PHILEX MINING CORP vs.

CIR
(G.R. No. 148187 April 16, 2008)

FACTS: (Good news: walang comparison ng tax at debt. lol. nasa lumang case cited in South African Airways)

In 1971, through an agreement denominated as Power of Attorney, Philex Mining agreed to manage and operate Baguio Gold Mining
Companys mining claim (Sto. Nio mine) in Benguet Province. In the course of managing and operating the project, Philex Mining made advances
of cash and property in accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years which resulted
to petitioners withdrawal as manager of the mine in January 1982 and in the eventual cessation of mine operations in Feb 1982.

In September 1982, the parties executed a Compromise w/ Dation in Payment, and later, an amendment to it. In Its 1982 annual income tax
return, Philex deducted from its gross income P112.1 million as loss on settlement of receivables from Baguio Gold against reserves and
allowances. However, BIR did not allow the deduction for bad debt and assessed a deficiency income tax. Philex protested, arguing that the
deduction must be allowed since all the requisites of a bad debt were satisfied:

(a) there was a valid and existing debt

(b) the debt was ascertained to be worthless; and
(c) it was charged off within the taxable year when it was determined to be worthless.

BIR denied the protest because the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not
filed a petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that, under the management contract,
petitioner was to be paid fifty percent (50%) of the projects net profit. CTA affirmed and ruled that the Power of Attorney was actually a partnership
agreement. Since the advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from petitioners gross
income. CA affirmed. Upon denial of Philexs MR, it filed a petition for review on certiorari under Rule 45.
.

ISSUE:

W/N the amount sought to be deducted constitutes debt

RULING: NO. THERE WAS NO CREDITOR-DEBTOR RELATIONSHIP, BUT A PARTNERSHIP

Perusal of the agreement denominated as the Power of Attorney indicates that the parties had intended to create a partnership and establish a
common fund for the purpose. They also had a joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine.
Under the Power of Attorney, petitioner and Baguio Gold undertook to contribute money, property and industry to the common fund known as the
Sto. Nio mine. Baguio Gold would contribute P11Munder its owners account plus any of its income that is left in the project, in addition to its actual
mining claim. Meanwhile, petitioners contribution would consist of its expertise in the management and operation of mines, as well as the managers
account which is comprised of P11M in funds and property and petitioners compensation as manager that cannot be paid in cash.

Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Nio mine upon termination, a
provision that is more consistent with a partnership than a creditor-debtor relationship. It should be pointed out that in a contract of loan, a person
who receives a loan or money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the
same kind and quality. In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had
advanced, but only the return of an amount pegged at a ratio which the managers account had to the owners account.

Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos to another corporation
with neither security, or collateral, nor a specific deed evidencing the terms and conditions of such loans. The parties also did not provide a specific
maturity date for the advances to become due and demandable, and the manner of payment was unclear. All these point to the inevitable conclusion
that the advances were not loans but capital contributions to a partnership.

The advances were not debts of Baguio Gold to petitioner inasmuch as the latter was under no unconditional obligation to return the same to the
former under the Power of Attorney.

In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax purposes partake of the
nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction
claimed.
 SOUTH AFRICAN AIRWAYS vs. CIR
(G.R. No. 180356 February 16, 2010)

FACTS:

South African Airways is an internal air carrier having no landing rights in the country. It has a general sales agent in the Philippines, Aerotel
Limited Corporation w/c sells passage documents for compensation or commission for SAAs off-line flights for the carriage of passengers and cargo
between ports or points outside the territorial jurisdiction of the Philippines. SAA is not registered with the SEC as a corporation, branch office, or
partnership. It is not licensed to do business in the Philippines.

For year 2000, SAA filed separate quarterly and annual income tax returns for its off-line flights. In 2003, it filed w/ BIR a claim for refund of the
amount erroneously paid tax on Gross Philippine Billings. The same was unheeded. It filed a petition for review w/ CTA w/c denied the petition. It
ruled that SAA was not liable to pay tax on its GPB under Section 28(A)(3)(a) of the National Internal Revenue Code (NIRC) of 1997. However, it is
liable to pay a tax of 32% on its income derived from the sales of passage documents in the Philippines. SAAs MR was denied by CTA. Hence, this
petition for review on certiorari under Rule 45.

