AGUINALDO INDUSTRIES CO. 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 onefor 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.
Held:
(1) 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.
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.

Page | 1

(2) 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 amended 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.
SY PO vs. CTA
G.R. No. 81446; August 18, 1988
Facts: Po Bien Sing, the sole proprietor of Silver Cup Wine Factory (SCWF), engaged in the business of
manufacture and sale of compounded liquors. On the basis of a denunciation against SCWF allegedly "for tax
evasion amounting to millions of pesos, Secretary of Finance directed the Finance-BIR--NBI team to investigate.
On the basis of the team's report of investigation, the respondent Commissioner of Internal Revenue assessed
Mr. Po Bien Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685.16 and for deficiency
specific tax for January 2,1964 to January 19, 1972 in the amount of P5,595,003.68
Petitioner protested the deficiency assessments. The BIR recommended the reiteration of the assessments in
view of the taxpayer's persistent failure to present the books of accounts for examination.
Issue: WON the assessments have valid and legal basis.
Held: The law is specific and clear. The rule on The Best Evidence Obtainable applies when a tax report
required by law for the purpose of assessment is not available or when tax report is incomplete or fraudulent.
The tax assessment 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 irregularities in the performance of duties, an assessment duly made
by the BIR examiner and approved by his superior officers will not be disturbed. All presumptions are in favour of
the correctness of tax assessments.
COLLECTOR OF INTERNAL REVENUEV. BATANGAS TRANSPORT COMPANY AND LAGUNA-TAYABAS
BUSCOMPANY
A joint venture need not be undertaken in any of the standard form, or in conformity with the
usualrequirements of the law on partnerships , in order that one could be deemed constituted for the
purposesof the tax on corporations
Although no legal personality may have been created by the Joint Emergency Operation,
nevertheless,said Joint Emergency Operation joint venture, or joint management operated the business affairs of
the twocompanies as though they constituted a single entity, company or partnership, thereby obtaining
substantial economy and profits in the operation.
FACTS:
This case is an appeal of the CTA decision which reversed the assessment and decision of the
Collector of Internal Revenue (CIR) assessing and demanding from respondents Batangas
Transpo and Laguna Bus the amount of Php54,143.54 which represent deficiency income tax and
compromise for the year 1946-1949. Pending then appeal to the CTA, the assessment was
increased to P148,890.14Respondent bus companies are 2 distinct and separate corporations,
engaged in the business of land transportation by means of motor busses and operating distinct
and
separate
lines.Batangas Transpo Laguna BusIncorporation 1918 1928Paid up capital (each) Php1,000,000.
00 Php1,000,000.00Pre war Head Office Batangas, Batangas San Pablo, LagunaManager Josep
h Benedict Martin Olsen Connection & close relation: President and owner of 30%stock of each
corpo Max Blouse During the war, the two companies lost their respective businesses. Post-war,

Page | 2

they were able to acquire56 auto busses from the US Army which they divided equally. Two years
later, Martin Olsen resigned as manager and Joseph Benedict was appointed as Manager of both
companies by their respective Board of Directors. According to Benedict, the purpose of the joint management
called Joint Emergency Operation was to economize in overhead expenses. At the end of each
calendar year, all gross receipts and expenses of both companies are determined and the net
profit were divided 50-50 then transferred to the book of accounts of each company, and each
company prepares its own income tax return from their 50% share. The CIR theorizes that the 2
companies pooled their resources in the establishment of the Joint Emergency Operation thereby
forming a joint venture. He believes that a corporation exists, distinct from the 2 respondent
companies. The CTA held that the Joint Emergency Operation is not a corporation within the
contemplation of the NIRC, much less a partnership, association or insurance company, and therefore was not
subject to income tax separately and independently of respondent companies
ISSUES:
W/N the 2 transportation companies involved are liable to the payment of income tax as
corporation on the theory that the joint emergency operation organized and operated by them is a
corporation within the meaning of Sec 84 of the Revised Internal Revenue Code.
W/N the CIR, after the appeal from his decision has been perfected, and after the CTA has acquired
jurisdiction over the same, but before the CIR has filed an answer with the court, may still modify
his assessment subject of the appeal by increasing the same, on the ground that he committed
error in good faith in making said appealed assessment.
HELD/RATIO:
1.YES, although no legal personality may have been created by the Joint EmergencyOperation,
nevertheless said joint venture or joint management operated the businessaffairs of the 2 companies as
though they constituted a single entity, company orpartnership, thereby obtaining substantial economy
and profits in the operation.
The Court ruled on this issue by citing the case of
Eufemia Evangelista, et. al v. CIR

