Taxation Jurisprudence

GENERAL PRINCIPLES
BASIS OF TAXATION
Lifeblood Doctrine
CIR vs. Pineda, September 15, 1967, 21 SCRA 105

Facts: Manuel Pineda, the eldest son of the decedent who was made to pay the full
amount of the income tax liabilities assessed against the estate. He questioned the
assessment on the ground that as an heir his liability for the unpaid tax due the
estate is only up to the extent of and in proportion to the share he received
therefrom.
Q. Can the Government require Manuel Pineda to pay the full amount of the taxes
assessed?
A. Yes, the Government can require Manuel Pineda to pay the full amount of the
taxes assessed. The remedy (tax lien) is the very avenue the Government took in
this case to collect the tax. The BIR should be given in instances like the case at
bar, the necessary discretion to avail itself of the most expeditious way to collect
the tax as may be envisioned in the particular provision of the Tax Code above
quoted, because taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need.
CIR vs. CTA, July 21, 1994, 234 SCRA 348

Facts: A petition for review of the decision of the BIR denying tax refund of
Citytrust was filed with the CTA. It was submitted for decision based solely on the
pleadings and evidence submitted by Citytrust. CIR was denied its day in Court
because of its inability to present evidence by reason of the failure of its Tax
Credit/Refund Division to transmit records of the case to the Solicitor General. The
CTA rendered its decision ordering BIR to grant a refund to Citytrust, CA affirmed.
Q. Is the neglect, omission, error or mistake committed by the officers or agents of

the State binding upon the Government?
A. No, it is a long and firmly settled rule of law that the Government is not bound by
the errors committed by its agents. In the performance of its government functions,
the State cannot be estopped by the neglect of its agents and officers. Although
the Government may generally be estopped through the affirmative acts of public
officers acting within their authority, their neglect or omission of public duties as
exemplified in this case will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is
axiomatic that the Government cannot and must not be estopped particularly in
matters involving taxes. Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with which the State effects its
functions for the welfare of its constituents. The errors of certain administrative
officers should never be allowed to jeopardize the Government’s financial position,
especially in the case at bar where the amount involves millions of pesos the
collection whereof, if justified, stands to be prejudiced just because of bureaucratic
lethargy.
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Academics Committee Chairman: Gilberth D. Balderama
Taxation Law Committee Chairperson: Katrina C. Dapula
Tax Law Committee Vice-Chairman: Regina S. Salonga
Members: AizaB. Aricayos and Jenifer M. Gabrillo
ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Marcos II vs. CA, June 5, 1997, 273 SCRA 47
Facts: Marcos II assailed the decision of the CA declaring the deficiency income tax
assessments and estate tax assessments upon the estate and properties of his late
father final despite the pendency of the probate proceedings of the will of the late
President. On the other hand, the BIR argued that the State’s authority to collect
internal revenue taxes is paramount.
Q. Can the BIR collect estate taxes without the approval of a probate court?
A. Yes, the approval of the court, sitting in probate, or as a settlement tribunal over
the deceased is not a mandatory requirement in the collection of estate taxes. The
enforcement of tax laws and the collection of taxes are of paramount importance
for the sustenance of government. Taxes are the lifeblood of the government and
should be collected without unnecessary hindrance. However, such collection
should be made in accordance with law as any arbitrariness will negate the reason
for the government itself. It is, therefore, necessary to reconcile the apparent
conflicting interests of the authorities and the taxpayer so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
YMCA vs. CIR, 298 SCRA 83
Facts: YMCA, a “welfare, educational, and charitable non-profit corporation, leased

its facilities to small shop owners, restaurants, and canteen operators, and collected
parking space. YMCA contends that its rental income is not subject to income tax.
Q. Is the contention of YMCA tenable?
A. No, since taxes are the lifeblood of the nation, a claim of statutory exemption
from taxation should be manifest and unmistakable from the language of the law on
which it is based. The claimed exemption must expressly be granted in a language
too clear to be mistaken
THEORIES ON TAXATION
Necessity Theory
Philippine Guaranty Co., Inc. vs. CIR, 13 SCRA 780, (1965)

Facts: Petitioner Philippine Guaranty Co., Inc. (PGCI) entered into reinsurance
contracts with foreign insurance companies not doing business in the Philippines
and thereby agreed to cede to the foreign insurers a portion of the premiums. In
accordance with the aforesaid contracts, the petitioner excluded in its gross income
premiums ceded to the foreign reinsurers. Based on the foregoing, the CIR
assessed taxes from PGCI. The Petitioner protested claiming that the premiums
ceded to foreign reinsurance companies are not subject to withholding tax for they
are not income from sources within the Phil.
Q. Is the contention of petitioner correct?
A. No, considering that the reinsurance premiums in question were afforded

protection by the government and the recipient foreign reinsurers exercised rights
and privileges guaranteed by our laws, such reinsurance premiums and reinsurers
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should share the burden of maintaining the State. The power to tax is an attribute
of sovereignty. It is a power emanating from necessity. It is a necessary burden to
preserve the State’s sovereignty and means to give the citizenry an army to resist
an aggression, a navy to defend its shores from invasion, a corps of civil servants to
serve, public improvements designed for the enjoyment of the citizenry and those
which come within the State’s territory, and facilities and protection which a
government is supposed to provide.
Benefits-Protection Theory or Doctrine of Symbiotic

Relationship
CIR vs. Algue, L-28896, February 17, 1988

Taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of one's hard-earned income to the
taxing authorities, every person who is able to must contribute his share in the,
running of the government. The government for its part is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
LIABILITIES INVOLVED
Taxes are personal to the taxpayer.
Sunio vs. NLRC, L-57767, January 31, 1984

Facts: Petitioner was impleaded in the Complaint in his capacity as General
Manager of petitioner corporation. There appears to be no evidence on record that
he acted maliciously or in bad faith in terminating the services of private
respondents. His act, therefore, was within the scope of his authority and was a
corporate act.
Q. Can a corporation’s tax delinquency be enforced against its stockholders?
A. No, a corporation’s tax delinquency cannot, for instance, be enforced against its
stockholders because not only would this run counter to the principle that taxes are
personal, but it would run counter to the principle that taxes are personal, but it
would also not be in accord with the rule that a corporation is vested by law with a
personality that is separate and distinct from those of the persons composing it as
well as from that of any other legal entity to which it may be related.
When stockholders may be held liable for unpaid taxes of

the corporation
(Doctrine of Piercing the Corporate Veil)
Tan vs. Commissioner, L-15778, April 23, 1962
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Facts: The Central Syndicate, a corporation organized under the laws of the Phil.,
sent a letter to the Collector of Internal Revenue advising the latter that it
purchased from Dee Hong Lue the entire stock of surplus properties and that it
assumed Lue's obligation to pay the 3-1/2% sales tax on said surplus goods, it was
remitting the sum of P43,750.00 in his behalf as deposit to answer for the payment
of said sales tax with the understanding that it would later be adjusted after the
determination of the exact consideration of the sale. The syndicate again wrote the
Collector requesting a refund due to the adjustment and reduction of the purchase
price. However, the Collector denied the claim for refund. The Collector filed a
motion requiring the syndicate to file a bond to guarantee the payment of the tax
assessed against it which motion was denied by the CTA on the ground that cannot
be legally done it appearing that the syndicate is already a non-existing entity due
to the expiration of its corporate existence, the case was dismissed. From this order
the syndicate appealed to the SC wherein it intimated that the appeal should not be
dismissed because it could be substituted by its successors-in-interest.
Q. The Central Syndicate having already been dissolved because of the expiration
of its corporate existence, can the sales tax in question be enforced against its
successors-in-interest who are the present petitioners?
A. Yes, the creditor of a dissolved corporation may follow its assets once they
passed into the hands of the stockholders. The dissolution of a corporation does not
extinguish the debts due or owing to it. A creditor of a dissolved corporation may
follow its assets, as in the nature of a trust fund, into the hands of its stockholders.
An indebtedness of a corporation to the federal government for income and excess
profit taxes is not extinguished by the dissolution of the corporation. And it has
been stated, with reference to the effect of dissolution upon taxes due from a
corporation, "that the hands of the government cannot, of course, collect taxes from
a defunct corporation, it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from persons, who by reason of
transactions with the corporation, hold property against which the tax can be
enforced and that the legal death of the corporation no more prevents such action
than would the physical death of an individual prevent the government from
assessing taxes against him and collecting them from his administrator, who holds
the property which the decedent had formerly possessed." Hence, petitioners could
be held personally liable for the taxes in question as successors-in-interest of the
defunct corporation.
Liabilities of a taxpayer
Republic vs. Patanao, L-22356, July 21, 1967

Facts: A complaint was filed against Patanao, who was the holder of an ordinary
timber license and as such was engaged in the business of producing logs and
lumber for sale during the years 1951-1955. He failed to file income tax returns for
1953 and 1954, and although he filed income tax returns for 1951, 1952 and 1955,
the same were false and fraudulent because he did not report substantial income
earned by him from his business. An examination was conducted by the BIR it was
ascertained that there are deficiency; income taxes and additional residence taxes
for the aforesaid years, due from defendant. Notwithstanding repeated demands
the defendant refused, failed and neglected to pay said taxes. Defendant moved to
dismiss the complaint on the ground that the action is barred by prior judgment,
defendant having been acquitted in criminal cases Nos. 2089 and 2090 of the same
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court, which were prosecutions for failure to file income tax returns and for non-
payment of income taxes.
Q. Is the contention of the defendant tenable?
A. No, the acquittal in the said criminal cases cannot operate to discharge
defendant from the duty of paying the taxes which the law requires to be paid,
since that duty is imposed by statute prior to and independently of any attempts by
the taxpayer to evade payment. Said obligation is not a consequence of the
felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from crime that could be wiped out by the judicial declaration of non-
existence of the criminal acts charged.
Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. The situation under the income tax law is the exact opposite. Civil
liability to pay taxes arises from the fact, for instance, that one has engaged himself
in business, and not because of any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his civil obligation.
ASPECTS, PROCESSES, PHASES OF TAXATION
Levy/ Imposition
Tolentino, et al. vs Secretary of Finance, August 25,

1984,235 SCRA 630
Facts: Petitioners assail the constitutionality of RA 7716 imposing Value Added Tax
(VAT) on the sale, barter or exchange of goods and properties as well as on the sale
or exchange of services. It is equivalent to 10% of gross selling price or gross value
in money of good or properties sold, bartered or exchanged or of the gross receipts
from the sale or exchange of services. RA 7716 seeks to widen the tax base on
existing VAT system and enhance its administration by amending the NIRC. The
contention of petitioners is that in enacting the VAT law, Congress violated the
Constitution because RA 7716 did not originate exclusively in the House of
Representatives, because it is in fact the result of the consolidation of two distinct
bills, one from the House of Representatives and the other from the Senate.
Q. Is contention of the petitioners correct?
A. The power of the Senate to propose amendments must be understood to be full,

plenary and complete "as on other Bills." Thus, because revenue bills are required
to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and
sent over to it by the House, however, the Senate certainly can pass its own version
on the same subject matter. This follows from the coequality of the two chambers of
Congress.
The power of the Senate to propose or concur with amendments is
apparently without restriction. It would seem that by virtue of this power, the
Senate can practically re-write a bill required to come from the House and leave
only a trace of the original bill.
For example, a general revenue bill passed by the lower house of the United
States Congress contained provisions for the imposition of an inheritance tax. This
was changed by the Senate into a corporation tax, the amending authority of the
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Senate was declared by the United States Supreme Court to be sufficiently broad to
enable it to make the alteration. [Flint v. Stone Tracy Company. 220 U.S. 107, 55 L.
ed. 389]
SCOPE OF THE LEGISLATIVE POWER TO TAX
Discretion as to purposes for which taxes shall be levied.
Walter Lutz vs J. Antonio Araneta, L-7859, December 22,

1955, 98 Phil 148
Facts: Lutz assailed the constitutionality of Section 2 and 3, C.A. 567, which
provided for an increase of the existing tax on the manufacture of sugar, alleging
such tax as unconstitutional and void for not being levied for a public purpose but
for the aid and support of the sugar industry exclusively.
Q. Is the tax law increasing the existing tax on the manufacture of sugar valid?
A. Yes, the protection and promotion of the sugar industry is a matter of public
concern; the legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative discretion
must be allowed full play, subject only to the test of reasonableness. If objective
and methods alike are constitutionally valid, there is no reason why the state may
not levy taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the State’s police power.
Discretion as to subjects of taxation.
Gomez vs. Palomar, L-23645, October 29, 1968, 25 SCRA

827
Facts: Petitioner questions the validity of the statute, claiming that R.A. No, 1635,
otherwise known as the Anti-TB Stamp Law, charging extra five centavo charge for
the use of semi-postal stamp violative of the equal protection clause of the
Constitution because it constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even among postal
patrons the statute discriminatorily grants exemptions.
Q. Does RA 1635 violates the equal protection clause and therefore

unconstitutional?
A. No, the legislature has the inherent power to select the subjects of taxation and
to grant exemptions. This power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more than in other areas,
the legislature possesses the greatest freedom in classification. In the case of the
anti-TB stamp, undoubtedly, the single most important and influential consideration
that led the legislature to select mail users as subjects of the tax is the relative ease
and convenience of collecting the tax through the post offices. The small amount of
five centavo does not justify the great expense and inconvenience of collecting
through the regular means of collection.
The eradication of a dreaded disease is a public purpose, but if by public

purpose the petitioner means benefit to a taxpayer as a return for what he pays,
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then it is sufficient answer to say that the only benefit to which the taxpayer is
constitutionally entitled is that derived from his enjoyment of the privileges of living
in an organized society, established and safeguarded by the devotion of taxes to
public purposes.
Punsalan vs. The Municipal Board of the City of Manila, 95