ISSUE:

W/N SAA is entitled to a refund or a tax credit of erroneously paid tax on Gross Philippine Billings for the taxable year 2000

RULING: NO. (remanded)

Preliminarily, we emphasize that petitioner is claiming that it is exempted from being taxed for its sale of passage documents in the Philippines.
Petitioner, however, failed to sufficiently prove such contention. Since an action for a tax refund partakes of the nature of an exemption, which cannot
be allowed unless granted in the most explicit and categorical language, it is strictly construed against the claimant who must discharge such burden
convincingly. SAA failed to overcome such burden.

As held in the CIR vs. BOAC case, off-line air carriers having general sales agents in the Philippines are engaged in or doing business in the
Philippines and that their income from sales of passage documents here is income from within the Philippines. Thus, in that case, we held the off-line
air carrier liable for the 32% tax on its taxable income.

The general rule is that resident foreign corporations shall be liable for a 32% income tax on their income from within the Philippines, except for
resident foreign corporations that are international carriers that derive income from carriage of persons, excess baggage, cargo and mail originating
from the Philippines which shall be taxed at 2 1/2% of their Gross Philippine Billings. SAA, being an international carrier with no flights originating
from the Philippines, does not fall under the exception.

PERTINENT TAX CONCEPT:

Precisely, petitioner questions the offsetting of its payment of the tax under Sec. 28(A)(3)(a) with their liability under Sec. 28(A)(1), considering
that there has not yet been any assessment of their obligation under the latter provision. Petitioner argues that such offsetting is in the nature of legal
compensation, which cannot be applied under the circumstances present in this case.

Article 1279 of the Civil Code contains the elements of legal compensation, to wit:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also
of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in
due time to the debtor.

And we ruled in Philex Mining Corporation v. Commissioner of Internal Revenue,[13] thus:

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to
compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction.

Verily, petitioners argument is correct that the offsetting of its tax refund with its alleged tax deficiency is unavailing under Art. 1279 of the Civil
Code.
 THE APOSTOLIC PREFECT OF THE MOUNTAIN PROVINCE, vs. EL TESORERO DE LA CIUDAD DE BAGUIO
(G.R. No. L-47252 April 18, 1941)

FACTS:

Petitioner is a religious unipersonal corporation (Google translated tong case, kaya corporation sole siguro ito) organized in accordance with the
laws of the Philippines, with residence in the city of Baguio. In 1937, the City Treasurer demanded and collected P 1019.37 in accordance w/
Ordinance No. 137. Said ordinance involved a Special Assessment List under which a drainage system will be constructed over the properties
included in the list. Benefit will accrue to its owners, the latter being obliged to pay compensation for such benefit. This included the land owned by
Petitioner (devoted to worship & teaching). Petitioner paid the same under protest. The same was denied.

Petitioner maintained that it is exempt from payment of all taxes by the Constitution and by the laws in force, must also be exempt from payment
of the special contribution.

The appellant maintains that its properties are exempt from the payment of the special tax, both for the provisions of Article 2 of Ordinance No.
137 and for Article 14 (3), Title VI, of the Constitution of the Philippines is read as follows:

(3) Cemeteries, churches, parishes and convents attached thereto, and all land, buildings and improvements used exclusively for religious,
charitable or educational purposes, shall be exempt from taxation.

ISSUE:

W/N Petitioners properties being exempt from payment of all taxes by the Constitution and by the laws in force, must also be exempt from
payment of the special contribution

RULING: NO.

It is alleged that according to Article 2 of Ordinance No. 137, only property that is not exempt from the payment of a tax and which, according to
the constitutional precept cited, the properties of the appellant are exempt from payment of the tax special contribution to be devoted to religious
purposes. This claim requires that it be resolved, first, whether the special tax imposed by Ordinance No. 13 is a tax in its legal sense. It is a well-
established rule in tax matters that the special contributions that are created and charged to amortize extra-ordinary expenses incurred by works,
such as the drainage and drainage system, which benefit the inhabitants in a special way, is not a tax in their sense legal.

