SCRA 447
FACTS: Cebu Toyo Corp. (Cebu) is a domestic subsidiary of Toyo Lens Corporation Japan,
engaged in the manufacture of lenses and various optical components used in TV set,
cameras, CDs, etc. Its principal office is located at the Mactan Export Processing Zone
(MEPZ) as a zone export enterprise registered with the PEZA. It is also registered with the
BIR as a VAT taxpayer. Cebu sells 80% of its products to its mother corporation, pursuant to
an Agreement of Offsetting. The rest are sold to various enterprises doing business in the
MEPZ.
On March 30, 1998, it filed an application for tax credit/refund of VAT paid for the period April
1996 to December 1997 amounting to about P4.4 million representing excess VAT input
payments. Cebu argues that as a VAT-registered exporter of goods, it is subject to VAT at the
rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT
input taxes on its purchases of goods and services related to such zero-rated activities are
available as tax credits or refund.
The BIR opposed this on the following grounds: It failed to show that the tax was erroneously
or illegally collected; the taxes paid and collected are presumed to have been made in
accordance with law; and that claims for refund are strictly construed against the claimant.
The CTA ruled that not the entire amount claimed for refund by Toyo were actually offset
against its related accounts. It determined that the refund/credit amounted only to P2.1M.
The same was affirmed by the CA.
ISSUE: Whether the CA erred in affirming the CTA granting a refund representing unutilized
input VAT on goods and services.
RULING: The petition is denied. Cebu is entitled to the P2.1M tax refund/credit. Petitioners
contention that respondent is not entitled to refund for being exempt form VAT is untenable.
This argument turns a blind eye to the fiscal incentives given to PEZA registered enterprises
under RA 7916. Under this statute, Cebu has to options with respect to its tax burden. It
could avail of an income tax holiday pursuant to EO 226, thus exempting it from income
taxes for a number of years (in this case, 4 years) but not from other internal revenue taxes
such as VAT; or it could avail of the tax exemption on all taxes, including VAT under PD 66
and pay only the preferential rate of 5% under RA 7916. Thus, availing of the first option,
respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In
fine, it is engaged in a taxable rather than exempt transactions. In taxable transactions, the
seller (Cebu) shall be entitled to tax credit for the VAT paid on purchases and leases of goods
properties or services.
14
2

JD Class 2016
CIR vs American Express 462 SCRA2197 (destination principle)

ARCIDE
14
3

JD Class 2016
CIR vs Toshiba
GR 150154, 9 August 2005
FACTS: Respondent Toshiba was organized and established as a domestic corporation, dulyregistered with the SEC, with the primary purpose of engaging in the business of
manufacturing and exporting of electrical and mechanical machinery, equipment, systems.
Respondent Toshiba also registered with the Philippine Economic Zone Authority (PEZA) as
an ECOZONE Export Enterprise, with principal office in Laguna Technopark, Bian, Laguna,
Finally, on 1995, it registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer
and a withholding agent.
Toshiba filed its VAT returns for the first and second quarters of taxable year 1996. It alleged
that the said input VAT was from its purchases of capital goods and services which remained
unutilized since it had not yet engaged in any business activity or transaction for which it
may be liable for any output VAT. Consequently, on 1998, respondent Toshiba filed with the
One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of
Finance (DOF) applications for tax credit/refund of its unutilized input VAT.
ISSUE: Whether respondent Toshiba is entitled to the tax credit/refund of its input VAT on its
purchases of capital goods and services.
RULING: Yes. In the case of Commissioner of Internal Revenue v. Seagate Technology
(Philippines), this Court said
An exempt transaction, on the one hand, involves goods or services which, by their nature,
are specifically listed in and expressly exempted from the VAT under the Tax Code, without
regard to the tax status VAT-exempt or not of the party to the transaction
An exempt party, on the other hand, is a person or entity granted VAT exemption under the
Tax Code, a special law or an international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt from VAT
This Court agrees, that PEZA-registered enterprises, located within ECOZONES, are VATexempt entities, because Rep. Act No. 7916, as amended, establishes the fiction that
ECOZONES are foreign territory.
An ECOZONE or a Special Economic Zone has been described as
. . . Selected areas with highly developed or which have the potential to be developed into
agro-industrial, industrial, tourist, recreational, commercial, banking, investment and
financial centers whose metes and bounds are fixed or delimited by Presidential
Proclamations.
Since ECOZONES are a separate customs territory, sales made by a supplier in the Customs
Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs
Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the
Customs Territory shall be considered as an importation into the Customs Territory.
14
4

