MARTIRES, J.

:
This is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court seeking to reverse and
set aside the 30 April 2008 Decision[2] and 24 June 2008 Resolution[3] of the Court of Tax Appeals (CTA)
En Banc in CTA EB No. 352.
The assailed decision and resolution affirmed the 12 September 2007 Decision[4] and 12 December 2007
Resolution[5] of the CTA First Division (CTA Division) in CTA Case No. 6753.
THE FACTS
The facts[6] are undisputed.
Petitioner Commissioner of Internal Revenue (CIR) is authorized by law, among others, to investigate or
examine and, if necessary, issue assessments for deficiency taxes
. On the other hand, respondent Lancaster Philippines, Inc. (Lancaster) is a domestic corporation
established in 1963 and is engaged in the production, processing, and marketing of tobacco.
In 1999, the Bureau of Internal Revenue (BIR) issued Letter of Authority (LOA) No. 00012289 authorizing
its revenue officers to examine Lancaster's books of accounts and other accounting records for all
internal revenue taxes due from taxable year 1998 to an unspecified date. The LOA reads:
SEPT. 30 1999
LETTER OF AUTHORITY
LANCASTER PHILS. INC.
11th Flr. Metro Bank Plaza
Makati City
SIR/MADAM/GENTLEMEN:
The bearer(s) hereof RO's Irene Goze & Rosario Padilla to tbe supervised by GH Catalina Leny Barrion of
the Special Team created pursuant to RSO 770-99 is/are authorized to examine your books of accounts
and other accounting records for all internal revenue taxes for the period from taxable year, 1998 to
____, 19__. He is/[t]hey are provided with the necessary identification card(s) which shall be presented
to you upon request.
It is requested that all facilities be extended to the Revenue Officer(s) in order to expedite the
examination.
You will be duly informed of the results of the examination upon approval of the report submitted by
the aforementioned Revenue Officer(s).[7]

After the conduct of an examination pursuant to the LOA, the BIR issued a Preliminary Assessment
Notice (PAN)[8] which cited Lancaster for: 1) overstatement of its purchases for the fiscal year April
1998 to March 1999; and 2) noncompliance with the generally accepted accounting principle of proper
matching of cost and revenue.[9] More concretely, the BIR disallowed the purchases of tobacco from
farmers covered by Purchase Invoice Vouchers (PIVs) for the months of February and March 1998 as
deductions against income for the fiscal year April 1998 to March 1999. The computation of Lancaster's
tax deficiency, with the details of discrepancies, is reproduced below:
INCOME TAX:

Taxable Income per ITR -0-

Adjustments-Disallowed
Add: 11,496.770.18
purchases
Adjusted Taxable Income per
P11,496,770.18
Investigation
INCOME TAX DUE - Basic

April 1-December 31, 1998

P
(9/12 x P11,496,770.18 x 34%)
2,913,676.4
January 1 - March 31, 1999
(3/12 x P11,496,770.18 x 33%) 948,483.54

P
Income tax still due per investigation
3,880,159.94
Interest (6/15/99 to 10/15/02) .66 2,560,905.56
Compromise Penalty 25,000

P
TOTAL DEFICIENCY INCOME TAX
6,466,065.50

DETAILS OF DISCREPANCIES
Assessment No. LTAID 11-98-00007
INCOME TAX (P3,880,159.94) - Taxpayer's fiscal year covers April 1998 to March 1999. Verification of
the books of accounts and pertinent documents disclosed that there was an overstatement of
purchases for the year. Purchase Invoice Vouchers (PIVs) for February and March 1998 purchases
amounting to P11,496,770.18 were included as part of purchases for taxable year 1998 in violation of
Section 45 of the National Internal Revenue Code in relation to Section 43 of the same and Revenue
Regulations No. 2 which states that the Crop-Basis method of reporting income may be used by a
A. farmer engaged in producing crops which take more than one (1) year from the time of planting to
the time of gathering and disposing of crop, in such a case, the entire cost of producing the crop must
be taken as deduction in the year in which the gross income from the crop is realized and that the
taxable income should be computed upon the basis of the taxpayer's annual accounting period,
(fiscal or calendar year, as the case may be) in accordance with the method of accounting regularly
employed in keeping with the books of the taxpayer. Furthermore, it did not comply with the
generally accepted principle of proper matching of cost and revenue.[10]
Lancaster replied[11] to the PAN contending, among other things, that for the past decades, it has used
an entire 'tobacco-cropping season' to determine its total purchases covering a one-year period from 1
October up to 30 September of the following year (as against its fiscal year which is from 1 April up to 31
March of the following year); that it has been adopting the 6-month timing difference to conform to the
matching concept (of cost and revenue); and that this has long been installed as part of the company's
system and consistently applied in its accounting books.[12]
Invoking the same provisions of the law cited in the assessment, i.e., Sections 43[13] and 45[14] of the
National Internal Revenue Code (NIRC), in conjunction with Section 45[15] of Revenue Regulation No. 2,
as amended, Lancaster argued that the February and March 1998 purchases should not have been
disallowed. It maintained that the situation of farmers engaged in producing tobacco, like Lancaster, is
unique in that the costs, i.e., purchases, are taken as of a different period and posted in the year in
which the gross income from the crop is realized. Lancaster concluded that it correctly posted the
subject purchases in the fiscal year ending March 1999 as it was only in this year that the gross income
from the crop was realized.
Subsequently on 6 November 2002, Lancaster received from the BIR a final assessment notice
(FAN),[16] captioned Formal Letter of Demand and Audit Result/Assessment Notice LTAID II IT-98-00007,
dated 11 October 2002, which assessed Lancaster's deficiency income tax amounting to P11,496,770.18,
as a consequence of the disallowance of purchases claimed for the taxable year ending 31 March 1999.
Lancaster duly protested[17] the FAN. There being no action taken by the Commissioner on its protest,
Lancaster filed on 21 August 2003 a petition for review[18] before the CTA Division.
The Proceedings before the CTA
In its petition before the CTA Division, Lancaster essentially reiterated its arguments in the protest
against the assessment, maintaining that the tobacco purchases in February and March 1998 are
deductible in its fiscal year ending 31 March 1999.
The issues[19] raised by the parties for the resolution of the CTA Division were:
I
WHETHER OR NOT PETITIONER COMPLIED WITH THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLE OF
PROPER MATCHING OF COST AND REVENUE;
II
WHETHER OR NOT THE DEFICIENCY TAX ASSESSMENT AGAINST PETITIONER FOR THE TAXABLE YEAR
1998 IN THE AGGREGATE AMOUNT OF P6,466,065.50 SHOULD BE CANCELLED AND WITHDRAWN BY
RESPONDENT.

After trial, the CTA Division granted the petition of Lancaster, disposing as follows:
IN VIEW OF THE FOREGOING, the subject Petition, for Review is hereby GRANTED. Accordingly,
respondent is ORDERED to CANCEL and WITHDRAW the deficiency income tax assessment issued
against petitioner under Formal Letter of Demand and Audit Result/Assessment Notice No. LTAID II IT-
98-00007 dated October 11, 2002, in the amount of P6,466,065.50, covering the fiscal year from April 1,
1998 to March 31,1999.[20]

The CIR moved[21] but failed to obtain reconsideration of the CTA Division ruling.[22]
Aggrieved, the CIR sought recourse[23] from the CTA En Banc to seek a reversal of the decision and the
resolution of the CTA Division.
However, the CTA En Banc found no reversible error in the CTA Division's ruling, thus, it affirmed the
cancellation of the assessment against Lancaster. The dispositive portion of the decision of the CTA En
Banc states:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED DUE COURSE, and,
accordingly DISMISSED for lack of merit.[24]

The CTA En Banc likewise denied[25] the motion for reconsideration from its Decision,
Hence, this petition.
The CIR assigns the following errors as committed by the CTA En Banc :
I.
THE COURT OF TAX APPEALS EN BANC ERRED IN HOLDING THAT PETITIONER'S REVENUE OFFICERS
EXCEEDED THEIR AUTHORITY TO INVESTIGATE THE PERIOD NOT COVERED BY THEIR LETTER OF
AUTHORITY.
II.
THE COURT OF TAX APPEALS EN BANC ERRED IN ORDERING PETITIONER TO CANCEL AND WITHDRAW
THE DEFICIENCY ASSESSMENT ISSUED AGAINST RESPONDENT.[26]

THE COURT'S RULING

We deny the petition.
I.
The CTA EN BANC did not err when it ruled
that the BIR revenue officers had
exceeded their authority.
To support its first assignment of error, the CIR argues that the revenue officers did not exceed their
authority when, upon examination (of the Lancaster's books of accounts and other accounting records),
they verified that Lancaster made purchases for February and March of 1998, which purchases were not
declared in the latter’s fiscal year from 1 April 1997 to 31 March 1998. Additionally, the CIR posits that
Lancaster did not raise the issue on the scope of authority of the revenue examiners at any stage of the
proceedings before the CTA and, consequently, the CTA had no jurisdiction to rule on said issue.
On both counts, the CIR is mistaken.
A. The Jurisdiction of the CTA
Preliminarily, we shall take up the CTA's jurisdiction to rule on the issue of the scope of authority of the
revenue officers to conduct the examination of Lancaster's books of accounts and accounting records.
The law vesting unto the CTA its jurisdiction is Section 7 of Republic Act No. 1125 (R.A. No.
1125),[27] which in part provides:
Section 7. Jurisdiction. - The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review
by appeal, as herein provided:
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue; xxx (emphasis supplied)
Under the aforecited provision, the jurisdiction of the CTA is not limited only to cases which involve
decisions or inactions of the CIR on matters relating to assessments or refunds but also includes other
cases arising from the NIRC or related laws administered by the BIR.[28] Thus, for instance, we had once
held that the question of whether or not to impose a deficiency tax assessment comes within the
purview of the words "other matters arising under the National Internal Revenue Code. "[29]
The jurisdiction of the CTA on such other matters arising under the NIRC was retained under the
amendments introduced by R.A No. 9282.[30] Under R.A. No. 9282, Section 7 now reads:
Sec. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code provides a specific period of action, in which case
the inaction shall be deemed a denial; x x x." (emphasis supplied)

Is the question on the authority of revenue officers to examine the books and records of any person
cognizable by the CTA?
It must be stressed that the assessment of internal revenue taxes is one of the duties of the BIR. Section
2 of the NIRC states:
Sec. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be
under the supervision and control of the Department of Finance and its powers and duties shall
comprehend, the assessment and collection of all national internal revenue taxes, fees, and charges,
and the enforcement of all forfeitures, penalties, and fines connected therewith, including the execution
of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts.
The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this
Code or other laws. (emphasis supplied)

In connection therewith, the CIR may authorize the examination of any taxpayer and correspondingly
make an assessment whenever necessary.[31] Thus, to give more teeth to such power of the CIR, to make
an assessment, the NIRC authorizes the CIR to examine any book, paper, record, or data of any
person.[32] The powers granted by law to the CIR are intended, among other things, to determine the
liability of any person for any national internal revenue tax.
It is pursuant to such pertinent provisions of the NIRC conferring the powers to the CIR that the
petitioner (CIR) had, in this case, authorized its revenue officers to conduct an examination of the books
of account and accounting records of Lancaster, and eventually issue a deficiency assessment against it.
From the foregoing, it is clear that the issue on whether the revenue officers who had conducted the
examination on Lancaster exceeded their authority pursuant to LOA No. 00012289 may be considered as
covered by the terms "other matters" under Section 7 of R.A. No. 1125 or its amendment, R.A. No. 9282.
The authority to make an examination or assessment, being a matter provided for by the NIRC, is well
within the exclusive and appellate jurisdiction of the CTA.
On whether the CTA can resolve an issue which was not raised by the parties, we rule in the affirmative.
Under Section 1, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules of the Court of Tax
Appeals,[33] the CTA is not bound by the issues specifically raised by the parties but may also rule upon
related issues necessary to achieve an orderly disposition of the case. The text of the provision reads:
SECTION 1. Rendition of judgment. - x x x
In deciding the case, the Court may not limit itself to the issues stipulated by the parties but may also
rule upon related issues necessary to achieve an orderly disposition of the case.

The above section is clearly worded. On the basis thereof, the CTA Division was, therefore, well within
its authority to consider in its decision the question on the scope of authority of the revenue officers
who were named in the LOA even though the parties had not raised the same in their pleadings or
memoranda, The CTA En Banc was likewise correct in sustaining the CTA Division's view concerning such
matter.
B. The Scope of the Authority of the Examining Officers
In the assailed decision of the CTA Division, the trial court observed that LOA No. 00012289 authorized
the BIR officers to examine the books of account of Lancaster for the taxable year 1998 only or, since
Lancaster adopted a fiscal year (FY), for the period 1 April 1997 to 31 March 1998. However, the
deficiency income tax assessment which the BIR eventually issued against Lancaster was based on the
disallowance of expenses reported in FY 1999, or for the period 1 April 1998 to 31 March 1999. The CTA
concluded that the revenue examiners had exceeded their authority when they issued the assessment
against Lancaster and, consequently, declared such assessment to be without force and effect.
We agree.
The audit process normally commences with the issuance by the CIR of a Letter of Authority. The LOA
gives notice to the taxpayer that it is under investigation for possible deficiency tax assessment; at the
same time it authorizes or empowers a designated revenue officer to examine, verify, and scrutinize a
taxpayer's books and records, in relation to internal revenue tax liabilities for a particular period.[34]
In this case, a perusal of LOA No. 00012289 indeed shows that the period of examination is the taxable
year 1998, For better clarity, the pertinent portion of the LOA is again reproduced, thus:
The bearer(s) hereof x x x is/are authorized to examine your books of accounts and other accounting
records for all Internal revenue taxes for the period from taxable year, 1998 to _____, 19__. x x x."
(emphasis supplied)

Even though the date after the words "taxable year 1998 to" is unstated, it is not at all difficult to
discern that the period of examination is the whole taxable year 1998. This means that the examination
of Lancaster must cover the FY period from 1 April 1997 to 31 March 1998. It could not have
contemplated a longer period. The examination for the full taxable year 1998 only is consistent with the
guideline in Revenue Memorandum Order (RMO) No. 43-90, dated 20 September 1990, that the LOA
shall cover a taxable period not exceeding one taxable year.[35] In other words, absent any other valid
cause, the LOA issued in this case is valid in all respects.
Nonetheless, a valid LOA does not necessarily clothe validity to an assessment issued on it, as when the
revenue officers designated in the LOA act in excess or outside of the authority granted them under said
LOA. Recently in CIR v. De La Salle University, Inc.[36] we accorded validity to the LOA authorizing the
examination of DLSU for "Fiscal Year Ending 2003 and Unverified Prior Years" and correspondingly held
the assessment for taxable year 2003 as valid because this taxable period is specified in the LOA.
However, we declared void the assessments for taxable years 2001 and 2002 for having
been unspecified on separate LOAs as required under RMO No. 43-90.
Likewise, in the earlier case of CIR v. Sony, Phils., Inc.,[37] we affirmed the cancellation of a deficiency VAT
assessment because, while the LOA covered "the period 1997 and unverified prior years, " the said
deficiency was arrived at based on the records of a later year, from January to March 1998, or using the
fiscal year which ended on 31 March 1998. We explained that the CIR knew which period should be
covered by the investigation and that if the CIR wanted or intended the investigation to include the year
1998, it would have done so by including it in the LOA or by issuing another LOA.[38]
The present case is no different from Sony in that the subject LOA specified that the examination should
be for the taxable year 1998 only but the subsequent assessment issued against Lancaster involved
disallowed expenses covering the next fiscal year, or the period ending 31 March 1999. This much is
clear from the notice of assessment, the relevant portion of which we again restate as follows:
INCOME TAX:

Taxable Income per ITR -0-

Adjustments-Disallowed
Add: 11,496.770.18
purchases
Adjusted Taxable Income per
P11,496,770.18
Investigation
INCOME TAX DUE - Basic

April 1-December 31, 1998

(9/12 x P11,496,770.18 x 34%) P 2,913,676.4
January 1 - March 31, 1999
(3/12 x P11,496,770.18 x 33%) 948,483.54

P
Income tax still due per investigation
3,880,159.94
Interest (6/15/99 to 10/15/02) .66 2,560,905.56
Compromise Penalty 25,000