agencycase.
This involved the 3 sisters who borrowed from their father money which they invested inland and
then improved upon and later sold. The sisters also hired their brother to oversee the buy-andsell of land. Contrary to their claim that said operation was merely a co-ownership, theCourt ruled that
considering the facts and circumstances surrounding the said case, the 3 sistershad purpose to
engage in real estate transactions for monetary gain and then divide the profitsamong
themselves, making them co-partners. When the Tax Code included partnershipsamong the
entities subject to the tax on corporations, it must refer to organizations which arenot necessarily
partnerships in the technical sense of the term
, and that furthermore, said lawdefined the term "corporation" as including
partnerships no matter how created or organized.
Further, from the standpoint of income tax law, the procedure and practice of the 2 buscompanies
in determining the net income of each was arbitrary and unwarranted. After all, the 2companies
operates in 2 different lines, in different provinces or territories, with differentequipment and
personnel it cannot possibly be true and correct to say that the end of each year,the gross
receipts and income in the gross expenses of two companies are exactly the same for purposes of
the payment of income tax.Thus, the Court held that the Joint Emergency Operation or sole
management or joint venture inthis case falls under the provisions of section 84 (b) of the Internal
Revenue Code, andconsequently, it is liable to income tax provided for in section 24 of the same
code.* But they were exempted from paying 25% surcharge for failure to file a tax return, because

Page | 3

of their honest belief (based on advice of their attorneys and accountants) that they are not
requiredto do so.
2. YES, pending appeal in the Court of Tax Appeals of an assessment made by the Collectorof Internal
Revenue, the Collector, pending hearing before said court, may amend hisappealed assessment and
include the amendment in his answer before the court, and thelatter may on the basis of the evidence
presented before it, redetermine the assessment.
CIR VS SORIANO CORP
301 SCRA 152 Business Organization Corporation Law Trust Fund Doctrine
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.
HELD: 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 creditorsCOMMISSIONER OF INTERNAL REVENUE,
petitioner,vs.
COURT OF APPEALS, CITYTRUST BANKING CORPORATION and COURT OF TAX APPEALS
FACTS:
Citytrust filed a claim for refund with BIR in the amount of P19,971,745.00 representing the alleged overpayment
of income tax as computed in its final income tax return for the calendar year ending December 31, 1985. To
interrupt the prescriptive period, Citytrust filed a petition with the Court of Tax Appeals, claiming the refund of its
income tax overpayments for the years 1983, 1984 and 1985. The OSG in their answer contended that the claim
of Citytrust from 1983 was not properly documented and that even if they are entitled for such claim the right to
claim the same has prescribed with respect to income tax payments prior to August 28, 1984, pursuant to
Sections 292 and 295 of the National Internal Revenue Code of 1977, as amended, since the petition was filed
only on August 28, 1986. The case was submitted for decision based solely on the pleadings and evidence
submitted by herein private respondent Citytrust because the petitioner failed to present evidence due to the
failure of Tax Credit/Refund Division of the BIR to transmit the records of the case, as well as the investigation

Page | 4

report thereon, to the Solicitor General. The petitioner filed a motion to suspend the proceedings but the same
was denied. The case was decided and the Tax court ruled in ordering BIR to refund the overpaid tax for the year
1984 and 1985 only. Petitioner filed a motion for reconsideration contending that Citytrust has an outstanding tax
liability amounting to P56M in 1984. Both parties filed a motion for reconsideration which was denied by the CA
and the court affirmed the decision of CTA. Hence this petition.
Issue:
Whether or not the state is bound to the mistakes committed by its agents
Ruling:
It is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents.
In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and
officers. Although the Government may generally be estopped through the affirmative acts of public officers acting
within their authority, their neglect or omission of public duties as exemplified in this case will not and should not
produce that effect. Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that the
Government cannot and must not be estopped particularly in matters involving taxes.
Taxes are the lifeblood of the nation through which the government agencies continue to operate and
with which the State effects its functions for the welfare of its constituents.
The errors of certain administrative officers should never be allowed to jeopardize the Government's financial
position, especially in the case at bar where the amount involves millions of pesos the collection whereof, if
justified, stands to be prejudiced just because of bureaucratic lethargy. Wherefore the Judgment of CA is hereby
set aside and the case is remanded to CTA
CIR V. CA (ALHAMBRA INDUSTRIES)
G.R. No. 117982; February 6, 1997
FACTS:
Private respondent Alhambra Industries, Inc., engaged in the manufacture and sale of cigar and cigarette products, received from
Commissioner of Internal Revenue a letter stating that it has a deficiency Ad Valorem Tax of P488,396.62 on the removals of cigarette
products from their place of production from November 2, 1990 to January 22, 1991. Alhambra filed a protest but the same was denied.
CIR requested payment of the revised amount of P520,835.39. Without
waiting for CIRs reply to its reconsideration, Alhambra filed a petition for review with the Court
of Tax Appeals. Meanwhile, CIR denied the request for reconsideration; Alhambra then paid the disputed ad valorem tax in the sum of
P520,835.29 under protest. CTA, in its decision, ordered CIR to refund to Alhambra the amount erroneously paid, explaining that the
subject deficiency excise tax assessment resulted from Alhambra
s use of the computation mandated by BIR Ruling473-88 dated October 4, 1988 as basis for computing the 15% ad valorem tax. BIR
Ruling 017-91 revoked BIR Ruling 473-88 for being violative of Sec. 142 of the Tax Code; it included back the VAT to the gross selling
price in determining the tax base for computing the ad valorem tax on cigarettes.
ISSUE:
Whether or not private respondent's reliance on a void BIR ruling conferred upon the latter a vested right to apply the same in the
computation of its ad valorem tax and claim for tax refund?
RULING:
The present dispute arose from the discrepancy in the taxable base on which the excise tax is to apply on account of two
incongruous BIR Rulings: (1) BIR Ruling 473-88 dated October 4, 1988 which excluded the VAT from the tax base in computing the
15% excise tax due; and, (2) BIR Ruling 017-91 dated February 11, 1991 which included back the VAT incomputing the tax base for
purposes of the 15% ad valorem tax. The question as to the correct computation of the excise tax on cigarettes in the case at bar has
been sufficiently addressed by BIR Ruling 017-91 which revoked BIR Ruling 473-88.It is to be noted that Section 127 (b) of the Tax Code
as amended applies in general to domestic products and excludes the value-added tax in the determination of the gross selling price,
which is the tax base for purposes of the imposition of ad valorem tax. On the other hand, the last paragraph of Section 142 of the same
Code which includes the value-added tax in the computation of the ad valorem tax refers specifically to cigar and cigarettes only. It does
not include/apply to any other articles or goods subject to the ad valorem tax. Accordingly, Section142 must perforce prevail over
Section 127 (b) which is a general provision of law insofar as the imposition of the ad valorem tax on cigar and cigarettes is concerned.
Moreover, the phrase
unless otherwise provided

