REV. FR. CASIMIRO LLADOC v.

The COMMISSIONER OF INTERNAL

REVENUE and The COURT of TAX APPEALS. G.R. No. L-19201. June 16,
1965
FACTS:

M.B. Estate, Inc. donated P10,000.00 in cash to the parish priest of Victorias, Negros Occidental, for the
construction of a new Catholic Church in the locality. The total amount was actually spent for the purpose
intended.

A year later, M.B. Estate, Inc., filed the donor's gift tax return. CIR issued an assessment for donee's gift tax
against the parish, of which petitioner was the priest.

Petitioner filed a protest which was denied by the CIR. He then filed an appeal with the CTA citing that he was
not the parish priest at the time of donation, that there is no legal entity or juridical person known as the
"Catholic Parish Priest of Victorias," and, therefore, he should not be liable for the donee's gift tax and that
assessment of the gift tax is unconstitutional.

The CTA denied the appeal thus this case.

ISSUE: Whether petitioner and the parish are liable for the donee's gift tax.

RULING:

Yes for the parish. The Constitution only made mention of property tax and not of excise tax as stated in Section
22, par 3. The assessment of the CIR did not rest upon general ownership; it was an excise upon the use made of
the properties, upon the exercise of the privilege of receiving the properties. A gift tax is not a property tax, but
an excise tax imposed on the transfer of property by way of gift inter vivos, the imposition of which on property
used exclusively for religious purposes, does not constitute an impairment of the Constitution.

No for the petitioner. The Court ordered petitioner to be substituted by the Head of Diocese to pay the said gift
tax after the CIR and Solicitor General did not object to such substitution.
Abra Valley College vs Aquino (G.R. No. L-39086)
FACTS:

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and
Exchange Commission in 1948, filed a complaint to annul and declare void the Notice of Seizure and the Notice of
Sale of its lot and building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting
to P5,140.31. Said Notice of Seizure by respondents Municipal Treasurer and Provincial Treasurer, defendants
below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision.
The trial court ruled for the government, holding that the second floor of the building is being used by the director
for residential purposes and that the ground floor used and rented by Northern Marketing Corporation, a
commercial establishment, and thus the property is not being used exclusively for educational purposes. Instead of
perfecting an appeal, petitioner availed of the instant petition for review on certiorari with prayer for preliminary
injunction before the Supreme Court, by filing said petition on 17 August 1974.

ISSUE:

Whether or not the lot and building are used exclusively for educational purposes.

HELD:

Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty
taxes for cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes. Reasonable emphasis has always
been made that the exemption extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. The use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. In the case at bar, the lease of the first floor of the building to the
Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of
education. The test of exemption from taxation is the use of the property for purposes mentioned in the
Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be
returned to the petitioner. The modification is derived from the fact that the ground floor is being used for
commercial purposes (leased) and the second floor being used as incidental to education (residence of the director).
Advertisements
Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte [GR 27588, 31 December 1927]
Facts:

The Roman Catholic Apostolic Church is the owner of aparcel of land in San Nicolas, Ilocos Norte. On the
south side is a part of the Church yard, the convent and an adjacent lost used for a vegetable garden in
which there is a stable and a well for the use of the convent. In the center is the remainder of the
churchyard and the Church. On the north side is an old cemetery with its two walls still standing, and
a portion where formerly stood a tower. The provincial board assessed land tax on lots comprising the north
and southside, which the church paid under protest. It filed suit to recover the amount.

Issue:

Whether the lots are covered by the Churchs tax exemption.

Held:

The exemption in favor of the convent in the payment of land tax refers to the home of the priest who
presides over the church and who has to take care of himself in order to discharge his duties. The
exemption includes not only the land actually occupied by the Church but also the adjacent ground
destined to the ordinary incidental uses of man. A vegetable garden, thus, which belongs to a convent,
where its use is limited to the necessity of the priest, comes under the exemption. Further, land used as a
lodging house by the people who participate in religious festivities, which constitutes an incidental use in
religious functions, likewise comes within the exemption. It cannot be taxed according to its former use, i.e.
a cemetery.
LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY
G.R. No. 144104, June 29, 2004 [Constitutional Law - Article VI: Legislative Department; Taxation ]

FACTS:
Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks exemption from real property
taxes when the City Assessor issued Tax Declarations for the land and the hospital building. Petitioner predicted on its
claim that it is a charitable institution. The request was denied, and a petition hereafter filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the City Assessor. Petitioner alleged
that as a charitable institution, is exempted from real property taxes under Sec 28(3) Art VI of the Constitution. QC-
LBAA dismissed the petition and the decision was likewise affirmed on appeal by the Central Board of Assessment
Appeals of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.