Phil 46
Facts: Ordinance No. 3398 of the City of Manila imposes a municipal occupation tax
on persons exercising various professions in the city and penalizes non-payment of
the tax. In raising the hue and cry of "class legislation", the burden of plaintiffs'
complaint is not that the professions to which they respectively belong have been
singled out for the imposition of this municipal occupation tax; their complaint is
that while the law has authorized the City of Manila to impose the said tax, it has
withheld that authority from other chartered cities, not to mention municipalities.
Q. Is it within the jurisdiction of the courts to determine what entities should be

empowered to impose occupation tax?
A. No, it is not for the courts to judge what particular cities or municipalities should
be empowered to impose occupation taxes in addition to those imposed by the
National Government. That matter is peculiarly within the domain of the political
departments and the courts would do well not to encroach upon it.
Judicial Review of Taxation
Sison, Jr. vs. Ancheta, July 25, 1984, 130 SCRA 652
Facts: The National Internal Revenue Code was amended by BP 135, effectively
broadening the rates of tax on individual income taxes. Petitioner brought a
taxpayer’s suit alleging that the amendatory provision was arbitrary amounting to
class legislation, oppressive and capricious in character. He concludes that both the
equal protection and due process clauses had been transgressed, as well as the rule
requiring uniformity in taxation. In response thereto, the Solicitor General stated in
his answer that BP 135 is a valid exercise of the State’s power to tax.
Q. Who among the contenders is correct?
A. Finding in favor of the respondent’s contention, the SC held that, being an

attribute of sovereignty, the power to tax is the strongest of all the powers of
government. So powerful that Chief Justice Marshall once said that “the power to
tax involves the power to destroy.” However, the power to tax is restricted by the
equal protection and due process clauses of the Constitution. Hence, Justice
Frankfurter could rightfully concluded: “The web of unreality spun from Marshall’s
famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen stating
that ‘The power to tax is not the power to destroy while this court sits.” So it is in
the Philippines.
The Constitution as the fundamental law overrides any legislative or
executive act that runs counter to it. In any case, therefore, where it can be
demonstrated that the challenged statutory provision fails to abide by its command,
then the court must declare and adjudge it null.
City of Baguio vs. De Leon, 25 SCRA 938
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Facts: A lower court decision upholding the validity of an ordinance of the City of
Baguio imposing a license fee on any person, firm, entity or corporation doing
business in the City of Baguio is assailed by De Leon. He was held liable as a real
estate dealer and was obligated to pay under such ordinance an annual fee. In
addition, there has been a firm insistence by appellant of the lack of jurisdiction of
the City Court of Baguio, where the suit originated due to the fact that the issue of
constitutionality was raised.
Q. Does the City Court of Baguio have jurisdiction to decide on the constitutionality
of the ordinance?
A. Yes, since the City Court is possessed of judicial power and it is likewise
axiomatic that the judicial power embraces the ascertainment of facts and the
application of the law, the Constitution as the highest law superseding any statute
or ordinance in conflict therewith, it cannot be said that a City Court is bereft of
competence to proceed on the matter.
While it remains undoubted that such a power to pass on the validity of an
ordinance alleged to infringe certain constitutional rights of a litigant exists, still it
should be exercised with due care and circumspection, considering not only the
presumption of validity but also the relatively modest rank of a city court in the
judicial hierarchy.
PURPOSES OF TAXATION
Primary Purpose, To raise revenue
Bagatsing, et al. vs Ramirez, 74 SCRA 306

Facts: An Ordinance regulating the operation of public markets and prescribing for
the rental of stalls was assailed in that the subject ordinance is not a "tax
ordinance" because the imposition of rentals, permit fees, tolls and other few is not
strictly a taxing power but a revenue-raising function, so that the procedure for
publication under the Local Tax Code finds no application.
Q. Is the contention of the petitioners correct?
A. No, the raising of revenues is the principal object of taxation. Under Section 5,
Article XI of the New Constitution, "Each local government unit shall have the power
to create its own sources of revenue and to levy taxes, subject to such provisions as
may be provided by law. And one of those sources of revenue is what the Local Tax
Code points to in particular: "Local governments may collect fan or rentals for the
occupancy or use of public markets and premises * * *." They can provide for and
regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy
thereof. They can license, or permit the use of, lease, sell or otherwise dispose of
stands, stalls or marketing privileges.
SECONDARY OR NON-REVENUE PURPOSES

Power to tax as an instrument to implement the power of
eminent domain
Commissioner vs. Central Luzon Drug, 456 SCRA 414

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Facts: Central Luzon Drug (CLD) is a domestic corporation primarily engaged in
retailing of medicines and other pharmaceutical products. It operated 6 drugstores
under the name and style “Mercury Drug”. CLD granted 20% sales discount to
senior citizens pursuant to RA 7432 and its Implementing Rules. CLD filed with
petitioner a claim for tax refund/credit in the amount allegedly arising from the 20%
sales discount. CIR was ordered to issue a tax credit certificate in favor of CLD.
Q. Can taxation be used as an implement for the exercise of the power of eminent
domain?
A. Yes, the taxation power can also be used as an implement for the exercise of the
power of eminent domain. Tax measures are but “enforced contributions exacted
on pain of penal sanctions” and “clearly imposed for a public purpose.” In recent
years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth. The 20% discount
given to senior citizens on pharmacy products was considered a property, in the
form of a supposed profit, taken from the drugstore and used for public use, by
means of giving it directly to individual senior citizen. Be it stressed that the
privilege enjoyed by senior citizens does not come directly from the State, but
rather from the private establishments concerned. Accordingly, the tax credit
benefit granted to these establishments can be deemed as their just compensation
for private property taken by the State for public use.
Regulatory Measure
Tio vs Videogram Regulatory Board, 151 SCRA 208

Facts: P.D. 1987 was promulgated creating the Videogram Regulatory Board with
broad powers to regulate and supervise the videogram industry. In addition, the
said law imposes a thirty percent (30%) tax on the sale, lease or disposition of
videograms. Petitioner attacks on the constitutionality of the Decree on the ground
that the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint
of trade in violation of the due process clause of the Constitution.
Q. Is the decree unconstitutional?
A. No, the levy of a 30% tax is for a public purpose. It was imposed primarily for
answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore valid. While the direct
beneficiary of the said decree is the movie industry, the citizens are held to be its
indirect beneficiaries.
Manila Race Horse Trainers Association vs De La Fuente,

88 Phil 60
Facts: The Manila Race Horses Trainers Association, Inc alleged that they are
owners of boarding stables for race horses question the constitutionality of the
Ordinance enacted by the City of Manila as being discriminatory for it only taxed
boarding stables for race horses to the exclusion of boarding stables for horses
dedicated to other purposes.
Q. Is there an arbitrary classification?
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A. None, from the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses dedicated to
other purposes is not indefensible. Race horses are devoted to gambling if
legalized, their owners derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police supervision.
Walter Lutz vs J. Antonio Araneta, L-7859, December 22,

1955, 98 Phil 148
Roxas, et al. vs CTA, L-25043, April 26, 1968, 23 SCRA 276

Facts: Petitioners are brothers who inherited from their grandparents parcels of
agricultural lands, a residential house and lot, and shares of stocks in various
corporations. For the management of the aforesaid properties, the brothers formed
a partnership which they named “Roxas y Compania. Sometime later, the
brothers agreed to sell the above-mentioned agricultural lands to the Government
for the benefit of the farmers who tilled the said lands. However, since the
Government was unable to fully pay for the lands in question, a ten (10)-year
amortization plan was conceptualized. Out of the net gain from the said sale, the
Roxas brothers only paid fifty percent (50%) thereof as income tax from capital
gains.
Q. Were Roxas brothers and Roxas y Compania real estate dealers, hence are liable
to pay 100% of the net gain as income tax?
A. The act of subdividing a farm land and selling them to the farmer- occupants on
installment in response to the Government’s policy to allocate land to the landless
is not subject to real estate dealer’s tax. The business activity of the landowner in
selling the land involves an isolated transaction with its peculiar circumstances and
not to be considered as an act of a dealer even though there were hundreds of
vendees.
The power of taxation is sometimes called also the power to destroy.

Therefore it should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg". And, in order to maintain the
general public's trust and confidence in the Government, this power must be used
justly and not treacherously. It does not conform to our sense of justice in the
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instant case for the Government to persuade, the taxpayer to lend it a helping hand
and later on to penalize him for duly answering the urgent call.
EXTENT OF THE TAXING POWER

Tio vs Videogram Regulatory Board, 151 SCRA 208
A. No, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages or even definitely deters the activities taxed. The
power to impose taxes is one so unlimited in force and so searching in extent that
the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it.
PRINCIPLES OF SOUND TAX SYSTEM:

Fiscal Adequacy
That the sources of revenues must be adequate to meet
government expenditures
Chavez vs. Ongpin, 186 SCRA 331

Facts: Frank Chavez, as taxpayer, and intervenor Realty Owners Association of the
Philippines, Inc. (ROAP), alleges that E.O.73 providing for the collection of Real
Property taxes as provided for under Section 21 of the P.D.464 (Real Property Tax
Code) is unconstitutional because it accelerated the application of the general
revision of assessments to January 1, 1987 thereby increasing in real property taxes
by 100% to 400% on improvements, and up to 100% on land which would
necessarily lead to an increase in real property taxes amounting to confiscation of
property. Additionally, P.D.464 is unconstitutional insofar as it imposes an additional
1% tax on all property owners to raise funds for education, as real property tax is
admittedly a local tax for local governments.
Q. Is the contention of the petitioner and intervenor correct?
A. No, to continue collecting real property taxes based on valuations arrived at

several years ago, in disregard of the increases in the value of real properties that
have occurred since then, is not in consonance with a sound tax system. Fiscal
adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenues must be adequate to meet government expenditures and their
variations.
Administrative Feasibility
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Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan,
June 30, 1988, 163 SCRA 371
Facts: This case has been consolidated because of the similarity of the main issues
involved therein which seek to nullify E.O. 273 which amended certain sections of
the NIRC and adopted VAT. Petitioners contend that VAT is unconstitutional for
being oppressive, discriminatory, regressive and violates the equal protection and
due process clause of the Constitution.
Q. Is VAT unconstitutional?
A. No, VAT is a tax levied on a wide range of goods and services. It is a tax on the
value, added by every seller, with aggregate gross annual sales of articles and/or
services, exceeding P200,000.00, to his purchase of goods and services, unless
exempt. VAT is principally aimed to rationalize the system of taxing goods and
services; simplify tax administration; and make the tax system more equitable, to
enable the country to attain economic recovery.
Taxes are not subject to set-off.
Francia vs. IAC, June 28 1988, 62 SCRA 753

Facts: Petitioner claims that his tax delinquency has been set-off or extinguished
by legal compensation. He claims that the Government of the Philippines owes him
a certain sum of money when a portion of his land was expropriated.
Q. Can taxes be set-off?
A. No, there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of lawsuit against the
government.
A claim for taxes is not such debt, demand, contract or judgment as is

allowed to be set-off under the statutes of set off. Neither are they a proper subject
of recoupment since they do not arise out of the contract of the transaction sued
on. XXX Taxes are not in the nature of contracts between the parties but grow out
of duty to, and are the positive acts of, the government the making and enforcing of
which does not require the personal consent of the individual taxpayer.
EXCEPTIONS
Republic vs. Ericta, 172 SCRA 623, 1989

Facts: The taxes sought to be collected by the Republic from Sampaguita were still
unpaid, its tender of the certificates of indebtedness in question not constituting
payment. Hence, it ought to be sentenced to pay the taxes. Even assuming the
contrary, legal compensation as a mode of extinguishing an obligation to pay taxes
was nonetheless unavailing against the government.
Q. Can there be a legal compensation in this case?
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A. Yes, Sampaguita was entitled to a judgment against the Republic for the
payment of the face value of the certificate, the same having already been
presented and surrendered within the said period of ten (10) years to the Treasurer
of the Philippines (through the Municipal Treasurer of Bocaue.) In effect, while
judgment shall be rendered in favor of the Republic against Sampaguita for unpaid
taxes, judgment ought at the same time to issue for Sampaguita commanding
payment to it by Republic of the same sum representing the face value of the
certificate of indebtedness assigned to it and for recovery of which it had
specifically prayed in its counterclaim.
CIR vs. Esso Standard, 172 SCRA 364, 1989

The overpaid income tax of 1959 was considered as a tax credit against the
deficiency income tax of 1960. The obligation to return the money mistakenly paid
arises from the moment the payment is made, and not from the time that the payee
admits the obligation to reimburse. The obligation of the payee to reimburse an
amount paid to him results from the mistake, not from the payee’s confession of the
mistake or recognition of the obligation to reimburse.
INHERENT LIMITATIONS ON THE POWER TO TAX

Public Purpose
Walter Lutz vs. J. Antonio Araneta, L-7859, December 22,

1955, 98 Phil 148
Tio vs. Videogram Regulatory Board, 151 SCRA 208

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A. No, the levy of a 30% tax is for a public purpose. It was imposed primarily for
answering the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic videotapes, and therefore valid. While the direct
beneficiary of the said decree is the movie industry, the citizens are held to be its
indirect beneficiaries.
Pascual vs. Secretary of Public Works, December 29, 1960,

110 Phil 331
Facts: Petitioner was the Provincial Governor of Rizal at the time of the institution
of this petition. During his term, R.A. 920 was enacted, appropriating P85,000 for
the construction of projected feeder roads. Said feeder roads were, at the time of
the passage of said act, private property, since they were located in a subdivision
owned by Sen. Jose C. Zulueta. Months after the enactment of the law, Sen. Zulueta
executed a deed of donation over the property in question in favor of the
Government. The deed contained a condition that the property donated would be
used exclusively by the donee for street purposes and none other, otherwise the
said property would revert to the donor.
Q. May the legislature validly appropriate public funds for a private purpose?
A. No, the law appropriating public funds for the construction of feeder roads on
land belonging to a private person is not valid, and donation to the government of
the said land made over five (5) months after the approval and effectivity of the Act
for the purpose of giving a semblance of legality to the appropriation does not cure
the basic defect.
The rule is that if the public advantage or benefit is merely incidental in the
promotion of a particular enterprise, such defect shall render the law invalid. On
the other hand, if what is incidental is the promotion of a private enterprise, the tax
law shall be deemed for a public purpose.
Territoriality
Wells Fargo Bank and Union Trust vs. Collector, 70 Phil.