TOTAL DEFICIENCY INCOME P

TAX (emphasis supplied) 6,466,065.50
The taxable year covered by the assessment being outside of the period specified in the LOA in this case,
the assessment issued against Lancaster is, therefore, void.
This point alone would have sufficed to invalidate the subject deficiency income tax assessment, thus,
obviating any further necessity to resolve the issue on whether Lancaster erroneously claimed the
February and March 1998 expenses as deductions against income for FY 1999.
But, as the CTA did, we shall discuss the issue on the disallowance for the proper guidance not only of
the parties, but the bench and the bar as well.
 II.
The CTA En Banc correctly sustained the
order cancelling and withdrawing
the deficiency tax assessment.
To recall, the assessment against Lancaster for deficiency income tax stemmed from the disallowance of
its February and March 1998 purchases which Lancaster posted in its fiscal year ending on 31 March
1999 (FY 1999) instead of the fiscal year ending on 31 March 1998 (FY 1998).
On the one hand, the BIR insists that the purchases in question should have been reported in FY 1998 in
order to conform to the generally accepted accounting principle of proper matching of cost and
revenue. Thus, when Lancaster reported the said purchases in FY 1999, this resulted in overstatement of
expenses warranting their disallowance and, by consequence, resulting in the deficiency in the payment
of its income tax for FY 1999.
Upon the other hand, Lancaster justifies the inclusion of the February and March 1998 purchases in its
FY 1999 considering that they coincided with its crop year covering the period of October 1997 to
September 1998. Consistent with Revenue Audit Memorandum(RAM) No. 2-95,[39] Lancaster argues that
its purchases in February and March 1998 were properly posted in FY 1999, or the year in which its gross
income from the crop was realized. Lancaster concludes that by doing so, it had complied with the
matching concept that was also relied upon by the BIR in its assessment.
The issue essentially boils down to the proper timing when Lancaster should recognize its purchases in
computing its taxable income. Such issue directly correlates to the fact that Lancaster's 'crop year' does
not exactly coincide with its fiscal year for tax purposes.
Noticeably, the records of this case are rife with terms and concepts in accounting. As a science,
accounting[40] pervades many aspects of financial planning, forecasting, and decision making in business.
Its reach, however, has also permeated tax practice.
To put it into perspective, although the foundations of accounting were built principally to analyze
finances and assist businesses, many of its principles have since been adopted for purposes of
taxation.[41] In our jurisdiction, the concepts in business accounting, including certain generally accepted
accounting principles (GAAP), embedded in the NIRC comprise the rules on tax accounting.
To be clear, the principles under financial or business accounting, in theory and application, are not
necessarily interchangeable with those in tax accounting. Thus, although closely related, tax and
business accounting had invariably produced concepts that at some point diverge in understanding or
usage. For instance, two of such important concepts are taxable income and business income (or
accounting income). Much of the difference can be attributed to the distinct purposes or objectives that
the concepts of tax and business accounting are aimed at. Chief Justice Querube Makalintal made an apt
observation on the nature of such difference. In Consolidated Mines, Inc. v. CTA,[42] he noted:
While taxable income is based on the method of accounting used by the taxpayer, it will almost always
differ from accounting income. This is so because of a fundamental difference in the ends the two
concepts serve. Accounting attempts to match cost against revenue. Tax law is aimed at collecting
revenue. It is quick to treat an item as income, slow to recognize deductions or losses. Thus, the tax law
will not recognize deductions for contingent future losses except in very limited situations. Good
accounting, on the other hand, requires their recognition. Once this fundamental difference in approach
is accepted, income tax accounting methods can be understood more easily.[43] (emphasis supplied)
While there may be differences between tax and accounting,[44] it cannot be said that the two mutually
exclude each other. As already made clear, tax laws borrowed concepts that had origins from
accounting. In truth, tax cannot do away with accounting. It relies upon approved accounting methods
and practices to effectively carry out its objective of collecting the proper amount of taxes from the
taxpayers. Thus, an important mechanism established in many tax systems is the requirement for
taxpayers to make a return of their true income.[45] Maintaining accounting books and records, among
other important considerations, would in turn assist the taxpayers in complying with their obligation to
file their income tax returns. At the same time, such books and records provide vital information and
possible bases for the government, after appropriate audit, to make an assessment for deficiency tax
whenever so warranted under the circumstances.
The NIRC, just like the tax laws in other jurisdictions, recognizes the important facility provided by
generally accepted accounting principles and methods to the primary aim of tax laws to collect the
correct amount of taxes. The NIRC even devoted a whole chapter on accounting periods and methods of
accounting, some relevant provisions of which we cite here for more emphasis:
CHAPTER VIII
ACCOUNTING PERIODS AND METHODS OF ACCOUNTING
Sec. 43. General Rule. - The taxable income shall be computed upon the basis of the taxpayer's annual
accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of
accounting regularly employed in keeping the books of such taxpayer; but if no such method of
accounting has been so employed, or if the method employed does not clearly reflect the income, the
computation shall be made in accordance with such method as in the opinion of the Commissioner
clearly reflects the income.
If the taxpayer's annual accounting period is other than a fiscal year, as defined in Section 22(Q), or if
the taxpayer has no annual accounting period, or does not keep books, or if the taxpayer is an
individual, the taxable income shall be computed on the basis of the calendar year.
Sec. 44. Period in which Items of Gross Income Included. - The amount of all items of gross income shall
be included in the gross income for the taxable year in which received by the taxpayer, unless, under
methods of accounting permitted under Section 43, any such amounts are to be properly accounted for
as of a different period.
In the case of the death of a taxpayer, there shall be included in computing taxable income for the
taxable period in which falls the date of his death, amounts accrued up to the date of his death if not
otherwise properly includible in respect of such period or a prior period.
Sec. 45. Period for which Deductions and Credits Taken. - The deductions provided for in this Title shall
be taken for the taxable year in which 'paid or accrued' or 'paid or incurred,' dependent upon the
method of accounting upon the basis of which the net income is computed, unless in order to clearly
reflect the income, the deductions should be taken as of a different period. In the case of the death of a
taxpayer, there shall be allowed, as deductions for the taxable period in which falls the date of his death,
amounts accrued up to the date of his death if not otherwise properly allowable in respect of such
period or a prior period.
Sec. 46. Change of Accounting Period. - If a taxpayer, other than an individual, changes his accounting
period from fiscal year to calendar year, from calendar year to fiscal year, or from one fiscal year to
another, the net income shall, with the approval of the Commissioner, be computed on the basis of such
new accounting period, subject to the provisions of Section 47.
xxxx
Sec. 48. Accounting for Long-term Contracts. - Income from long-term contracts shall be reported for
tax purposes in the manner as provided in. this Section.
As used herein, the term 'long-term contracts' means building, installation or construction contracts
covering a period in excess of one (1) year.
Persons whose gross income is derived in whole or in part from such contracts shall report such income
upon the basis of percentage of completion.
The return should be accompanied by a return certificate of architects or engineers showing the
percentage of completion during the taxable year of the entire work performed under contract.
There should be deducted from such gross income all expenditures made during the taxable year on
account of the contract, account being taken of the material and supplies on hand at the beginning and
end of the taxable period for use in connection with the work under the contract but not yet so applied.
If upon completion of a contract, it is found that the taxable net income arising thereunder has not been
clearly reflected for any year or years, the Commissioner may permit or require an amended return.
Sec. 49. Installment Basis. -
(A) Sales of Dealers in Personal Property. - Under rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, a person who regularly sells or otherwise disposes
of personal property on the installment plan may return as income therefrom in any taxable year that
proportion of the installment payments actually received in that year, which the gross profit realized or
to be realized when payment is completed, bears to the total contract price.
(B) Sales of Realty and Casual Sales of Personality. - In the case (1) of a casual sale or other casual
disposition of personal property (other than property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year), for a price exceeding One
thousand pesos (P1,000), or (2) of a sale or other disposition of real property, if in either case the initial
payments do not exceed twenty-five percent (25%) of the selling price, the income may, under the rules
and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, be
returned on the basis and ill the manner above prescribed in this Section.
As used in this Section, the term 'initial payments' means the payments received in cash or property
other than evidences of indebtedness of the purchaser during the taxable period in which the sale or
other disposition is made.
(C) Sales of Real Property Considered as Capital Asset by Individuals. - An individual who sells or
disposes of real property, considered as capital asset, and is otherwise qualified to report the gain
therefrom under Subsection (B) may pay the capital gains tax in installments under rules and regulations
to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
(D) Change from Accrual to Installment Basis. - If a taxpayer entitled to the benefits of Subsection (A)
elects for any taxable year to report his taxable income on the installment basis, then in computing his
income for the year of change or any subsequent year, amounts actually received during any such year
on account of sales or other dispositions of property made in any prior year shall not be excluded."
(emphasis in the original)
We now proceed to the matter respecting the accounting method employed by Lancaster.
An accounting method is a "set of rules for determining when and how to report income and
deductions."[46] The provisions under Chapter VIII, Title II of the NIRC cited above enumerate the
methods of accounting that the law expressly recognizes, to wit:
(1) Cash basis method;[47]
(2) Accrual method;[48]
(3) Installment method;[49]
(4) Percentage of completion method;[50] and
(5) Other accounting methods.

Any of the foregoing methods may be employed by any taxpayer so long as it reflects its income
properly and such method is used regularly. The peculiarities of the business or occupation engaged in
by a taxpayer would largely determine how it would report incomes and expenses in its accounting
books or records. The NIRC does not prescribe a uniform, or even specific, method of accounting.
Too, other methods approved by the CIR, even when not expressly mentioned in the NIRC, may be
adopted if such method would enable the taxpayer to properly reflect its income. Section 43 of the NIRC
authorizes the CIR to allow the use of a method of accounting that in its opinion would clearly reflect the
income of the taxpayer. An example of such method not expressly mentioned in the NIRC, but duly
approved by the CIR, is the 'crop method of accounting' authorized under RAM No. 2-95. The pertinent
provision reads:
II. Accounting Methods
xxxx
F. Crop Year Basis is a method applicable only to farmers engaged in the production of crops which take
more than a year from the time of planting to the process of gathering and disposal. Expenses paid or
incurred are deductible in the year the gross income from the sale of the crops are realized.

The crop method recognizes that the harvesting and selling of crops do not fall within the same year
that they are planted or grown. This method is especially relevant to farmers, or those engaged in the
business of producing crops who, pursuant to RAM No. 2-95, would then be able to compute their
taxable income on the basis of their crop year. On when to recognize expenses as deductions against
income, the governing rule is found in the second sentence of Subsection F cited above. The rule enjoins
the recognition of the expense (or the deduction of the cost) of crop production in the year that the
crops are sold (when income is realized).
In the present case, we find it wholly justifiable for Lancaster, as a business engaged in the production
and marketing of tobacco, to adopt the crop method of accounting. A taxpayer is authorized to employ
what it finds suitable for its purpose so long as it consistently does so, and in this case, Lancaster does
appear to have utilized the method regularly for many decades already. Considering that the crop year
of Lancaster starts from October up to September of the following year, it follows that all of its expenses
in the crop production made within the crop year starting from October 1997 to September 1998,
including the February and March 1998 purchases covered by purchase invoice vouchers, are rightfully
deductible for income tax purposes in the year when the gross income from the crops are realized.
Pertinently, nothing from the pleadings or memoranda of the parties, or even from their testimonies
before the CTA, would support a finding that the gross income from the crops (to which the subject
expenses refer) was actually realized by the end of March 1998, or the closing of Lancaster's fiscal year
for 1998. Instead, the records show that the February and March 1998 purchases were recorded by
Lancaster as advances and later taken up as purchases by the close of the crop year in September 1998,
or as stated very clearly above, within the fiscal year 1999[51] On this point, we quote with approval the
ruling of the CTA En Banc , thus:
Considering that [Lancaster] is engaged in the production of tobacco, it applied the crop year basis in
determining its total purchases for each fiscal year. Thus, [Lancaster's] total cost for the production of its
crops, which includes its purchases, must be taken as a deduction in the year in which the gross income
is realized. Thus, We agree with the following ratiocination of the First Division:
Evident from the foregoing, the crop year basis is one unusual method of accounting wherein the entire
cost of producing the crops (including purchases) must be taken as a deduction in the year in which the
gross income from the crop is realized. Since the petitioner's crop year starts in October and ends in
September of the following year, the same does not coincide with petitioner's fiscal year which starts in
April and ends in March of the following year. However, the law and regulations consider this peculiar
situation and allow the costs to be taken up at the time the gross income from the crop is realized, as in
the instant case.

[Lancaster's] fiscal period is from April 1, 1998 to March 31, 1999. On the other hand, its crop year is
from October 1, 1997 to September 1, 1998. Accordingly, in applying the crop year method, all the
purchases made by the respondent for October 1, 1997 to September 1, 1998 should be deducted from
the fiscal year ending March 31, 1999, since it is the time when the gross income from the crops is
realized.[52]

The matching principle

Both petitioner CIR and respondent Lancaster, it must be noted, rely upon the concept of matching cost
against revenue to buttress their respective theories. Also, both parties cite RAM 2-95 in referencing the
crop method of accounting.
We are tasked to determine which view is legally sound.
In essence, the matching concept, which is one of the generally accepted accounting principles, directs
that the expenses are to be reported in the same period that related revenues are earned. It attempts to
match revenue with expenses that helped earn it.
The CIR posits that Lancaster should not have recognized in FY 1999 the purchases for February and
March 1998.[53] Apparent from the reasoning of the CIR is that such expenses ought to have been
deducted in FY 1998, when they were supposed to be paid or incurred by Lancaster. In other words, the
CIR is of the view that the subject purchases match with revenues in 1998, not in 1999.
A reading of RAM No. 2-95, however, clearly evinces that it conforms with the concept that the
expenses paid or incurred be deducted in the year in which gross income from the sale of the crops
is realized. Put in another way, the expenses are matched with the related incomes which are eventually
earned. Nothing from the provision is it strictly required that for the expense to be deductible, the
income to which such expense is related to be realized in the same year that it is paid or incurred. As
noted by the CTA,[54] the crop method is an unusual method of accounting, unlike other recognized
accounting methods that, by mandate of Sec. 45 of the NIRC, strictly require expenses be taken in the
same taxable year when the income is 'paid or incurred,' or 'paid or accrued,' depending upon the
method of accounting employed by the taxpayer.
Even if we were to accept the notion that applying the 1998 purchases as deductions in the fiscal year
1998 conforms with the generally accepted principle of matching cost against revenue, the same would
still not lend any comfort to the CIR. Revenue Memorandum Circular (RMC) No. 22-04, entitled
"Supplement to Revenue Memorandum Circular No. 44-2002 on Accounting Methods to be Used by
Taxpayers for Internal Revenue Tax Purposes"[55] dated 12 April 2004, commands that where there is
conflict between the provisions of the Tax Code (NIRC), including its implementing rules and regulations,
on accounting methods and the generally accepted accounting principles, the former shall prevail. The
relevant portion of RMC 22-04 reads:
II. Provisions of the Tax Code Shall Prevail.
All returns required to be filed by the Tax Code shall be prepared always in conformity with the
provisions of the Tax Code, and the rules and regulations implementing said Tax Code. Taxability of
income and deductibility of expenses shall be determined strictly in accordance with the provisions of
the Tax Code and the rules and regulations issued implementing said Tax Code. In case of difference
between the provisions of the Tax Code and the rules and regulations implementing the Tax Code, on one
hand, and the generally accepted accounting principles (GAAP) and the generally accepted accounting
standards (GAAS), on the other hand, the provisions of the Tax Code and the rules and regulations issued
implementing said Tax Code shall prevail.(italics supplied)

RAM No. 2-95 is clear-cut on the rule on when to recognize deductions for taxpayers using the crop
method of accounting. The rule prevails over any GAAP, including the matching concept as applied in
financial or business accounting.
In sum, and considering the foregoing premises, we find no cogent reason to overturn the assailed
decision and resolution of the CTA. As the CTA decreed, Assessment Notice LTAID II IT-98-00007, dated
11 October 2002, in the amount of P6,466,065.50 for deficiency income tax should be cancelled and set
aside. The assessment is void for being issued without valid authority. Furthermore, there is no legal
justification for the disallowance of Lancaster's expenses for the purchase of tobacco in February and
March 1998.
WHEREFORE, the petition is DENIED. The assailed 30 April 2008 Decision and 24 June 2008 Resolution of
the Court of Tax Appeals En Banc are AFFIRMED. No costs.
SO ORDERED.
Carpio (Chairperson), Peralta, Mendoza, and Leonen,[*] JJ., concur.
Carpio, J., certify that J. Leonen left his vote concurring with this ponencia.
Procter & Gamble Asia Vs. Commissioner
of Internal Revenue; G.R. No. 205652;
September 6, 2017
Facts

P&G is a foreign corporation duly organized and existing under the laws of Singapore
and is maintaining a Regional Operating Headquarter in the Philippines. [4] It provides
management, marketing, technical and financial advisory, and other qualified services
to related companies as specified by its Certificate of Registration and License issued
by the Securities and Exchange Commission.[5] It is a VAT-registered taxpayer and is
covered by Bureau of Internal Revenue (BIR) Certificate of Registration No.
9RC0000071787.[6]
P&G filed its Monthly VAT Declarations and Quarterly VAT Returns on the following dates:

DATE FILED
VAT RETURN/DECLARATION DATE FILED (AMENDED)
(ORIGINAL)

January (Monthly) February 21, 2005

February (Monthly) March 18, 2005

Ending March (Quarterly) April 25, 2005 March 19, 2007

April (Monthly) May 20, 2005

May (Monthly) June 21, 2005

Ending June (Quarterly) July 26, 2005[7] March 20, 2007[8]

On March 22, 2007 and May 2, 2007, P&G filed applications and letters addressed to the BIR
Revenue District Office (RDO) No. 49, requesting the refund or issuance of tax credit certificates
(TCCs) of its input VAT attributable to its zero-rated sales covering the taxable periods of January
2005 to March 2005, and April 2005 to June 2005.[9]

On March 28, 2007, P&G filed a petition for review with the CTA seeking the refund or issuance
of TCC in the amount of P23,090,729.17 representing input VAT paid on goods or services
attributable to its zero-rated sales for the first quarter of taxable year 2005. The case was docketed
as CTA Case No. 7581.[10]

On June 8, 2007, P&G filed with the CTA another judicial claim for refund or issuance of TCC in
the amount of P19,006,753.58 representing its unutilized input VAT paid on goods and services
attributable to its zero-rated sales for the second quarter of taxable year 2005. The case was
docketed as CTA Case No. 7639.[11]

On July 30, 2007, the CTA Division granted P&G’s Motion to Consolidate CTA Case No. 7581
with 7639, inasmuch as the two cases involve the same parties and common questions of law
and/or facts.[12]

Proceedings ensued before the CTA Division. P&G presented testimonial and voluminous
documentary evidence to prove its entitlement to the amount claimed for VAT refund. The CIR,
on the other hand, submitted the case for decision based on the pleadings, as the claim for refund
was still pending before the BIR RDO No. 40.[13]

Meanwhile, on October 6, 2010, while P&G’s claim for refund or tax credit was pending before
the CTA Division, this Court promulgated Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc.[14] (Aichi). In that case, the Court held that compliance with the 120-day
period granted to the CIR, within which to act on an administrative claim for refund or credit of
unutilized input VAT, as provided under Section 112(C) of the National Internal Revenue Code of
1997 (NIRC), as amended, is mandatory and jurisdictional in filing an appeal with the CTA.