JD Class 2016
The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no
VAT shall be imposed to form part of the cost of goods destined for consumption outside of
the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT; while, those destined for use or
consumption within the Philippines shall be imposed with ten percent (10%) VAT.
If the VAT-registered supplier from the Customs Territory did not charge any output VAT to
respondent Toshiba believing that it is exempt from VAT or it is subject to zero-rated VAT,
then respondent Toshiba did not pay any input VAT on its purchase of capital goods and it
could not claim any tax credit/refund thereof.
Applying said doctrine to the sale of goods, properties, and services to and from the
ECOZONES, the BIR issued Revenue Memorandum Circular (RMC) No. 74-99 in 1999 which
established that any sale by a VAT-registered supplier from the Customs Territory to a PEZAregistered enterprise shall be considered an export sale and subject to zero percent (0%)
VAT.
However, before the issuance of the RMC, the old rule is different because it did not take into
consideration the Cross Border Doctrine essential to the VAT system or the fiction of the
ECOZONE as a foreign territory. It relied totally on the choice of fiscal incentives of the
PEZA-registered enterprise. The old VAT rule was based on their choice of fiscal incentives:
(1) If the PEZA-registered enterprise chose the five percent (5%) preferential tax on its gross
income, in lieu of all taxes, as provided by Rep. Act No. 7916, as amended, then it would be
VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax holiday under
Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent (10%). The sale of
capital goods by suppliers from the Customs Territory to respondent Toshiba was made
before the issuance of the RMC. Since respondent Toshiba opted to avail itself of the income
tax holiday, then it was deemed subject to the ten percent (10%) VAT. It was very likely
therefore that suppliers from the Customs Territory had passed on output VAT to respondent
Toshiba, and the latter, thus, incurred input VAT. The amount of the input tax is therefore the
amount that Toshiba can claim as credit/refund.
14
5

JD Class 2016
CIR vs Manila Mining 468 SCRA 571--MALCAMPO

Phil. Geothermal vs CIR 465 SCRA 308CATACUTAN
CIR vs Philhealth 6R 168129 24 April 07 (VAT on Sale of svcs;
BIR rutings not retro.)ACAS
CIR vs Burmeister GR 153205 22 J an 07CRUZ
CIR vs Global 499 S 53 [evat; franchise tx]GAMO
CIR vs PhilGlobal 499 SCRA 53LIU
Magsaysay Lines 497 SCRA 63BANQUERIGO
Sekisui 496 SCRA 206 (exports)DELOS SANTOS
Contex 433 SCRA 376 (effects re VAT exempt status)GANIR
Atlas 546 SCRA 150 (invoices, rcpts for proving input VAT)
FILIPINAS
First Planters Pawnshop 560 SCRA 606 (non-bank instns; DST)
GANIR
Panasonic G.R. 178090, Feb 8, 2010 (refund of VAT) MONTEJO
Toshiba G.R. 157594, March 9, 2010 (cr/ref of input VAT)
BANQUERIGO
TFS Inc. , G.R. 166829, Apr 19, 2010 (CTA law; VAT on
pawnshops)LIU
CIR vs Eastern Telecom, GR 163835, July 7, 2010 (sec 104 (a))
GAMO
AT&T vs CIR, GR182364, Aug 3/10 (req for tx refund in 0 rated
tranxs)CRUZ
JRA vs CIR GR 177127 Oct 11/10 (eff failure to print 0 rated
on invoice)CULMINAS
Tambunting vs CIR GR172394 Oct13/10 (pawnshops)
CATACUTAN
14
6