Page | 5

in Section 127 (b) purports of exceptions to the general rule contained therein, such as that of Section 142, last paragraph thereof which
explicitly provides that in the case of cigarettes, the tax base for purposes of the ad valorem tax shall include, among others, the valueadded tax. Private respondent did not question the correctness of the above BIR ruling. In fact, upon knowledge of the affectivity of BIR
Ruling No. 017-91, private respondent immediately
implemented the method of computation mandated therein by restoring the VAT in computing the tax base for purposes of the 15% ad
valorem tax. However, well-entrenched is the rule that
rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would
have no retroactive application if to so apply them would be prejudicial to the taxpayers
.The applicable law is Sec. 246 of the Tax Code which provides:
Sec. 246.
Non-retroactivity of rulings
.- Any revocation, modification, or reversal of any rules and regulations promulgated in accordance with the
preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall
not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers
excepting the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return
or in any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered
by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or c) where
the
taxpayer acted in bad faith.
Without doubt, private respondent would be prejudiced by the retroactive application of the revocation as it would be assessed
deficiency excise tax. The Court finds no convincing
evidence on petitioners claim that private respondent falls under the third exception in S
ec. 246,i.e., that the taxpayer has acted in bad faith. To the contrary, as a sign of good faith, private respondent immediately reverted to
the computation mandated by BIR Ruling 017-91 upon knowledge of its issuance on 11 February 1991.
CIR vs. PASCOR
309 SCRA 402
GR No. 128315 June 29, 1999
"An assessment is not necessary before a criminal charge can be filed."
FACTS:
The BIR examined the books of account of Pascor Realty and Devt Corp for years 1986, 1987 and 1988, from
which a tax liability of 10.5 Million Pesos was found. Based on the recommendations of the examiners, the CIR
filed an information with the DOJ for tax evasion against the officers of Pascor. Upon receipt of the subpoena, the
latter filed an urgent request for reconsideration/reinvestigation with the CIR, which was immediately denied upon
the ground that no formal assessment has yet been issued by the Commisioner. Pascor elevated the CIR's
decision to the CTA on a petition for review. The CIR filed a Motion to Dismiss on the ground of lack of jurisdiction
of CTA as there was no formal assessment made against the respondents. The CTA dismissed the motion, hence
this petition.
ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?
HELD: No. Section 222 of the NIRC states that an assessment is not necessary before a criminal charge can be
filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover,
the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact
need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is
issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to
submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is
unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and
clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a
criminal case had been filed against him, not that the commissioner has issued an assessment. It must be