235
Facts: Birdie Lillian Eye, died at Los Angeles, California, the place of her alleged last
residence and domicile. Among the properties she left was her one-half conjugal
share in 70,000 shares of stock in the Benguet Consolidated Mining Company. She
left a will which was duly admitted to probate in California where her estate was
administered and settled. Wells Fargo Bank & Union Trust Company, was duly
appointed trustee of the trust created by the said will. The Federal and State of
California's inheritance taxes due on said shares have been duly paid. Respondent
sought to subject anew the aforesaid shares of stock to the Philippine inheritance
tax, to which petitioner objected contending that as to intangibles, like shares of
stock, their situs is in the domicile of the owner thereof, and, therefore, their
transmission by death necessarily takes place under his domiciliary laws.
Q. Are the questioned shares of stocks subject to the Philippine Inheritance Tax?
A. Yes, inheritance tax is not a tax on property, but upon transmission by

inheritance. Originally, the settled law is that intangibles have only the domicile of
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the decedent at the time of his death as the situs for the purpose of inheritance tax
(mobilia sequuntur personam). However, such doctrine has been decried as a mere
"fiction of law having its origin in considerations of general convenience and public
policy, and cannot be applied to limit or control the right of the state to tax property
within its jurisdiction," and must "yield to established fact of legal ownership, actual
presence and control elsewhere, and cannot be applied if to do so would result in
inescapable and patent injustice."
In the instant case, the actual situs of the shares of stock is in the Philippines, the
corporation being domiciled therein. And besides, the certificates of stock have
remained in this country up to the time when the deceased died in California. And
that one Syrena McKee, secretary of the Benguet Consolidated Mining Company,
has the legal title to the certificates of stock held in trust for the true owner thereof.
In other words, the owner residing in California has extended here her activities with
respect to her intangibles so as to avail herself of the protection and benefit of the
Philippine laws.
Taxing Power of LGUs
MCIAA v. Marcos, 261 SCRA 667 (1996)

Facts: Petitioner MCIAA was mandated to “principally undertake the economical,
efficient and effective control, management and supervision of the Mactan
International Airport in the Province of Cebu and the Lahug Airport in Cebu City.”
MCIAA enjoyed the privilege of exemption from payment of realty taxes in
accordance with Section 14 of its Charter. However, the Office of the Treasurer of
the City of Cebu, demanded payment for realty taxes on several parcels of land
belonging to the petitioner located in Cebu. Petitioner objected claiming in its favor
the said tax exemption and also asserted that it is an instrumentality of the
government performing governmental functions, citing Section 133 of the Local
Government Code of 1991 which puts limitations on the taxing powers of local
government units. Respondent City argued that the MCIAA is a government-
controlled corporation whose tax exemption privilege has been withdrawn by virtue
of Sections 193 and 234 of the Local Government Code.
Q. Is petitioner liable to pay real property taxes?
A. Yes, MCIAA can no longer invoke the general rule in Section 133 - that the taxing
power of LGU’s cannot extend to the levy of (a) taxes, fees or charges of any kind
on the National Government, its agencies or instrumentalities, and LGU’s.
The last paragraph of Section 234 of the Local Government Code

unequivocally withdrew exemptions from payment of real property taxes granted to
natural or juridical persons, including GOCC’s, except as provided in the said
section, and MCIAA is undoubtedly a GOCC. Thus, it necessarily follows that its
exemption from payment of such tax as granted in Section 14 of its Charter has
been withdrawn. Any claim to the contrary can only be justified if MCIAA can take
refuge under any of the exceptions provided in Section 234, but not under Section
133 as it asserts, since the said section is now qualified by Sections 232 and 234.
The power to tax is primarily vested in the Congress however, in our

jurisdiction, it may be exercised by local legislative bodies, no longer merely by
virtue of a valid delegation but pursuant to direct authority conferred by Section 5,
Article X of 1987 Constitution subject to guidelines and limitations which Congress
may provide which must be consistent with the basic policy of local autonomy.
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Exemption from Taxation of Government
Standard Oil Company of New York vs. Posadas, February

26, 1931, 55 Phil 715
Facts: Plaintiff,a foreign corporation duly authorized to do business in the
Philippines,sold to the US Army fuel and asphalts well as to the US Navy fuel oil.
Said sales were for the use of the said products by the US Army and Navy in the
Philippines. CIR imposed taxes on the said merchandise. Plaintiff paid the assessed
tax under protest alleging that said transactions are not subject to sales tax based
on the principle that a state is prohibited from taxing the instrumentalities of the
Federal Government.
Q. Is the contention of plaintiff correct?
A. Yes, the assessment and collection by the Philippine Government of the tax on
sales of merchandise made in the Philippines to the US Army and US Navy is illegal.
Sales made in the Philippines to the US Army and US Navy are made to
instrumentalities of the US Government, and therefore are not subject to tax by the
Philippine Government.
National Development Co. vs. Cebu City, November

5,1992, 215 SCRA 382
Facts: National Development Company (NDC) is authorized to engage in
commercial, industrial, mining, agricultural, and other enterprises necessary or
contributory to economic development or important to public interest. The
President issued Proclamation No. 430, reserving Block No. 4, Reclamation Area No.
4 of Cebu City, consisting of 4,599 sq. m. for warehousing purposes. Subsequently,
a warehouse with a floor area of 1,940 sq. m. was constructed thereon. Cebu City
assessed and collected from NDC real estate taxes on the land and the warehouse
thereon. The NDC claims that both the land and the warehouse belonged to the
Republic and therefore exempt from taxation.
Q. Is the public land reserved by the President for warehousing purposes in favor of
a government-owned or controlled corporation (GOCC) as well as the warehouse
thereon exempt from tax?
A. With regard to the land, the answer is in the affirmative, the Republic, like any
individual, may form a corporation with personality and existence distinct from its
own. The separate personality allows a GOCC to hold and possess properties in its
own name and thus permit greater independence and flexibility in its operations. It
may therefore be stated that the tax exemption of property owned by the Republic
refers to properties owned by the Government and by its agencies which do not
have separate and distinct personalities (unincorporated entities).
What appears to have been ceded to NDC is merely the administration of the
property while the government retains ownership of what has been declared
reserved for warehousing purposes. The subject reserved public land remains tax
exempt.
However, the exemption of public property from taxation does not extend to
improvements on the public lands made by preemptioners, homesteaders and other
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claimants or occupants. The warehouse constructed on the reserved land by NDC
should properly be assessed real estate tax as such improvement does not appear
to belong to the Republic.
CONSTITUTIONAL LIMITATIONS ON
THE POWER TO TAX
Due Process of Law
Reyes vs. Almanzor, 196 SCRA 322 (1991)

Facts: Petitioners are owners of a parcel of land which are leased and occupied as
dwelling. The tenants were paying monthly rentals not exceeding P300.00. Later,
the RA 6359 – Rental Freezing Law was enacted. Consequently, petitioners were
precluded from raising their rental fee. After a re-classification and re-assessment
was made by the City Assessor, the realty tax on said land was increased.
Petitioners question the used of comparable sales approach rather than income
approach, citing violation of the due process clause.
Q. Is the used of comparable sales approach results to an unjust, excessive and

confiscatory assessment?
A. Yes, the use of the comparable sales approach result to the fact that the taxes
exceed the sum total of the yearly income or rental paid by the dweller. The due
process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to
amount to confiscation of property that would be a clear abuse of power.
Equal Protection of the Law
Ormoc Sugar Industry vs. City Treasurer of Ormoc City, 22

SCRA 603, 1968
Facts: The City Council of Ormoc enacted Ordinance No.4, Series of 1964 taxing
the production and exportation of only centrifugal sugar. At the time of the
enactment, plaintiff Ormoc Sugar Co. was the only sugar central in Ormoc.
Petitioner alleged that said Ordinance is unconstitutional for being violative of the
equal protection clause.
Q. Is the Ordinance valid?
A. No, equal protection clause applies only to persons or things identically situated
and does not bar a reasonable classification of the subject of legislation. A
classification is reasonable where:
(1) It is based on substantial distinction which makes real difference;

(2) These are germane to the purpose of the law;
(3) The classification applies not only to present conditions but also to future
conditions which are substantially identical to those of the present;
(4) It applies only to those who belong to the same class.
A perusal of the requisites instantly show that the questioned ordinance does
not meet them, for it taxes only centrifugal sugar produced and exported by Ormoc
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Sugar Company, Inc. and none other. At the time of the taxing ordinance’s
enactment, Ormoc Sugar Company, it is true, was the only sugar central in the City
of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to
future conditions as well. The taxing ordinance should not be singular and exclusive
as to exclude any substantially established sugar central, of the same class as
plaintiff, from the coverage of the tax.
Mayor Antonio J. Villegas vs. Hiu Chiong Tsao Pao Ho, 86

SCRA 270
Facts: The City of Manila enacted an Ordinance prohibiting aliens from being
employed or to engage or participate in any position or occupation or business,
whether permanent, temporary or casual without first securing an employment
permit from the Mayor of Manila. Private respondent questioned the
Constitutionality of the Ordinance as being violative of the equal protection clause.
Petitioners, however, claim that it is an exercise of the police power as it is a
regulatory measure by nature.
Q. Is the Ordinance unconstitutional?
A. Yes, the P50.00 fee is unreasonable because it fails to consider valid substantial
differences in situation among individual aliens who are required to pay it. The
Constitution does not prohibit classification but it is imperative that the
classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The fee is collected
from every employed alien, whether he is casual or permanent, part-time or full-
time, whether he is a lowly employee or a highly-paid executive.
The ordinance does not lay down any criterion or standard to guide the Major
in the exercise of his discretion.
Uniformity of Taxation
Reyes vs. Almanzor, 196 SCRA 322

Facts: Petitioners are owners of a parcel of land which are leased and occupied as
dwelling. The tenants were paying monthly rentals not exceeding P300.00. Later,
the RA 6359 – Rental Freezing Law was enacted. Consequently, petitioners were
precluded from raising their rental fee. After a re-classification and re-assessment
was made by the City Assessor, the realty tax on said land was increased.
Petitioners question the method used in the assessment of properties.
Q. Is the law invalid as it violates the rule on uniformity and equality in taxation?
A. No, the taxing power may make a reasonable and natural classification for
purposes of taxation but it must not be discriminatory. The law operates equally
and uniformly on all persons under the same circumstances.
Association of Custom Brokers, Inc. vs. City of Manila, 93

Phil, 107
Facts: Petitioners question the validity of a City Ordinance which provides for the
collection of a tax against motor vehicles operating within the City of Manila. The
petitioners claim that the Ordinance is violative of the rule on uniformity of taxation.
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Q. Does the Ordinance violates the rule on uniformity?
A. Yes, the Ordinance infringes the rule of uniformity. The said ordinance infringes
also the rule of uniformity of taxation ordained by our Constitution. It exacts the tax
upon all motor vehicles operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for private use. Neither
does it distinguish between a motor vehicle registered in the City of Manila and one
registered in another place but occasionally comes to Manila and uses its streets
and public highways. There is no pretense that the ordinance equally applies to
motor vehicles which come to Manila for a temporary stay or for short errands, and
it cannot be denied that they contribute in no small degree to the deterioration of
the streets and public highways. As they are benefited by their use they should also
be made to share the corresponding burden. This is an inequality which is found in
the ordinance in question and which renders it offensive to the Constitution.
Non-Delegation of the Power to Tax
ABAKADA vs. ERMITA, G.R. No. 168056. October 18, 2005

Facts: Petitioners contends that R.A. No. 9337's stand-by authority to the Executive
to increase the VAT rate, especially on account of the recommendatory power
granted to the Secretary of Finance, constitutes undue delegation of legislative
power. They submit that the recommendatory power given to the Secretary of
Finance in regard to the occurrence of either of two events using the Gross
Domestic Product (GDP) as a benchmark necessarily and inherently required
extended analysis and evaluation is an act of policy making.
Q. Does the recommendatory power of the Secretary of Finance constitute undue

delegation?
A. No, there is no undue delegation of legislative power but only of the discretion as
to the execution of a law. This is constitutionally permissible. Congress did not
delegate the power to tax but the mere implementation of the law. The intent and
will to increase the VAT rate to 12% came from Congress and the task of the
President is to simply execute the legislative policy. That Congress chose to use the
GDP as a benchmark to determine economic growth is not within the province of
the Court to inquire into, its task being to interpret the law.
The Court held that in making recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not acting as
the alter ego of the President or even her subordinate. He is acting as the agent of
the legislative department, to determine and declare the event upon which its
expressed will is to take effect. The Secretary of Finance becomes the means or tool
by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader
perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present.
Taxation and the Freedom of the Press
Tolentino vs. Secretary of Finance, August 25, 1994, 235