JD Class 2016
14
7

JD Class 2016
Hitachi vs CIR
GR 174212, 10 October 2010
Facts:
Hitachi is a domestic corporation engaged in the business of manufacturing and
exporting computer products. On August 4, 2000, Hitachi filed an administrative claim for
refund or issuance of a tax credit certificate before the BIR. The claim involved
P25,023,471.84 representing excess input VAT attributable to Hitachis zero-rated export
sales for the four taxable quarters of 1999. Hitachi then filed a petition for review with the
CTA on July 2, 2001 due to BIRs inaction. CTA denied Hitachis petition for refund. On
January 26, 2005, Hitachi filed a petition for review with the CTA En Banc, which affirmed the
resolution of the CTA first division, which resolution is based on Hitachis failure to comply
with the mandatory invoicing requirements under the NIRC and Section 4.108-1 of RR 7-95
and to substantiate its alleged zero-rated sales because its export sales invoices were not
duly registered with the BIR. Neither did the export sales invoices indicate Hitachis TIN nor
did they state that Hitachi was a VAT registered person. Likewise, the word zero-rated was
not imprinted on Hitachis export sales invoices. CTA En Banc ruled that the VAT law is clear
that only transactions evidenced by VAT official receipts or sales invoices will be considered
as VAT transactions for purposes of the input and output tax.
ISSUE: Whether or not Hitachi can claim for refund of the VAT it paid as a zero-rated
taxpayer?
RULING: No. Hitachis export sales invoices did not indicate Hitachis Tax Identification
Number (TIN) followed by the word VAT. The word zero-rated was also not imprinted on the
invoices. Also, as found by the CTA and CTA En Banc, the invoices were not duly registered
with the BIR.
The issue of printing the word zero-rated on the sales invoices is already settled by the
Court in Panasonic v. CIR, where Panasonics claim for refund of the VAT it paid as a zerorated taxpayer on the ground that its sales invoices did not state on their face that its sales
were zero-rated. The Court said:
the Consolidated Value Added Tax Regulationswhich took effect on January 1, 1996. It
already required the printing of the word zero-rated on invoices covering zero-rated sales.
When R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular
revenue regulation a part of the tax code. This conversion from regulation to law did not
diminish the binding force of such regulation with respect to acts committed prior to the
enactment of that law.
As aptly explained by the CTAs First Division, the appearance of the word zerorated on the face of the invoices covering zero-rated sales prevents buyers from falsely
claiming input VAT from their purchases when no VAT was actually paid. If absent such word,
a successful claim for input VAT is made, the government would be refunding money it did
not collect.
14
8

JD Class 2016
Also, Section 4.108-1 of RR 7-95 provides:
Sec.4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or
lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in
their invoices or receipts and this shall be considered as a "VAT invoice." All purchases
covered by invoices or receipts and this shall be considered as a "VAT invoice." All purchases
covered by invoices other than a "VAT invoice" shall not give rise to any input tax.
Besides, tax refunds, like tax exemptions, are construed strictly against the taxpayer. The
claimants have the burden of proof to establish the factual basis of their claim for refund or
tax credit. In this case, Hitachi failed to establish the factual basis of its claim for refund or
tax credit.
14
9

JD Class 2016
CIR vs CA & Commonwealth Mgt

GR 125355, 30 March 2000
FACTS: Commonwealth Management and Services Corporation (COMASERCO), is a

corporation duly organized and existing under the laws of the Philippines. It is an affiliate of
Philippine American Life Insurance Co. (Philamlife), organized by the latter to perform
collection, consultative and other technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for
taxable year 1988. COMASERCO's annual corporate income tax return in 1988 indicated
a net loss in its operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the
latter's finding of deficiency VAT. COMASERCO stressed that it was not profit-motivated, thus
not engaged in business. COMASERCO averred that since it was not engaged in business, it
was not liable to pay VAT.
ISSUE: Whether COMASERCO was engaged in the sale of services, and thus liable to pay
VAT thereon.
RULING: Yes. Sec 105 paragraph 3 of the NIRC of 1997 states that:
"The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity. Jjj uris
The definition of the term "in the course of trade or business" incorporated in the present
law applies to all transactions even to those made prior to its enactment. Executive Order
No. 273 stated that any person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT.
Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of
services" as the "performance of all kinds of services for others for a fee, remuneration or
consideration." It includes "the supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific, industrial or
commercial undertaking or project."
It is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only,
without realizing profit, for purposes of determining liability for VAT on services rendered. As
long as the entity provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.
15
0

JD Class 2016
Private respondent is ordered to pay Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest from January 24,
1992 until fully paid pursuant to Section 248 and 249 of the Tax Code.
Kepco vs CIR GR181858 Nov24/10 (fail to indicate 0 rated;

inv vs rcpt)PORCINA
Silicon vs CIR GR172378 Jan17/11 (req 0 rated sales, Sec112 A
& B)KHIO
15
1