In a Decision[15] dated November 17, 2010, the CTA Division dismissed P&G’s judicial claim, for
having been prematurely filed.[16]

Citing Aichi, the CTA Division held that the CIR is granted by law a period of 120 days to act on
the administrative claim for refund.[17] Upon denial of the claim, or after the expiration of the 120-
day period without action by the CIR, only then may the taxpayer-claimant seek judicial recourse
to appeal the CIR’s action or inaction on a refund/tax credit claim, within a period of 30
days.[18] According to the CTA Division, P&G failed to observe the 120-day period granted to the
CIR.[19] Its judicial claims were prematurely filed with the CTA on March 28, 2007 (CTA Case No.
7581) and June 8, 2007 (CTA Case No. 7639), or only six (6) days and thirty-seven (37) days,
respectively, from the filing of the applications at the administrative level.[20] Thus, the CTA Division
ruled that inasmuch as P&G’s petitions were prematurely filed, it did not acquire jurisdiction over
the same.[21]

P&G moved for reconsideration but this was denied by the CTA Division in its Resolution[22] dated
March 9, 2011.

Aggrieved, P&G elevated the matter to the CTA En Banc insisting, among others, that the Court’s
ruling in Aichishould not be given a retroactive effect.[23]

On September 21, 2012, the CTA En Banc rendered the assailed Decision affirming in toto the
CTA Division’s Decision and Resolution. It agreed with the CTA Division in applying the ruling
in Aichi which warranted the dismissal of P&G’s judicial claim for refund on the ground of
prematurity.

P&G moved for reconsideration,[24] but the same was denied by the Court En Banc for lack of
merit.[25]

In the meantime, on February 12, 2013, this Court decided the consolidated cases
of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue[26] (San Roque), where the Court recognized BIR Ruling No.
DA-489-03 as an exception to the mandatory and jurisdictional nature of the 120-day waiting
period.

On March 27, 2013, P&G filed the present petition.[27]

Issue

Culled from the submissions of the parties, the singular issue for this Court’s resolution
is whether the CTA En Bancerred in dismissing P&G’s judicial claims for refund on the
ground of prematurity.
P&G avers that its judicial claims for tax refund/credit was filed with the CTA Division on March
28, 2007 and June 8, 2007, after the issuance of BIR Ruling No.DA-489-03 on December 10,
2003, but before the adoption of the Aichidoctrine on October 6, 2010. Accordingly, pursuant to
the Court’s ruling in San Roque, its judicial claims with the CTA was deemed timely filed.[28] .

P&G further contends that the CTA En Banc gravely erred in applying the Aichi doctrine
retroactively. According to P&G, the retroactive application of Aichi amounts to a denial of its
constitutional right to due process and unjust enrichment of the CIR.[29]

Lastly, P&G claims that assuming, without conceding, that its judicial claims were prematurely
filed, its failure to observe the 120-day period was not jurisdictional but violates only the rule on
exhaustion of administrative remedies, which was deemed waived when the CIR did not file a
motion to dismiss and opted to actively participate at the trial.[30]

The CIR, on the other hand, insists that the plain language of Section 112(C) of the NIRC, as
amended, demands mandatory compliance with the 120+30-day rule; and P&G cannot claim
reliance in good faith with BIR Ruling No. DA-489-03 to shield the filing of its judicial claims from
the vice of prematurity.[31]

The Court’s Ruling

The Court finds the petition meritorious.

Exception to the mandatory and jurisdictional 120+30-day periods under Section 112(C) of
the NIRC
Section 112 of the NIRC, as amended, provides for the rules on claiming refunds or tax credits of
unutilized input VAT, the pertinent portions of which read as follows:

SEC. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional input tax, to the extent that
such input tax has not been applied against output tax: x x x

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with
the Court of Tax Appeals. (Emphasis supplied)

Based on the plain language of the foregoing provision, the CIR is given 120 days within which to
grant or deny a claim for refund. Upon receipt of CIR’s decision or ruling denying the said claim,
or upon the expiration of the 120-day period without action from the CIR, the taxpayer has 30
days within which to file a petition for review with the CTA.

In Aichi, the Court ruled that compliance with the 120+30-day periods is mandatory and
jurisdictional and is fatal to the filing of a judicial claim with the CTA.

Subsequently, however, in San Roque, while the Court reiterated the mandatory and jurisdictional
nature of the 120+30-day periods, it recognized as an exception BIR Ruling No. DA-489-03,
issued prior to the promulgation of Aichi, where the BIR expressly allowed the filing of judicial
claims with the CTA even before the lapse of the 120-day period. The Court held that BIR Ruling
No. DA-489-03 furnishes a valid basis to hold the CIR in estoppel because the CIR had misled
taxpayers into filing judicial claims with the CTA even before the lapse of the 120-day period:

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through
a specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA.
Such specific ruling is applicable only to such particular taxpayer. The second exception is
where the Commissioner, through a general interpretative rule issued under Section 4 of
the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the CTA.
In these cases, the Commissioner cannot be allowed to later on question the CTA’s
assumption of jurisdiction over such claim since equitable estoppel has set in as expressly
authorized under Section 246 of the Tax Code.

xxxx

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center
of the Department of Finance. This government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its
query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc.,
the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30
day periods are mandatory and jurisdictional.[32](Emphasis supplied)

In Visayas Geothermal Power Company v. Commissioner of Internal Revenue,[33] the Court came
up with an outline summarizing the pronouncements in San Roque, to wit:

For clarity and guidance, the Court deems it proper to outline the rules laid down in San
Roque with regard to claims for refund or tax credit of unutilized creditable input VAT. They are
as follows:

1. When to file an administrative claim with the CIR:

1. General rule – Section 112(A) and Mirant,Within 2 years from the close of the
taxable quarter when the sales were made. .

2. Exception – AtlasWithin 2 years from the date of payment of the output VAT, if
the administrative claim was filed from June 8, 2007 (promulgation of Atlas) to
September 12, 2008 (promulgation of Mirant).

2. When to file a judicial claim with the CTA:

1. General rule – Section 112(D); not Section 229

1. Within 30 days from the full or partial denial of the administrative claim
by the CIR; or

2. Within 30 days from the expiration of the 120-day period provided to the
CIR to decide on the claim. This is mandatory and jurisdictional beginning
January 1, 1998 (effectivity of 1997 NIRC).

2. Exception – BIR Ruling No. DA-489-03

 The judicial claim need not await the expiration of the 120-day period, if such was filed
from December 10, 2003 (issuance of BIR Ruling No. DA-489-03) to October 6, 2010
(promulgation oi Aichi).[34] (Emphasis and underscoring supplied)

In this case, records show that P&G filed its judicial claims for refund on March 28, 2007 and June
8, 2007, respectively, or after the issuance of BIR Ruling No. DA-489-03, but before the date
when Aichi was promulgated. Thus, even though P&G filed its judicial claim without waiting for
the expiration of the 120-day mandatory period, the CTA may still take cognizance of the case
because the claim was filed within the excepted period stated in San Roque. In other words,
P&G’s judicial claims were deemed timely filed and should not have been dismissed by the CTA.

Application and validity of BIR Ruling No. DA-489-03

The CIR, however, argues that BIR Ruling No. DA-489-03 was already repealed and superseded
on November 1, 2005 by Revenue Regulation No. 16-2005 (RR 16-2005), which echoed the
mandatory and jurisdictional nature of the 120-day period under Section 112(C) of the NIRC.
Thus, P&G cannot rely, in good faith, on BIR Ruling No. DA-489-03 because its judicial claims
were filed in March and June 2007 or after RR 16-2005 took effect.[35] In other words, it is the CIR’s
position that reliance on BIR Ruling No. DA-489-03 should only be permissible from the date of
its issuance, on December 10, 2003, until October 31, 2005, or prior to the effectivity of RR 16-
2005.

The Court disagrees.

This issue was also raised by the CIR in Commissioner of Internal Revenue v. Deutsche
Knowledge Services, Pte. Ltd.,[36] where the Court reiterated that all taxpayers may rely upon BIR
Ruling No. DA-489-03, as a general interpretative rule, from the time of its issuance on December
10, 2003 until its effective reversal by the Court in Aichi.[37] The Court further held that while RR
16-2005 may have re-established the necessity of the 120-day period, taxpayers cannot be
faulted for still relying on BIR Ruling No. DA-489-03 even after the issuance of RR 16-2005
because the issue on the mandatory compliance of the 120-day period was only brought before
the Court and resolved with finality in Aichi.[38]

Accordingly, in consonance with the doctrine laid down in San Roque, the Court finds that P&G’s
judicial claims were timely filed and should be given due course and consideration by the CTA.

WHEREFORE, premises considered, the instant petition for review is hereby GRANTED. The
Decision dated September 21, 2012 and the Resolution dated January 30, 2013 of the CTA En
Banc in C.T.A. EB Case No. 742 are hereby REVERSED AND SET ASIDE. Accordingly, CTA
Case Nos. 7581 and 7639 are REINSTATED and REMANDED to the CTA Special Second
Division for the proper determination of the refundable amount due to petitioner Procter & Gamble
Asia Pte Ltd., if any.
Commissioner of Internal Revenue Vs.
Philippine Aluminum Wheels, Inc.; G.R. No.
216161; August 9, 2017
Respondent is a corporation organized and existing under Philippine laws which
engages in the manufacture, production, sale, and distribution of automotive parts and
accessories. On 16 December 2003, the Bureau of Internal Revenue (BIR) issued a
Preliminary Assessment Notice (PAN) against respondent covering deficiency taxes for
the taxable year 2001.[4] On 28 March 2004, the BIR issued a Final Assessment Notice
(FAN) against respondent in the amount of P32,100,613.42.[5] On 23 June 2004,
respondent requested for reconsideration of the FAN issued by the BIR. On 8
November 2006, the BIR issued a Final Decision on Disputed Assessment (FDDA) and
demanded full payment of the deficiency tax assessment from respondent. [6] On 12 April
2007, the FDDA was served through registered mail.
On 19 July 2007, respondent filed with the BIR an application for the abatement of its tax liabilities
under Revenue Regulations No. 13-2001 for the taxable year 2001.[7] In a letter dated 12
September 2007,[8] the BIR denied respondent’s application for tax abatement on the ground that
the FDDA was already issued by the BIR and that the FDDA had become final and executory due
to the failure of the respondent to appeal the FDDA with the CTA. The BIR contended that the
FDDA had been sent through registered mail on 12 April 2007 and that the FDDA had become
final, executory, and demandable because of the failure of the respondent to appeal the FDDA
with the CTA within thirty (30) days from receipt of the FDDA.

In a letter dated 19 September 2007,[9] respondent informed the BIR that it already paid its tax
deficiency on withholding tax amounting to P736,726.89 through the Electronic Filing and
Payment System of the BIR and that it was also in the process of availing of the Tax Amnesty
Program under Republic Act No. 9480 (RA 9480) as implemented by Revenue Memorandum
Circular No. 55-2007 to settle its deficiency tax assessment for the taxable year 2001. On 21
September 2007, respondent complied with the requirements of RA 9480 which include: the filing
of a Notice of Availment, Tax Amnesty Return and Payment Form, and remitting the tax payment.
In a letter dated 29 January 2008, the BIR denied respondent’s request and ordered respondent
to pay the deficiency tax assessment amounting to P29,108,767.63.[10]

In a second letter dated 16 July 2008, the BIR reiterated that the FDDA had become final and
executory for the failure of the respondent to appeal the FDDA with the CTA within the prescribed
period of thirty (30) days. The BIR demanded the full payment of the tax assessment and
contended that the respondent’s availment of the tax amnesty under RA 9480 had no effect on
the assessment due to the finality of the FDDA prior to respondent’s tax amnesty availment. On
1 August 2008, respondent filed a Petition for Review with the CTA assailing the letter of the BIR
dated 16 July 2008.

The Decision of the CTA First Division

On 12 November 2012, the CTA granted respondent’s Petition for Review and set aside
the assessment in view of respondent’s availment of a tax amnesty under RA 9480. The
CTA First Division held that RA 9480 covers all national internal revenue taxes for the
taxable year 2005 and prior years, with or without assessments duly issued, that have
remained unpaid as of 31 December 2005.[11] The CTA First Division ruled that
respondent complied with all the requirements of RA 9480 including the payment of the
amnesty tax and submission of all relevant documents. Having complied with all the
requirements of RA 9480, respondent is fully entitled to the immunities and privileges
granted under RA 9480.[12]
The dispositive portion of the Decision states:

WHEREFORE, premises considered, the instant Petition for Review is GRANTED. The subject
assessment in the present case against petitioner is hereby SET ASIDE solely in view of
petitioner’s availment of the Tax Amnesty Program under R.A. No. 9480; and accordingly,
petitioner is hereby DECLARED ENTITLED to the immunities and privileges provided by the Tax
Amnesty Law being a qualified tax amnesty applicant and for having complied with all the
documentary requirements set by law.

SO ORDERED.[13]

The CIR filed a Motion for Reconsideration[14] on 3 December 2012 which the CTA First Division
denied on 1 March 2013.[15]

The Decision of the CTA En Banc

On 19 May 2014, the CTA En Banc held that a qualified tax amnesty applicant who has completed
the requirements of RA 9480 shall be deemed to have fully complied with the Tax Amnesty
Program. Upon compliance with the requirements of the law, the taxpayer shall, as mandated by
law, be immune from the payment of taxes as well as appurtenant civil, criminal, or administrative
penalties under the National Internal Revenue Code. The CTA En Bancruled that the finality of a
tax assessment did not disqualify respondent from availing of a tax amnesty under RA 9480.

The dispositive portion of the Decision states:

WHEREFORE, premises considered, the Petition for Review filed by the Commissioner of Internal
Revenue is DENIED, for lack of merit. The Decision of the First Division of this Court promulgated
on November 12, 2012 in CTA Case No. 781[7], captioned Philippine Aluminum Wheels, Inc. v.
Commissioner of Internal Revenue, and the Resolution of the said Division dated March 1, 2013,
are AFFIRMED in toto.

SO ORDERED.[16]

The CIR filed a Motion for Reconsideration on 11 June 2014 which was denied on 5 January
2015.[17]

The Issue
Whether respondent is entitled to the benefits of the Tax Amnesty Program under RA
9480.
The Decision of this Court

This Court denies the petition in view of the respondent’s availment of the Tax Amnesty
Program under RA 9480.
A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes
of an absolute forgiveness or waiver by the government of its right to collect what is due it and to
give tax evaders who wish to relent a chance to start with a clean slate. A tax amnesty, much like
a tax exemption, is never favored nor presumed in law. The grant of a tax amnesty, similar to a
tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing
authority.[18]

On 24 May 2007, RA 9480, or “An Act Enhancing Revenue Administration and Collection by
Granting an. Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National
Government for Taxable Year 2005 and Prior Years,” became law.

The pertinent provisions of RA 9480 are:

Section 1. Coverage. There is hereby authorized and granted a tax amnesty which shall cover all
national internal revenue taxes for the taxable year 2005 and prior years, with or without
assessments duly issued therefor, that have remained unpaid as of December 31, 2005:
Provided, however, that the amnesty hereby authorized and granted shall not cover persons or
cases enumerated under Section 8 hereof.

xxxx

Section 6. Immunities and Privileges. Those who availed themselves of the tax amnesty under
Section 5 hereof, and have fully complied with all its conditions shall be entitled to the following
immunities and privileges:

(a) The taxpayer shall be immune from the’ payment of taxes, as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997,
as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.

x x x x (Emphasis supplied)

The Department of Finance issued DOF Department Order No. 29-07 (DO 29-07).[19] Section 6 of
DO 29-07 provides for the method for availing a tax amnesty under RA 9480, to wit:

Section 6. Method of Availment of Tax Amnesty.

1. Forms/Documents to be filed. To avail of the general tax amnesty, concerned taxpayers shall
file the following documents/requirements:

a. Notice of Availment in such forms as may be prescribed by the BIR;

b. Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005 in such forms,
as may be prescribed by the BIR;

c. Tax Amnesty Return in such forms as may be prescribed by the BIR.

2. x x x.

3. x x x.