ISSUE:
1. Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and 1987
Constitution and Section 234(b) of RA 7160.

2. Whether or not petitioner is exempted from real property taxes.

RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and 1987
Constitution. Under PD 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions
of the decree, is to be administered by the Office of the President with the Ministry of Health and the Ministry of
Human Settlements. The purpose for which it was created was to render medical services to the public in general
including those who are poor and also the rich, and become a subject of charity. Under PD 1823, petitioner is entitled
to receive donations, even if the gift or donation is in the form of subsidies granted by the government.

2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only. This provision
was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung center
must be able to prove that: it is a charitable institution and; its real properties are actually, directly and exclusively
used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are exempt from
real property taxes while those leased to private entities are not exempt from such taxes.
COMMISSIONER OF INTERNAL REVENUE v. YMCA
G.R.No.124043 October 14, 1998
Facts:
Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities that
are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable
objectives.

YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen
operators, and from parking fees collected from non-members. Petitioner issued an assessment to private
respondent for deficiency taxes. Private respondent formally protested the assessment. In reply, the CIR denied the
claims of YMCA.

Issue:
Whether or not the income derived from rentals of real property owned by YMCA subject to income tax

Held:
Yes. Income of whatever kind and character of non-stock non-profit organizations from any of their properties, real
or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income,
shall be subject to the tax imposed under the NIRC.

Rental income derived by a tax-exempt organization from the lease of its properties, real or personal, is not exempt
from income taxation, even if such income is exclusively used for the accomplishment of its objectives.

Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in
construing tax exemptions (Commissioner of Internal Revenue v. Court of Appeals, 271 SCRA 605, 613, April 18,
1997). Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the
language of the law on which it is based. Thus, the claimed exemption must expressly be granted in a statute stated
in a language too clear to be mistaken (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue and
Court of Appeals, G.R. No. 117359, p. 15 July 23, 1998).

Verba legis non est recedendum. The law does not make a distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or disposed of. Where the law does not distinguish, neither should
we.

Private respondent also invokes Article XIV, Section 4, par. 3 of the Constitution, claiming that it is a non-stock, non-
profit educational institution whose revenues and assets are used actually, directly and exclusively for educational
purposes so it is exempt from taxes on its properties and income. This is without merit since the exemption
provided lies on the payment of property tax, and not on the income tax on the rentals of its property. The bare
allegation alone that one is a non-stock, non-profit educational institution is insufficient to justify its exemption from
the payment of income tax.

For the YMCA to be granted the exemption it claims under the above provision, it must prove with substantial
evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes.
Unfortunately for respondent, the Court noted that not a scintilla of evidence was submitted to prove that it met the
said requisites.

The Court appreciates the nobility of respondents cause. However, the Courts power and function are limited
merely to applying the law fairly and objectively. It cannot change the law or bend it to suit its sympathies and
appreciations. Otherwise, it would be overspilling its role and invading the realm of legislation. The Court regrets
that, given its limited constitutional authority, it cannot rule on the wisdom or propriety of legislation. That
prerogative belongs to the political departments of government.
Philippine Acetylene Co. Inc. v CIR GR No L-19707, August 17, 1967

FACTS:
Philippine Acetylene Co. Inc. is engaged in the manufacture and sale of oxygen and acetylene gases. It sold its
products to the National Power Corporation (Napocor), an agency of the Philippine Government, and the Voice of
America (VOA), an agency of the United States Government. When the commissioner assessed deficiency sales tax
and surcharges against the company, the company denied liability for the payment of tax on the ground that both
Napocor and VOA are exempt from taxes.