JD Class 2016
BEST EVIDENCE RULE

Mindanao Bus vs CIR
GR L-12873, 24 February 1961
FACTS: Petitioner is a common carrier engaged in transporting passengers and freight by

means of auto-buses in Northern Mindanao, under certificates of public convenience issued
by the Public Service Commission. In September, 1953, an agent of the respondent Collector
of Internal Revenue examined the books of accounts of the petitioner and found that the
freight tickets used by it do not contain the required documentary stamp tax. CIR assessed
against petitioner the sum of about P15 thousand as deficiency documentary stamps tax
(6% per freight ticket).
Upon petitioner's motion for reconsideration, the court resolved to reopen the case, for the
sole purpose of allowing the petitioner to present as evidence the 500 booklets and 17
sackful, respectively, of passenger and freight tickets of the petitioner. Petitioner failed to do
so and instead presented stub tickets, which were already in its possession during the first
hearing. The CTA denied such motion.
Petitioner claims that the computation made by the respondent is not based upon the best
available evidence, but on mere presumptions.
ISSUE: WON CIRs assessment was arbitrary and without factual basis as the same was
obtained using estimates rather than the actual freight tickets?
RULING: No, it is not arbitrary and without factual basis as the BIR agent who made the
assessment clearly arrived at the same using the best available evidence.
The agent of the BIR employed reasonable methods in arriving at the assessments
considering the voluminous freight tickets. The agent could not have been expected to count
each ticket one by one. Employing the average method in ascertaining the total number of
freight tickets used during the period was reasonable. Requiring that the agent actually
count the freight tickets issued is practically impossible.
Further, the P5 assumption used by the agent as the minimum rate for all goods covered in
each freight ticket is reasonable considering the normal practice of passengers in rural areas
of not demanding receipts when they only bring small value cargoes.
Lastly, it was the duty of the petitioner to present evidence to show inaccuracy in the above
method of assessment, but it failed to do so.
Principle:
15
2

JD Class 2016
Section 6 (B) of the National Internal Revenue Code (NIRC) of 1997, as amended, which
provides that when 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
laws or rules or regulations or when there is reason to believe that any such
report is false, incomplete or erroneous, the Commissioner shall assess the proper tax
on the best evidence obtainable.
CIR vs Hantex Trading Co., Inc.

GR 136975, 31 March 2005
FACTS: Hantex Trading Co is a company organized under the Philippines. It is engaged in the
sale of plastic products, it imports synthetic resin and other chemicals for the manufacture
of its products. For this purpose, it is required to file an Import Entry and Internal Revenue
Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the
Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of
Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB),
received confidential information that the respondent had imported synthetic resin
amounting to P115,599,018.00 but only declared P45,538,694.57. Thus, Hentex receive a
subpoena to present its books of account which it failed to do. The bureau cannot find any
original copies of the products Hentex imported since the originals were eaten by termites.
Thus, the Bureau relied on the certified copies of the respondents Profit and Loss Statement
for 1987 and 1988 on file with the SEC, the machine copies of the Consumption Entries,
Series of 1987, submitted by the informer, as well as excerpts from the entries certified by
Tomas and Danganan. The case was submitted to the CTA which ruled that Hentex have tax
deficiency and is ordered to pay, per investigation of the Bureau. The CA ruled that the
income and sales tax deficiency assessments issued by the petitioner were unlawful and
baseless since the copies of the import entries relied upon in computing the deficiency tax of
the respondent were not duly authenticated by the public officer charged with their custody,
nor
verified
under
oath
by
the
EIIB
and
the
BIR
investigators.
ISSUE: Whether or not the final assessment of the petitioner against the respondent for
deficiency income tax and sales tax for the latters 1987 importation of resins and calcium
bicarbonate is based on competent evidence and the law.
RULING: Central to the second issue is Section 16 of the NIRC of 1977, as amended which
provides that the Commissioner of Internal Revenue has the power to make assessments
and prescribe additional requirements for tax administration and enforcement. Among such
powers are those provided in paragraph (b), which provides that Failure to submit required
returns, statements, reports and other documents. When 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 shall assess the proper tax on the best
evidence obtainable. This provision applies when the Commissioner of Internal Revenue
undertakes to perform her administrative duty of assessing the proper tax against a
taxpayer, to make a return in case of a taxpayers failure to file one, or to amend a return
already filed in the BIR. The best evidence envisaged in Section 16 of the 1977 NIRC, as
15
3