The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty
Return shall be submitted to the RDO, which shall be received only after complete payment. The
completion of these requirements shall be deemed full compliance with the provisions of
RA 9480.

x x x x (Emphasis supplied)

In Philippine Banking Corporation v. Commissioner of Internal Revenue,[20] this Court held that the
taxpayer’s completion of the requirements under RA 9480, as implemented by DO 29-07, will
extinguish the taxpayer’s tax liability, additions and all appurtenant civil, criminal, or administrative
penalties under the National Internal Revenue Code, to wit:

Considering that the completion of these requirements shall be deemed full compliance with the
tax amnesty program, the law mandates that the taxpayer shall thereafter be immune from the
payment of taxes, and additions thereto, as well as the appurtenant civil, criminal or administrative
penalties under the NIRC of 1997, as amended, arising from the failure to pay any and all internal
revenue taxes for taxable year 2005 and prior years.[21]

Similarly, in Metropolitan Bank and Trust Company (Metrobank) v. Commissioner of Internal

Revenue,[22] this Court sustained the validity of Metrobank’s tax amnesty upon full compliance with
the requirements of RA 9480. This Court ruled: “Therefore, by virtue of the availment by
Metrobank of the Tax Amnesty Program under Republic Act No. 9480, it is already immune from
the payment of taxes, including DST on the UNISA for 1999, as well as the addition thereto.” [23]

On 19 September 2007, respondent availed of the Tax Amnesty Program under RA 9480, as
implemented by DO 29-07. Respondent submitted its Notice of Availment, Tax Amnesty Return,
Statement of Assets, Liabilities and Net Worth, and comparative financial statements for 2005
and 2006. Respondent paid the amnesty tax to the Development Bank of the Philippines,
evidenced by its Tax Payment Deposit Slip dated 21 September 2007. Respondent’s completion
of the requirements of the Tax Amnesty Program under RA 9480 is sufficient to extinguish its tax
liability under the FDDA of the BIR.
In Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue,[24] this Court ruled
that the tax liability of Asia International Auctioneers, Inc. was fully settled when it was able to
avail of the Tax Amnesty Program under RA 9480 in February 2008 while its Petition for Review
was pending before this Court. This Court declared the pending case involving the tax liability of
Asia International Auctioneers, Inc. moot since the company’s compliance with the Tax Amnesty
Program under RA 9480 extinguished the company’s outstanding deficiency taxes.

The CIR contends that respondent is disqualified to avail of the tax amnesty under RA 9480. The
CIR asserts that the finality of its assessment, particularly its FDDA is equivalent to a final and
executory judgment by the courts, falling within the exceptions to the Tax Amnesty Program under
Section 8 of RA 9480, which states:

Section 8. Exceptions. The tax amnesty provided in Section 5 hereof shall not extend to the
following persons or cases existing as of the effectivity of this Act:

(a) Withholding agents with respect to their withholding tax liabilities;

(b) Those with pending cases falling under the jurisdiction of the Presidential Commission on
Good Government;

(c) Those with pending cases involving unexplained or unlawfully acquired wealth or under the
Anti-Graft and Corrupt Practices Act;

(d) Those with pending cases filed in court involving violation of the Anti-Money Laundering Law;

(e) Those with pending criminal cases for tax evasion and other criminal offenses under Chapter
II of Title X of the National Internal Revenue Code of 1997, as amended, and the felonies of
frauds, illegal exactions and transactions, and malversation of public funds and property under
Chapters III and IV of Title VII of the Revised Penal Code; and

(f) Tax cases subject of final and executory judgment by the courts. (Emphasis supplied)

The CIR is wrong. Section 8(f) is clear: only persons with “tax cases subject of final and executory
judgment by the courts” are disqualified to avail of the Tax Amnesty Program under RA 9480.
There must be a judgment promulgated by a court and the judgment must have become final and
executory. Obviously, there is none in this case. The FDDA issued by the BIR is not a tax case
“subject to a final and executory judgment by the courts” as contemplated by Section 8(f)
of RA 9480. The determination of the tax liability of respondent has not reached finality and is still
not subject to an executory judgment by the courts as it is the issue pending before this Court. In
fact, in Metrobank, this Court held that the FDDA issued by the BIR was not a final and executory
judgment and did not prevent Metrobank from availing of the immunities and privileges granted
under RA 9480, to wit:

x x x. As argued by Metrobank, the very fact that the instant case is still subject of the present
proceedings is proof enough that it has not reached a final and executory stage as to be barred
from the tax amnesty under Republic Act No. 9480.
The assertion of the CIR that deficiency DST is not covered by the Tax Amnesty Program under
Republic Act No. 9480 is downright specious.[25]

The CIR alleges that respondent is disqualified to avail of the Tax Amnesty Program under
Revenue Memorandum Circular No. 19-2008 (RMC No. 19-2008) dated 22 February 2008 issued
by the BIR which includes “delinquent accounts or accounts receivable considered as assets by
the BIR or the Government, including self-assessed tax” as disqualifications to avail of the Tax
Amnesty Program under RA 9480. The exception of delinquent accounts or accounts receivable
by the BIR under RMC No. 19-2008 cannot amend RA 9480. As a rule, executive issuances
including implementing rules and regulations cannot amend a statute passed by Congress.

In National Tobacco Administration v. Commission on Audit,[26] this Court held that in case there
is a discrepancy between the law and a regulation issued to implement the law, the law prevails
because the rule or regulation cannot go beyond the terms and provisions of the law, to wit: “[t]he
Circular cannot extend the law or expand its coverage as the power to amend or repeal a statute
is vested with the legislature.” To give effect to the exception under RMC No. 19-2008 of
delinquent accounts or accounts receivable by the BIR, as interpreted by the BIR, would
unlawfully create a new exception for availing of the Tax Amnesty Program under RA 9480.

WHEREFORE, we DENY the petition. We AFFIRM the 19 May 2014 Decision and the 5 January
2015 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 994.
Northern Mindanao Power Corporation
vs. CIR G.R. No. 185115, 18
February 2015
FACTS: Petitioner is engaged in the production sale of electricity as an independent power
producer and sells electricity to National Power Corporation (NPC). It allegedly incurred input
value-added tax (VAT) on its domestic purchases of goods and services that were used in its
production and sale of electricity to NPC.

Petitioner filed an administrative claim for a refund on 20 June 2000 for the 3rd and the 4th
quarters of taxable year 1999, and on 25 July 2001 for taxable year 2000. Thereafter, alleging
inaction of respondent on these administrative claims, petitioner filed a Petition with the CTA on
28 September 2001.

The CTA First Division denied the Petition and the subsequent Motion for Reconsideration for
lack of merit. The Court in Division found that the term “zero-rated” was not imprinted on the
receipts or invoices presented by petitioner in violation of Section 4.108-1 of Revenue Regulations
No. 7-95. Petitioner failed to substantiate its claim for a refund and to strictly comply with the
invoicing requirements of the law and tax regulations.

On appeal to the CTA En Banc, the Petition was likewise denied. The court ruled that for every
sale of services, VAT shall be computed on the basis of gross receipts indicated on the official
receipt. Official receipts are proofs of sale of services and cannot be interchanged with sales
invoices as the latter are used for the sale of goods. Further, the requirement of issuing duly
registered VAT official receipts with the term “zero-rated” imprinted is mandatory under the law
and cannot be substituted, especially for input VAT refund purposes. Then Presiding Justice
Acosta maintained his dissent.

ISSUES:

(1.) Whether or not the CTA acquired jurisdiction over the claim for a refund of input VAT covering
the 3rd and the 4th quarters of taxable year 1999 and on 25 July 2001 covering all the quarters
of taxable year 2000.

(2) Whether or not Section 4.108-1 of Revenue Regulations (RR) No. 7-95 which expanded the
statutory requirements for the issuance of official receipts and invoices found in Section 113 of
the 1997 Tax Code by providing for the additional requirement of the imprinting of the terms “zero-
rated” is constitutional.
(3) Whether or not the company invoices are sufficient to establish the actual amount of sale of
electric power services to the National Power Corporation and therefore sufficient to substantiate
Petitioner’s claim for refund.

HELD:

(1.) No. The CTA did not acquire jurisdiction over the claim for a refund of input VAT covering the
3rd and the 4th quarters of taxable year 1999 and taxable year 2000.

Pursuant to Section 112(D) of the NIRC of 1997, CIR had 120 days from the date of submission
of complete documents in support of the application within which to decide on the administrative
claim. The burden of proving entitlement to a tax refund is on the taxpayer. Absent any evidence
to the contrary, it is presumed that in order to discharge its burden, petitioner attached to its
applications complete supporting documents necessary to prove its entitlement to a refund. Thus,
the 120-day period for the CIR to act on the administrative claim commenced on 20 June 2000
and 25 July 2001.

Both judicial claims must be disallowed.

a) Claim for a refund of input VAT covering the 3rd and the 4th quarters of taxable year 1999

Counting 120 days from 20 June 2000, the CIR had until 18 October 2000 within which
to decide on the claim of petitioner for the period covering the 3rd and the 4th quarters of
taxable year 1999. If after the expiration of that period respondent still failed to act on the
administrative claim, petitioner could elevate the matter to the court within 30 days or until
17 November 2000.

Petitioner belatedly filed its judicial claim with the CTA on 28 September 2001. Petitioner’s
claim for the 3rd and the 4th quarters of taxable year 1999 was filed 319 days after the
expiration of the 30-day period.. It already lost its right to claim a refund or credit of its
alleged excess input VAT attributable to zero-rated or effectively zero-rated sales for the
3rd and the 4th quarters of taxable year 1999 by virtue of its own failure to observe the
prescriptive periods.

b) Claim for the refund of input VAT covering all quarters of taxable year 2000

For the year 2000, records show that petitioner filed its Petition with the CTA on 28
September 2001 without waiting for the expiration of the 120-day period. Barely 64 days
had lapsed when the judicial claim was filed with the CTA. On 28 September 2001 – the
date on which petitioner filed its judicial claim for the period covering taxable year 2000 -
the 120+30 day mandatory period was already in the law and BIR Ruling No. DA-489-03
had not yet been issued. Considering this fact, petitioner did not have an excuse for not
 observing the 120+30 day period.The judicial claim was thus prematurely filed for failure
of petitioner to observe the 120-day waiting period.
(2) YES. The court consistently held as fatal the failure to print the word “zero-rated” on the VAT
invoices or official receipts in claims for a refund or credit of input VAT on zero-rated sales, even
if the claims were made prior to the effectivity of R.A. 9337. Clearly then, the present Petition must
be denied.

(3) The claim is without sufficient legal basis. Section 113 of the NIRC of 1997 provides that a
VAT invoice is necessary for every sale, barter or exchange of goods or properties, while a VAT
official receipt properly pertains to every lease of goods or properties; as well as to every sale,
barter or exchange of services.

A VAT invoice is the seller’s best proof of the sale of goods or services to the buyer, while a VAT
receipt is the buyer’s best evidence of the payment of goods or services received from the seller.
A VAT invoice and a VAT receipt should not be confused and made to refer to one and the same
thing. Certainly, neither does the law intend the two to be used alternatively.

The instant Petition is DENIED.

DOCTRINE:

It is appropriate to first determine the timeliness of judicial claim in order to determine whether the
CTA properly acquired jurisdiction. Failure of the to observe the mandatory 120-day period
pursuant to Section 112(D) of the NIRC of 1997 is fatal to its judicial claim and renders the CTA
devoid of jurisdiction over that claim since the right to appeal is a mere statutory privilege that
requires strict compliance with the conditions attached by the statute for its exercise.
14. China Banking Corporation v. CIR

G.R. No. 172509

February 4, 2015

Facts:

China Banking Corporation (“CBC”) is a universal bank duly organized under the
laws of the Philippines. It is engaged in transactions involving sales of foreign exchange
to the Central Bank of the Philippines, commonly known as SWAP Transactions. CBC
did not pay tax on the SWAP transactions for the years 1982-1986.
On 19 April 1989, CBC was assessed by the BIR for deficiency DST on the sales
of foreign bills of exchange to the Central Bank amounting to P 11,383, 165.50. CBC
protested asserting five defenses: double taxation, absence of liability, due process
violation, validity of assessment and tax exemption.
On 6 December 2001, more than 12 years after the filing of the protest, the
Commissioner of Internal Revenue (CIR) rendered a decision reiterating the deficiency
DST assessment and ordered the payment thereof plus increments within 30 days from
receipt of the Decision.
The CIR replied to the CBC’s protest only on 06 December 2001 in which it ordered
CBC to pay its tax deficiency. Thereafter, CBC filed a Petition for Review with the CTA.
The CTA denied CBC’s petition ruling that the SWAP transaction is a telegraphic
transfer subject to DST; thus, CBC is liable to pay the alleged deficiency.
On appeal, CBC raised for the first time the issue of prescription. The BIR did not
address the issue of prescription in its Comment.

Issue: Whether the right of the BIR to collect the assessed DST from CBC is barred by
prescription.

Held:

Yes, the BIR’s claim is barred by prescription. Following Sec. 319(c) of the 1977
NIRC (the Tax Code applicable at the time of assessment), assessed tax must be
collected by distraint or levy and/or court proceeding within three years from the date
when the BIR mails/releases/sends the assessment notice to the taxpayer.
In this case, the records do not show when the assessment notice was mailed,
released or sent to CBC. Nevertheless, the latest possible date that the BIR could have
released, mailed or sent the assessment notice was on the same date that CBC received
it, 19 April 1989. Assuming therefore that 19 April 1989 is the reckoning date, the BIR had
three years to collect the assessed DST. However, the records of this case show that
there was neither a warrant of distraint or levy served on CBC's properties nor a collection
case filed in court by the BIR within the three-year period.
 The attempt of the BIR to collect the tax through its Answer with a demand for CBC
to pay the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c)
of the 1977 Tax Code, as amended. The demand was made almost thirteen years from
the date from which the prescriptive period is to be reckoned. Thus, the attempt to collect
the tax was made way beyond the three-year prescriptive period.
The Court also stated that although CBC raised the issue of prescription for the
first time only during appeal, this does not negate the applicability of prescription. Citing
Sec. 1 of Rule 9 of the Rules of Court, the Court ruled that if the pleadings or evidence
on record shows that the claim is barred by prescription; the court is mandated to dismiss
the claim even if prescription was not raised as a defense.
The principle of estoppel likewise applies. As a general rule, the principle of
estoppel and waiver does not prevent the government from collecting taxes as the BIR is
not bound by the mistake or negligence of its agents. Nonetheless, the Supreme Court
enunciated that the principle is not absolute.
Relying on Republic v. Ker & Co. Ltd., the Court ruled that estoppel cannot apply in this
case as the CIR failed to raise the issue of prescription in its Comment. The 12-year delay in
collecting the assessed tax further convinced the Court that estoppel could not apply in this case
Visayas Geothermal Power Company vs
CIR G.R. No. 197525, 4 June 2014
Petitioner Visayas Geothermal Power Company (VGPC) is a special limited partnership duly organized and
existing under Philippine Laws with its principal office at Milagro, Ormoc City, Province of Leyte. It is
principally engaged in the business of power generation through geothermal energy and the sale of
generated power to the Philippine National Oil Company (PNOC), pursuant to the Energy Conversion
Agreement.

VGPC filed with the Bureau of Internal Revenue (BIR) its Original Quarterly VAT Returns for the first to
fourth quarters of taxable year 2005 on April 25, 2005, July 25, 2005, October 25, 2006, and January 20,
2006, respectively.

On December 6, 2006, it filed an administrative claim for refund for the amount of P14,160,807.95 with the
BIR District Office No. 89 of Ormoc City on the ground that it was entitled to recover excess and unutilized
input VAT payments for the four quarters of taxable year 2005, pursuant to Republic Act (R.A.) No.
9136,3 which treated sales of generated power subject to VAT to a zero percent (0%) rate starting June 26,
2001.

Nearly one month later, on January 3, 2007, while its administrative claim was pending, VGPC filed its
judicial claim via a petition for review with the CTA praying for a refund or the issuance of a tax credit
certificate in the amount of P14,160,807.95, covering the four quarters of taxable year 2005.

On December 6, 2006, VGPC filed an administrative claim for refund with the BIR Distr
ict Office. And on January 3, 2007, while the administrative claim was pending, VGPC fi
led its judicial claim via petition for review with the CTA praying for a refund or the issu
ance of a tax credit certificate.

CTA En Banc dismissed the petition on the ground that the judicial claim was premature
ly filed because according to it, 120-day has to expire first before it can be appealed.

Issue:

WON VGPC’s judicial claim for refund was prematurely filed.

Ruling:

No. The general rule is that the 120+30 day period is mandatory and jurisdictional from
the effectivity of the 1997 NIRC on January 1, 1998 up to present. As an exception, judici
al claims filed from December 10, 2003, in view of the BIR Ruling No. DA-489-
03, to October 6, 2010, when it was reversed by the Supreme Court in Aichion Case, nee
d not wait for the exhaustion of the 120-day period.
In the case at bar, VGPC filed its administrative claim with the CIR on December 6, 200
6 and later, its judicial claim with the CTA on January 3, 2007. The judicial claim was cl
early filed within the period of exception and was, therefore, not premature and should
not have been dismissed by the CTA En Banc.

Visayas Geothermal Power v. CIR

GR No. 197525 / 4 Jun 2014 / J. Mendoza

FACTS
 VGPC filed an administrative claim on 6 Dec 2006 for refund for about ₱14.2 million in unutilized
input VAT payments for the four quarters of taxable year 2005, pursuant to RA 9136 that
prescribed a 0% rate on sales of generated power.
 On 3 Jan 2007 while the admin claim was pending, VGPC filed its judicial claim via a petition for
review with the CTA for the same amount.
 CTA division granted the refund in the amount of ₱7.7 million finding that this was the only
amount duly substantiated with the required evidence. Both CIR and VGPC moved for MR (denied)
and appealed.
 CTA en banc reversed and dismissed the original petition for review for being filed prematurely. It
held that since the judicial claim was filed 28 days after the petitioner filed its admin claim,
without waiting for the expiration of the 120-day period, it was premature and thus the CTA
acquired no jurisdiction. This cited the case of CIR v. Aichi Forging Company.
 VGPC filed MR, citing Atlas Consolidated Mining v. CIR, but the CTA en banc denied saying that
Atlas had long been abandoned.