Page | 6

stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of
the Tax Code.
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.THE HON. SECRETARY OF LABOR,
CRESENCIA DIFONTORUM, ET AL., respondents.
FACTS
Private respondents won a case for illegal dismissal, unfair labor practice, illegal deductions from salaries and
violation of the minimum wage law against Riverside Mills Corporation. Consequently, a writ of execution was
issued, on October 22, 1985 , against the goods and chattel of RMC. Said assets however had already been
foreclosed by petitioner Development Bank of the Philippines (DBP) through an extra-judicial proceedings as early
as 1983. Private respondents, in a motion, moved for the delivery of RMC properties in possession of DBP, relying
on the provisions of Article 110 of the Labor Code giving them first preference over the mortgaged properties of
RMC for the satisfaction of the judgment rendered in their favor. Which motion was granted. On appeal, the
decision was affirmed.
ISSUE:
Whether or not Article 110 of the Labor Code finds application on the instant case. Article 110 provides that in
case of bankruptcy or liquidation of an employer's business, his workers enjoy first preference as regards wages
due them for services rendered during the period prior to the bankruptcy or liquidation.
RULING:
The Supreme Court held that Article 110 cannot be applied in the instant case because the important requisite
that employer's business must be bankrupt is lacking. The Supreme Court ruled that in the Philippine jurisdiction,
bankruptcy, insolvency and general judicial liquidation proceedings are the only means to establish that a
business is bankrupt or insolvent. Absent of such judicial declaration, the business cannot be considered bankrupt
for the purpose of applying the provisions of Article 110.
HONGKONG & SHANGHAI BANKING CORPORATION V. RAFFERTYG.R. NO. L-13188, NOVEMBER 15,
191839 SCRA 145
FACTS:
Petitioner HSBC is the owner of 2,000 railroad ties it had acquired from thefirm of Pujalte & Co. which the latter
assigned to it after it was unable to pay alarge sum of money it then owed to HSBC.The firm of Pujalte & Co. is
engaged in the business of timber, and it wasshown that prior to the assignment of the railroad ties to HSBC it
owed to theBIR forest charges, one of the taxes enumerated in the NIRC, amounting toP8328.93. It executed
a bond of P2000 to secure the payment of the forestcharges and was allowed to remove the timber from the
public forests.More than a year later, when some of the timber were already made intorailroad ties and transferred
to third parties like HSBC, the Collector institutedcollection proceedings agains Pujalte. To enforce collection, the
CIR wentafter thee property of Pujalte & Co. including that which were already in thepossession of HSBC, who at
the time it acquired the property had no noticeof the lien nor of the delinquent tax due from Pujalte.
ISSUE:
Whether or not the CIR can still enforce the lien?
HELD:
No, the lien does not follow the property subject to the tax into the handsof a third party when at the time of
transfer, no demand for payment had beenmade and when the purchaser then had no notice of the existence
of the lien.Under the general rule of the Civil law, possession of movables is notnecessary to the validity of a lien,
whether created by contract or by act of law. Such lien will attach upon movable property even in the hands of a
bonafide purchaser without notice. Under the law of taxation however, the tax liendoes not establish itself upon
property which has been transferred to aninnocent purchaser prior to demand. A demand is necessary to create

Page | 7

andbring the lien into operation.Furthermore, in order that the lien may follow the property into the hands of athird
party, it is essential that the latter should have notice, either actual or constructive. The reason behind this is the
benevolence of our Constitutionwhich prohibits the taking of property without due process of law. The policyof the
law is against upholding secret liens and charges against property of innocent purchasers or encumbrances for
value. At the time HSBC acquiredthe property there was nothing to show that Pujalte & Co. were deliquent
taxpayers nor were there any public records that may be consulted to protect itfrom loss by reason of the
existence of a secret lien.Minor issue on the right of HSBC to recover interest from the undueenforcement of the
lien: The reckoning date for the computation of interestshould be the date when the taxpayer lost the income from
the funds bypayment under protest. In this case, it is not from the filing of the complaint for collection but on the
date HSBC was deprived of the property.
UNGAB vs. CUSI
97 SCRA 877
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade
the income tax."
FACTS:
The BIR filed six criminal charges against Quirico Ungab, a banana saplings producer, for allegedly evading
payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash on the ground
that (1) the information are null and void for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2)that the trial court has no jurisdiction to take cognizance of the case in view of
his pending protest against the assessment made by the BIR examiner. The trial court denied the motion
prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and restraining
order to annul and set aside the information filed.
ISSUE: Is the contention that the criminal prosecution is premature since the CIR has not yet resolved the protest
against the tax assessment tenable?
HELD:
No. The contention is without merit. What is involved here is not the collection of taxes where the assessment of
the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution
for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance.
While there can be no civil action to enforce collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise computation and assessment of the tax before there
can be a criminal prosecution under the Code.
An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade
the income tax. A crime is complete when the violator has knowingly and wilfully filed a fraudulent return with
intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the
taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly
to assess has no connections with the commission of the crime.
AGUINALDO INDUSTRIES CO. 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.

Page | 8

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.
HELD:
(1) 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 tax payer must show that its claimed deductions clearly come within the
language of the law since allowances, like exemptions, are matters of legislative grace.
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.
(2) 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.

COMMISSIONER OF INTERNAL REVENUE VS THE PHILIPPINE AMERICAN LIFE INSURANCE CO.