SCRA 630
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Facts: RA 7716 was enacted to widen the tax base of the existing VAT system and
enhance its administration by amending the National Internal Revenue Code (NIRC).
One of the petitioners is Philippine Press Institute (PPI),a non-profit organization of
newspaper publishers. Petitioner claims violations of their rights under Sections 4 of
the Bill of Rights as a result of the enactment of the VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption previously
granted to the press under Section 103 (f) f the NIRC. Although the exemption was
subsequently restored by administrative regulation with respect to the circulation of
income of newspapers, PPI presses its claim because of the possibility that the
exemption may still be removed by mere revocation of the regulation of the
Secretary of Finance.
Q. Is RA 7716 unconstitutional for it violates the freedom of the press?
A. No, even with due recognition of its high estate and its importance in a
democratic society, however the press is not immune from general regulation by
the State. It has been held that the publisher of a newspaper has no immunity from
the application of general laws. He has no special privilege to invade the rights and
liberty of others. He must answer for libel. He may be punished for contempt of
court. Like others, he must pay equitable and nondiscriminatory taxes on his
business.
Bills to Originate from the House of Representatives
Tolentino vs. Secretary of Finance, August 25, 1994, 235

SCRA 630
Facts: Petitioners assail the constitutionality of RA 7716 imposing Value Added Tax
(VAT) on the sale, barter or exchange of goods and properties as well as on the sale
or exchange of services. It is equivalent to 10% of gross selling price or gross value
in money of good or properties sold, bartered or exchanged or of the gross receipts
from the sale or exchange of services. RA 7716 seeks to widen the tax base on
existing VAT system and enhance its administration by amending the NIRC. The
contention of petitioners is that in enacting the VAT law, Congress violated the
Constitution because RA 7716 did not originate exclusively in the House of
Representatives, because it is in fact the result of the consolidation of two distinct
bills, one from the House of Representatives and the other from the Senate.
Q. Is contention of the petitioners correct?
A. No, it is not the law but the revenue bill which is required by the Constitution to
originate exclusively in the House of Representatives. A bill originating in the House
of Representatives may undergo extensive changes in the Senate that may result in
the rewriting of the whole. To insist that the revenue statute and not only the bill
must substantially be the same as the House bill will be to violate the Senate’s
power to concur and propose amendments.
Tax Exemption of Properties Used for Religious,

Charitable, and Educational Purposes
Herrera vs. Quezon City Board of Assessment Appeals

(QCBAA), September 30, 1961, 3 SCRA 186
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Facts: St. Catherine’s Hospital was established for charitable and humanitarian
purposes. It had a total capacity of 32 beds, 20 of which are for charity patients
and the remaining 12 are for pay patients. It likewise operates as a school for
midwifery. It used to enjoy exemption from real property tax but was later
reclassified as taxable.
Q. Are the lot, building and other improvements used by St. Catherine’s Hospital
exempt from real property tax?
A. Yes, within the purview of constitutional exemption from taxation, St. Catherine
Hospital is therefore, a charitable institution and the fact that it admits pay-patients
does not bar it from claiming that is devoted exclusively to benevolent purposes, it
being admitted that the income derived from pay-patients is devoted to the
improvement of charity ward, which represents almost 2/3 of the bed capacity of
the hospital, aside from “charity out-patients” who come only for consultation.
Moreover, the exemption in favor of the property used exclusively for

charitable or educational purposes is not limited to property actually indispensable
therefore but extends to facilities which are incidental to and reasonably necessary
for the accomplishment of said purposes, such as, in the case of hospitals, a school
for training nurses, a nurses’ home, property used to provide housing facilities for
interns, resident doctors, superintendents and other members of the hospital staff
and recreational facilities for student nurses, interns and residents, such as ‘athletic
field’ including a firm used for the inmates of the institution.
Abra Valley College vs. Aquino, 162 SCRA 106, 1988

Facts: Petitioner, an educational corporation and institution of higher learning duly
incorporated with the Securities and Exchange Commission failed to pay its real
estate taxes and penalties as a result thereof a Notice of Seizure and Notice of Sale
of the lot and building was served against the petitioner. The school was assessed
for taxes because it was not exclusively used for educational purposes. The Director
of the Abra Valley College, together with his family, occupies the second floor of the
school building as their residence. The ground floor of said building was leased to
various commercial establishments.
Q. Are the parts of the school building used as residence and leased to commercial
establishments tax-exempt?
A. I qualify; the test for exemption from taxation is the use of the property for
purposes mentioned in the Constitution. However, the exemption extends to
facilities which are incidental to and reasonably necessary for the accomplishment
of the main purposes. The use of the second floor of the main building in the case at
bar for residential purposes of the Director and his family may find justification
under the concept of incidental use, which is complimentary to the main or primary
purpose – educational. While the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence therefore not tax
exempt. The lease of the ground floor to the Northern Marketing Corporation cannot
by any stretch of imagination be considered incidental to the purpose of education.
Lung Center of the Philippines vs. Quezon City and

Constantino P. Rosas,G.R. No. 144104, June 29, 2004
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certiorari on
the decision
of CA which
affirmed the Facts: The petitioner Lung Center of the Philippines is a non-stock and non-profit
decision of entity. It is the registered owner of a 121,463 sq.m. parcel of land located at
the Central Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the
Board of Lung Center of the Philippines. A big space at the ground floor is being leased to
Assessment private parties, for canteen and small store spaces, and to medical or professional
Appeals practitioners who use the same as their private clinics for their patients whom they
holding that charge for their professional services. Almost one-half of the entire area on the left
the lot side of the building along Quezon Avenue is vacant and idle, while a big portion on
ownedby the the right side is being leased for commercial purposes to a private enterprise known
petitioner and as the Elliptical Orchids and Garden Center. Petitioner accepts paying and non-
its hospital paying patients. It also renders medical services to out-patients, both paying and
building are non-paying. Aside from its income from paying patients, the petitioner receives
subject to annual subsidies from the government. Both the land and the hospital building of
assessment the petitioner were assessed for real property taxes by the City Assessor of Quezon
City. Petitioner avers that it is a charitable institution within the context of Section
28(3), Article VI of the 1987 Constitution.
the Court held Q. Are the real properties of the petitioner exempt from real property taxes?
that the Lung
Center of the A. Those portions of its real property that are leased to private entities are not
Philippines exempt from real property taxes as these are not actually, directly and exclusively
did not lose used for charitable purposes. The Lung Center of the Philippines shall be exempt
its charitable from the payment of taxes, charges and fees imposed by the Government or any
character political subdivision or instrumentality thereof with respect to equipment purchases
when it used made by, or for the Lung Center. It is plain as day that under the decree, the
a portion of its petitioner does not enjoy any property tax exemption privileges for its real
lot for properties as well as the building constructed thereon.
commercial
purposes The tax exemption under Section 28(3), Article VI covers property taxes only. What
since the is exempted is not the institution itself but lands, buildings and improvements
effect of actually, directly and exclusively used for religious, charitable or educational
failing to meet purposes. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to
the use be entitled to the exemption, the petitioner is burdened to prove, by clear and
requirement is unequivocal proof, that (a) it is a charitable institution; and (b) its real properties
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. What
simply to
is meant by actual, direct and exclusive use of the property for charitable purposes
remove from
is the direct and immediate and actual application of the property itself to the
the tax
purposes for which the charitable institution is organized. It is not the use of the
exemption
income from the real property that is determinative of whether the property is used
that portion of for tax-exempt purposes.
the property
not devoted to
charity. DOUBLE TAXATION
CIR vs. SC Johnson and Son, Inc., June 25, 1999, 309 SCRA
102
Facts: SC Johnson and Son, Inc., is a domestic corporation organized and operating
under the Philippine laws, entered into an agreement with SC Johnson and Son,
USA, a non-resident foreign corporation based in the USA pursuant to which
respondent was granted the right to use the trademark, patents and technology
owned by the latter including the right to manufacture, package and distribute the
products covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, USA. For the use of trademark
and technology respondent was obliged to pay SC Johnson and Son, USA royalties
and subjected the same to 25% withholding tax on royalty payments. Respondent
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claim for refund of overpaid withholding tax on royalties and submit that the
royalties paid to SC Johnson and Son, USA is only subject to 10% withholding tax
pursuant to the most-favored nation clause. The CIR however, did not act on the
claim for refund.
Q. Is SC Johnson and Son, Inc. entitled to the “most favored nation” tax rate of 10%
on royalties?
A. No, since the RP-US Tax Treaty does not give a matching credit of 20% for the
taxes paid to the Philippines on royalties as allowed under the RP-West Germany
Tax Treaty, respondent cannot be deemed entitled to the 10% rate granted under
the latter treaty for the reason that there is no payment of taxes on royalties under
similar circumstances.
The “purpose of the “most favored nation clause” is to grant to the contracting
parties treatment not less favorable than that which has been or may be granted to
the “most favored” among other countries. The most favored nation clause is
intended to establish the principle of equality of international treatment by
providing that the citizens or subjects of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored nation. The
essence of the principle is to allow the taxpayer in one state to avail of more liberal
provisions granted in another tax treaty to which the country of residence of such
taxpayer is also a party provided that the subject matter of taxation, in this case,
royalty income, is the same as that in the tax treaty under which the taxpayer is
liable.
Both Articles 13 of the RP-US Tax Treaty and Article 12(2) of the RP-West
Germany Tax Treaty, above-quoted, speaks of tax on royalties for the use of
trademark, patents, and technology. The entitlement of the 10% rate by US firms
despite the absence of matching credit (20% for royalties) would derogate from the
design behind the most favored nation clause to grant equality of international
treatment since the tax burden laid upon the income of the investor is not the same
in the two countries. The similarity in the circumstances of payment of taxes is a
condition for the enjoyment of most favored nation treatment precisely to
underscore the need for equality of treatment.
On International Juridical Double Taxation --
The RP-US Tax Treaty is just one of a number of bilateral treaties which the
Philippines has entered into for the avoidance of double taxation. The purpose of
these international agreements is to reconcile the national fiscal legislation of the
contracting parties in order to help the taxpayer avoid simultaneous taxation in two
different jurisdictions. More precisely, the tax conventions are drafted with a view
towards the elimination of international juridical double taxation which is defined as
the imposition of comparable taxes in two or more states on the same taxpayer in
respect of the same subject matter and for identical periods.
Methods to Eliminate Double Taxation --
In order to eliminate double taxation, a tax treaty resorts to several methods.

First, it sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital. In some
cases, an exclusive right to tax is conferred on one of the contracting states;
however, for other items of income or capital, both states are given the right to tax,
although the amount of tax that may be imposed by the state of source is limited.
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The second method for the elimination of double taxation applies whenever the
state of source is given a full or limited right to tax together with the state of
residence. In this case, the treaties make it incumbent upon the state of residence
to allow relief in order to avoid double taxation.
There are two methods of relief - the exemption method and the credit
method. In the exemption method, the income or capital which is taxable at the
state of source or situs is exempted at the state of residence, although in some
instances it may be taken into account in determining the rate of tax applicable to
the taxpayer’s remaining income or capital. On the other hand, in the credit
method, although the income or capital which is taxed in the state of source is still
taxable in the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is that in the
exemption method, the focus is on the income or capital, whereas the credit
method focuses upon the tax.
Villanueva vs. Iloilo, 26 SCRA 578, 1968

Facts: Upon the passage of the Local Autonomy Act – RA 2264, the City of Iloilo
Board passed an Ordinance imposing municipal license tax on persons engaged in
the business of operating tenement houses. Pursuant to the said Ordinance, the
City of Iloilo collected from Villanueva several amounts for the years 1960 to 1964.
Plaintiff-appellees, as owners of tenement houses, question the constitutionality of
the ordinance. They contend that they are doubly taxed because they are paying
both the real estate tax and the tenement tax imposed by the ordinance in
question.
Q. Does the ordinance constitute double taxation?
A. No, the contention that plaintiff-appellees are double-taxed because they are
paying real estate taxes and the tenement tax imposed by the ordinance in
question is devoid of merit. It is a well-settled rule that a license tax may be levied
upon a business or occupation although the land or property used in connection
therewith is subject to property tax. The State may collect an ad valorem tax on
property used in a calling, and at the same time impose a license tax on that
calling, the imposition of the latter kind of tax being in no sense a double tax.
In order to constitute double taxation in the objectionable or prohibited sense