ISSUE / HELD
 W/N the filing of the judicial claim was premature. NO

RATIO
 There are actually two sub-issues on when judicial claims are premature. First, on when the two-
year period starts (applicability of Atlas which was later reversed in CIR v. Mirant Pagbilao) and
second, whether the 120-day period is mandatory and jurisdictional (applicability of Aichi vs. BIR
Ruling DA-489-03). In this case, only the second issue is applicable since the claim was clearly filed
before the two year period in either case.
 Key finding is when the judicial claim was filed. Since it was filed on 3 Jan 2007, BIR Ruling DA-489-
03 applies, and not Aichi which only applies to judicial claims made after 6 Oct 2010 or the
promulgation of Aichi. Thus, applying the said ruling, the taxpayer need not wait for the lapse of
the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.
The judicial claim therefore in this case was not premature.
 The Court however further discussed the final rules in VAT refunds cases which were summarized
in CIR v. San Roque.
a. When to file an administrative claim with the CIR:
i. General rule - Sec. 112(A) and Mirant - within 2 years from the close of the taxable
quarter when the sales were made
 ii.Exception - Atlas - within 2 years from the date of the payment of the output VAT, if
the administrative claim was filed from 8 Jun 2007 (promulgation of Atlas) to 12 Sep
2008 (promulgation of Mirant)
b. When to file a judicial claim with the CTA:
i. General rule - Sec. 112(D); not Section 229
1. Within 30 days from the full or partial denial of the administrative claim by the
CIR; or
2. Within 30 days from the expiration of the 120-day period provided to the CIR to
decide on the claim. This is mandatory and jurisdictional beginning 1 January
1998 (effectivity of 1997 NIRC)
ii. Exception - BIR Ruling No. DA-489-03 - the judicial claim need not await the expiration
of the 120-day period, if such was filed from 10 Dec 2003 (issuance of BIR Ruling No.
DA-489-03) to 6 Oct 2010 (promulgation of Aichi)
PROTECTOR'S SERVICES, INC., petitioner, vs. COURT OF APPEALS
AND COMMISSIONER OF INTERNAL REVENUE, respondents. Korte

DECISION

QUISUMBING, J.:

Assailed in this petition for review is the Decision of the Court of Appeals
[1]

dated November 28, 1994, in CA-G.R. SP No.31825. It affirmed the judgment

of the Court of Tax Appeals which had dismissed the petition for review of
assessments made by the Commissioner of Internal Revenue imposing
deficiency percentage taxes on petitioner for the years 1983, 1984 and 1985.
The dispositive portion of the CTA's decision states:

"WHEREFORE, in all the foregoing, this case is hereby

DISMISSED for lack of jurisdiction--the subject assessments
having become final and unappealable." [2]

The facts are as follows:

Petitioner Protector's Services, Inc. (PSI) is a contractor engaged in recruiting

security guards for clients. After an audit investigation conducted by the
Bureau of Internal Revenue (BIR), petitioner was assessed for deficiency
percentage taxes including surcharges, penalties and interests thereon, as
follows:

YEAR..........AMOUNT..........DEMAND LETTER NO.

1983..........P503,564.59..........18-452-83B-87-B2

1984........... 831,464.30..........18-451-84B-87-B2

1985..........P1,514,047.86.......18-450-85B-87-B2

On December 7, 1987, respondent Commissioner sent by registered mail,

demand letters for payment of the aforesaid assessments. However, petitioner
alleged that on December 10, 1987, it only received Demand Letter Nos. 18-
452-83B-87 -B2 and 18-451-84B-87 -B2 for the years 1983 and 1984,
respectively. It denied receiving any notice of deficiency percentage tax for the
year 1985.
Petitioner sent a protest letter dated January 02, 1988, to the BIR regarding
the 1983 and 1984 assessments. The petitioner claimed that its gross receipts
subject to percentage taxes should exclude the salaries of the security guards
as well as the corresponding employer's share of Social Security System
(SSS), State Insurance Fund (SIP) and Medicare contributions. Sclaw

Without formally acting on the petitioner's protest, the BIR sent a follow-up
letter dated July 12, 1988, ordering the settlement of taxes based on its
computation. Additional documentary stamp taxes of two thousand twenty-five
(P2,025.00) pesos on petitioner's capitalization for 1983 and 1984, and seven
hundred three pesos and forty-one centavos (P703.41) as deficiency
expanded withholding tax were included in the amount demanded. The total
unsettled tax amounted to two million, eight hundred fifty-one thousand, eight
hundred five pesos and sixteen centavos (P2,851,805.16).

On July 21, 1988, petitioner paid the P2,025.00 documentary stamp tax and
the P703.41 deficiency expanded withholding tax. On the following day, July
22, 1988, petitioner filed its second protest on the 1983 and 1984 percentage
taxes, and included, for the first time, its protest against the 1985 assessment.

On November 9, 1990, BIR Deputy Commissioner Eufracio Santos sent a

letter to the petitioner which denied with finality the latter's protests against the
subject assessments, stating thus:

"...[T]hat the salaries paid to the security guards form part of your
taxable gross receipts in the determination of the 3% and 4%
contractor's tax imposed under Section 191 of the Tax Code prior
to its amendment by the provision of Executive Order No.273.

Considering that the security guards are actually your employees

and not that of your clients, the salaries corresponding to the
services rendered by your employees form part of your taxable
receipts. This contention finds support in the case of Avecilla
Building Corporation versus Commissioner, et al., G.R. L-42395,
17 January 1985 and Resty Arbon Singh versus Commissioner,
CTA Case No.1901, 5 December 1970." [3]

On December 5, 1990, petitioner filed a petition for review before the CTA
contending that:
 1).....Assessments for documentary stamp tax and expanded
withholding tax are without basis since they were paid on July 22,
1988.

2).....The period for collection of the 1985 percentage tax had

prescribed, because PSI denied having received any assessment
letter for the same year. Sc lex

3).....Percentage taxes for the three quarters of 1984 were filed as

follows: 1st Qtr. -April 23, 1984; 2nd Qtr. -July 20, 1984, and; 3rd
Qtr. - October 19, 1984. The three-year prescriptive period to
collect percentage taxes for the 1st, 2nd and 3rd quarters had
prescribed because the BIR sent an assessment letter only on
December 10, 1987.

4).....The base amount for computing percentage tax was

erroneous because the BIR included in the taxable amount, the
salaries of the security guards and the employer's corresponding
remittances to SSS, SIF, and Medicare, which amounts were
earmarked for other persons, and should not form part of PSIs
receipts.

The CTA dismissed the petition on the following grounds: (1) The three-year
period of limitation for assessment of taxes in 1984 commenced from the date
of filing the final return on January 20, 1985, hence assessment made on
December 10, 1987, was within said period. (2) Petitioner could not deny
receipt of the 1985 assessment on the same date, December 10, 1987, for as
supported by testimony of the BIR personnel, all the assessment letters for
the years 1983, 1984, and 1985 were included in one envelope and mailed
together. (3) Petitioner's protest letter dated January 2, 1988, was filed on
January 12, 1988, or thirty-three days from December 10, 1987, hence, the
request for reinvestigation was filed out of time.

Petitioner appealed to the Court of Appeals, which affirmed the decision of the
CTA. Hence, the present petition, wherein petitioner raises the following
issues:

"I. WHETHER THE COURT OF TAX APPEALS HAS

JURISDICTION TO ACT ON THE PETITION FOR REVIEW
FILED BEFORE IT.
 II. WHETHER THE ASSESSMENTS AGAINST THE
PETITIONER FOR DEFICIENCY PERCENTAGE TAX FOR
TAXABLE YEARS 1983 AND 1984 WERE MADE AFTER THE
LAPSE OF THE PRESCRIPTIVE PERIOD.

III. WHETHER THE PERIOD FOR THE COLLECTION OF

TAXES FOR TAXABLE YEARS 1983,1984, AND 1985 HAS
ALREADY PRESCRIBED.

IV. WHETHER THE ASSESSMENTS ARE CORRECT." [4]

As to the first issue, petitioner maintains that the assessments only became
final on November 9, 1990, when the CIR denied the request for
reconsideration. Consequently, the CTA had jurisdiction over the appeal filed
by the petitioner on December 5, 1990. Furthermore, the CTA resolved that
the assessments became final after thirty days from receipt of demand letters
by the petitioner, without the latter interposing a reconsideration. x law

The pertinent provision of the National Internal Revenue Code of 1977 (NIRC
1977), concerning the period within which to file a protest before the CIR,
reads:

"Section 270. Protesting of assessment. --When the

Commissioner of Internal Revenue or his duly authorized
representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings. Within a period to be
prescribed by implementing regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond,
the Commissioner shall issue an assessment based on his
findings.

Such assessment may be protested administratively by filing a

request for reconsideration or reinvestigation in such form and
manner as may be prescribed by the implementing regulations
within thirty (30) days from receipt of the assessment; otherwise,
the assessment shall become final, and unappealable.

If the protest is denied in whole or in part, the individual,

association or corporation adversely affected by the decision on
the protest may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision; otherwise, the decision
shall become final, executory and demandable."
We note that indeed on December 10, 1987, petitioner received the BIR's
assessment notices. On January 12, 1988, petitioner protested the 1983 and
1984 assessments and requested for a reinvestigation. From December 10,
1987 to January 12, 1988, thirty-three days had lapsed. Thereafter petitioner
may no longer dispute the correctness of the assessments. Hence, in our
view, the CTA correctly dismissed the appeal for lack of jurisdiction.

On the second issue, petitioner argues that the government's right to assess
and collect the 1983, 1984 and 1985 taxes had already prescribed. Relying on
Batas Parnbansa (BP) Blg. 700, which reduced the period of limitation for
assessment and collection of internal revenue taxes from five to three years,
petitioner asserts that the government was barred from reviewing the 1983 tax
starting December 10, 1987, the expiry date of the three-year limit. Petitioner
insists that the reckoning period of prescription should start from the date
when the quarterly percentage taxes were paid and not when the Final Annual
Percentage Tax Return for the year was filed. Moreover, he denies having
received the 1985 tax assessment.

Petitioner's contentions lack merit. Sections one and three of BP 700, "An Act
Amending Sections 318 and 319 of the National Internal Revenue Code,
which reduced the period of limitation for assessment and collection of internal
revenue taxes from five to three years," provides: Sc

"Sec. 1, Section 318 of the National Internal Revenue Code, as

amended, is hereby amended to read as follows:

Sec. 318. Period of limitation upon assessment and

collection. --Except as provided in the succeeding
sections, internal revenue taxes shall be assessed
within three years after the last day prescribed by law
for the filing of the return, and no proceeding in court
without assessment for the collection of such taxes
shall be begun after the expiration of such
period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three-year
period shall be counted from the day the return was
filed. For the purposes of this section, a return filed
before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.

xxx
 "Sec. 3. The period of limitation herein prescribed shall apply to
assessments of internal revenue taxes beginning taxable year
1984."

B.P. 700 was approved on April 5, 1984. The three-year prescriptive period for
assessment and collection of revenue taxes applied to taxes paid beginning
1984. Clearly, the tax assessment made on December 10, 1987, for the year
1983 was still covered by the five-year statutory prescriptive period. This rule
was emphasized in Revenue Memorandum Circular (RMC) No. 33-84,
published on November 12, 1984, which defined the salient features of the
application of BP 700, to wit:

"B. Effectivity of Prescriptive Periods of Assessment and

Collection

1......Assessment made on or after April 5, 1984 (date, of approval

of BP 700) will still be governed by the original five-year period if
the taxes assessed thereby cover taxable years prior to January
1, 1984. (emphasis supplied) Scmis

Corollarily, assessments made before April 5, 1984 shall still be

governed by the original five-year period.

However, assessments made on or April 5, 1984 covering taxable

years beginning January 1, 1984 shall be under the new three-
year period."

Should the three-year limitation be reckoned at the time of the quarterly

payment of contractor's tax or at the due date of the final annual tax?

Section 2 of Revenue Regulation No.6-81, states:

"Sec. 2. Percentage tax. --In general, unless otherwise specifically

provided in the Tax Code, every person conducting business on
which a percentage tax is imposed under Chapter II Title V of the
Tax Code must render quarterly declaration on cumulative basis
of the amount of his sales, receipts or earnings or gross value of
output actually removed from the factory or near warehouse,
compute and pay the tax due thereon.

(a) Quarterly Percentage Return.--

 For each of the first three quarters of the
taxable year, the tax so computed shall
be decreased by the amount of tax
previously paid and by the sum of the tax
credits allowed under this Title for the
preceding current quarters. The tax due
shall be paid not later than twenty (20)
days following the close of each of the
first three quarters of the taxable year.

(b) Final Annual Percentage Tax Return --

On or before the twentieth day of the

second month following the close of the
taxable year, a final percentage tax return
shall be filed under BIR Form No. __
covering the entire taxable year. If the
sum of the total quarterly percentage tax
payments made for the first three quarters
and total tax credit allowable for the
taxable year are not equal to the total tax
due on the entire gross sales, receipts or
earnings or gross value of the output for
that taxable year, the taxpayer shall
either:

(1) Pay the tax still due; or Mis sc

(2) Credit to the extent allowable under

this Title, the amount of excess tax credits
shown in the final adjustment return
against the quarterly percentage tax
liabilities for the succeeding taxable
quarters."

Only recently in G.R. No.115712, Commission of Internal Revenue vs. Court

of Appeals, February 25, 1999, we held, that the three-year prescriptive period
of tax assessment of contractors tax should be computed at the time of the
filing of the "final annual percentage tax return," when it can be finally
[5]

ascertained if the taxpayer still has an unpaid tax, and not from the tentative
quarterly payments.
Turning now to petitioner's denial that he received the 1985 assessment, we
agree with the factual findings of the CTA that the assessment letter may be
presumed to have been received by petitioner. The CTA found as follows: Mis
spped

"The 1985 assessment which petitioner denied as having been

received was negated when the respondent introduced
documentary evidence showing that it was mailed by registered
mail. It was further buttressed by the testimony of witness Mr.
Arnold C. Larroza, Chief Administrative Branch Mailing Section,
Rev. Region No. 4B-1, Quezon City that the 1983, 1984 and 1985
assessments were placed in one envelope when it was mailed by
registered mail. Presumably, it was received in the regular course
of the mail. ... The facts to be proved to raise this presumption are
(a) that the letter was properly addressed with postage prepaid;
and (b) that it was mailed. Once these facts are proved, the
presumption is that the letter was received by the addressee as
soon as it could have been transmitted to him in the ordinary
course of the mails. Such being the case, this Court cannot be
made to believe that the 1985 assessment which incidentally has
a substantially greater amount involved, was not received by the
petitioner. Hence, the same assessment is also considered final
and unappealable for failure of the petitioner to protest the same
within the reglementary period provided by law." [6]

In reviewing administrative decisions, the reviewing court cannot re-examine

the factual basis and sufficiency of the evidence. The findings of fact must be
[7]

respected, so long as they are supported by substantial evidence. [8]

As a subsidiary defense, petitioner interposes the third issue claiming that

since the CIR failed, until now, to commence the collection of the 1983, 1984,
and 1985 deficiency tax, the right to collect had, likewise, prescribed.
Petitioner urges us to consider that for the government's failure to institute
collection remedies either by judicial action or by distraint and levy, the right to
collect the same has prescribed pursuant to Section 219 of the NIRC. Note,
however, that Section 271 of the 1986 Tax Code provides for the suspension
of running of the statute of limitation of tax collection, as follows: Spped

"Sec. 271. Suspension of running of statute. -- The running of the

statute of limitations provided in Sections 268 and 269 on the
making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency,
 shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for
sixty days thereafter; when the taxpayer request for a
reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or
collected: Provided, That, if the taxpayer informs the
Commissioner of any change in address, the running of the
statute of limitation will not be suspended; when the warrant of
distraint and levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient
discretion, and no property could be located; and when the
taxpayer is out of the Philippines." (Emphasis supplied.)

In the instant case, PSI filed a petition before the CTA to prevent the collection
of the assessed deficiency tax. When the CTA dismissed the case, petitioner
elevated the case before us, hoping for a review in its favor. The actions taken
by the petitioner before the CTA and now before us, suspended the running of
the statute of limitation. In the old case of Republic of the Philippines vs. Ker
and Company, Ltd., we held:
[9]

"Under Section 333 (renumbered to 271 during the instant case)

of the Tax Code the running of the prescriptive period to collect
deficiency taxes shall be suspended for the period during which
the Commissioner of Internal Revenue is prohibited from
beginning a distraint and levy or instituting a proceeding in court,
and for sixty days thereafter. In the case at bar, the pendency of
the taxpayer's appeal in the Court of Tax Appeals and in the
Supreme Court had the effect of temporarily staying the hands of
the said Commissioner. If the taxpayer's stand that the pendency
of the appeal did not stop the running of the period because the
Court of Tax Appeals did not have jurisdiction over the case of
taxes is upheld, taxpayers would be encouraged to delay the
payment of taxes in the hope of ultimately avoiding the same.
Under the circumstances, the running of the prescriptive period
was suspended." Jo spped
[10]

Finally, petitioner contends that the assessments made by the respondent

CIR were erroneous because they included in the gross receipts subject to the
contractor's tax the salaries of the security guards and the employer's share in
the SSS, SIF and Medicare. Petitioner claims that it did not benefit from those
amounts earmarked for other persons or institutions, hence, they must not be
taxable.