Page | 9

FACTS:
Taxation Prescriptive Period Tax Refund
The Philippine American Life Insurance Co. (Philamlife) as a corporation has been paying quarterly income taxes.
In 1983, it paid the following:
a)
Quarter 1 (May 30, 1983) P3.2 million
b)
Quarter 2 (August 29, 1983) P396k
c)
Quarter 3 no payment as it was entitled to a tax credit
d)
Quarter 4 no payment as it incurred losses
Philamlife, due to its losses in said year, determined that it actually had no income at the end of the year hence it
is not liable for income tax. It then filed for a tax refund but it only filed the same in December 1985. The
Commissioner of Internal Revenue (CIR) denied the claim on the ground that it has been filed beyond the twoyear prescriptive period to file such refund claim. The CIR contends that the 2-year prescriptive period should be
reckoned from the date of the quarterly payment. Hence, Philamlifes refund claim for the quarterly payments it
paid in 1983 had prescribed in May 1985 and August 1985, respectively.
ISSUE: Whether or not the CIRs argument are correct.
HELD: No. It is true that the counting of the two-year prescriptive period shall begin to run from the date of
payment. But in the case of corporations which are paying quarterly taxes, there is a qualification to be made. The
prescriptive period for taxpayers paying quarterly shall commence from the time the refund is ascertained or from
the time a final adjustment return has been accomplished. The rationale behind this is that, a taxpayer paying
quarterly, like Philamlife, at the time it paid the quarterly taxes is not expected to ascertain if a tax refund is
feasible. It could not have known in May and August 1983 that at the end of the year it will be incurring losses.
In the case at bar, the final adjustment return is deemed accomplished on April 16, 1984 this is the date upon
which the prescriptive period shall commence running. Hence, the refund claim filed in December 10, 1985 is well
within the two year prescriptive period.
COMMISSIONER OF INTERNAL REVENUE V. TMX SALES INC
G.R. NO. 83736. JANUARY 15, 1992
FACTS:
TMX Sales Inc. filed its quarterly income tax for the 1st quarter of 1981. It declared P571,174.31 and paying an
income tax of P247,019 on May 13, 1981. However, during the subsequent quarters, TMX suffered losses. On
April 15, 1982, when TMX filed its Annual Income Tax Return for the year ended in December 31, 1981, it
declared a net loss of P6,156,525. On July 9, 1982, TMX filed with the Appellate Division of BIR for refund in the
amount of P247,010 representing overpaid income tax. His claim was not acted upon by the Commissioner of
Internal Revenue. On May 14, 1984, TMX Sales filed a petition for review before the Court of Tax Appeals against
CIR, praying that the CIR be ordered to refund to TMX the amount of P247,010. The CIR averred that TMX is
already barred for claiming the refund since more than 2 years has elapsed between the payment (May 15, 1981)
and the filing of the claim in court (March 14, 1984). The Court of Tax Appeals rendered a decision granting the
petition of TMX Sales and ordered CIR to refund the amount mentioned. Hence, this appeal of CIR.
ISSUE: Whether or not TMX Sales Inc. is entitled to a refund considering that two years gas already elapsed
since the payment of the tax
HELD: Yes. Petition denied.
Ratio: Sec. 292, par. 2 of the National Internal Revenue Code stated that in any case, no such suit or proceeding
shall be begun after the expiration of two years from the date of the payment of the tax or penalty regardless of
any supervening cause that may arise after payment. This should be interpreted in relation to the other provisions
of the Tax Code. The most reasonable and logical application of the law would be to compute the 2-year
prescriptive period at the time of the filing of the Final Adjustment Return or the Annual Income Tax Return, where
it can finally be ascertained if the tax payer has still to pay additional income tax or if he is entitled to a refund of
overpaid income tax. Since TMX filed the suit on March 14, 1984, it is within the 2-year prescriptive period
starting from April 15, 1982 when they filed their Annual Income Tax Return.

Page | 10

StatCon maxim: The intention of the legislature must be ascertained from the whole text of the law and every part
of the act is taken into view.
CIR vs WANDER PHILIPPINES, INC.
FACTS:
Private respondents Wander Philippines, Inc. (wander) is a domestic corporation organized under Philippine laws.
It is wholly-owned subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for business
in the Philippines.
Wander filed it's witholding tax return for 1975 and 1976 and remitted to its parent company Glaro dividends from
which 35% withholding tax was withheld and paid to the BIR.
In 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for reimbursement, contending
that it is liable only to 15% withholding tax in accordance with sec. 24 (b) (1) of the Tax code, as amended by PD
nos. 369 and 778, and not on the basis of 35% which was withheld ad paid to and collected by the government.
petitioner failed to act on the said claim for refund, hence Wander filed a petition with Court of Tax Appeals who in
turn ordered to grant a refund and/or tax credit. CIR's petition for reconsideration was denied hence the instant
petition to the Supreme Court.
ISSUE:
Whether or not Wander is entitled to the preferential rate of 15% withholding tax on dividends declared and to
remitted to its parent corporation.
HELD:
Section 24 (b) (1) of the Tax code, as amended by PD 369 and 778, the law involved in this case, reads:
sec. 1. The first paragraph of subsection (b) of section 24 of the NIRC, as amended is hreby further amended to
read as follows:
(b) Tax on foreign corporations - (1) Non resident corporation -- A foreign corporation not engaged in trade or
business in the Philippines, including a foreign life insurance company not engaged in life insurance business in
the Philippines, shall pay a tax equal to 35% of the gross income received during its taxable year from all sources
within the Philippines, as interest (except interest on a foreign loans which shall be subject to 15% tax), dividends,
premiums, annuities, compensation, remuneration for technical services or otherwise emolument, or other fixed
determinable annual, periodical ot casual gains, profits and income, and capital gains: xxx Provided, still further
that on dividends received from a domestic corporation liable to tax under this chapter, the tax shall be 15% of the
dividends received, which shall be collected and paid as provided in sec 53 (d) of this code, subject to the
condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against tax
due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to
20% which represents the difference between the regular tax (35%) on corporation and the tax (15%) dividends
as provided in this section: xxx."
From the above-quoted provision, the dividends received from a domestic corporation liable to tax, the tax shall
be 15% of the dividends received, subject to the condition that the country in which the non-resident foreign
corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes
deemed to have been paid in the Philippines equivakent to 20% which represents the difference betqween the
regular tax (35%) on corpoorations and the tax (15%) on dividends.
While it may be true that claims for refund construed strictly against the claimant, nevertheless, the fact that
Switzerland did not impose any tax on the dividends received by Glaro from the Philippines should be considered
as a full satisfaction if the given condition. For, as aptly stated by respondent Court, to deny private respondent
the privilege to withhold only 15% tax provided for under PD No. 369 amending section 24 (b) (1) of the Tax Code,
would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporations
interest here and discourage them for investing capital in our country.