ISSUE:
Is Philippine Acetylene Co. liable for tax?

RULING:
Yes. Sales tax are paid by the manufacturer or producer who must make a true and complete return of the amount of
his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or
mill, warehouse and to pay the tax due thereon. The tax imposed by Section 186 of the Tax Code is a tax on the
manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense.
Accordingly, its levy on the sales made to tax- exempt entities like the Napocor is permissible.

On the other hand, there is nothing in the language of the Military Bases Agreement to warrant the general exemption
granted by General Circular V-41 (1947). Thus, the expansive construction of the tax exemption is void; and the sales
to the VOA are subject to the payment of percentage taxes under Section 186 of the Tax Code. Therefore, tax
exemption is strictly construed and exemption will not be held to conferred unless the terms under which it is granted
clearly and distinctly show that such was the intention.
GR No. 153866 CIR vs. Seagate

FACTS:

Respondent is a resident foreign corporation duly registered with the

Securities and Exchange Commission to do business in the Philippines and
is registered with the Philippine Export Zone Authority (PEZA). The
respondent is Value Added Tax-registered entity and filed for the VAT
returns. An administrative claim for refund of VAT input taxes in the
amount of P28,369,226.38 with supporting documents (inclusive of the
P12,267,981.04 VAT input taxes subject of this Petition for Review), was
filed on 4 October 1999, but no final action has been received by the
respondent from the petitioner on the claim for VAT refund. CIR asserts
that by virtue of the PEZA registration alone of respondent, the latter
is not subject to the VAT. Consequently, the capital goods and services
respondent has purchased are not considered used in the VAT business,
and no VAT refund or credit is due.

ISSUE:

Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled to

tax refund or credit.

HELD:

Yes, Seagate is entitled to refund or credit. As a PEZA-registered

enterprise within a special economic zone, respondent is entitled to the
fiscal incentives and benefit provided for in either PD 66 or EO 226. It
shall, moreover, enjoy all privileges, benefits, advantages or
exemptions under both Republic Act Nos. (RA) 7227 and 7844.

Respondent, which as an entity is exempt, is different from its

transactions which are not exempt. The end result, however, is that it
is not subject to the VAT. The non-taxability of transactions that are
otherwise taxable is merely a necessary incident to the tax exemption
conferred by law upon it as an entity, not upon the transactions
themselves.

The petitioners assertion that the capital goods and services

respondent has purchased are not considered used in the VAT business,
and thus no VAT refund or credit is due is non sequitur. On this matter,
the SC held that by the VATs very nature as a tax on consumption, the
capital goods and services respondent has purchased are subject to the
VAT, although at zero rate.

Seagate has complied with all the requisites for VAT refund or credit.
First, respondent is a VAT-registered entity. Second, the input taxes
paid on the capital goods of respondent are duly supported by VAT
invoices and have not been offset against any output taxes.
To summarize, special laws expressly grant preferential tax treatment to
business establishments registered and operating within an ecozone,
which by law is considered as a separate customs territory. As such,
respondent is exempt from all internal revenue taxes, including the VAT,
and regulations pertaining thereto. Its sales transactions intended for
export may not be exempt, but like its purchase transactions, they are
zero-rated. No prior application for the effective zero rating of its
transactions is necessary. Being VAT-registered and having
satisfactorily complied with all the requisites for claiming a tax
refund of or credit for the input VAT paid on capital goods purchased,
respondent is entitled to such VAT refund or credit.

Having determined that respondents purchase transactions are subject to

a zero VAT rate, the SC has determined that tax refund or credit is in
order.
COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR.,
Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista (G.R. No.
147188)Date: September 14, 2004Ponente: DAVIDE, JR.,
C.J

.FACTS:

Cibeles Insurance Corporation (CIC) authorized Benigno P. Toda, Jr., President and owner of
99.991% of its issued andoutstanding capital stock, to sell the Cibeles Building and the two parcels of
land on which the building stands for an amount of not lessthan P90 million. Toda purportedly sold the
property to Rafael A. Altonaga, who, in turn, sold the same property on the same day toRoyal Match Inc.
(RMI). For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.CIC
filed itscorporate annual income tax return for the year 1989, declaring, among other things,
its gain from the sale of real property in theamount of P75,728.021. Toda then sold his entire
shares of stocks in CIC to Le Hun T. Choa, as evidenced by a Deed of Sale of Shares of
Stocks. Three and a half years later Toda died.The Bureau of Internal Revenue (BIR) sent an assessment
notice and demand letter to the CIC for deficiency income tax for theyear 1989.The new CIC asked for a
reconsideration, asserting that the assessment should be directed against the old CIC, and not againstthe
new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of hisstockholdings and the CIC free from all tax liabilities for the fiscal
years 1987-1989. The Estate of Benigno P. Toda, Jr., represented byspecial co-administrators Lorna
Kapunan and Mario Luza Bautista, received a Notice of Assessment from the Commissioner of
InternalRevenue for deficiency income tax for the year 1989.The Estate thereafter filed a letter of protest.
The Commissioner dismissed the protest, stating that a fraudulent scheme wasdeliberately perpetuated by
the CIC wholly owned and controlled by Toda by covering up the additional gain of P100 million,
whichresulted in the change in the income structure of the proceeds of the sale of the two
parcels of land and the building thereon to an individual capital gains, thus evading the
higher corporate income tax rate of 35%.The Estate filed a petition for review with the CTA alleging that the
Commissioner erred in holding the Estate liable for income taxdeficiency.In its decision, the CTA held that
the Commissioner failed to prove that CIC committed fraud to deprive the government of thetaxes due it. It
ruled that even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax
avoidance,and not tax evasion. Hence, the CTA declared that the Estate is not liable for deficiency income
tax and, accordingly, cancelled and setaside the assessment issued by the Commissioner. Court
of Appeals affirmed the decision of the CTA.

ISSUE:

WON respondent Estate is liable for the 1989 deficiency income tax of Cibeles Insurance Corporation.

HELD:Yes.
RATIO:
A corporation has a juridical personality distinct and separate from the persons owning or composing
it. Thus, the owners or stockholders of a corporation may not generally be made to answer
for the liabilities of a corporation and vice versa. There are,however, certain insta nces
in which personal liability may arise. It has been held in a number of cases that personal
liability of acorporate director, trustee, or officer along, albeit not necessarily, with the corporation may
validly attach when:1. He assents to the (a) patently unlawful act of the corporation, (b) bad faith or gross
negligence in directing its affairs, or (c) conflict of interest, resulting in damages to the corporation, its
stockholders, or other persons;2. He consents to the issuance of watered down stocks or, having
knowledge thereof, does not forthwith file with thecorporate secretary his written objection
thereto;3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made,
by specific provision of law, to personally answer for his corporate action.
[38]
It is worth noting that when the late Toda sold his shares of stock to Le Hun T. Choa, he knowingly and
voluntarily held himself personally liable for all the tax liabilities of CIC and the buyer for the years 1987,
1988, and 1989. Paragraph g of the Deed of Sale of Shares of Stocks specifically provides:xxx
SELLER undertakes and agrees to hold the BUYER and Cibeles free from any and all income tax
liabilities of Cibeles for the fiscal years 1987, 1988 and 1989.
When the late Toda undertook and agreed to hold the BUYER and Cibeles free from any all income tax
liabilities of Cibeles for the fiscal years 1987, 1988, and 1989, he thereby voluntarily
held himself personally liable therefor. Respondent estate cannot,therefore, deny liability for
CICs deficiency income tax for the year 1989 by invoking the separate corporate personality of CIC, since
itsobligation arose from Todas contractual undertaking, as contained in the
Deed of Sale of Shares of Stock.
The decision of the Court of Appeals is reversed and respondent Estate o
f B e n i g n o P . T o d a J r . w a s o r d e r e d t o pay P79,099,999.22 as deficiency income tax of
Cibeles Insurance Corporation for the year 1989.
Conwi, et.al. vs. CTA and CIR
Facts: Petitioners are employees of Procter and Gamble (Philippine Manufacturing Corporation, subsidiary
of Procter & Gamble, a foreign corporation).During the years 1970 and 1971, petitioners were assigned to
other subsidiaries of Procter & Gamble outside the Philippines, for which petitioners were paid US dollars
as compensation.