Judge Cooley, in drawing the distinction between taxes and special contributions in his tax treaty, is expressed in these terms:

(1) a special assessment can be levied only on land;

(2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed;
(3) a special assessment is based on wholly on benefits; and
(4) a special assessment is exceptional both to time and locality. The imposition of a charge on all property, real and personal, in a
prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway

If the special tax levied on the appellant is not strictly speaking a tax whose payment is exempt from it, it is evident that neither under the
ordinance nor the Constitution the said appellant is exempt from the payment of the special tax. Petitioner cannot successfully invoke the exemption
established by the Constitution because it has not been admitted or proved that its properties that paid the special contribution were used
exclusively for religious purposes.
 PROTON PILIPINAS CORPORATION vs. REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF CUSTOMS
(G.R. No. 165027 October 12, 2006)

FACTS:

Proton is engaged in the business of importing, manufacturing, and selling vehicles. Devmark Textile Industries, Inc. is engaged in the business
of spinning, knitting, weaving, dyeing, and finishing all types of textile, yarns, and fabrics. In 1997, Devmark & Texasia expressed the intention to
purchase the various vehicles distributed and marketed by Proton. In payment thereof, Devmark & Texasia offered their Tax Credit Certificates
(TCC), w/c they guaranteed that were valid, genuine, and subsisting. Persuaded, Proton entered into an Assignment Agreement w/ Devmark.

Consequently, the TCCs, as well as their transfers to petitioner, were submitted to the DOF for evaluation and approval. DOF cleared the same.
Proton delivered 13 vehicles and post-dated checks to Devmark & Texasia. Proton used the TCCS for payment of its customs duties and taxes to
the BOC.

In the interim, Ombudsman conducted an investigation on the alleged P60 billion DOF Tax Credit Scam. The TCCS were found to be irregularly
and fraudulently issued by several officers of the DOF. Ombudsman filed w/ Sandiganbayan criminal cases charging DOF Undersecretary, General
Manager of Devmark, and officers of Proton for violation of The Anti-Graft and Corrupt Practices Act. Proton sued Devmark officers for estafa.

BOC filed civil case against Proton before RTC for the collection of taxes and customs duties. Proton filed a motion to dismiss on the grounds of
lack of jurisdiction, prematurity of action, and litis pendentia. The same was denied. MR was also denied. CA dismissed Protons petition for
certiorari under Rule 65. MR denied. Hence, this Rule 45 petition.

ISSUE:

W/N BOCs action against Proton should be dismissed on the ground of litis pendentia (because of the criminal case)

RULING: NO.

Litis pendentia is a Latin term, which literally means a pending suit. Litis pendentia as a ground for the dismissal of a civil action refers to that
situation wherein another action is pending between the same parties for the same cause of action, such that the second action becomes
unnecessary and vexatious. For litis pendentia to be invoked, the concurrence of the following requisites is necessary:

(a) identity of parties or at least such as represent the same interest in both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and
(c) the identity in the two cases should be such that the judgment that may be rendered in one would, regardless of which party is successful,
amount to res judicata in the other.

Proton failed to establish all the requisites.

In the case at bar, in Criminal Cases No. 26168 to 71 only the responsible officers of the petitioner are charged in the Information, while in Civil
Case No. 02-102650, it is only the corporation that is impleaded, holding it liable for the unpaid customs duties and taxes as a corporate
taxpayer. Taxes being personal to the taxpayer, it can only be enforced against herein petitioner because the payment of unpaid customs duties and
taxes are the personal obligation of the petitioner as a corporate taxpayer, thus, it cannot be imposed on its corporate officers, much so on its
individual stockholders, for this will violate the principle that a corporation has personality separate and distinct from the persons constituting it.

Going to the second requisite of litis pendentia, this Court finds that the causes of action, as well as the reliefs prayed for in the criminal and civil
actions are considerably different.