--
• the same property must be taxed twice when it should be taxed but
once;
• both taxes must be imposed on the same property or subject matter;
• for the same purpose;
• by the same State, Government or taxing authority;
• within the same jurisdiction or taxing district;
• during the same taxing period;
• the same kind or character of tax.
It has been shown that a real estate tax and the tenement tax imposed by
the ordinance, although imposed by the same taxing authority, are not of the same
kind or character. At all events, there is no constitutional prohibition against double
taxation in the Philippines.
TAX EVASION
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CIR vs. Benigno Toda Jr., GR 147188, Sept. 14, 2004, 438
SCRA 290
Facts: The BIR sent an assessment notice and demand letter to the Cibeles
Insurance Corporation (CIC) for deficiency income tax for the year 1989 arising from
an alleged simulated sale of a 16-storey commercial building known as Cibeles
Building in Makati City. Prior to the transaction, the CIC authorized Benigno Toda,
Jr., President and owner of 99.991% of its issued and outstanding capital stock, to
sell the Cibeles Building and the two parcels of land on which the building stands.
Toda purportedly sold the property for P100 million to Altonaga, who, in turn, sold
the same property on the same day to Royal Match Inc. (RMI) for P200 million.
These two transactions were evidenced by Deeds of Absolute Sale notarized on the
same day by the same notary public. For the sale of the property to RMI, Altonaga
paid capital gains tax in the amount of P10 million. Toda sold his entire shares of
stocks in CIC to Le Hun T. Choa for P12.5 million. Three and a half years later Toda
died.
The new CIC asked for a reconsideration asserting that the assessment should be
directed against the old CIC, and not against the new CIC, which is owned by an
entirely different set of stockholders; moreover, Toda had undertaken to hold the
buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years
1987-1989. The BIR then proceeded against the estate of Toda. The administrator of
the estate of Toda paid the deficiency taxes under protest. However, this protest
was denied by the CIR stating that a fraudulent scheme was deliberately
perpetuated by the CIC wholly owned and controlled by Toda by covering up the
additional gain of P100 million, which resulted in the change in the income structure
of the proceeds of the sale of the two parcels of land and the building thereon to an
individual capital gains, thus evading the higher corporate income tax rate of 35%.
Q. Is the scheme perpetuated by Toda a case of tax evasion or tax avoidance?
Ruling: It is a tax evasion scheme. Tax avoidance is the tax saving device within
the means sanctioned by law. This method should be used by the taxpayer in good
faith and at arms length. Tax evasion, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities. Tax evasion connotes the integration
of three factors: (1) the end to be achieved, i.e., the payment of less than that
known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an accompanying state of mind which is described as
being “evil,” in “bad faith,” “willfull,” or “deliberate and not accidental”; and (3) a
course of action or failure of action which is unlawful.
The scheme resorted to by CIC in making it appear that there were two sales of the
subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot
be considered a legitimate tax planning (one way of tax avoidance). Such scheme
is tainted with fraud. Fraud in its general sense “is deemed to comprise anything
calculated to deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable advantage is taken
of another.” Here, it is obvious that the objective of the sale to Altonaga was to
reduce the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and not the
35% corporate income tax.
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Ungab vs. Cusi, May 30, 1980, 97 SCRA 877
Facts: Upon examination of petitioner’s income tax return, it was discovered that
he failed to report his income derived from the sales of banana saplings. Convinced
that petitioner filed a fraudulent return, the BIR examiner recommended the filing of
a criminal prosecution for tax evasion. Petitioner filed a motion to quash the
information, alleging that the trial court has no jurisdiction to take cognizance of the
criminal case in view of his pending protest against the assessment made on him.
Q. Is the resolution of the protest of the assessment necessary before the filing of a
criminal case?
A. No, an assessment of a deficiency tax is not necessary to precede a criminal

prosecution for willful attempt to defeat and evade income tax. The contention of
the petitioner is without merit. There is no requirement for the precise computation
and assessment of the tax before there can be a criminal prosecution under the
Code. The crime is complete when the violator has, as in this case, knowingly and
willfully filed a fraudulent return with the intent to evade and defeat a part or all of
the tax.
CIR vs. Pascor Realty Development Corporation, 309 SCRA

402, 1999
Facts: Under authority by the CIR, revenue officers examined herein respondent’s
accounting books and discovered deficiency taxes for two (2) fiscal years. The CIR,
based on the reports made by the revenue officers, executed an affidavit and filed a
criminal complaint for tax evasion. Respondents Rogelio Dio and Virginia Dio,
officers of the corporation, assails the action of the CIR by stating that a deficiency
tax assessment should have been first filed by the CIR, rather than instituting a
criminal complaint at once.
Q. Is an assessment necessary before a criminal charge can be filed?
A. No, assessment is not a condition precedent to the filing of criminal charges for
tax evasion. Section 222 of NIRC provides that in cases where a false or fraudulent
return was submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Section 205 clearly mandates that the civil and criminal aspects of the case may be
pursued simultaneously. CIR has discretion in such tax evasion cases, whether to
file a criminal case against the taxpayer or to do both. It must be stressed that a
criminal complaint is instituted not to demand payment but to penalize the taxpayer
for violation of the Tax Code.
TAXPAYER’S SUIT
Gonzales vs. Marcos, 65 SCRA 624, 1975

Facts: Through EO No. 30, the President created a trust for the benefit of the
Filipino People under the name and style of the Cultural Center of the Philippines.
The trust was to undertake the construction of a national theater and music hall to
awaken the nation’s consciousness or cultural heritage and to promote, preserve
and enhance the same. Pursuant thereto, CCP’s Board of Trustees received foreign
donations and financial commitments. Petitioner however, claims that in issuing EO
No. 30, there was an encroachment by the President on the legislative’s prerogative
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to enact laws. The trial court dismissed the petition on the ground that Gonzales
did not have the personality to question the issuance of EO No. 30 since the funds
administered by the CCP came from donations, without a single centavo raised by
taxation.
Q. Does the petitioner have the personality to question the validity of EO No. 30
based on a taxpayer’s suit?
A. No, Gonzales did not meet the requisite burden to warrant the reversal of the
trial court’s decision. It was pointed out therein that one valid reason why such an
outcome was unavoidable was that the funds administered by the Center came
from donations and contributions and not from taxation. Accordingly, there was the
absence of the pecuniary requisite or monetary interest. The stand of the lower
court finds support in judicial precedents. This is not to retreat from the liberal
approach followed in the earlier case of Pascual vs. Secretary of Public Works,
foreshadowed by People vs. Vera, where the doctrine was exhaustively discussed.
It is only to clarify that the Petitioner, judged by orthodox legal learning, has not
satisfied an element for a taxpayer’s suit.
INCOME TAXATION
Global System vs. Schedular System
Tan vs Del Rosario Jr., 237 SCRA 324, 1994

Facts: The Simplified Net Income Taxation Scheme (SNITS) was promulgated
imposing a tax on taxable net income from all sources, other than income from
salaries, of every individual whether a citizen of the Philippines or an alien residing
in the Philippines who is self-employed or practices his profession herein. Petitioners
challenge said law for violating the constitutional requirement of uniformity in
taxation in that the law would now attempt to tax single proprietorship and
professionals differently from the manner that it imposes tax on corporations and
partnerships.
Q. Is the law invalid for it runs counter to the constitutional rule that taxation shall
be uniform and equitable?
A. No, uniformity in taxation merely requires that all subjects or objects of taxation
similarly situated be treated alike in both privileges and liabilities. Uniformity does
not forbid classification as long as –
1) The standards that are used therefore are substantial and not arbitrary;
2) The categorization is germane to achieve the legislative purpose;
3) The law applies all things being equal, to both present and future
conditions, and
4) The classification applies equally well to all those belonging to the same
class.
What may instead be perceived to be apparent from the amendatory law is

the legislative intent to increasingly shift the income tax system towards the
schedular approach in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment on the taxable corporations.
We certainly do not view this classification to be arbitrary and inappropriate.
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With the legislature primarily lies the discretion to determine the nature
(kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of
taxation. This court cannot freely delve into those matters which, by constitutional
fiat, rightly rest on legislative judgment. Where a tax measure becomes so
unconscionable and unjust as to amount of confiscation of property, courts will not
hesitate to strike it down, for, despite all its plenitude, the power to tax cannot
override constitutional proscriptions.
Schedular System -- employed where the income tax treatment varies and made
to depend on the kind or category of taxable income of the taxpayer.
Global System -- tax treatment views indifferently the tax base and generally
treats in common all categories of taxable income of the taxpayer.
Judicial Definition
Fisher vs. Trinidad, 43 Phil 973

Facts: Frederick C. Fisher, was a stockholder in the Philippine American Drug
Company. Said corporation declared a stock dividend and that a proportionate
share of stock dividend was issued to the plaintiff-appellant. Trinidad, being the
then Commissioner of Internal Revenue, demanded payment of income tax on the
aforesaid dividends. Fisher protested the assessment made against him and
claimed that the stock dividends in question are not income but are capital and are,
therefore, not subject to tax.
Q. Are stock dividends income?
A. No, stock dividends are not income and are therefore not taxable as such. A
stock dividend, when declared, is merely a certificate of stock which evidences the
interest of the stockholder in the increased capital of the corporation. A declaration
of stock dividend by a corporation involves no disbursement to the stockholder of
accumulated earnings, and the corporation parts with nothing to its stockholder.
The property represented by a stock dividend is still that of the corporation and not
of the stockholder. The stockholder has received nothing but a representation of an
interest in the property of the corporation and, as a matter of fact, he may never
receive anything, depending upon the final outcome of the business of the
corporation.
While income is the gain derived from capital, from labor, from both capital
and labor, including the gain derived from the sale or exchange of capital assets.
Conwi vs. CTA, August 31, 1992, 213 SCRA 83

Income may be defined as an amount of money coming to a person or
corporation within a specified time, whether as payment for services, interest or
profit from investment. Unless otherwise specified, it means cash or its equivalent.
Income can also be thought of as a flow of the fruits of one's labor.
Sources of Income
CIR vs. British Overseas Airways Corporation (BOAC), April

30, 1987,149 SCRA 395
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Facts: BOAC is engaged in the international airline business. It had no landing
rights in the Philippines, and was not granted a Certificate of public convenience
and necessity to operate in the Philippines by the Civil Aeronautics Board (CAB),
except for a nine-month temporary landing permit. It did not carry passengers or
cargo to or from the Philippines, although it maintained a general sales agent the
Philippines-Warner Barnes and Company, Ltd. (Qantas Airways), which was
responsible for selling BOAC tickets covering passengers and cargoes. The CIR
issued an assessment against BOAC for deficiency income taxes, interests, and
compromise penalties because the sale of the ticket does not constitute income in
the Philippines because no carriage of person or cargo was made by BOAC therein.
Q. Is the selling of tickets by BOAC without landing rights in the Philippines

constitute income derived therein and therefore subject to income tax?
A. Yes, for the source of income to be derived in the Philippines, it is sufficient that
the income is derived from the activity in the Philippines. The source of an income
is the property, activity or service that produced the income. The sale of the tickets
is the activity that produces the income. The situs or the source of the payment is
in the Philippines. The flow of wealth proceeded form and occurred within the
Philippine territory enjoying the protection accorded by the Philippine Government.
The absence of flight operations is not determinative of the source of income
or the situs of income taxation. The test of taxability is the source. Hence, the
absence of flight operations cannot alter the fact that tickets were sold in the
Philippines and the revenue derived therefrom were derived from a business
activity regularly pursued in the Philippines.
Functions of Income Tax
Madrigal vs. Rafferty, 38 Phil 414

The aim has been to mitigate the evils arising from the inequalities of wealth
by a progressive scheme of taxation, which places the burden on those best able to
pay. To carry out this idea, public considerations have demanded an exemption
roughly equivalent to the minimum of subsistence. With these exceptions, the
Income Tax Law is supposed to reach the earnings of the entire non-governmental
property of the country.
Partnership Theory
CIR vs. Lednicky, July 31, 1964 11 SCRA 603

Facts: The Lednicky spouses are resident aliens deriving all their income from
Philippine sources. After filing their income tax returns for the years 1955, 1956
and 1957, they paid the corresponding taxes thereon. Thereafter, the spouses filed
an amended income tax return claiming therein deductions for foreign income taxes
paid to the U.S. Government and they requested the refund of the allegedly
overpaid taxes. The spouses stress that if they are not allowed to deduct the
income taxes they ate required to the US Government in their return for Philippine
income tax, they would be subjected to double taxation.
Q. Is the contention of the spouses correct?
A. No, double taxation becomes obnoxious only when the taxpayer is taxed twice
for the benefit of the same governmental entity. In the present case, while the
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spouses would have to pay two taxes on the same income, the Philippine
Government only receives the proceeds of one tax. As between the Phil., where the
income was earned and where the taxpayer is domiciled, and the US, where the
income was not earned and where the taxpayer did not reside, it is undisputable
that justice and equity demand that the tax on the income should accrue to the
benefit of the Phil. xxx the right of a government to tax income emanates from its
partnership in the production of income, by providing the protection, resources,
incentives, and proper climate for such production xxx.
Requisites for Income to be Taxable:

1. There must be gain or profit, whether in cash or its
equivalent.
2. The gain must be realized.
3. The gain must not be excluded by law or treaty from taxation.
Fernandez Hermanos, Inc. vs. Commissioner, September

30, 1960, 29 SCRA 553
Facts: Petitioner, is a domestic corporation organized for the principal purpose of
engaging in business as an “investment company”. The CIR questions the Tax
Court's allowance of the taxpayer's writing off as worthless securities in its 1950
return the sum of P8,050.00 representing the cost of shares of stock of Mati Lumber
Co. acquired by the taxpayer on January 1, 1948, on the ground that the
worthlessness of said stock in the year 1950 had not been clearly established. The
Commissioner contends that although the said Company was no longer in operation
in 1950, it still had its sawmill and equipment which must be of considerable value.
The Court, however, found that "the company ceased operations in 1949 when its
Manager and owner died. When the company ceased to operate, it had no assets, in
other words, completely insolvent. This information as to the insolvency of the
Company — reached (the taxpayer) in 1950," when properly claimed the loss as a
deduction in its 1950 tax return, pursuant to Section 30(d) (4) (b) or Section 30 (e)
(3) of the National Internal Revenue Code.
Q. Is the worthlessness of the said stock had been clearly established?
A. Yes, there was adequate basis for the writing off of the stock as worthless
securities. Assuming that the Company would later somehow realize some proceeds
from its sawmill and equipment, which were still existing, and that such proceeds
would later be distributed to its stockholders such as the taxpayer, the amount so
received by the taxpayer would then properly be reportable as income of the
taxpayer in the year it is received.
Constructive Receipt
Limpan Investment Corp. vs. Commisioner, 17 SCRA 703