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

CTA held 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 Revenue Memorandum Circulars Nos.
7-71 and 41-71. The refund claims were denied.

Issues:

(1) Whether or not petitioners' dollar earnings are receipts derived from foreign exchange transactions;
NO.

(2) Whether or not the proper rate of conversion of petitioners' dollar earnings for tax purposes in the
prevailing free market rate of exchange and not the par value of the peso; YES.

Held: For the proper resolution of income tax cases, 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. Unless otherwise specified, it means cash or its equivalent. Income can also be though of
as flow of the fruits of one's labor.

Petitioners are correct as to their claim that their dollar earnings are not receipts derived from foreign
exchange transactions. For a foreign exchange transaction is simply that a transaction in foreign
exchange, foreign exchange being "the conversion of an amount of money or currency of one country into
an equivalent amount of money or currency of another." When petitioners were assigned to the foreign
subsidiaries of Procter & Gamble, they were earning in their assigned nation's currency and were ALSO
spending in said currency. There was no conversion, therefore, from one currency to another.

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

And in the implementation for the proper enforcement of the National Internal Revenue Code, Section 338
thereof empowers the Secretary of Finance to "promulgate all needful rules and regulations" to
effectively enforce its provisions pursuant to this authority, Revenue Memorandum Circular Nos. 7-71 and
41-71 were issued to prescribed a uniform rate of exchange from US dollars to Philippine pesos for
INTERNAL REVENUE TAX PURPOSES for the years 1970 and 1971, respectively. Said
revenue circulars were a valid exercise of the authority given to the Secretary of Finance by the Legislature
which enacted the Internal Revenue Code. And these are presumed to be a valid interpretation of said
code until revoked by the Secretary of Finance himself.

Petitioners are citizens of the Philippines, and their income, within or without, and in these cases wholly
without, are subject to income tax. Sec. 21, NIRC, as amended, does not brook any exemption.
G.R. No. L-12287 August 7, 1918
VICENTE MADRIGAL and his wife, SUSANA PATERNO, plaintiffs-appellants,
vs.
JAMES J. RAFFERTY, Collector of Internal Revenue, and VENANCIO CONCEPCION, Deputy
Collector of Internal Revenue, defendants-appellees.

Facts

Vicente Madrigal and Susana Paterno were legally married and have conjugal partnership.
Madrigal filed his total net income for the year is P296,302.73.

Subsequently, Madrigal submitted the claim that the said total net income of year 1914 did not represent
his income for the year 1914, but was in fact the income of the conjugal partnership existing between
himself and his wife, and the computing and assessing the additional income tax provided by the Act of
Congress of Oct. 3, 1913, the income declared by Madrigal and the other half of Paterno.

Madrigal and Paterno brought action against Collector of Internal Revenue and the Deputy Collector of
Internal Revenue for the recovery of the sum P3,786.08.

The burden of the complaint was that if the income tax for the year 1914 had been correctly and lawfully
computed there would have been due payable by each of the plaintiff the sum of P2,921.09, which taken
together amount of P5842.18 instead of P9,668.21.

Issue: WON the additional income tax should be divided into equal parts because of the conjugal
partnership existing between them?

Held:

NO.

Paterno has an inchoate right in the property of her husband Madrigal during the lifetime of the conjugal
property. She has an interest in the ultimate ownership of property acquired as income of the conjugal
partnership. Not being seized of the separate estate, Paterno cannot make a separate return in order to
receive the benefit of the exemption which would arise by reason of the additional tax. As she has no
estate or income, actually and legally vested in her and entirely distinct from her husband property, the
income cannot properly be considered the separate income of the wife for the purpose of the additional
tax. The income tax law does not look on the spouses as individual partners in an ordinary partnership.