Page | 11

COMMISSIONER OF INTERNAL REVENUE VS. ALGUE INC.

GR No. L-28896 | Feb. 17, 1988

FACTS:
Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR regarding its delinquency income taxes from 19581959, amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue Inc on Jan 18
On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara, who
refused to receive it on the ground of the pending protest
Since the protest was not found on the records, a file copy from the corp was produced and given to BIR
Agent Reyes, who deferred service of the warrant
On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only
then that he accepted the warrant of distraint and levy earlier sought to be served
On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals
CIR contentions:
the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or
necessary business expense
payments are fictitious because most of the payees are members of the same family in control of Algue and
that there is not enough substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional
fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
ISSUE: W/N the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by Algue as
legitimate business expenses in its income tax returns

RULING:
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in
accordance with law.
RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged
During the intervening period, the warrant was premature and could therefore not be served.
Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on
conformed to the decision of CTA
There is no dispute that the payees duly reported their respective shares of the fees in their income tax
returns and paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no
distribution of dividends was involved
CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction
Algue Inc. was a family corporation where strict business procedures were not applied and immediate
issuance of receipts was not required. at the end of the year, when the books were to be closed, each payee
made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. This
arrangement was understandable in view of the close relationship among the persons in the family corporation
The amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar
Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This
was a reasonable proportion, considering that it was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - 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 xxx
the burden is on the taxpayer to prove the validity of the claimed deduction

Page | 12

In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos.

Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of
the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is able to must contribute his share in the running of
the government. The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values

Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor
Algue Inc.s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No.
1125. And we also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code
and should therefore not have been disallowed by the CIR
COMMISSIONER OF INTERNAL REVENUE V AYALA SECURITIES CORPORATION
FACTS:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25%
surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioners
decision and held that the assessment made against Ayala was beyond the 5-yr prescriptive period as provided in
section 331 of the National Internal Revenue Code. Commissioner now files a motion for reconsideration of this
decision. Ayala invokes the defense of prescription against the right of the Commissioner to assess the surtax.
ISSUE:
Whether or not the right to assess and collect the 25% surtax has prescribed after five years.
HELD:
No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no
express statutory provision limiting such right or providing for its prescription. Hence, the collection of surtax is
imprescriptible. The underlying purpose of the surtax is to avoid a situation where the corporation unduly retains
its surplus earnings instead of declaring and paying dividends to its shareholders. SC reverses the ruling of the
CTA.
W/n the assessment was done beyond the prescriptive period
R: YES.
In this case, the applicable provision is NOT Sec 332a but Sec 331.
Sec 332 should apply when there is fraud / falsity on the return with intent to evade payment of tax.
There is no evidence presented by the CIR in this case as to any fraud/falsity on the return w/ intent to avoid payment.
Fraud is a question of fact, circumstances must be proven and alleged.
In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961, was made BEYOND the 5 yearperiod
prescribed under Sec331 (Ayala could file its income tax on or before Jan 1956
thus, assessment must be made NOTlater than Jan 1961). Thus, it was no longer binding on Ayala Securities
CIR VS. CA, ATLAS CONSOLIDATED
"Assessments are prima facie presumed correct and made in good faith. So that, in the absence of proof of any
irregularities in the performance of official duties, an assessment will not be disturbed."
FACTS:
The Commissioner of Internal Revenue served two notices and demand for payment of the respective deficiency
ad valorem and buiness taxes for taxable years 1975 and 1976 against the respondent Atlas Consolidated Mining
and Development Corporation (ACMDC). The latter protested both assessments but the same were denied,
hence it filed two separate petitions for review in the Court of Tax Appeals. The CTA rendered a consolidated
decision holding, inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for
1975 and 1976 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on