Contractors tax on gross receipts imposed on business agents including

private detective watchman agencies, was a tax on the sale of services or
[11]

labor, imposed on the exercise of a privilege. The term "gross receipts"

[12]

means all amounts received by the prime or principal contractor as the total
price, undiminished by the amount paid to the subcontractor under a
subcontract arrangement. Hence, gross receipts could not be diminished by
[13]

employer's SSS, SIF and Medicare contributions. Furthermore, it has been

[14]

consistently ruled by the BIR that the salaries paid to security guards should
form part of the gross receipts, subject to tax, to wit:

"...This Office has consistently ruled that salaries of security

guards form part of the taxable gross receipts of a security agency
for purposes of the 4% [formerly 3%] contractors tax under
Section 205 of the Tax Code, as amended. The reason is that the
salaries of the security guards are actually the liability of the
agency and that the guards are considered their employees;
hence, for percentage tax purposes, the salaries of the security
guards are includible in its gross receipts. (BIR Ruling No.271-81
citing BIR Ruling No. 69-002)" [15]

These rulings were made by the CIR in the exercise of his power to "make
judgments or opinions in connection with the implementation of the provisions
of the internal revenue code." The opinions and rulings of officials of the
government called upon to execute or implement administrative laws,
command respect and weight. We see no compelling reason in this case to
[16]

rule otherwise. Spped jo

WHEREFORE, the assailed decision of the Court of Appeals, in CA- G.R. SP

31825, is AFFIRMED. Costs against petitioner.

SO ORDERED.
Lascona Land Co. Inc. v. Commissioner of Internal Revenue, G.R. No.
171251, 05 March 2012

24NOV
[PERALTA, J.]

FACTS

The Commissioner of Internal Revenue (CIR) issued an assessment against Lascona Land Co., Inc.
(Lascona) informing the latter of its alleged deficiency income tax for the year 1993 in the amount
of P753,266.56. Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by
Norberto R. Odulio, Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue
Region No. 8, Makati City. On April 12, 1999, Lascona appealed the decision before the CTA. Lascona
alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within thirty (30)
days from the lapse of the 180-day period rendered the assessment final and executory. The CIR,
however, maintained that Lascona’s failure to timely file an appeal with the CTA after the lapse of the
180-day reglementary period provided under Section 228 of the National Internal Revenue Code (NIRC)
resulted to the finality of the assessment.

ISSUE

Whether the subject assessment has become final, executory and demandable due to the failure of
petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred
Eighty (180)-day period pursuant to Section 228 of the NIRC.

HELD

NO.

[T]he Court has held that in case the Commissioner failed to act on the disputed assessment within the
180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for
review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2)
await the final decision of the Commissioner on the disputed assessments and appeal such final decision
to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. These options are
mutually exclusive and resort to one bars the application of the other.

Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it
did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day
prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to
decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final
decision of the CIR on the protested assessment. More so, because the law and jurisprudence have
always contemplated a scenario where the CIR will decide on the protested assessment.
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
COURT OF TAX APPEALS and AYALA LAND, INC., Respondents.

RESOLUTION

REYES, J.:

Subject of this petition for certiorari under Rule 65 of the Rules of Court is the Resolution1 dated
October 30, 2009 of the Court of Tax Appeals (CTA) en bane in CTA EB No. 402, which dismissed
herein petitioner Commissioner of Internal Revenue's (CIR) petition for relief from judgment under
Rule 38 of the Rules of Court.

The factual antecedents that led to the filing of this petition are as follows: In 2005, private
respondent Ayala Land, Inc. (ALI) filed with the CTA a petition for review2 to question the CIR’s
assessment against it for deficiency value-added tax (VAT) for the calendar year 2003. Before the
tax court, the CIR and ALI filed their Joint Stipulation of Facts and Issues, which was cited in the
present petition to read in part:

Petitioner (herein private respondent) is primarily engaged in the sale and/or lease of real properties
and, among others, likewise owns and operates theatres or cinemas.

Petitioner received respondent’s (herein petitioner) Final Assessment Notice (hereinafter referred to
as the 2003 FAN) dated 29 October 2004 whereby respondent was assessing petitioner alleged
deficiency 10% value added tax (VAT) on its alleged income from cinema operations for the taxable
year 2003 in the aggregate amount of One Hundred Three Million Three Hundred Forty-Six
Thousand Six Hundred Ninety-One and 40/100 Pesos (₱ 103,346,691.40) inclusive of 20% interest.

On 10 December 2004, petitioner filed its protest with the office of respondent contesting the factual
and legal bases of the VAT assessment.

On 28 April 2005, petitioner received respondent’s 25 April 2005 Decision denying petitioner’s
protest, with a notation that the same constitutes respondent’s Final Decision on the matter.

Petitioner received on 23 November 2004, respondent’s 19 November 2004 Letter of Authority No.
0002949 for the examination of ALL INTERNAL REVENUE TAXES of petitioner from 1 January
2003 to 31 December 2003.

In order to protect its right, petitioner filed the Petition for Review pursuant to Section 228 of the Tax
Code.3

Proceedings ensued. On April 11, 2008, the CTA Second Division rendered its Decision granting
ALI’s petition for review. The assessment against ALI for deficiency VAT in the amount of ₱
103,346,691.40 for the calendar year 2003 was ordered cancelled and set aside. The CIR’s motion
for reconsideration was denied, prompting him to file an appeal to the CTA en banc.

On February 12, 2009, the CTA en banc rendered its Decision affirming the decision of the CTA
Second Division. Feeling aggrieved, the CIR filed a motion for reconsideration, but this was denied
by the CTA en banc in its Resolution dated March 25, 2009.
The CIR claims that neither he nor his statutory counsel, the Office of the Solicitor General (OSG),
received a copy of the CTA en banc’s resolution denying his motion for reconsideration. It then came
as a surprise to him when he received on June 17, 2009 a copy of the CTA en banc’s Resolution
dated June 10, 2009 which provided that the CTA Decision dated February 12, 2009 had become
final and executory. The CIR then filed on July 2, 2009 a Manifestation with the Motion to
Reconsider Resolution Ordering Entry of Judgment,4 questioning the CTA’s entry of judgment and
seeking the following reliefs: (1) for the CTA to withdraw its resolution ordering the issuance of entry
of judgment; (2) for the CTA to resolve the CIR’s motion for reconsideration filed on March 4, 2009;
and (3) should there be an existing resolution of the motion for reconsideration, for the CTA to serve
a copy thereof upon the CIR and his counsel. The petitioner explained in his manifestation:

On 17 June 2009, he received Resolution dated 10 June 2009 holding that in the absence of an
appeal, the Honorable Court’s Decision dated 12 February 2009 has become final and executory.

Thus, the Honorable Court ordered the issuance of an Entry of Judgment in this case.

Respondent respectfully manifests that on 4 March 2009, he filed a Motion for Reconsideration of
the Honorable Court’s Decision dated 12 February 2009, the same decision which the Honorable
Court has now deemed to be final and executory.

Further, a check with his records reveals that there is no Resolution which has been issued by the
Honorable Court denying his Motion for Reconsideration. To double check, on three (3) occasions
he has inquired from his counsel the Office of the Solicitor General, particularly State Solicitor
Bernardo C. Villar, on whether he has received any Resolution on the Motion for Reconsideration.
Respondent was informed that there was none.

Finally, he checked with the Honorable Court and was informed that there is a Resolution dated 25
March 2009. In short, while petitioner and his counsel were of the mind that the Motion for
Reconsideration still had to be resolved, it appears that it already was.

However, it is respectfully manifested that petitioner and his counsel have not received the said
Resolution and thus, such failure has prevented petitioner from filing the necessary Petition for
Review before the Honorable Supreme Court. Such petition would have barred the Decision dated
12 February 2009 from attaining finality and eventual entry in the Book of Judgements.5 (Emphasis
ours)

On July 29, 2009, the CTA en banc issued its Resolution denying the motion. It reasoned that per its
records, the CIR and OSG had received on March 27, 2009 and March 30, 2009, respectively, a
copy of the resolution denying the motion for reconsideration.6 The CIR received its copy of said
Resolution dated July 29, 2009 on August 3, 2009.

The CIR then filed on October 2, 2009 with the CTA en banc a petition for relief7 asking that the entry
of judgment in the case be recalled, and for the CIR and OSG to be served with copies of the
Resolution dated March 25, 2009. To show the timeliness of the petition for relief, the CIR claimed
that he knew of the Resolution dated March 25, 2009 only on August 3, 2009, when he received a
copy of the Resolution dated July 29, 2009. He then claimed that the sixty (60)-day period for the
filing of the petition for relief should be reckoned from August 3, 2009, giving him until October 2,
2009 to file it. Further, CIR’s counsel Atty. Felix Paul R. Velasco III (Atty. Velasco) tried to explain
the CIR’s and OSG’s alleged failure to receive the CTA’s Resolution dated March 25, 2009,
notwithstanding the CTA’s records showing the contrary, by alleging in his Affidavit of Merit8 attached
to the petition for relief that:
14. I noted that, as stated by the Honorable CTA in its 29 July 2009 Resolution, there were rubber
stamps of both petitioner and the OSG signifying receipt of the resolution. But given the fact that
both petitioner and the OSG did not have copies of this Resolution, the only logical explanation is
that the front notice page was indeed correct and stamped by both offices but the received enclosed
order of the Honorable Court probably contained a different one. This error has happened to
petitioner in other cases but these were subsequently and timely noticed and no detrimental effects
occurred.9

On October 30, 2009, the CTA en banc dismissed the petition for relief for having been filed out
time, via the assailed resolution which reads in part:

The Supreme Court has ruled that "a party filing a petition for relief from judgment must strictly
comply with two reglementary periods; first, the petition must be filed within sixty (60) days from
knowledge of the judgment, order or other proceeding to be set aside; and second, within a fixed
period of six (6) months from entry of such judgment, order or other proceeding. Strict compliance
with these periods is required because a petition for relief from judgment is a final act of liberality on
the part of the State, which remedy cannot be allowed to erode any further the fundamental principle
that a judgment, order or proceeding must, at some definite time, attain finality in order to put at last
an end to litigation."

xxxx

In this case, petitioner seeks relief from judgment of the Court En Banc’s Resolution dated March 25,
2009. Records show that petitioner learned of the Resolution dated March 25, 2009 when he
received on June 17, 2009, the Resolution of the Court En Banc dated June 10, 2009 ordering the
Entry of Judgment. This was in fact stated in petitioner’s "Manifestation with Motion to Reconsider
Resolution Ordering Entry of Judgment" which petitioner filed on July 2, 2009. Hence, the 60 days
should be counted from June 17, 2009 and the 60th day fell on August 16, 2009 which was a
Sunday. Hence, the last day for the filing of the petition for relief was on August 17, 2009. Even if the
60-day period is counted from petitioner’s receipt of the Entry of Judgment on July 1, 2009, with the
60th day falling on August 30, 2009, the petition for relief filed on October 2, 2009 will still be filed
beyond the 60-day period.10 (Emphasis ours)

Without filing a motion for reconsideration with the CTA en banc, the CIR filed the present petition for
certiorari. The CIR argues that his 60-day period under Rule 38 should have been counted from
August 3, 2009, when he received a copy of the Resolution dated July 29, 2009 and claimed to have
first learned about the Resolution dated March 25, 2009 denying his motion for reconsideration.11

The issue then for this Court’s resolution is: Whether or not the CTA committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ruling that the petition for relief of the CIR
was filed beyond the 60-day reglementary period under Rule 38.

At the outset, this Court holds that a dismissal of the petition is warranted in view of the petitioner’s
failure to file before the CTA en banc a motion for reconsideration of the assailed resolution. The
settled rule is that a motion for reconsideration is a condition sine qua non for the filing of a petition
for certiorari. Its purpose is to grant an opportunity for the court to correct any actual or perceived
error attributed to it by the re-examination of the legal and factual circumstances of the case. The
rationale of the rule rests upon the presumption that the court or administrative body which issued
the assailed order or resolution may amend the same, if given the chance to correct its mistake or
error. The "plain speedy, and adequate remedy" referred to in Section 1, Rule 65 of the Rules of
Court is a motion for reconsideration of the questioned order or resolution.12 While the rule is not
absolute and admits of settled exceptions, none of the exceptions attend the present petition.
Even if we set aside this procedural infirmity, the petition is dismissible. In resolving the substantive
issue, it is crucial to determine the date when the petitioner learned of the CTA en banc’s Resolution
dated March 25, 2009, as Section 3, Rule 38 of the Rules of Court provides:

Sec. 3. Time for filing petition; contents and verification. – A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns
of the judgment, final order, or other proceeding to be set aside, and not more than six (6) months
after such judgment or final order was entered, or such proceeding was taken; and must be
accompanied with affidavits showing the fraud, accident, mistake, or excusable negligence relied
upon, and the facts constituting the petitioner’s good and substantial cause of action or defense, as
the case may be. (Emphasis ours)

By the CIR’s own evidence and admissions, particularly in the narration of facts in the petition for
relief, the OSG’s letter and the affidavit of merit attached thereto, it is evident that both the CIR and
the OSG had known of the CTA’s Resolution dated March 25, 2009 long before August 3,

2009. Granting that we give credence to the CIR’s argument that he could not have known of the
Resolution dated March 25, 2009 by his receipt on June 17, 2009 of the Resolution dated June 10,
2009, the CIR’s petition for relief was still filed out of time.

The CIR’s claim that it was only on August 3, 2009 that he learned of the CTA’s denial of his motion
for reconsideration is belied by records showing that as of June 22, 2009, he already knew of such
fact. The information was relayed by the CTA to the CIR, when the latter inquired from the court
about the status of the case and the court’s action on his motion for reconsideration. It was precisely
because of such knowledge that he filed on July 2, 2009 the manifestation and motion pertaining to
the CTA’s order of entry of judgment. Pertinent portions of his petition for relief read:

On 17 June 2009, he received a Resolution of the Honorable Court dated 10 June 2009 ordering the
issuance of the Entry of Judgment in the present case, x x x:

xxxx

Petitioner’s handling counsel was surprised that the above emphasized decision dated 12 February
2009 had become final considering that he had filed a timely Motion for Reconsideration on 4 March
2009.

Investigating further, he called the Honorable Court and was informed that his Motion for
Reconsideration filed by registered mail on 4 March 2009 was received by the Honorable Court on
11 March 2009. He was also informed that the last document on file there was a Resolution dated 25
March 2009. He then searched his records and found no such Resolution. Petitioner then tried to
confirm the same from petitioner’s official counsel, the Office of the Solicitor General (OSG) through
the assigned Solicitor, Atty. Bernardo C. Villar. He was then informed that, same as handling
counsel, the latter was also waiting for the resolution of the Motion for Reconsideration filed on 4
March 2009 and likewise, did not receive any copy of any resolution for that matter. The OSG then
formalized this information through a letter dated 24 June 2009. x x x.13 (Emphasis ours)

In the letter14 dated June 24, 2009 attached to the petition for relief as Annex "A", State Solicitor
Bernardo C. Villar mentioned that on June 22, 2009, he and Atty. Velasco had discussed the CTA’s
prior issuance of a resolution denying their motion for reconsideration, thus:
This pertains to the CTA Notice of Resolution dated June 10, 2009 (directing entry of judgment), a
copy of which was received by the OSG on June 17, 2009, and further to our telephone discussion
on Monday, June 22, 2009.

As we have discussed, the OSG has not previously received any resolution on the motion for
reconsideration which you filed with the CTA. However, you pointed out that CTA records tend to
show that there had been such a resolution and that BIR was already notified of the same sometime
in March 2009.15 (Emphasis ours)

The CIR then can no longer validly dispute that he had known of the CTA’s Resolution dated March
25, 2009 on June 22, 2009. Even as we reckon the 60-day period under Section 3, Rule 38 from
said date, the petitioner only had until August 21, 2009 within which to file a petition for relief. Since
August 21, 2009, a Friday, was a non-working holiday, the petitioner should have filed the petition at
the latest on August 24, 2009. The CIR’s filing with the CTA of the petition for relief on October 2,
2009 then did not conform to the 60-day requirement.

Significantly, the OSG also opined, and had so advised the CIR, that the petition for relief was
indeed filed out of time. Attached to the petitioner’s Compliance16 with this Court’s Resolution17 dated
May 30, 2011 is the OSG’s letter18 dated September 22, 2009, addressed to the BIR and which
reads:

We regret to inform you that we cannot be of help to you in filing a petition for relief since you are the
ones on record representing the BIR before the Court of Tax Appeals. As you well know, our
participation in these matters are limited to filing an appeal with the Supreme Court in due time. This
is precisely what we meant in our previous letters as the kind of assistance that we can provide you.

Furthermore, as far as we are concerned, there is doubt in the propriety of filing a petition for relief at
this time. Please note that from your receipt on June 17, 2009 of the entry of judgment, you filed a
"Manifestation and Motion to Reconsider Resolution Ordering Entry of Judgment" dated July 1, 2009
instead of a petition for relief. In the meantime, the 60 days period (from actual knowledge) under
Section 3, Rule 38 within which to file the edition for relief continued to run and has expired
already.19 (Emphasis ours)

Given the foregoing, this Court finds no cogent reason to grant petitioner's plea for the issuance of a
writ of certiorari. An act of a court or tribunal may only be considered as committed in grave abuse of
discretion when the same is performed in a capricious or whimsical exercise of judgment, which is
equivalent to lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount
to an evasion of positive duty or to a vi1iual refusal to perform a duty enjoined by law or to act at all
in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by
reason of passion or personal hostility.20 There was no such grave abuse of discretion in this case
because the CIR's petition for relief was indeed filed out of time.

WHEREFORE, premises considered, the petition is DISMISSED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BANK OF
THE PHILIPPINE ISLANDS, as liquidator of PARAMOUNT
ACCEPTANCE CORPORATION, respondent.