The higher schedules of the additional tax directed at the incomes of the wealthy may not be partially
defeated by reliance on provisions in our Civil Code dealing with the conjugal partnership and having no
application to the Income Tax Law.
CIR vs. MARUBENI

GR No. 137377|

Facts:

CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985 deficiency income,
branch profit remittance and contractors taxes from Marubeni Corp after finding the latter to have properly availed
of the tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing and construction, is duly
registered in the Philippines with Manila branch office. CIR examined the Manila branchs books of accounts for fiscal
year ending March 1985, and found that respondent had undeclared income from contracts with NDC and Philphos
for construction of a wharf/port complex and ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes. CIR claims that the
income respondent derived were income from Philippine sources, hence subject to internal revenue taxes. On Sept
1986, respondent filed 2 petitions for review with CTA: the first, questioned the deficiency income, branch profit
remittance and contractors tax assessments and second questioned the deficiency commercial brokers assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers who wished
to avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.

On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes under Title 3 and business tax
under Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986 and stated those who already
availed amnesty under EO 41 should file an amended return to avail of the new benefits. Marubeni filed a
supplemental tax amnesty return on Dec 15, 1986.

CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency taxes. CA
affirmed on appeal.

Issue:

W/N Marubeni is exempted from paying tax

Held:

Yes.

1. On date of effectivity

CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception in Sec 4b of EO 41:

Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty herein granted: xxx b) Those
with income tax cases already filed in Court as of the effectivity hereof;

Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a case had already been
filed and was pending before the CTA and Marubeni therefore fell under the exception. However, the point of
reference is the date of effectivity of EO 41 and that the filing of income tax cases must have been made before and
as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with CTA on Sept 26, 1986.
When EO 41 became effective, the case had not yet been filed. Marubeni does not fall in the exception and is thus,
not disqualified from availing of the amnesty under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractors tax assessment (business tax) and respondents availment of
the amnesty under EO 64, which expanded EO 41s coverage. When EO 64 took effect on Nov 17, 1986, it did not
provide for exceptions to the coverage of the amnesty for business, estate and donors taxes. Instead, Section 8
said EO provided that:

Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this
amendatory Executive Order shall remain in full force and effect.

Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of effectivity. The general
rule is that an amendatory act operates prospectively. It may not be given a retroactive effect unless it is so provided
expressly or by necessary implication and no vested right or obligations of contract are thereby impaired.

2. On situs of taxation

Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the deficiency tax
because the income from the projects came from the Offshore Portion as opposed to Onshore Portion. It claims
all materials and equipment in the contract under the Offshore Portion were manufactured and completed in
Japan, not in the Philippines, and are therefore not subject to Philippine taxes.

(BG: Marubeni won in the public bidding for projects with government corporations NDC and Philphos. In the
contracts, the prices were broken down into a Japanese Yen Portion (I and II) and Philippine Pesos Portion and
financed either by OECF or by suppliers credit. The Japanese Yen Portion I corresponds to the Foreign Offshore
Portion, while Japanese Yen Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore
Portion. Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both materials and services to the
client, they are contracts for a piece of work and are indivisible. The situs of the two projects is in the Philippines,
and the materials provided and services rendered were all done and completed within the territorial jurisdiction of
the Philippines. Accordingly, respondents entire receipts from the contracts, including its receipts from the Offshore
Portion, constitute income from Philippine sources. The total gross receipts covering both labor and materials should
be subjected to contractors tax (a tax on the exercise of a privilege of selling services or labor rather than a sale on
products).

Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in the Philippines
because some of them were completed in Japan (and in fact subcontracted) in accordance with the provisions of the
contracts. All services for the design, fabrication, engineering and manufacture of the materials and equipment
under Japanese Yen Portion I were made and completed in Japan. These services were rendered outside Philippines
taxing jurisdiction and are therefore not subject to contractors tax.Petition denied.
National Development Company v CIR (1987)

National Development Company v CIR GR No L-53961, June 30, 1987

FACTS:
The National Development Company (NDC) entered into contracts in Tokyo with several Japanese shipbuilding
companies for the construction of 12 ocean-going vessels. Initial payments were made in cash and through irrevocable
letters of credit. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the
shipbuilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld.
The Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74. Negotiations followed but
failed. NDC went to CTA. BIR was sustained by CTA. BIR was sustained by CTA. Hence, this petition for certiorari.

ISSUE:
Is NDC liable for the tax?