Facts: Petitioner, a domestic corporation duly registered is engaged in the business
of leasing real properties. Limpan duly filed its 1956 and 1957 income tax returns
however the examiners of BIR conducted investigation of petitioner’s income tax
returns and they discovered and ascertained that petitioner had under declared its
rental income during said taxable years and had claimed excessive depreciation of
its buildings. CIR demands the payment of deficiency income tax. Petitioner denied
having received or collected the said unreported rental income explaining that part
of said amount was not declared because its president did not turn the same over
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to petitioner in said year but did so only in 1959 and that a certain tenant deposited
in court his rentals over which the corporation had no actual or constructive control.
Q. Is the contention of the petitioner sufficient to justify the non-declaration of

rental income?
A. No, the withdrawal in 1958 of the deposits in court pertaining to the 1957 rental
income is no sufficient justification for the non- declaration of said income in 1957,
since the deposit was resorted to due to the refusal of petitioner to accept the
same, and was not the fault of its tenants; hence, petitioner is deemed to have
constructively received such rentals in 1957. The payment by the sub- tenant in
1957 should have been reported as rental income in said year, since it is income
just the same regardless of its source.
EXCLUSIONS FROM GROSS INCOME
Proceeds of Life Insurance
El Oriente vs. Posadas, 56 Phil 147

Facts: El Oriente is a domestic corporation duly organized and existing under Phil.
laws. Plaintiff, in order to protect itself against the loss that it might suffer by reason
of the death of its manager, A. Velhagen, who had had more than thirty-five (35)
years of experience in the manufacture of cigars in the Philippines, and whose
death would be a serious loss to the plaintiff, procured from the Manufacturers Life
Insurance Co., an insurance policy on the life of the said manager and designated
itself as the sole beneficiary. Plaintiff paid for the insurance premiums and charged
the same as expenses of its business and deducted the same from its gross income
which Posadas, the duly appointed, qualified and acting Collector of Internal
Revenue allowed. Upon the death of Velhagen, plaintiff received all the proceeds of
the life insurance policy which Posadas assessed and levied as income tax. Plaintiff
paid under protest claiming exemption.
Q. Are the proceeds of the life insurance policy taxable?
A. No, the proceeds of insurance taken by a corporation on the life of an important

official to indemnify it against loss in case of his death, are not taxable as income
under the Philippine Income Tax Law. The indefiniteness of the local law is
emphasized.
Retirement Benefits
Re: Request of Atty. Bernardo Zialcita, October 18, 1990,

190 SCRA 851
Facts: Bernardo Zalcita, a retired employee of the Supreme Court filed a request
with the SC for the refund of the amount of P59,502.33 which was deducted from
his terminal leave pay as withholding tax. The Court said that the terminal leave
pay of Atty. Zialcita, which he received by virtue of his compulsory retirement, can
never be considered as part of his salary subject to income tax. Hence, Atty.
Zialcita’s request was granted.
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Q. Is terminal leave pay subject to income tax?
A. No, the commutation of leave credits is commonly known as terminal leave pay.
The same is applied for by an employee who retires or resigns or is separated from
service through no fault of his own. Since terminal leave pay is applied for by an
officer or employee who has already severed his connection with his employer and
who is no longer working, it necessarily follows that the terminal leave pay or its
cash equivalent is no longer compensation for services rendered. Therefore, it
cannot be received by the said employee as salary. Upon his compulsory
retirement, he is entitled to the commutation of his accumulated leave credits to its
monetary value. It is a cause beyond the control of the said official or employee.
Thus, it is one of those excluded from gross income and is therefore not subject to
tax.
Miscellaneous items
Commissioner vs. Mitbushi Metal Corporation, 181 SCRA

214
Facts: Atlas Consolidated Mining and Development Corporation (Atlas) entered into
a Loan and Sales Contract with Mitsubishi Metal Corporation (Mitsubishi), a Japanese
corporation licensed to engage in business in the Phil., for purposes of the projected
expansion of the productive capacity of the former's mines in Toledo, Cebu. Under
said contract, Mitsubishi agreed to extend a loan to Atlas 'in the amount of
$20,000,000.00, US currency, for the installation of a new concentrator for copper
production. Atlas, in turn undertook to sell to Mitsubishi all the copper concentrates
produced from said machine for a period of fifteen (15) years. It was contemplated
that $9,000,000.00 of said loan was to be used for the purchase of the concentrator
machinery from Japan.
Mitsubishi thereafter applied for a loan with the Export-Import Bank of Japan
(Eximbank for short) obviously for purposes of its obligation under said contract.
Pursuant to the contract between Atlas and Mitsubishi, interest payments were
made by the former to the latter. A claim for tax credit was filed by Atlas.
Q. Is the loan tax exempt?
A. No, under Section 29 (b) (7) (A), excludes from gross income: "(A) Income
received from their investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on their deposits in banks in the Philippines by
(1) foreign governments, (2) financing institutions owned, controlled, or enjoying
refinancing from them, and (3) international or regional financing institutions
established by governments."
The loan and sales contract between Mitsubishi and Atlas does not contain
any direct or inferential reference to Eximbank whatsoever. The agreement is
strictly between Mitsubishi as creditor in the contract of loan and Atlas as the seller
of the copper concentrates. Meanwhile, the contract between Eximbank and
Mitsubishi is entirely different. It is too settled a rule in this jurisdiction, as to
dispense with the need for citations, that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The burden of proof
rests upon the party claiming exemption to prove that it is in fact covered by the
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exemption so claimed, which onus petitioners have failed to discharge. Significantly,
private respondents are not even among the entities which, under Section 29 (b) (7)
(A) of the Tax code, are entitled to exemption and which should indispensably be
the party in interest in this case.
INDIVIDUAL INCOME TAXATION

Tax Exempt Compensation Income
Collector vs. Henderson, February 28, 1961, 1 SCRA 649

Convenience of the Employer Rule
Facts: Arthur, is the president of the American International Underwriters for the
Phil. Inc, a domestic corporation engaged in insurance business. Spouses Arthur
and Marie Henderson filed with the BIR returns of annual net income for the years
1948 to 1952. The spouses received from the BIR, assessment notice and paid the
amount assessed. The BIR reassessed the taxpayer’s income after investigation. In
the foregoing assessment, the BIR included the taxpayer-husband’s allowances for
rental, residential, subsistence, water, and bonus paid to him. The taxpayer asked
for reconsideration with the Collector but was denied.
Q. Are the allowances given by his employer formed part of the taxable income?
A. Although the quarters they occupied exceeded their personal needs, the
exigencies of husband-taxpayer's high executive position demanded and compelled
them to live in more spawning and pretentious quarters like the ones they had
occupied. They had to entertain and put up house-guests in their apartments. This
is the reason why the husband-taxpayer's employer-corporation had to grant him
allowance for rental and utilities in addition to his annual basic salary to take care of
those extra expenses for rental and utilities in excess of their personal needs. The
fact that the taxpayers had to live or did not have to live in the apartment's chosen
by the husband-taxpayer's employer-corporation is of no moment, for no part of the
allowances in question redounded to their personal benefit or was retained by them.
Their bills for rental and utilities were paid directly by the employer-corporation to
the creditors. Nevertheless, the taxpayers are entitled only to a ratable value of the
allowances in question. Only the reasonable amount they would spent for house
rental and utilities such as light, water, telephone, etc., should be subject to tax.
The excess should be considered as expenses of the corporation.
Allowable Deductions from Gross Compensation
Income:
Personal Exemptions
Madrigal vs. Rafferty, August 7, 1918, 38 Phil 414

Facts: Vicente Madrigal is married to Susana Paterno. He filed a tax return with the
Collector of Internal Revenue, herein appellee, for his income tax for the year 1914.
Thereafter, he claims that the amount reflected in the return does not represent his
income alone but that of the conjugal partnership of the spouses. He proposes that
the aforementioned net income be divided equally into two parts for the payment of
the proper tax. His claim having been denied, appellant pays the tax under protest.
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Q. Should the income tax be divided between the spouses?
A. Susana Paterno, wife of Vicente Madrigal, has an inchoate right in the property of
her husband Vicente Madrigal during the life of the conjugal partnership. She has an
interest in the ultimate property rights and in the ultimate ownership of property
acquired as income after such income has become capital. Susana Paterno has no
absolute right to one-half the income of the conjugal partnership. Not being seized
of a separate estate, Susana Paterno cannot make a separate return in order to
receive the benefit of the exemption which would arise by reason of the additional
tax. As she has no estate and income, actually and legally vested in her and entirely
distinct from her husband's property, the income cannot properly be considered the
separate income of the wife for the purposes of the additional tax. Moreover, the
Income Tax Law does not look on the spouses as individual partners in an ordinary
partnership. The husband and wife are only entitled to the exemption of P8,000,
specifically granted by the law.
BUSINESS/ TRADE/ PROFESSIONAL INCOME
GR: Stock dividends are not taxable.
Commissioner vs. CA, January 20, 1999, 301 SCRA 152

Facts: Don Andres Soriano, a citizen and resident of the US, formed the corporation
“A. Soriano Y Sia”, predecessor of ANSCOR. ANSCOR is wholly owned and controlled
by the family of Don Andres, who are all non-resident aliens. ANSCOR declared
stock dividends. In 1964, Don Andres died one-half of his shareholdings were
transferred to his wife, Dona Carmen, as her conjugal share and the other half
formed part of his estate. Dona Carmen requested a ruling from the US Internal
Revenue Service, inquiring if an exchange of common with preferred shares may be
considered as tax avoidance scheme. The IRS opined that the exchange is only
recapitalization scheme and not tax avoidance scheme. The BIR examiners after
examining ANSCOR’ books of account and records issued a report proposing that
ANSCOR be assessed for deficiency withholding tax. Petitioner contends that the
redemption of stocks and exchange of common with preferred shares can be
considered as “essentially equivalent to the distribution of taxable dividend”,
making the proceeds thereof taxable.
Q. Is the contention of petitioner correct?
A. No, stock dividends, strictly speaking, represent capital and do not constitute
income to its recipient. So that the mere issuance thereof is not yet subject to
income tax as they are nothing but an “enrichment through increase in value of
capital investment.” In a loose sense, stock dividends issued by the corporation are
considered unrealized gain, and cannot be subjected to tax until that gain has been
realized.
EXCPS:
Cancellation or redemption of shares of stock
Commissioner vs. CA, January 20, 1999, 301 SCRA 152
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However, if a corporation cancels or redeems stock issued as a dividend at
such time and in such manner as to make the distribution and cancellation or
redemption in whole or in part, essentially equivalent to the distribution of a taxable
dividend, the amount so distributed in redemption or cancellation of stock shall be
considered as taxable income to the extent it represents a distribution of earning or
profits. The exception was designed to prevent the issuance and cancellation or
redemption of stock dividends, which is fundamentally not taxable, from being
made use as a device for the actual distribution of cash dividends.
Recipient is other than shareholder. Stock dividend is taxable to

usufructuary.
Bachrach vs Siefert, 87 Phil (wala po kme makitang ganitong

ruling sa mismong case or maybe we got the wrong case. paki
check nalang po, tnx.)
Under the Massachusetts rule, a stock dividend is considered part of the
capital and belongs to the remainderman; while under the Pennsylvania rule, all
earnings of a corporation, when declared as dividends in whatever form, made
during the lifetime of the usufructuary, belong to the latter. xxx The Pennsylvania
rule is more in accord with our statutory laws than the Massachusetts rule. Under
section 16 of our Corporation Law, no corporation may make or declare from its
business. Any dividend, therefore, whether cash or stock, represent surplus profits.
Article 471 of the Civil Code provides that the usufructuary shall be entitled to
receive all the natural, industrial, and civil fruits of the property in the usufruct. The
stock dividend in question in this case is a civil fruit of the original investment. The
shares of stock issued in payment of said dividend may be sold independently of
the original shares just as the offspring of a domestic animal may be sold
independently of its mother. Thus, being a civil fruit, said stock dividend maybe
taxable to the usufructuary.
Dividends declared in the guise of treasury stock dividend

to avoid the effects of income taxation
Commissioner vs. Manning, August 6, 1975, 66 SCRA 14

Treasury shares are stocks issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or other means. They are
therefore issued shares, but being in the treasury they do not have the status of
outstanding shares. Consequently, although a treasury share, not having been
retired by the corporation re-acquiring it, may be re-issued or sold again, such
share, as long as it is held by the corporation as a treasury share, participates
neither in dividends, because dividends cannot be declared by the corporation to
itself, nor in the meetings of the corporations as voting stock, for otherwise equal
distribution of voting powers among stockholders will be effectively lost and the
directors will be able to perpetuate their control of the corporation though it still
represent a paid - for interest in the property of the corporation. Where the manifest
intention of the parties to the trust agreement was, in sum and substance, to treat
the shares of a deceased stockholder as absolutely outstanding shares of said
stockholder's estate until they were fully paid. The declaration of said shares as
treasury stock dividend was a complete nullity and plainly violative of public policy.
CORPORATION INCOME TAXATION:

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Unregistered or Registered Partnership
Evangelista vs. Collector of Internal Revenue, October 15,

1957,102 Phil 140
Facts: Petitioners borrowed a sum of money from their father which amount
together with their personal monies was used by them for the purpose of buying
real properties. The real properties they bought were rented or leased to various
tenants. The respondent demanded the payment of income tax on corporations,
real estate dealer’s tax, and corporation residence tax. However, petitioners seek to
reversed the letter of demand and be absolved from the payment of the taxes in
question.
Q. Are petitioners subject to tax on corporations?
A. Yes, "Corporations" strictly speaking are distinct and different from

"partnership". When our Internal Revenue Code includes "partnership" among the
entities subject to the tax on "corporations", it must be allude to organizations
which are not necessarily "partnership" in the technical sense of the term. Section
24 of the Internal Revenue Code exempts from the tax imposed upon corporations
"duly registered general partnership", which constitute precisely one of the most
typical forms of partnership in this jurisdiction. As defined in section 84 (b) of the
Internal Revenue Code "the term corporation includes partnership, no matter how
created or organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standards form, or conformity with
the usual requirements of the law on partnerships, in order that one could be
deemed constituted for the purposes of the tax on corporations.
Rosales vs. Rallos, September 24, 1903, 2 Phil 509