DECISION
CORONA, J.:

Respondent Bank of the Philippine Islands (BPI) is the liquidator of

Paramount Acceptance Corporation (PAC), a financing corporation which was
dissolved on July 17, 1989 pursuant to the January 30, 1986 resolution of its
Board of Directors and stockholders, shortening its corporate life to March 31,
1987.
After the dissolution of the PAC, respondent BPI learned from the
newspapers that petitioner Commissioner of Internal Revenue (CIR) filed
certain criminal cases against Horacio V. Poblador and Ramon A. Albert, former
president and treasurer of PAC, respectively, for willful failure to pay the
corporations final deficiency tax assessments for the years 1981 and 1982.
According to the petitioner, PAC was liable for a total amount of P411,382.11
in deficiency taxes, computed as follows:

1981
Deficiency Income Tax P166,923.00
Deficiency Expanded
Withholding Tax 3,727.01
Deficiency Documentary
Stamp Tax 44,300.00
__________
TOTAL P214,950.01

1982
Deficiency Income Tax P150,707.20
Deficiency Percentage Tax 35,887.91
Deficiency Expanded
Withholding Tax 9,836.99
___________
TOTAL P196,432.10 [1]

Respondent wrote to the petitioner, claiming that it was not aware of any
assessment regarding any tax deficiency owed by PAC, but that it was willing
to compromise and pay the deficiency tax. At the same time, respondent asked
for the withdrawal of the criminal cases against Poblador and Albert. The parties
agreed to settle for not less than 30% of the basic income and documentary
stamps taxes and 100% of the basic expanded withholding tax due.
Respondent paid to the petitioner a total amount of P119,815.13, broken down
as follows:

1981
Deficiency Income Tax P 31,298.10
Deficiency Expanded
Withholding Tax 1,625.01
Deficiency Documentary
Stamp Tax 44,000.00
__________
TOTAL P 76,923.11

1982
Deficiency Income Tax P 28,257.60
Deficiency Percentage Tax 4,797.43
Deficiency Expanded
Withholding Tax 9,836.99
___________
TOTAL P 42,892.02 [2]

However, in spite of the payment, petitioner continued to prosecute the

criminal cases against Poblador and Albert: Criminal Cases Nos. 91-5800, 91-
5801 and 91-5802, involving the 1981 assessments, before the Regional Trial
Court of Makati, Branch 150; and, Criminal Case No. 91-4007 involving the
1982 percentage tax deficiency, pending in the Regional Trial Court of Makati,
Branch 143.
Respondent, in its August 18, 1992 letter to petitioner, pointed out that the
assessments were not sent to the proper address and asked for the refund of
the P119,815.13 it paid under the compromise agreement since the criminal
cases against Poblador and Albert were not dropped as agreed upon. Petitioner
did not answer the letter and continued to prosecute the said cases.
At the trial of Criminal Case Nos. 91-5800, 5801 and 5802, the following
facts were established:

(a) that Paramount filed its Annual Income Tax Return for 1985 on April 2,
1986, in which it disclosed in the space provided for in the Return, that
its current address was 8th Floor, FCC Bldg., Paseo de Roxas, Makati,
Metro Manila, while its Previous Address (if different from current year)
 was Ground Flr., DCG Building cor. De la Rosa and Legaspi Sts.
Makati, Metro Manila;

(b) that Paramount filed its Annual Income Tax Return for the three months of
1986, i.e., up to March 31, 1986, on April 30, 1986 and indicated in the
proper space provided for in the return that its current address was BPI
Building, Ayala Avenue, Makati, Metro Manila while its Previous
address (if different from current year) was 8th Floor, FCC Building,
Paseo de Roxas, Makati, M.M.

xxx xxx xxx

(e) that on July 17, 1987 the SEC issued to Paramount the Certificate of Filing
of Amended Articles of Incorporation shortening the term of existence
and thereby dissolving the corporation;

(f) that after issuing such Certificate, the SEC sent a letter dated July 14, 1987
to the respondent, informing him that pursuant to Executive Order No.
1026 which requires a tax clearance before a corporation may be
dissolved, the SEC had dissolved Paramount as of March 31, 1986 in
view of the tax clearance certificate which the respondent had issued on
November 11, 1986. The same letter further informed respondent that
[t]he principal office of the corporation was located at 8th Flr., BPI-FB
Bldg., 8753 Paseo de Roxas, Makati, MM;

(g) that contrary to the testimony of prosecution witness Rolando Bumbay of

the respondents Collection Enforcement Division that he just could not
locate Paramount, he looked everywhere except the Makati BIR Office,
where Paramount had been filing its income tax returns, and the
Litigation Division of the BIR which would have informed him that
instead of disappearing and hiding from the BIR, Paramount even sued
the respondent in the Court of Tax Appeals for the refund of excess
creditable income taxes paid in 1986, docketed as CTA Case No. 4257.
(Citations omitted)[3]

In an order dated June 22, 1993, Criminal Case Nos. 91-5800 to 5802 were
dismissed by the trial court, on motion of the BIR Special Prosecutor. The
motion to dismiss was anchored on the fact that the assessments made by the
BIR on the tax deficiencies of PAC/accused Poblador and Albert for the year
1981 have already been paid and amicably settled, evidenced by the Letter of
Deputy Commissioner Eufracio D. Santos to Atty. Sabino Padilla, Jr. dated June
6, 1991. Strangely, however, petitioner did not move for the dismissal of
[4]
Criminal Case No. 91-4007 involving the 1982 corporate percentage tax
deficiency.
On November 15, 1993, petitioner finally replied to respondents August 18,
1992 letter, refusing to grant a refund and denying that a compromise
settlement was reached by them. Petitioner reasoned that it could not have
entered into a compromise agreement with respondent since the criminal cases
had already been filed in court, and to enter into a compromise after the filing
of the cases would have violated Section 204 of the Tax Code. Thus, the
payment of P119,815.13 could not have been accepted by the CIR in the
concept of a compromise settlement.
On December 12, 1993, respondent filed a case with the Court of Tax
Appeals (CTA) for the refund of the money it paid petitioner. The CTA, however,
dismissed it on the ground of litis pendencia. Respondent appealed to the Court
of Appeals, which ruled that litis pendencia was not present and ordered the
CTA to commence trial on the refund case. Thus, petitioner elevated the case
to this Court via a petition for review.
The petition is denied for being moot.
On January 28, 2000, the Regional Trial Court of Makati City, Branch 143,
rendered a decision in Criminal Case No. 91-4007 acquitting Poblador and
[5]

Albert of willful failure to pay the corporate percentage tax deficiency for 1982.
Furthermore, a copy of the said decision was served on petitioner by registered
mail, prior to the submission of its memorandum in this case. Despite being
[6] [7]

furnished a copy of the RTC decision, petitioner merely adopted its comment
as its memorandum and did not discuss the effect of Poblador and Alberts
acquittal on the present petition. Petitioner even stated that respondent BPI may
recover the amount it paid once Poblador and Albert were acquitted in the
criminal case.[8]

In its decision in Criminal Case No. 91-4007, the trial court ruled that the
prosecution failed to establish that PAC was in fact liable for deficiency taxes
prior to its liquidation. Assuming arguendo that there was a deficiency tax for
which PAC was liable, petitioners failed to make a valid assessment on it since
the notice of assessment was sent to the PACs old (and therefore improper)
office address. PAC already indicated its new address in its 1986 tax return filed
with the BIRs Makati office. This notwithstanding, petitioner CIR sent the notice
of assessment to PACs old business address instead of its new address, which
was also BPIs (PACs liquidator) office address.
Since there was a failure to effect a timely valid assessment, the period for
filing a criminal case for PACs tax liabilities had prescribed by the time petitioner
instituted the criminal cases against its former officers. Thus, Poblador and
Albert were correctly acquitted by the trial court.
WHEREFORE, the petition is hereby DENIED.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales,
JJ., concur.

CIR vs Superama

In January 2001, a revenue officer was authorized to examine the books of accounts of Metro
Star Superama, Inc. In April 2002, after the audit review, the revenue district officer issued a
formal assessment notice against Metro Star advising the latter that it is liable to pay
P292,874.16 in deficiency taxes. Metro Star assailed the issuance of the formal assessment
notice as it averred that due process was not observed when it was not issued a pre-
assessment notice. Nevertheless, the Commissioner of Internal Revenue authorized the
issuance of a Warrant of Distraint and/or Levy against the properties of Metro Star.
Metro Star then appealed to the Court of Tax Appeals (CTA Case No. 7169). The CTA ruled
in favor of Metro Star.
ISSUE: Whether or not due process was observed in the issuance of the formal assessment
notice against Metro Star.
HELD: No. It is true that there is a presumption that the tax assessment was duly issued.
However, this presumption is disregarded if the taxpayer denies ever having received a tax
assessment from the Bureau of Internal Revenue. In such cases, it is incumbent upon the
BIR to prove by competent evidence that such notice was indeed received by the addressee-
taxpayer. The onus probandi was shifted to the BIR to prove by contrary evidence that the
Metro Star received the assessment in the due course of mail. In the case at bar, the CIR
merely alleged that Metro Star received the pre-assessment notice in January 2002. The CIR
could have simply presented the registry receipt or the certification from the postmaster that
it mailed the pre-assessment notice, but failed. Neither did it offer any explanation on why it
failed to comply with the requirement of service of the pre-assessment notice. The Supreme
Court emphasized that the sending of a pre-assessment notice is part of the due process
requirement in the issuance of a deficiency tax assessment,” the absence of which renders
nugatory any assessment made by the tax authorities.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. But even so, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure.
COMMISSIONER OF INTERNAL
REVENUE vs. HAMBRECHT &
QUIST PHILIPPINES, 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.

Philacor Credit Corporation vs. Commissioner of Internal Revenue, G.R. No. 169899. February 6, 2013.
Facts:
Both courts held that petitioner Philacor Credit Corporation (Philacor), as an assignee of
promissory notes, is liable for deficiency documentary stamp tax (DST) on (1) the
issuance of promissory notes; and (2) the assignment of promissory notes for the fiscal
year ended 1993.Philacor is a domestic corporation engaged in the business of retail
financing. A prospective buyer of a home appliance – with neither cash nor any credit
card – may purchase appliances on installment basis from an appliance dealer. After
Philacor conducts a credit investigation and approves the buyer’s application, the buyer
executes a unilateral promissory note in favor of the appliance dealer. Pursuant to Letter
of Authority No. 17107,Revenue Officer Celestino Mejia examined Philacor’s books of
accounts and other accounting records for the fiscal year August 1, 1992 to July 31, 1993.
Philacor received tentative computations of deficiency taxes for this year. Philacor’s
Finance Manager, contested the tentative computations of deficiency taxes (totaling
P20,037,013.83) through a letter dated April 17, 1995.Philacor protested the PANs, with
a request for reconsideration and reinvestigation. It alleged that the assessed deficiency
income tax was erroneously computed when it failed to take into account the reversing
entries of the revenue accounts and income adjustments, such as repossessions, write-
offs and legal accounts. Similarly, the Bureau of Internal Revenue (BIR) failed to take into
account the reversing entries of repossessions, legal accounts, and write-offs when it
computed the percentage tax; thus, the total income reported, that the BIR arrived at, was
not equal to the actual receipts of payment from the customers. As for thedeficiency DST,
Philacor claims that the accredited appliance dealers were required by law to affix the
documentary stamps on all promissory notes purchased until the enactment of Republic
Act No. 7660, otherwise known as An Act Rationalizing Further the Structure and
Administration of the Documentary Stamp Tax, which took effect on January 15, 1994. In
addition, Philacor filed, on the following day, a supplemental protest, arguing that the
assessments were void for failure to state the law and the facts on which they were
based.CTA Division rendered decision. It concluded that Philacor failed to declare part of
its income, making it liable for deficiency income tax and percentage tax. However, it also
found that the Commissioner of Internal Revenue (CIR) erred in his analysis of the entries
in Philacor’s books thereby considerably reducing Philacor’s liability to a deficiency
income tax of P1,757,262.47 and a deficiency percentage tax of P613,987.86. The CTA
also ruled that Philacor is liable for the DST on the issuance of the promissory notes and
their subsequent transfer or assignment. Noting that Philacor failed to prove that the DST
on its promissory notes had been paid for these two transactions, the CTA held Philacor
liable for deficiency DST of P673,633.88,

Issue:
WON Philacor is liable for the DST on the issuance of the PN.

Ruling:
Under Section 173 of the National Internal Revenue Code, the persons primarily liable for
the payment of DST are the persons (1) making; (2) signing; (3) issuing; (4) accepting; or
(5) transferring the taxable documents, instruments or papers. Should these parties be
exempted from paying tax, the other party who is not exempt would then be liable. In this
case, petitioner Philacor is engaged in the business of retail financing. Through retail
financing, a prospective buyer of home appliance may purchase an appliance on
installment by executing a unilateral promissory note in favor of the appliance dealer, and
the same promissory note is assigned by the appliance dealer to Philacor. Thus, under
this arrangement, Philacor did not make, sign, issue, accept or transfer the promissory
notes. It is the buyer of the appliances who made, signed and issued the documents
subject to tax while it is the appliance dealer who transferred these documents to Philacor
which likewise indisputably received or “accepted” them. Acceptance, however, is an act
that is not even applicable to promissory notes, but only to bills of exchange. Under the
Negotiable Instruments Law, the act of acceptance refers solely to bills of exchange. In a
ruling adopted by the Bureau of Internal Revenue as early as 1995, “acceptance” has
been defined as having reference to incoming foreign bills of exchange which are
accepted in the Philippines by the drawees thereof, and not as referring to the common
usage of the word as in receiving. Thus, a party to a taxable transaction who “accepts”
any documents or instruments in the plain and ordinary meaning does not become
primarily liable for the tax.

COMMISSIONER OF INTERNAL G.R. No. 179063

REVENUE,
Petitioner, Present:
Quisumbing, J., Chairperson,
- versus - Carpio,*

Carpio Morales,

Bersamin,** and

Abad, JJ.

UNITED COCONUT PLANTERS

BANK, Promulgated:

Respondent.

October 23, 2009

x ---------------------------------------------------------------------------------------- x
 DECISION

ABAD, J.:

This is an action involving a disputed assessment for deficiencies in the

payment of creditable withholding tax and documentary stamps tax due from a
foreclosure sale.

The Facts and the Case

Respondent United Coconut Planters Bank (UCPB) granted loans

of P68,840,000.00 and P335,000,000.00 to George C. Co, Go Tong Electrical Supply
Co., Inc., and Tesco Realty Co. that the borrowers caused to be secured by several
real estate mortgages. When the latter later failed to pay their loans, UCPB filed a
petition for extrajudicial foreclosure of the mortgaged properties. Pursuant to that
petition, on December 31, 2001 a notary public for Manila held a public auction
sale of the mortgaged properties. UCPB made the highest winning bid
of P504,785,000.00 for the whole lot.

On January 4, 2002 the notary public submitted the Certificate of Sale to the
Executive Judge of Regional Trial Court (RTC) of Manila for his approval.[1] But,
on February 18, 2002 the executive judge returned it with instruction to the notary
public to explain an inconsistency in the tax declaration of one mortgaged
property. The executive judge further ordered the notary public to show proof of
payment of the Sheriffs percentage of the bid price.[2] The notary public
complied.[3] On March 1, 2002 the executive judge finally signed the certificate of
sale and approved its issuance to UCPB as the highest bidder.[4]
 On June 18, 2002 UCPB presented the certificate of sale to the Register of
Deeds of Manila for annotation on the transfer certificates of title of the foreclosed
properties. On July 5, 2002 the bank paid creditable withholding taxes (CWT)
of P28,640,700.00 and documentary stamp taxes (DST) of P7,160,165.00 in relation
to the extrajudicial foreclosure sale. It then submitted an affidavit of consolidation
of ownership to the Bureau of Internal Revenue (BIR) with proof of tax payments
and other documents in support of the banks application for a tax clearance
certificate and certificate authorizing registration.

Petitioner Commissioner of Internal Revenue (CIR), however, charged UCPB

with late payment of the corresponding DST and CWT, citing Section 2.58 of
Revenue Regulation 2-98, which stated that the CWT must be paid within 10 days
after the end of each month, and Section 5 of Revenue Regulation 06-01, which
required payment of DST within five days after the close of the month when the
taxable document was made, signed, accepted or transferred. These taxes accrued
upon the lapse of the redemption period of the mortgaged properties. The CIR
pointed out that the mortgagor, a juridical person, had three months after
foreclosure within which to redeem the properties.[5]

The CIR theorized that the three-month redemption period was to be

counted from the date of the foreclosure sale. Here, he said, the redemption period
lapsed three months from December 31, 2001 or on March 31, 2002. Thus, UCPB
was in default for having paid the CWT and DST only on July 5, 2002. For this reason
the CIR issued a Pre-Assessment Notice[6] and, subsequently, a Final Assessment
Notice[7] to UCPB for deficiency CWT of P8,617,210.00 and deficiency DST
of P2,173,051.75.

UCPB protested the assessment. It claimed that the redemption period

lapsed on June 1, 2002 or three months after the executive judge
of Manila approved the issuance of the certificate of sale. Foreclosure under
Section 47 of the General Banking Law, said UCPB, referred to the date of approval
by the executive judge, and not the date of the auction sale. But the CIR denied
UCPBs protest, prompting UCPB to file a petition for review with the CTA in CTA
Case 7164.

On July 26, 2006 the CTA Second Division set aside the decision of the CIR
and held that the redemption period lapsed three months after the executive judge
approved the certificate of sale. It said that foreclosure under the law referred to
the whole process of foreclosure which included the approval and issuance of the
certificate of sale. There was no sale to speak of which could be taxed prior to such
approval and issuance. Since the executive judge approved the issuance only
on March 1, 2002, the redemption period expired on June 1, 2002. Hence, UCPBs
payments of CWT and DST in early July were well within the prescribed period. On
appeal to the CTA En Banc in CTA EB 234, the latter affirmed the decision of the
Second Division on June 5, 2007. With the denial of its motion for reconsideration,
petitioner has taken recourse to this Court via a petition for review on certiorari.