RULING:
Yes.
Although NDC is not the one taxed since it was the Japanese shipbuilders who were liable on the interest remitted to
them under Section 37 of the Tax Code, still, the imposition is valid.
The imposition of the deficiency taxes on NDC is a penalty for its failure to withhold the same from the Japanese
shipbuilders. Such liability is imposed by Section 53c of the Tax Code. NDC was remiss in the discharge of its
obligation as the withholding agent of the government and so should be liable for the omission.
Collector of Internal Revenue vs Henderson

GR No. L-12954, 1961

FACTS:

Sps. Arthur Henderson and Marie Henderson filed their annual income tax with the BIR. Arthur is
president of American International Underwriters for the Philippines, Inc., which is a domestic corporation
engaged in the business of general non-life insurance, and represents a group of American insurance
companies engaged in the business of general non-life insurance.

The BIR demanded payment for alleged deficiency taxes. In their computation, the BIR included as part
of taxable income: 1) Arthurs allowances for rental, residential expenses, subsistence, water, electricity
and telephone expenses 2) entrance fee to the Marikina Gun and Country Club which was paid by his
employer for his account and 3) travelling allowance of his wife

The taxpayers justifications are as follows:

1) as to allowances for rental and utilities, Arthur did not receive money for the allowances. Instead, the
apartment is furnished and paid for by his employer-corporation (the mother company of American
International), for the employer corporations purposes. The spouses had no choice but to live in the
expensive apartment, since the company used it to entertain guests, to accommodate officials, and to
entertain customers. According to taxpayers, only P 4,800 per year is the reasonable amount that the
spouses would be spending on rental if they were not required to live in those apartments. Thus, it is the
amount they deem is subject to tax. The excess is to be treated as expense of the company.
2) The entrance fee should not be considered income since it is an expense of his employer, and
membership therein is merely incidental to his duties of increasing and sustaining the business of his
employer.

3) His wife merely accompanied him to New York on a business trip as his secretary, and at the employer-
corporations request, for the wife to look at details of the plans of a building that his employer intended to
construct. Such must not be considered taxable income.

The Collector of Internal Revenue merely allowed the entrance fee as nontaxable. The rent expense and
travel expenses were still held to be taxable. The Court of Tax Appeals ruled in favor of the taxpayers, that
such expenses must not be considered part of taxable income. Letters of the wife while in New York
concerning the proposed building were presented as evidence.

ISSUE: Whether or not the rental allowances and travel allowances furnished and given by the employer-
corporation are part of taxable income?

HELD: NO. Such claims are substantially supported by evidence.

These claims are therefore NOT part of taxable income. No part of the allowances in question redounded to
their personal benefit, nor were such amounts retained by them. These bills were paid directly by the
employer-corporation to the creditors. The rental expenses and subsistence allowances are to be
considered not subject to income tax. Arthurs high executive position and social standing, demanded and
compelled the couple to live in a more spacious and expensive quarters. Such subsistence allowance was
a SEPARATE account from the account for salaries and wages of employees. The company did not charge
rentals as deductible from the salaries of the employees. These expenses are COMPANY EXPENSES, not
income by employees which are subject to tax.
LIMPAN INVESTMENT VS. CIR

FACTS:
BIR assessed deficiency taxes on Limpan Corp, a company that leases real property, for under-declaring its
rental income for years 1956-57 by around P20K and P81K respectively.
Petitioner appeals on the ground that portions of these underdeclared rents are yet to be collected by the
previous owners and turned over or received by the corporation.
Petitioner cited that some rents were deposited with the court, such that the corporation does not have actual
nor constructive control over them.
The sole witness for the petitioner, Solis (Corporate Secretary- Treasurer) admitted to some undeclared rents
in 1956 and1957, and that some balances were not collected by the corporation in 1956 because the lessees
refused to recognize and pay rent to the new owners and that the corps president Isabelo Lim collected some
rent and reported it in his personal income statement, but did not turn over the rent to the corporation.
He also cites lack of actual or constructive control over rents deposited with the court.