JD Class 2016
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. Such evidence also includes
data, record, paper, document or any evidence gathered by internal revenue officers from
other taxpayers who had personal transactions or from whom the subject taxpayer received
any income; and record, data, document and information secured from government offices
or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs,
and the Tariff and Customs Commission. However, the best evidence obtainable under
Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of
records/documents. The petitioner, in making a preliminary and final tax deficiency
assessment 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.
15
4

JD Class 2016
Sy Po vs CTA & CIR

GR 81446, 18 August 1988
FACTS: Petitioner is the widow of Po Bien Sing, who was the sole proprietor of Silver Cup
Wine Factory from 1964-1972.
In 1972, alleging tax evasion, the Sec. of Finance formed a multi-agency team, which
conducted an investigation and through a letter and subpoena duces tecum, requested that
Po Bien produce the accounting records of Silver Cup.
On the basis of the results of the investigation, the CIR issued an assessment on Po Bien an
income tax deficiency of around P7 million from 1966 to 1970 which the latter protested. An
reinvestigation ensued, culminating in a 1981 report which recommended the reiteration of
the CIRs assessment in view of Po Biens persistent failure to present the accounting books
for examination.
By 1981, however, Po Bien had already died, and the warrants of distraint and levy were
received by petitioner instead. Petitioner protested the assessment, but such was dismissed
by the CIR. Hence, this petition, claiming that the assessment are invalid, although petitioner
still refuses to hand over the accounting books.
ISSUE: Was the tax assessment valid even if it was made without consideration of Silver
Cups records? How does the rule on best evidence obtainable apply in this case?
CASES: The tax assessment is still valid. Sec 16 (b) of the then 1977 NIRC provides that if
the taxpayer fails to file a required return or other document, then the CIR may make the tax
return based on information that he can obtain based on testimony or otherwise. Such a
return shall be prima facie correct and sufficient for all legal purposes.
In this case, petitioners refusal to show the records left the CIR no other legal option except
to resort to the power conferred upon him by Sec 16 (b) which manifests the rule on best
evidence obtainable.
Should petitioner challenge such a tax return, it is incumbent upon her to provide contrary
evidence. Where the taxpayer is appealing to the tax court on the ground that the
Collector's assessment is erroneous, it is incumbent upon him to prove there what is the
correct and just liability by a full and fair disclosure of all pertinent data in his possession.
Otherwise, if the taxpayer confines himself to proving that the tax assessment is wrong, the
tax court proceedings would settle nothing, and the way would be left open for subsequent
assessments and appeals in interminable succession. CIR vs. Reyes, GR L-11534 & GR L11558, 25 Nov. 1958.
Tax assessments by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the
performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All presumptions are in favor of
the correctness of tax assessment.
15
5

JD Class 2016
In this case, that there is unrebutted testimonial evidence referring to the wilful entry of
false records constitutes fraud that further bars the court from ruling in favour of petitioner.
15
6

Tax Review Class-Msu Case Digest

Uploaded by

Copyright:

Available Formats

Tax Review Class-Msu Case Digest

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Tax Review Class-Msu Case Digest

Uploaded by

Copyright:

Available Formats

Taxation I Case Digest Compilation

College of Law, Silliman University

ENERAL PRINCIPLES & LIMITATIONS

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

#43 Shell Co. vs Vano

FACTS: The municipality of Cordova in Cebu adopted the following ordinances:

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

#50 Tolentino vs Sec. of Finance

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

#60 ABAKADA vs Ermita

Taxation I Case Digest Compilation

Output vs Input Tax

OUTPUT VATtax paid when selling a product

Is the EVAT uniform and equitable?

#77 John Hay Alternative vs Lim

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

#23 Southern Cross vs CMAP

FACTS: Philcemcor, an association of at least eighteen (18) domestic cement manufacturers

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Pepsi vs Municipality of Tanauan

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Planters Products vs Fertiphil

Taxation I Case Digest Compilation

CIR vs Central Luzon Drug

Taxation I Case Digest Compilation

Carlos Superdrug vs DSWD

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Diaz vs Sec. of Finance

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

South African Airways vs CIR

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

FACTS: On 28 October 1988 petitioner Commissioner of Internal Revenue (CIR) assessed

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Silkair PTE, Ltd. vs CIR

Is Silkair entitled to a refund?

Whether or not Silkair is exempt from indirect taxes.

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

CIR vs Fortune Tobacco Corp.

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Taxation I Case Digest Compilation

Filinvest Dev. Corp. vs CIR & CTA