An agreement between two persons to operate a cockpit, by which one is to
contribute his services and the other to provide the capital, the profits to be divided
between them, constitutes a partnership.
Ońa, et al vs Commissioner, May 25, 1972, 45 SCRA 74

Facts: Julia Buńales died leaving as heirs her surviving spouse, Lorenzo Ońa and her
five children. A settlement of the estate was instituted in the CFI. The project
partition was approved by the Court however, there was no attempt made to divide
the properties listed. Instead, the properties remained under the management of
Lorenzo who used said properties by leasing or selling them and investing the
income derived therefrom and the proceeds from the sales thereof in real
properties and securities. From said investments and properties petitioners derived
such income as profits. Respondent decided that petitioners formed an unregistered
partnership and therefore subject to corporate income tax. Petitioners protested the
assessment and asked for reconsideration alleging that they are co-owners of the
properties inherited and the profits derived from the transactions.
Q. Are petitioners subject to corporate income tax?
A. Yes, as a rule, co-ownership is tax exempt. The co-ownership of inherited

properties is automatically converted into an unregistered partnership the moment
the said common properties and/or the income derived therefrom are used as
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common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in the proper partition either
duly executed in an extra-judicial settlement or approved by the court in the
corresponding estate or intestate proceeding. If after such partition, each heir
allows his share to be held in common with his co-heirs under a single management
to be used with the intent of making profit thereby in proportion to his share, there
can be no doubt that, even if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered partnership is formed and
therefore subject to corporate income tax.
Pascual and Dragon vs. Commissioner, 166 SCRA 560

Facts: Pascual and Dragon bought 2 parcels of land from Bernardino and 3 from
Roque. Thereafter, the first two were sold to Meirenir Development Corporation and
3 to Reyes and Samson. They divided the profits between the two (2) of them. The
Commissioner contended that the petitioners formed an unregistered partnership or
joint venture taxable as a corporation under the Code and its income is subject to
the NIRC.
Q. Is there an unregistered partnership formed?
A. There was no partnership formed. The sharing of returns does not in itself
establish a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. (see Article 1769, NCC). In the present
case, there is clear evidence of co-ownership between the petitioners. There is no
adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and
sold the same a few years thereafter did not thereby make them partners. The
transactions were isolated. The character of habituality peculiar to business
transactions for the purpose of gain was not present.
Obillos, Sr. vs. Commissioner, October 29, 1985,139 SCRA

436
Facts: On 2 March 1973, Joe Obillos Sr. transferred his rights under contract with
Ortigas Co. to his 4 children to enable them to build residences on the lots. TCTs
were issued. Instead of building houses, a year, the Obillos children sold them to
Walled City Securities Corporation and Olga Cruz Canda. Petitioner required the
children to pay corporate income tax under the theory that they formed an
unregistered partnership or joint venture.
Q. Are the petitioners liable for corporate income tax?
A. No, Obillos children are co-owners, it is an isolated act which shows no intention
to from a partnership. To regard the Obillos children as having formed a taxable
unregistered partnership would result in oppressive taxation and confirm the dictum
that the power to tax involves the power to destroy. It appears that they decided to
sell it after they found it expensive to build houses. The division of the profit was
merely incidental to the dissolution of the co-ownership which was in the nature of
things a temporary state.
Joint Accounts or Joint Ventures formed for profits
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Collector vs. Batangas Co., 54 OG 6724 Joint Emergency
Operation
Facts: Batangas Transportation and Laguna Bus were registered and operating
separately. They were placed under one sole management called the "Joint
Emergency Operation" whereby the joint management operates the business affairs
of the two companies as though they constitute a single entity thereby obtaining
substantial economy and profit in operation. The theory of the Collector is that the
Joint Emergency Operation was a corporation distinct from the two respondent
companies, as defined in section 84 (b), and so liable to income tax under section
24, both of the National Internal Revenue Code.
Q. Is the contention of the Collector correct?
A. Yes, the Joint Emergency Operation is a corporation within the meaning of

section 84 (b) of the Internal Revenue Code, and consequently, it is taxable under
section 24 of the same code. It cannot possibly be true and correct to say that at
the end of each year, the gross receipts and income and the gross expenses of two
companies are exactly the same for purposes of the payment of income tax.
Joint Stock Companies
Brocki vs. American Express Company, CA Michigan, 279F 2d

785
Joint Stock Companies are generally classified as a partnership possessing
some character of the characteristics of a corporation. They appear to be like
corporations to the extent that they have capital stock but when capital is divided
or made transferable even without the consent of the co-partner, they partake of
the nature of partnership.
Major Groups of Corporation for Income Tax Purposes

1. Domestic Corporations
2. Resident Foreign Corporations
3. Non-Resident Foreign Corporations
Far East International Import-Export Corp vs. Nankai

Kogyo Co., November 30, 1962, 6 SCRA 725
Facts: Petitioner is a corporation organized under Phil. laws, entered into a
Contract of Sale of Steel scrap with Nankai, a foreign corporation organized under
Japanese laws. The buyer signed in Japan and the seller in Manila. Upon the
perfection of the contract Nankai opened a Letter of Credit with China Banking
Corporation. Four days before the expiration of petitioner’s export license 3 boats
sent by respondent arrived in the Phillippines. Upon the expiration of the license,
scrap steel was loaded however the loading was stopped. Far East seeks for the
extension of license which was refused by then Pres. Garcia. A complaint was filed
by Far East for specific performance directed against Nankai and the shipping
company to issue and deliver to petitioner the complete set of Bill of Lading for
metric tons of scrap delivered to defendant and a writ of preliminary mandatory
injunction against China Bank. Nankai filed a motion to dismiss the complaint and
the dissolve the injunction on the ground of lack of jurisdiction over the defendant
and over the subject matter.
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Q. Does the Philippine court have jurisdiction over the case?
A. Yes, Nankai was doing business in the Phil. this was corroborated by the
testimony of Nabuo Yoshida, one of the appellant's officers, revealed the
defendant's desire to continue engaging in business here, after receiving the
shipment of the scrap iron under consideration, making the Philippines a base
thereof.
“Transacting business” means continuity of commercial dealing and

arrangements.
The rule that the doing of a single act does not constitute business within the
meaning of statutes prescribing the conditions to be complied with by foreign
corporations must be qualified to this extent, that a single act may bring the
corporation within the purview of the statute where it is, an act of the ordinary
business of the corporation. In such a case, the single act or transaction is not
merely incidental or casual, but is of such character as distinctly to indicate a
purpose on the part of the foreign corporation to do other business in the state, and
to make the state a basis of operations for the conduct of a part of the corporation's
ordinary business.
N.V. Reederij “Amsterdam” vs. Commissioner, June

23,1988, 162 SCRA 487
Facts: Petitioner is a foreign corporation not authorized or licensed to do business
in the Phil. It does not have a branch office in the Phil. and it made only two calls in
Phil. ports to unload cargoes for foreign destination. In these two instances, Royal
International Ocean Lines acted as husbanding agent for a fee or commission on
said vessels. No income tax appears to have been paid by petitioner on the freight
receipts. Defendant made an assessment as a non-resident foreign corporation not
engaged in trade or business. Petitioner filed a petition praying for the cancellation
of the subject assessment.
Q. Is petitioner a non-resident foreign corporation not engaged in trade or business?
A. Yes, the corporation is considered as a non-resident foreign corporation. In order

that a foreign corporation may be considered engaged in trade or business, its
business transactions must be continuous. Casual activity as in this case, does not
amount to engaging in trade or business in the Phillipines.
Branch Profit Remittance Tax
Commissioner vs. Marubeni, 177 SCRA 500

Facts: Marubeni Corporation, is a foreign corporation duly organized and existing
under the laws of Japan and duly licensed to engage in business under Philippine
laws. Atlantic Gulf and Pacific Co. of Manila (AG&P) declared and paid cash
dividends to petitioner and withheld the corresponding final dividend tax thereon.
Subsequently, Marubeni claimed for the refund or issuance of a tax credit
representing profit tax remittance erroneously paid on the dividends remitted by
AG&P. Marubeni contends that it is a resident foreign corporation subject only to
the 10% intercorporate final tax on dividends received from a domestic corporation
in accordance with Section 24(c) (1) of the Tax Code of 1977.
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Q. Is the contention of Marubeni correct?
A. No, the dividend income remitted to Marubeni Corporation of Japan arising from
its equity investments in Atlantic, Gulf and Pacific Company of Manila is considered
separate and distinct income from the branch office in the Philippines. There can be
no other logical conclusion that the investment was made for purposes peculiarly
germane to the conduct of the corporate affairs to Marubeni, Japan, but certainly
not of the branch in the Philippines.
Tax Sparing Credit Rule

CIR vs. Wander Philippines Inc., 160 SCRA 573
Facts: Wander Inc. is a domestic corporation owned by Glaro S.A. Ltd., - a service
corporation not engaged in trade or business in the Philippines. Wander remits
dividends to its parent company out of which Wander withholds 35% and pays the
same to the BIR. Wander filed a claim for refund, contending that it is liable only for
15% withholding tax and not 35% as provided in the Tax Code.
Q. Is Wander entitled to the preferential rate of 15% withholding tax on the

dividends it remitted to Glaro?
A. Yes, under the Tax Code, dividends received from a domestic corporation liable
to tax, the tax rate shall be 15% of the dividends remitted, subject to the condition
that the country in which the non-resident corporation shall allow a credit against
the tax due from the non-resident corporation taxes deemed to be paid in the
Philippines equivalent to 20% which represents the difference between the regular
tax of 35% on corporations and 15% tax on dividends.
In the instant case, Switzerland did not impose any tax on dividends received
by Glaro. Such fact, however, should be considered as a full satisfaction of the
given conditions. To deny Wander to withhold the 15% tax would run counter to the
very spirit and intent of said law.
Subsidiary corporation (withholding agent) file an action

for refund
Commissioner vs. Procter, 204 SCRA 377

Facts: Procter and Gamble Philippine Manufacturing Corporation ("P&G-Phil.")
declared dividends payable to its parent company and sole stockholder, Procter and
Gamble Co., Inc. (USA) ("P&GUSA"). P&G-Phil. filed with petitioner Commissioner of
Internal Revenue a claim for refund or tax credit.
Q. May a subsidiary corporation (withholding agent) file an action for refund?
A. Yes, P& G(USA) is properly regarded as a “taxpayer” within the meaning of

Section 309, NIRC [now Section 22 (N)] and therefore, authorized to file refund.
Withholding agent is technically considered as taxpayer. It is also an agent of the
taxpayer in reporting such income. If the withholding agent is also an agent of the
beneficial owner, such authority may reasonably be held to include the authority to
file a claim for refund and to bring an action for recovery of such claim. This implied
authority is especially warranted where the withholding agent is the wholly owned
subsidiary of the parent-stockholder and therefore, at all times, under the effective
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control of such parent-stockholder. It seems particularly unreal to deny the implied
authority of P&G-Phil. to claim a refund and to commence an action for such refund.
ALLOWABLE DEDUCTIONS FROM GROSS INCOME:

Atlas Consolidated Mining vs. Commissioner, January 27,
1981, 102 SCRA 246
Facts: Atlas is a corporation engaged in the mining industry registered under the
laws of the Phil. The Commissioner assessed against Atlas deficiency income taxes
for the years 1957 and 1958. It is the contention of Atlas that the amount paid in
1958 as annual public relations expenses is a deductible expense from gross
income under Section 30 (a) (1) of the NIRC. Atlas claimed that it was paid for
services of a public relations firm, P.K Macker & Co., a reputable public relations
consultant in New York City, U.S.A., hence, an ordinary and necessary business
expense in order to compete with other corporations also interested in the
investment market in the US. It is the stand of Atlas that information given out to
the public in general and to the stockholder in particular by the P.K MacKer & Co.
concerning the operation of the Atlas was aimed at creating a favorable image and
goodwill to gain or maintain their patronage.
Q. Can Atlas claim the amount paid for the services of a public relations firm as
deduction?
A. The principle is recognized that when a taxpayer claims a deduction, he must

point to some specific provision of the statute in which that deduction is authorized
and must be able to prove that he is entitled to the deduction which the law allows.
As previously adverted to, the law allowing expenses as deduction from gross
income for purposes of the income tax is Section 30 (a) (1) of the NIRC which allows
a deduction of "all the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business." An item of expenditure, in order
to be deductible under this section of the statute, must fall squarely within its
language.
Business Expenses, Requisites for Deductibility;

1. The expense must be ordinary and necessary.

1981, 102 SCRA 246
Facts: Atlas is a corporation engaged in the mining industry registered under the
laws of the Phil. The Commissioner assessed against Atlas deficiency income taxes
for the years 1957 and 1958. It is the contention of Atlas that the amount paid in
1958 as annual public relations expenses is a deductible expense from gross
income under Section 30 (a) (1) of the NIRC. Atlas claimed that it was paid for
services of a public relations firm, P.K Macker & Co., a reputable public relations
consultant in New York City, U.S.A., hence, an ordinary and necessary business
expense in order to compete with other corporations also interested in the
investment market in the United States. It is the stand of Atlas that information
given out to the public in general and to the stockholder in particular by the P.K
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MacKer & Co. concerning the operation of the Atlas was aimed at creating a
favorable image and goodwill to gain or maintain their patronage.
Q. Is the expenses paid for the services rendered by a public relations is an

allowable deduction as business expense under Section 30 (a) (1) of the NIRC?
A. There is thus no hard and fast rule on the matter. The right to a deduction
depends in each case on the particular facts and the relation of the payment to the
type of business in which the taxpayer is engaged. The intention of the taxpayer
often may be the controlling fact in making the determination. Assuming that the
expenditure is ordinary and necessary in the operation of the taxpayer's business,
the answer to the question as to whether the expenditure is an allowable deduction
as a business expense must be determined from the nature of the expenditure
itself, which in turn depends on the extent and permanency of the work
accomplished by the expenditure.
The expenditure paid by Atlas for services carrying on the selling campaign in an
effort to sell Atlas' additional capital stock is not an ordinary expense. Reason:
Capital expenditures (such as recapitalization and reorganization expenses, the
cost of obtaining stock subscription, promotion expenses and commission or fees
paid for the sale of stock organization) are not deductible.
Ordinarily, an expense will be considered "necessary" where the expenditure is

appropriate and helpful in the development of the taxpayer's business. It is
"ordinary" when it connotes a payment which is normal in relation to the business of
the taxpayer and the surrounding circumstances. The term "ordinary" does not
require that the payments be habitual or normal in the sense that the same
taxpayer will have to make them often; the payment may be unique or non-
recurring to the particular taxpayer affected.
Visayan Cebu Terminal Co. vs. Collector, CTA Case No. 28,
June 29, 1957
A business expense is necessary where it is appropriate and helpful in the
development of the taxpayer’s business. It is intended to realize a profit or to
minimize a loss.
2. The expenses must be incurred in trade or business

carried on by the taxpayer.
Collector vs. Philippine Education Co., GR No. l-8505, May 30,

1953
Facts: Education Co., Inc. lost all its pre-war books of accounts and records, with
the exception of a copy of the trial balance sheet of November 30, 1941. It claimed
the sum of P13,045.48 as a deduction under section 30 of the NIRC.
Q. Are the expenses deductible?
A. Yes, the fees paid by the taxpayer to recover its lost assets occasioned by the
war and to rehabilitate its business are a business connected expense. To carry on
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its business, the taxpayer not only must have sufficient assets but must preserve
the same and recover any that should be lost.
Hospital de San Juan De Dios vs. Commissioner, GR No.