ISSUE:
Whether or not the BIR was correct in assessing deficiency taxes against Limpan Corp. for undeclared rental
income

HELD:
Yes. Petitioner admitted that it indeed had undeclared income (although only a part and not the full amount
assessed by BIR). Thus, it has become incumbent upon them to prove their excuses by clear and convincing
evidence, which it has failed to do. When is there constructive receipt of rent? With regard to 1957 rents
deposited with the court, and withdrawn only in 1958, the court viewed the corporation as having constructively
received said rents. The non-collection was the petitioners fault since it refused to refused to accept the rent,
and not due to nonpayment of lessees. Hence, although the corporation did not actually receive the rent, it is
deemed to have constructively received them.
CIR vs. PHILIPPINE AIRLINES, INC.

FACTS:

PHILIPPINE AIRLINES, INC. had zero taxable income for 2000 but would have been liable for Minimum
Corporate Income Tax based on its gross income. However, PHILIPPINE AIRLINES, INC. did not pay the
Minimum Corporate Income Tax using as basis its franchise which exempts it from all other taxes upon
payment of whichever is lower of either (a) the basic corporate income tax based on the net taxable income or
(b) a franchise tax of 2%.

ISSUE:
Is PAL liable for Minimum Corporate Income Tax?

HELD:
NO. PHILIPPINE AIRLINES, INC.s franchise clearly refers to "basic corporate income tax" which refers to the
general rate of 35% (now 30%). In addition, there is an apparent distinction under the Tax Code between taxable
income, which is the basis for basic corporate income tax under Sec. 27 (A) and gross income, which is the
basis for the Minimum Corporate Income Tax under Section 27 (E). The two terms have their respective
technical meanings and cannot be used interchangeably. Not being covered by the Charter which makes PAL
liable only for basic corporate income tax, then Minimum Corporate Income Tax is included in "all other taxes"
from which PHILIPPINE AIRLINES, INC. is exempted.

The CIR also can not point to the Substitution Theory which states that Respondent may not invoke the in lieu
of all other taxes provision if it did not pay anything at all as basic corporate income tax or franchise tax. The
Court ruled that it is not the fact tax payment that exempts Respondent but the exercise of its option. The Court
even pointed out the fallacy of the argument in that a measly sum of one peso would suffice to exempt PAL from
other taxes while a zero liability would not and said that there is really no substantial distinction between a zero
tax and a one-peso tax liability. Lastly, the Revenue Memorandum Circular stating the applicability of the MCIT
to PAL does more than just clarify a previous regulation and goes beyond mere internal administration and thus
cannot be given effect without previous notice or publication to those who will be affected thereby.
Commissioner of Internal Revenue vs Court of Appeals and A. Soriano Corp.

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 creditors.
 Commissioner of Internal Revenue vs Central Luzon Drug Corporation GR No 159647
Commissioner of Internal Revenue vs. Central Luzon Drug Corporation
G.R. No. 159647 April 15, 2005

Facts:
Respondents operated six drugstores under the business name Mercury Drug. From January to December
1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines
pursuant to RA 7432 for a total of 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein
net losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of 904,769.00
allegedly arising from the 20% sales discount. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals. The court dismissed the same but upon
reconsideration, the latter reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate
in favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing
that Sec. 229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but that there
are other situations which may warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a
payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is
not tantamount to an unintended benefit from the law, but rather a just compensation for the taking of
private property for public use.

Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax
credit.

Ruling:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on
their purchase of medicine from any private establishment in the country. The latter may then claim the cost
of the discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss.

A tax credit generally refers to an amount that is subtracted directly from ones total tax liability. It is an
allowance against the tax itself or a deduction from what is owed by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction which is
subtraction from income for tax purposes, or an amount that is allowed by law to reduce income prior to
the application of the tax rate to compute the amount of tax which is due. In other words, whereas a tax
credit reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable
income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit
can be applied. Without that liability, any tax credit application will be useless. There will be no reason for
deducting the latter when there is, to begin with, no existing obligation to the government. However, as will
be presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or
use of such credit. While the grant is mandatory, the availment or use is not. If a net loss is reported by,
and no other taxes are currently due from, a business establishment, there will obviously be no tax liability
against which any tax credit can be applied. For the establishment to choose the immediate availment of a
tax credit will be premature and impracticable.