Page | 13

copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance
charges.
However, the tax court held ACMDC liable for the amount consisting of 25% surcharge for late payment of the
ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and
for alleged deficiency manufacturer's sales tax and such contractor's tax for leasing out of its personal properties.
ACDMC elevated the matter to the Supreme Court claiming that the leasing out was a mere isolated transaction,
hence
should
not
be
subjected
to
contractor's
tax.
ISSUE:
Is the claim of the private respondent, with respect to the contractor's tax, impressed with merit?
HELD:
No. It is being held that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of
the tax code. However such conclusion cannot be made with respect to the contractor's tax being imposed on
ACMDC. It cannot validly claim that the leasing out of its personal properties was merely an isolated transaction.
Its book of accounts shows that several distinct payments were made for the use of its personal properties such
as its plane, motor boat and dump truck. The series of transactions engaged in by ACMDC for the lease of its
aforesaid properties could also be deduced from the fact that during the period there were profits earned and
reported therefor. The allegation of ACMDC that it did not realize any profit from the leasing out of its said
personal properties, since its income therefrom covered only the costs of operation such as salaries and fuel, is
not
supported
by
any
documentary
or
substantial
evidence.
Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is
the taxpayer and not the BIR who has the duty of proving otherwise. It is an elementary rule that in the absence of
proof of any irregularities in the performance of official duties, an assessment will not be disturbed. All
presumptions are in favor of tax assessments. Verily, failure to present proof of error in assessments will justify
judicial affirmance of said assessment.
COMMISSIONER OF INTERNAL REVENUE vs. UNION SHIPPING CORPORATION and THE COURT OF TAX
APPEALS G.R. No. L-66160 May 21, 1990
FACTS:
In a letter dated December 27, 1974 petitioner assessed against Yee Fong Hong, Ltd. and/or herein
private respondent UnionShipping Corporation for deficiency income taxes due for the years 1971 and 1972.
Private respondent protested
the
assessment.
Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy. In a letter,
private respondent reiterated its request for reinvestigation. Petitioner, again, without acting on the request for
reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit against
private respondent.
In 1979, private respondent filed with respondent court a Petition for Review. The CTA ruled in favor of
private respondent.
Hence,
this
is
a
petition
for
review
on
certiorari
ISSUE:
Whether or not the issuance of a warrant of distraint and levy is proof of the finality of an assessment and is
tantamount to an outright denial of a motion for reconsideration of an assessment.
HELD:
The Supreme Court had already laid down the dictum that the Commissioner should always indicate to
the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed
assessment.
There appears to be no dispute that petitioner did not rule on private respondent's motion for reconsideration but
contrary to the above ruling of this Court, left private respondent in the dark as to which action of the

Page | 14

Commissioner is the decision appealable to the Court of Tax Appeals. Had he categorically stated that he denies
private respondent's motion for reconsideration and that his action constitutes his final determination on the
disputed assessment, private respondent without needless difficulty would have been able to determine when his
right to appeal accrues and the resulting confusionwould have been avoided.
LASCONA VS CIR
FACTS:
Taxation Failure of the CIR to Decide a Protest Remedies of the Taxpayer
In March 1998, the Commissioner of Internal Revenue (CIR) issued a formal assessment notice (FAN) to Lascona
Land Co., Inc. (LLCI) demanding the latter to pay P753k in taxes. LLCI filed a timely protest on April 20, 1998.
From said date (since no supporting document was required to be submitted), the CIR has 180 days to decide on
the protest. However, the CIR promulgated its decision on March 3, 1999. LLCI received a copy of the decision on
March 12, 1999. On April 12, 1999, LLCI appealed the decision to the Court of Tax Appeals (CTA). The CIR
moved for the dismissal of the appeal on the ground that under a revenue regulation issued by the Bureau of
Internal Revenue (RR No. 12-99), if the CIR or its representative failed to act on a protest within the 180-day
period the taxpayer may appeal within 30 days from the lapse of the 180-day period to the CTA otherwise, the
decision shall become final and executory; that LLCI failed to appeal within the said period hence the CTA has no
jurisdiction over the case appealed by LLCI.
ISSUE: Whether or not the CIR is correct.
HELD: No. The revenue regulation is invalid. Under the law (Section 228 of the National Internal Revenue Code),
a taxpayer has two remedies if the CIR failed to act on his protest within the 180-day period, to wit;
1) the taxpayer adversely affected by the decision may appeal to the CTA within 30 days from receipt of the
decision, or
2) may appeal to the CTA within 30 days from the lapse of the one hundred eighty (180)-day period.
Interpreting the above provision, the taxpayer has two options in case of inaction by the CIR. First is to appeal to
the CTA within 30 days from the lapse of the 180 day period; or second, wait for the CIR to issue the decision and
then appeal, if adverse, to the CTA within 30 days from the receipt of the decision by the taxpayer (because even
if the CIR failed to decide on the case within the 180 day period, it can still decide on it and may even issue a
favorable judgment to the taxpayer, hence it may be logical to wait and only appeal if the adverse decision is
actually received).
In the case at bar, LLCI chose to wait for the CIR to decide on the case and it did not appeal within 30 days from
the lapse of the 180-day period. LLCI received the adverse decision of the CIR on March 12, 1999. It appealed on
April 12, 1999 which is still within the 30-day period to appeal to the CTA.
The revenue regulation in question is invalid because in effect, it limited the remedy provided for by the law.
Section 228 of the NIRC prevails over the said revenue regulation. The said revenue regulation cannot validly
take away the option of the taxpayer to continue waiting, even after the lapse of the 180 day period, for the CIR to
decide on the case and just appeal, within 30 days from receipt, if the CIRs ruling is adverse.
It must however be noted that these two remedies are mutually exclusive.