As regard the third requisite, judgment in the criminal cases, to our mind, will not be determinative of the civil case upon which the principle of
res judicata will operate.

Attention must be given to the fact that 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. It is also settled that taxes are the lifeblood of the government and their prompt
and certain availability is an imperious need. So then, the determination of the validity or invalidity of the TCCs cannot be regarded as a prejudicial
issue that must first be resolved with finality in the Criminal Cases filed before the Sandiganbayan.
 FLORENCIO REYES and ANGEL REYES vs. COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS
(G.R. Nos. L-24020-21 July 29, 1968)

FACTS: (jusmiyo, halo-halo ang facts ni Justice Fernando -.-)

Petitioners, father and son, purchased the Gibbs Building in Manila in 1950. At that time, the building was leased to various tenants, whose
rights under the lease contracts with the original owners, the purchasers, petitioners herein, agreed to respect. Petitioners divided equally the
income of operation and maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually.

CIR made assessments for 1951 to 1954 of income tax, surcharge and compromise, and for 1955 and 1956 of back income taxes plus
surcharge and compromise. CTA upheld the same and ruled applied two provisions of NIRC, the first of which imposes an income tax on
corporations "organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companias colectivas) a term, which according to the second provision cited, includes partnerships "no matter how created
or organized.

ISSUE:

W/N Petitioners are subject to the tax on corporations provided for in NIRC Section 24 (CA 466)

RULING: YES.

Article 1767 of the Civil Code of the Philippines, defines what a contract of partnership is, and the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and
property to a common fund.

As defined in section 84(b) of NIRC, "the term corporation includes partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of
the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section
84(b), the term "corporation" includes, among others, "joint accounts, (cuentas en participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members.

"For purposes of the tax on corporations, our National Internal Revenue Code, include these partnerships with the exception only of duly
registered general co-partnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for corporations."
 ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. COMMISSIONER OF INTERNAL REVENUE
(G.R. No. 155541 January 27, 2004)

FACTS:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust Company. Juliana died
in 1979. Two days after, Philtrust filed her Income Tax Return for 1978, w/o indicating the fact of her death. Philtrust filed a verified petition for
appointment as Special Administrator. However, RTC appointed the heirs as special administrator. Philtrusts MR denied.

Meanwhile, BIR conducted an administrative investigation on the decedents tax liability and found a deficiency income tax for the year 1977.
BIR sent an assessment notice to Philtrust w/c made no reponse. In 1984, CIR served warrants of distraint and levy on Francisco Gabriel, Julianas
heir.

Despite the estates protest through Antonio Ambrosio as the Commissioner and Auditor Tax Consultant, BIR declared that the assessment
notice had already become final, executor, and incontestable. BIR maintained that service to Philtrust was sufficient. RTC denied BIRs claim against
the estate as there was improper service of the assessment notice. On appeal, CA ruled that the estates administrator failed in its legal duty to
inform BIR of Julianas death.

Hence, this petition for review on certiorari. The estate alleged that Philtrust had no legal capacity to represent the decedent after her death,
hence, there was no proper notice of assessment. CIR claimed that because Philtrust filed the decedents income tax return subsequent to her
death, Philtrust was the de facto administrator of her Estate.

ISSUE:

W/N there was proper service of assessment notice

RULING: NONE

The relationship between the decedent and Philtrust was one of agency, which is a personal relationship between agent and principal. Under
Article 1919 (3) of the Civil Code, death of the agent or principal automatically terminates the agency. In this instance, the death of the decedent on
April 3, 1979 automatically severed the legal relationship between her and Philtrust, and such could not be revived by the mere fact that Philtrust
continued to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978.

Since the relationship between Philtrust and the decedent was automatically severed at the moment of the Taxpayers death, none of Philtrusts
acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501
was improperly done.

It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent.

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

In Republic v. De le Rama, we clarified that, when an estate is under administration, notice must be sent to the administrator of the
estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and
to perform all orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of whom had any authority to
represent the estate.

In this case, the assessment was served not even on an heir of the Estate, but on a completely disinterested third party. This improper service
was clearly not binding on the petitioner.