Issue

The key issue in this case is whether or not the three-month redemption
period for juridical persons should be reckoned from the date of the auction sale.

Ruling

The CIR argues that he has the more reasonable position: the redemption
period should be reckoned from the date of the auction sale for, otherwise, the
taxing authority would be left at the mercy of the executive judge who may
unnecessarily delay the approval of the certificate of sale and thus prevent the early
payment of taxes.
 But the Supreme Court had occasion under its resolution in Administrative
Matter 99-10-05-0[8] to rule that the certificate of sale shall issue only upon
approval of the executive judge who must, in the interest of fairness, first
determine that the requirements for extrajudicial foreclosures have been strictly
followed. For instance, in United Coconut Planters Bank v. Yap,[9] this Court
sustained a judges resolution requiring payment of notarial commission as a
condition for the issuance of the certificate of sale to the highest bidder.

Here, the executive judge approved the issuance of the certificate of sale to UCPB
on March 1, 2002. Consequently, the three-month redemption period ended only
on June 1, 2002. Only on this date then did the deadline for payment of CWT and
DST on the extrajudicial foreclosure sale become due.

Under Section 2.58 of Revenue Regulation 2-98, the CWT return and
payment become due within 10 days after the end of each month, except for taxes
withheld for the month of December of each year, which shall be filed on or before
January 15 of the following year. On the other hand, under Section 5 of Revenue
Regulation 06-01, the DST return and payment become due within five days after
the close of the month when the taxable document was made, signed, accepted,
or transferred.

The BIR confirmed and summarized the above provisions under Revenue
Memorandum Circular 58-2008 in this manner:

[I]f the property is an ordinary asset of the mortgagor, the creditable

expanded withholding tax shall be due and paid within ten (10) days
following the end of the month in which the redemption period
expires. x x x Moreover, the payment of the documentary stamp tax and
the filing of the return thereof shall have to be made within five (5) days
from the end of the month when the redemption period expires.
 UCPB had, therefore, until July 10, 2002 to pay the CWT and July 5, 2002 to
pay the DST. Since it paid both taxes on July 5, 2002, it is not liable for
deficiencies. Thus, the Court finds no reason to reverse the decision of the CTA.

Besides, on August 15, 2008, the Bureau of Internal Revenue issued Revenue
Memorandum Circular 58-2008 [10] which clarified among others, the time within
which to reckon the redemption period of real estate mortgages. It reads:

For purposes of reckoning the one-year redemption period in the

case of individual mortgagors, or the three-month redemption period for
juridical persons/mortgagors, the same shall be reckoned from the date
of the confirmation of the auction sale which is the date when the
certificate of sale is issued.

The CIR must have in the meantime conceded the unreasonableness of the
previous position it had taken on this matter.
WHEREFORE, the petition is DENIED.

SO ORDERED.

SUPREME TRANSLINER, INC., MOISES C. ALVAREZ and PAULITA S. ALVAREZ, Petitioners, v. BPI FAMILY
SAVINGS BANK, INC., Respondent.
FACTS:

Supreme Transliner, Inc. represented by its Managing Director, Moises C. Alvarez, and Paulita S. Alvarez,
obtained a loan in the amount of P9,853,000.00 from BPI Family Savings Bank with a 714-square meter
lot covered by Transfer Certificate of Title No. T-79193 in the name of Moises C. Alvarez and Paulita S.
Alvarez, as collateral.

For non-payment of the loan, the mortgage was extrajudicially foreclosed and the property was sold to
the bank as the highest bidder. Before the expiration of the one-year redemption period, the
mortgagors notified the bank of their intention to redeem the property. The mortgagors requested for
the elimination of liquidated damages and reduction of attorney’s fees and interest (1% per month)
from the amount due but the bank refused.

The mortgagors filed a complaint against the bank to recover the allegedly unlawful and excessive
charges. The trial court rendered its decision dismissing the complaint and held that plaintiffs-
mortgagors are bound by the terms of the mortgage loan. According to the trial court, plaintiffs-
mortgagors are estopped from questioning the correctness of the redemption price as they had freely
and voluntarily signed the letter-agreement prepared by the defendant bank. However, the CA ruled
that attorney’s fees and liquidated damages were already included in the bid price.

ISSUES:

Whether or not the CA erred in ruling that the subject fees have been paid for.

Whether or not the foreclosing mortgagee should pay capital gains tax upon execution of the certificate
of sale, and if paid by the mortgagee, whether the same should be shouldered by the redemptioner.

HELD:

The petition is partly meritorious.

CIVIL LAW: Mortgage

First issue:

Under the Mortgage Loan Agreement, petitioners-mortgagors undertook to pay the attorney’s fees and
the costs of registration and foreclosure. The attorney’s fees and liquidated damages were not yet
included in the bid price as shown in the Statement of Account prepared by the petitioner bank and
given to petitioners-mortgagors. On the other hand, par. 23 of the Mortgage Loan Agreement indicated
that asset acquired expenses were to be added to the redemption price as part of “costs and other
expenses incurred” by the mortgagee bank in connection with the foreclosure sale.
TAX LAW: Capital gains tax

Second issue:

There is no legal basis for the inclusion of this charge in the redemption price. In foreclosure sale, there
is no actual transfer of the mortgaged real property until after the expiration of the one-year
redemption period as provided in Act No. 3135 and title thereto is consolidated in the name of the
mortgagee in case of non-redemption. In the interim, the mortgagor is given the option whether or not
to redeem the real property. The issuance of the Certificate of Sale does not by itself transfer ownership.

China Banking Corporation v CA

Facts:

China Banking Corporation made a 53% equity investment (P16,227,851.80) in the First CBC Capital – a
Hongkong subsidiary engaged in financing and investment with “deposit-taking” function.

It was shown that CBC has become insolvent so China Banking wrote-off its investment as worthless and
treated it as a bad debt or as an ordinary loss deductible from its gross income.

CIR disallowed the deduction on the ground that the investment should not be classified as being
worthless. It also held that assuming that the securities were worthless, then they should be classified as
a capital loss and not as a bad debt since there was no indebtedness between China Banking and CBC.

Issue:

Whether or not the investment should be classified as a capital loss.

Held:

Yes. Section 29.d.4.B of the NIRC contains provisions on securities becoming worthless. It conveys that
capital loss normally requires the concurrence of 2 conditions:

a. there is a sale or exchange

b. the thing sold or exchanges is a capital asset.

When securities become worthless, there is strictly no sale or exchange but the law deems it to be a
loss. These are allowed to be deducted only to the extent of capital gains and not from any other
income of the taxpayer. A similar kind of treatment is given by the NIRC on the retirement of certificates
of indebtedness with interest coupons or in registered form, short sales and options to buy or sell
property where no sale or exchange strictly exists. In these cases, The NIRC dispenses with the standard
requirements.

There is ordinary loss when the property sold is not a capital asset.

In the case, CBC as an investee corporation, is a subsidiary corporation of China Banking whose shares in
CBC are not intended for purchase or sale but as an investment. An equity investment is a capital asset
of the investor. Unquestionably, any loss is a capital loss to the investor.

--

Additional notes:

*The loss cannot be deductible as bad debt since the shares of stock do not constitute a loan extended
by it to its subsidiary or a debt subject to obligatory repayment by the latter.

CIR vs Pilipinas Shell Petroleum

Pilipinas Shell Petrolium Corp v. CIR

G.R. No. 172598; December 21, 2007

Facts: In 1988, BIR sent a collection letter to Petitioner Pilipinas Shell Petroleum Corporation (PSPC) for alleged
deficiency excise tax liabilities of PhP 1,705,028,008.06 for the taxable years 1992 and 1994 to 1997, inclusive of
delinquency surcharges and interest. As basis for the collection letter, the BIR alleged that PSPC is not a qualified
transferee of the TCCs it acquired from other BOI-registered companies. These alleged excise tax deficiencies
covered by the collection letter were already paid by PSPC with TCCs acquired through, and issued and duly
authorized by the Center, and duly covered by Tax Debit Memoranda (TDM) of both the Center and BIR, with the
latter also issuing the corresponding Accept Payment for Excise Taxes (APETs).

PSPC protested the collection letter, but it was denied. Because of respondent inaction on a motion for
reconsideration PSPC filed a petition for review before the CTA.

In 1999, the CTA ruled that the use by PSPC of the TCCs was legal and valid, and that respondent’s attempt to collect
alleged delinquent taxes and penalties from PSPC without an assessment constitutes denial of due
process. Respondent elevated CTA Decision to the Court of Appeals (CA) through a petition for review.

Despite the pendency of this case, PSPC received assessment letter from respondent for excise tax deficiencies,
surcharges, and interest based on the first batch of cancelled TCCs and TDM covering PSPC’s use of the TCCs. All
these cancelled TDM and TCCs were also part of the subject matter of the now pending before the CA.
PSPC protested the assessment letter, but the protest was denied by the BIR, constraining it to file another case
before the CTA. Subsequently, CTA ruled in favor of PSPC and accordingly cancelled and set aside the assessment
issued by the respondent. Respondent motion for reconsideration of the above decision which was rejected thus
respondent appealed the above decision before the CTA En Banc.

The CTA En Banc ruled in favor of respondent and ordered PSPC to pay the amount of P570,577,401.61 as deficiency
excise tax for the taxable years 1992 and 1994 to 1997, inclusive of 25% surcharge and 20% interest.
Issue: Whether or not petitioner is liable for the assessment of deficiency excise tax after the validly issued TCCs
were subsequently cancelled for having been issued fraudulently

Held: No. Petitioner is not liable for the assessment of deficiency excise tax.

In the instant case, with due application, approval, and acceptance of the payment by PSPC of the subject TCCs for
its then outstanding excise tax liabilities in 1992 and 1994 to 1997, the subject TCCs have been canceled as the
money value of the tax credits these represented have been used up. Therefore, the DOF through the Center may
not now cancel the subject TCCs as these have already been canceled and used up after their acceptance as payment
for PSPC’s excise tax liabilities. What has been used up, debited, and canceled cannot anymore be declared to be
void, ineffective, and canceled anew.

Besides, it is indubitable that with the issuance of the corresponding TDM, not only is the TCC canceled when fully
utilized, but the payment is also final subject only to a post-audit on computational errors. Under RR 5-2000, a TDM
is a certification, duly issued by the Commissioner or his duly authorized representative, reduced in a BIR
Accountable Form in accordance with the prescribed formalities, acknowledging that the taxpayer named therein
has duly paid his internal revenue tax liability in the form of and through the use of a Tax Credit Certificate, duly
issued and existing in accordance with the provisions of these Regulations. The Tax Debit Memo shall serve as the
official receipt from the BIR evidencing a taxpayer’s payment or satisfaction of his tax obligation. The amount shown
therein shall be charged against and deducted from the credit balance of the aforesaid Tax Credit Certificate.

Thus, with the due issuance of TDM by the Center and TDM by the BIR, the payments made by PSPC with the use of
the subject TCCs have been effected and consummated as the TDMs serve as the official receipts evidencing PSPC’s
payment or satisfaction of its tax obligation. Moreover, the BIR not only issued the corresponding TDM, but it also
issued ATAPETs which doubly show the payment of the subject excise taxes of PSPC.

Based on the above discussion, we hold that respondent erroneously and without factual and legal basis levied the
assessment. Consequently, the CTA En Banc erred in sustaining respondent’s assessment.

FACTS:Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel oils to
various international carriers. The Court initially denied theclaims but the respondent filed a
Motion for Reconsideration

ISSUE:Whether or not Shell is entitled to refund for payment of the excise taxes

RULING:Yes. Section 135 is concerned with the exemption of the article itself and not the
ostensible exemption of the international carrier-buyer.
Commissioner of Internal Revenue vs. St Luke's Medical
Center
Facts:

St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and non-profit
corporation. St. Luke’s accepts both paying and non-paying patients. The BIR assessed St. Luke’s
deficiency taxes for 1998 comprised of deficiency income tax, value-added tax, and withholding tax.
The BIR claimed that St. Luke’s should be liable for income tax at a preferential rate of 10% as
provided for by Section 27(B). Further, the BIR claimed that St. Luke’s was actually operating for profit
in 1998 because only 13% of its revenues came from charitable purposes. Moreover, the hospital’s
board of trustees, officers and employees directly benefit from its profits and assets.

On the other hand, St. Luke’s maintained that it is a non-stock and non-profit institution for
charitable and social welfare purposes exempt from income tax under Section 30(E) and (G) of the
NIRC. It argued that the making of profit per se does not destroy its income tax exemption.

Issue:

The sole issue is whether St. Luke’s is liable for deficiency income tax in 1998 under Section
27(B) of the NIRC, which imposes a preferential tax rate of 10^ on the income of proprietary non-profit
hospitals.

Ruling:

Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit
hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the
other hand, can be construed together without the removal of such tax exemption.

Section 27(B) of the NIRC imposes a 10% preferential tax rate on the
income of (1) proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that they must be proprietary and non-
profit. “Proprietary” means private, following the definition of a “proprietary educational
institution” as “any private school maintained and administered by private individuals or groups”
with a government permit. “Non-profit” means no net income or asset accrues to or benefits any
member or specific person, with all the net income or asset devoted to the institution’s purposes and
all its activities conducted not for profit.

“Non-profit” does not necessarily mean “charitable.” In Collector of Internal Revenue v. Club
Filipino Inc. de Cebu, this Court considered as non-profit a sports club organized for recreation and
entertainment of its stockholders and members. The club was primarily funded by membership fees
and dues. If it had profits, they were used for overhead expenses and improving its golf course. The
club was non-profit because of its purpose and there was no evidence that it
was engaged in a profit-making enterprise.

The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not charitable.
The Court defined “charity” in Lung Center of the Philippines v.
Quezon City as “a gift, to be applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds and hearts under the influence of
education or religion, by assisting them to establish themselves in life or [by] otherwise lessening
the burden of government.” However, despite its being a tax exempt institution, any income such
institution earns from activities conducted for profit is taxable, as expressly provided in the last
paragraph of Sec. 30.

To be a charitable institution, however, an organization must meet the

substantive test of charity in Lung Center. The issue in Lung Center concerns exemption from
real property tax and not income tax. However, it provides for the test of charity in our jurisdiction.
Charity is essentially a gift to an indefinite number of persons which lessens the burden of
government. In other words, charitable institutions provide for free goods and services to the
public which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency,
the government forgoes taxes
which should have been spent to address public needs, because certain private entities already
assume a part of the burden. This is the rationale for
the tax exemption of charitable institutions. The loss of taxes by the government is
compensated by its relief from doing public works which would have been funded by appropriations
from the Treasury

The Constitution exempts charitable institutions only from real property taxes. In the NIRC,
Congress decided to extend the exemption to income taxes. However, the way Congress crafted
Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the Constitution.

Section 30(E) of the NIRC defines the corporation or association that is exempt from income
tax. On the other hand, Section 28(3), Article VI of the Constitution does not define a charitable
institution, but requires that the institution “actually, directly and exclusively” use the property for a
charitable purpose.

To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires
that a charitable institution use the property “actually, directly and exclusively” for charitable
purposes.

To be exempt from income taxes, Section 30(E) of the NIRC

requires that a charitable institution must be “organized and operated exclusively” for charitable
purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the
institution be “operated exclusively” for social welfare.

However, the last paragraph of Section 30 of the NIRC qualifies the words “organized and
operated exclusively” by providing that:

Notwithstanding the provisions in the preceding paragraphs, the income of whatever

kind and character of the foregoing 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 tax imposed under this Code.

In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution
conducts “any” activity for profit, such activity is not tax exempt even as its not-for-profit
activities remain tax exempt.

Thus, even if the charitable institution must be “organized and operated exclusively” for
charitable purposes, it is nevertheless allowed to engage in “activities conducted for profit” without
losing its tax exempt status for its not-for-profit activities. The only consequence is that the
“income of whatever kind and character” of a charitable institution
“from any of its activities conducted for profit, regardless of the disposition made of such
income, shall be subject to tax.” Prior to the introduction of Section 27(B), the tax rate on such
income from for-profit activities was the ordinary corporate rate under Section 27(A). With the
introduction of Section 27(B), the tax rate is now 10%.

The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable
or social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is
based not only on a strict interpretation of a provision granting tax exemption, but also on the clear
and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be
“operated exclusively” for charitable or social welfare purposes to be completely exempt from income
tax. An institution under Section 30(E) or (G) does not lose its tax exemption if it earns income
from its for-profit activities. Such income from for-profit activities, under the last paragraph of
Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B).

St. Luke’s fails to meet the requirements under Section 30(E) and (G) of the NIRC to
be completely tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members and
such profits are reinvested pursuant to its corporate purposes. St. Luke’s, as a proprietary non-profit
hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities.

St. Luke’s is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
However, St. Luke’s has good reasons to rely on the letter dated 6 June 1990 by the BIR, which opined
that St. Luke’s is “a corporation for purely charitable and social welfare purposes” and thus exempt
from income tax.

In Michael J. Lhuillier, Inc. v. Commissioner of Internal Revenue, the Court said that “good
faith and honest belief that one is not subject to tax on the basis of previous interpretation of
government agencies tasked to implement the tax law, are sufficient justification to delete the
imposition of surcharges and interest.”

WHEREFORE, St. Luke’s Medical Center, Inc. is ORDERED TO PAY the deficiency income tax in
1998 based on the 10% preferential income tax rate under Section 27(8) of the National Internal
Revenue Code. However, it is not liable for surcharges
and interest on such deficiency income tax under Sections 248 and 249 of
the National Internal Revenue Code. All other parts of the Decision and Resolution of the Court
of Tax Appeals are AFFIRMED.