SUPERAMA, INC.- PRE-ASSESSMENT NOTICE

FACT:
Metro Star Superama was audited for taxable year 1999 and received a Preliminary 15-day Letter on November
15, 2001. On April 11, 2002, it received a Formal Letter of Demand dated April 3, 2002. Denying that it received a
Pre-Assessment Notice and thus not accorded due process, Metro Star Superama filed a Petition with the CTA.
ISSUE:
Was the Petitioner accorded the required due process?

Page | 15

HELD:
NO. Since the Petitioner denied receipt of the Pre-Assessment Notice, the burden of proving the same shifts to
the BIR. To raise the presumption of receipt, it must be shown that (a) the letter was properly addressed with
postage prepaid and (b) that it was mailed. If receipt is denied, the BIR must then show actual receipt through
presentation of the registry receipt or, if the same cannot be located, at least a certification from the Bureau of
Posts.
The Court likewise added that the issuance of a Pre-Assessment Notice is a mandatory requirement save only on
specified instances. The old rule laid down in CIR vs. Menguito that only the FAN is mandatory no longer applies
since the same was ruled upon based on the old provision.
PAWNSHOP COMPANY, INC. - TAX ASSESSMENT PROTEST
FACTS:
CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax
on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When
CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA.
ISSUE:
Has Respondents right to dispute the assessment in the CTA prescribed?
HELD:
NO. The assessment against Respondent has not become final and unappealable. It cannot be said that
respondent failed to submit relevant supporting documents that would render the assessment final because when
respondent submitted its protest, respondent attached all the documents it felt were necessary to support its
claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not
exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription.
The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing
a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional
documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer
will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit.
Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the
180-day period likewise started to run on that same date.
OPERATIONS, CORPORATION- TAX CREDIT AND TAX REFUND
FACTS:
Mirant filed its final adjusted Annual Income Tax Return for fiscal year ending 1999 declaring a net loss. It then
amended the said return this time reflecting an increased net loss and showing that it opted to carry over as tax
credit its overpayment to the succeeding taxable year. This excess tax credit was unutilized in 2000 as Mirant still
reported a net loss. Mirant then filed a claim for refund of its excess creditable income tax for 1999.
ISSUE:
Can Mirant claim for refund its excess credits from 1999?
HELD:
NO. Mirants choice to carry over its 1999 excess income tax credit to succeeding taxable years is irrevocable,
regardless of whether it was able to actually apply the said amount to a tax liability. It is a mistake to understand
the phrase "for that taxable period" as a prescriptive period for the irrevocability rule i.e., that since the tax credit
in this case was acquired in 1999, and Respondent opted to carry it over to 2000, then the irrevocability of the
option to carry over expired by the end of 2000, leaving Respondent free to again take another option as regards

Page | 16

its 1999 excess income tax credit. The Court ruled that this interpretation effectively renders nugatory the
irrevocability rule.
COMMUNICATION, INC.- Tax Refund
FACTS:
Smart entered into an Agreement with Prism, a nonresident foreign corporation domiciled in Malaysia, whereby
Prism will provide programming and consultancy services to Smart. Thinking that the payments to Prism were
royalties, Smart withheld 25% under the RP-Malaysia Tax Treaty. Smart then filed a refund with the BIR alleging
that the payments were not subject to Philippine withholding taxes given that they constituted business profits
paid to an entity without a permanent establishment in the Philippines.
ISSUE:
Does Smart have the right to file the claim for refund?
HELD:
YES. The Court reiterated the ruling in Procter & Gamble stating that a person liable for tax has sufficient legal
interest to bring a suit for refund of taxes he believes were illegally collected from him. Since the withholding agent
is an agent of the beneficial owner of the payments (i.e., nonresident), the authority as agent is held to include the
filing of a claim for refund. The Silkair case was held inapplicable as it involved excise taxes and not withholding
taxes.
Smart was granted a refund given that only a portion of its payments represented royalties since it is only that
portion over which Prism maintained intellectual property rights and the rest involved full transfer of proprietary
rights to Smart and were thus treated as business profits of Prism.
INC.- Tax Assessment and Protest
FACTS:
The assessment against Hambrecht & Quist had become final and unappelable since there was a failure to
protest the same within the 30-day period provided by law. However, the CTA held that the BIR failed to collect
within the prescribed time and thus ordered the cancellation of the assessment notice. The CIR disputed the
jurisdiction of the CTA arguing that since the assessment had become final and unappealable, the taxpayer can
no longer dispute the correctness of the assessment even before the CTA.
ISSUE:
Can the CTA still take cognizance of an assessment case which has become final and unappealable for failure of
the taxpayer to protest within the 30-day protest period?
HELD:
YES. The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters
relating to assessments or refunds. The CTA law clearly bestows jurisdiction to the CTA even on other matters
arising under the National Internal Revenue Code. Thus, the issue of whether the right of the CIR to collect has
prescribed, collection being one of the duties of the BIR, is considered covered by the term other matters. The
fact that assessment has become final for failure to protest only means that the validity or correctness of the
assessment may no longer be questioned on appeal. However, this issue is entirely distinct from the issue of
whether the right to collect has in fact prescribed.
The Court ruled that the right to collect has indeed prescribed since there was no proof that the request for
reinvestigation was in fact granted/acted upon by the CIR. Thus, the period to collect was never suspended.

Page | 17