311305, May 10, 1990
Facts: Hospital de San Juan de Dios is engaged in both taxable and non-taxable
operations. In the computation of its taxable income for the years 1952 to 1955,
Hospital de San Juan de Dios allowed all its taxable income to share in the allocation
of administrative expenses. The Commissioner disallowed, however, the interests
and dividends from sharing in the allocation of administrative expenses.
Q. Are the expenses business expense and therefore deductible?
A. No, the interests and dividends in question are merely incidental income to
petitioner's main activity, which is the operation of its hospital and nursing schools.
Mere holding of investments cannot be considered engaging in business so that the
expenses in managing the investments are not considered ordinary and necessary
in the pursuit of a trade or business. Hence, it is not deductible as business or
administrative expenses.
ESSO Standard Eastern Inc. vs. Commissioner, GR No. L-

285080, July 7, 1989, 175 SCRA 158
Facts: ESSO deducted from its gross income for 1959, as part of its ordinary and
necessary business expenses, the amount it had spent for drilling and exploration of
its petroleum conscessions. The Commissioner disallowed the claim on the ground
that the expenses should be capitalized and might be written off as a loss only
when a “dry hole” should result. Hence, ESSO filed an amended return where it
asked for the refund of P323,270 by reason of its abandonment, as dry holes, of
several of its oil wells. It also claimed as ordinary and necessary expenses in the
same return amount representing margin fees it had paid to the Central Bank on its
profit remittances to its New York Office.
Q. Can the margin fees be considered ordinary and necessary expenses when paid?
A. The fees were paid not in the production of income, but in the disposition of said
income after it had already been earned. Hence, it is an expense properly
attributable to the head office and not in the carrying on of its trade or business in
the Philippines. ESSO has not shown that the remittance to the head office of part of
its profits was made in furtherance of its own trade or business. The petitioner
merely presumed that all corporate expenses are necessary and appropriate in the
absence of a showing that they are illegal or ultra vires.
3. The expenses must be substantiated by proof.

1981, 102 SCRA 246
Facts: Atlas contends that the conclusion of the CTA in holding that the expense of
P25,523.14 representing the amount paid for the services of the public relations
was incurred for acquisition of additional capital is not supported by the evidence.
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Q. Who has the burden of proof?
A. The burden of proof that the expenses incurred are ordinary and necessary is on
the taxpayer and does not rest upon the Government. To avail of the claimed
deduction under Section 30(a) (1) of the National Internal Revenue Code, it is
incumbent upon the taxpayer to adduce substantial evidence to establish a
reasonably proximate relation petition between the expenses to the ordinary
conduct of the business of the taxpayer. A logical link or nexus between the
expense and the taxpayer's business must be established by the taxpayer.
However:
Basilan Estates vs. Commissioner, GR No. L-22494,

September 5, 1967
Facts: A Phil. corporation engaged in the coconut industry, Basilan Estates, Inc.,
filed its income tax returns for 1953 and paid the same. The Commissioner of
Internal Revenue, per examiners' report assessed that petitioner has a deficiency
income tax for 1953 and 25% surtax on unreasonably accumulated profits as of
1953 pursuant to Section 25 of the Tax Code. Petitioner contends that there is an
error in disallowing claimed deductions. However, these were disallowed on the
ground that the nature of these expenses could not be satisfactorily explained nor
could the same be supported by appropriate papers.
Q. Can the expenses be allowed as deductions even if they are not substantiated by
proof?
A. Yes, even if there are no records or receipts available, the oral testimony (CPA)
not contradicted by the government is sufficient. The petitioner further argues that
when the Bureau of Internal Revenue decided to investigate, petitioner had no more
obligation to keep the same since five years had lapsed from the time these
expenses were incurred (Sec. 337 of the Tax Code).
4. The expenses must be reasonable.
Commissioner vs. Algue, 158 SCRA 11

Facts: Algue, Inc. is a domestic corporation engaged in engineering, construction
and other allied activities. Philippine Sugar Estate Development Company (PSEDC)
appointed Algue as its agent, authorizing it to sell its land, factories and oil
manufacturing processes. Pursuant to said authority and through the joint efforts of
the officers of Algue, private respondent formed the Vegetable Oil Investment
Corporation, inducing other persons to invest in it. This new corporation later
purchased the PSEDC properties. For this sale, Algue received as an agent a
commission of P125,000 and it was from this commission that the P75,000
promotional fees were paid to the officers of Algue. Private respondent, through
counsel, received a letter of assessment from petitioner for delinquency income
taxes for the years 1958 and 1959 in the total amount of P83,183.85. Algue filed a
letter protest which was stamp-received on the same day in the office of the
petitioner. The denial of the protest filed by Algue included the disallowance of its
claimed deduction of the P75,000 promotional fees earlier mentioned. The
Commissioner ratiocinated that said fees were properly disallowed since it was not
an ordinary, reasonable or necessary business expense.
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Q. Is the promotional expense reasonable?
A. Yes, the promotional expense paid by Phil. Sugar Estate Development Co. to
Algue Inc. amounting to P125,000.00 was reasonable & not excessive. The private
respondent has proved that the payment of the fees was necessary and reasonable
in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise (Vegetable Oil Investment
Corp.) and involve themselves in a new business requiring millions of pesos.
5. Paid or incurred during the taxable year
6. Expenses must not be against public policy, public

moral or law.
Nava vs. Collector, CTA No. 568, September 25, 1961

Entertainment expenses incurred by an officer of a corporation to entertain
certain government officials to discuss transactions/dealing at Manila Hotel are
against public policy.
7. If subject to withholding tax, proof of payment to BIR

must be shown.
BUSINESS EXPENSES
Factors or Tests to Determine Whether Compensation Paid
for Services Rendered is Deductible or Not:
Alhambra vs. Collector, 105, 106 Phil 355

An ostensible salary may be in part payment for property – Partnership sells
out to a corporation; the former partners agreeing to continue in the service of the
corporation. The salaries are not merely for services but payment for the transfer of
their business. (Sec. 70, Rev. Reg. No. 2)
Reyes vs. CTA, CTA No. 4, September 30, 1957

The form or method of fixing compensation is not decisive as to deductibility.
Contingent compensation may be deductible as long as it is not influenced by any
consideration other than securing fair and advantageous terms.
Kuenzle and Strife Inc. vs. Collector, 106 Phil 355

As a general rule, bonuses to employees made in good faith and as
additional compensation for the services actually rendered by the employees are
deductible, provided such payments, when added to the stipulated salaries, do not
exceed a reasonable compensation for the services rendered.
Bonuses are deductible under the following conditions:

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1. Paid in good faith as additional compensation for services rendered;
2. It must be for personal services actually rendered; and
3. Reasonable amount. To hold otherwise would open the gate to
rampant tax evasion.
C.M. Hoskins and Co. vs. Commissioner, GR No. l-24059,

November 28, 1969
In determining whether the particular salary or compensation payment is
reasonable, the situation must be considered as a whole. There is no fixed test for
determining the reasonableness of a given bonus as compensation. This depends
upon many factors, one of them being the amount and quality of the services
performed with relation to the business.
THE OTHER TESTS SUGGESTED ARE:

a.) payment must be 'made in good faith;
b.) the character of the taxpayer's business;
c.) the volume and amount of its net earnings;
d.) its locality;
e.) the type and extent of the services rendered;
f.) the salary policy of the corporation;
g.) the size of the particular business;
h.) the employees' qualifications and contributions to the business venture;
and
i.) general economic conditions.
The right to fix compensation may be conceded, but for income tax purposes
the employer cannot legally claim such bonuses as deductible expenses unless they
are shown to be reasonable. To hold otherwise would open the gate of rampant tax
evasion.
Aguinaldo Industries Corp vs. Commissioner, GR No. l-

29790, February 25, 1982
Facts: Petitioner is a domestic corporation engaged in two lines of business,
namely: (a) the manufacture of fishing nets, a tax-exempt industry, and (b) the
manufacture of furniture, its business of manufacturing fishing nets is handled by its
Fish Nets Division, while the manufacture of Furniture is operated by its Furniture
Division. For accounting purposes, each division is provided with separate books of
accounts as required by the Department of Finance. Previously, petitioner acquired
a parcel of land in Muntinglupa, Rizal, as site of the fishing net factory. This
transaction was entered in the books of the Fish Nets Division of the Company.
Later, when another parcel of land in Marikina Heights was found supposedly more
suitable for the needs of petitioner, it sold the Muntinglupa property, petitioner
derived profit from this sale which was entered in the books of the Fish Nets
Division as miscellaneous income to distinguish it from its tax-exempt income.
For the year 1957, petitioner filed two separate income tax returns one for its Fish
Nets Division and another for its Furniture Division. After investigation of these
returns, the examiners of the Bureau of Internal Revenue found that the Fish Nets
Division deducted from its gross income for that year the amount of P61,187.48 as
additional remuneration paid to the officers of petitioner.
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Q. Is the bonus given to the officers of the petitioner upon the sale of its
Muntinglupa land is an ordinary and necessary business expense deductible for
income tax purposes?
A. No, bonuses granted to corporate officers for the successful sale of a piece of
land effected through a broker – no services rendered – not deductible as
reasonable and necessary expenses. There is absolutely no evidence of any service
actually rendered by Aguinaldo Industries’ officers which could be the basis of a
grant to them of a bonus out of the profit derived from the sale. This being so, the
payment of a bonus to them of the gain realized from the sale cannot be considered
as a selling expense; nor can it be deemed reasonable and necessary so as to make
it deductible for tax purposes.
Incidental or ordinary repairs
Villegas vs. Commissioner, CTA Case October 7, 1963

Expenses for the maintenance and repair of fishponds are deductible. It
keeps the fishponds in an ordinary efficient operating condition.
Extraordinary Repairs
Dirscoll vs. Commissioner, 1477 [2d] 493)

Expenses necessitated by radical changes in design made during
construction are not deductible. This is a part of the cost of the project.
However:
Buckland vs. US, DC Com May 9, 1946

Expenses of repairs to walls and roof of a building to prevent leakage are
deductible.
INTEREST EXPENSES
There must be indebtedness
Sambrano vs. CTA, GR No. L-8652, March 30, 1957

Although taxes already due have not, strictly speaking, the same concept as
debts, they are, however, obligations that may be considered as such. The term
"debt" is properly used in a comprehensive sense as embracing not merely money
due by contract, but whatever one is bound to render to another, either for contract
or the requirements of the law. Where statutes impose a personal liability for a tax,
the tax becomes, at least in a broad sense, a debt. A tax is a debt for which a
creditor's bill may be brought in a proper case. Some American authorities hold
that, especially for remedial purposes, Federal taxes are debts.
Commissioner of Internal Revenue vs. Palanca, October

29, 1966,18 SCRA 496
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Facts: Before Don Carlos Palanca Sr. died, he donated in favor of his son 12,500
shares of stock in La Tondeña, Inc. Palanca was assessed gift tax, surcharge and
interest which he paid. In March 1956, Palanca filed his income tax return for the
year 1955 claiming a deduction for interest. In November 1956, he filed an
amended return, claiming an additional deduction representing interest paid on the
donee's gift tax based on the provisions of Section 30(b) (1) of the Tax Code
authorizing the deduction from gross income of interest paid within the taxable year
on indebtedness. Meanwhile, the BIR considered the transfer of 12,500 shares of
stock as Palanca’s inheritance so he was assessed estate and inheritance tax.
Palanca claim a deduction representing interest on the estate and inheritance taxes
on the shares of stock.
Q. Is the amount paid by Palanca for interest on his delinquent estate and
inheritance tax deductible from the gross income for that year under section 30(b)
(1) of the NIRC?
A. Yes. While “taxes” and “debt” are distinguishable legal concepts on account of
their nature, the distinction becomes inconsequential in this case. The term ‘debt’ is
properly used in a comprehensive sense as embracing not merely money due by
contract, but whatever one is bound to render to another, either for contract or the
requirements of the law. The term ‘indebtedness’ as used in the Tax Code of the
United States has been defined as the unconditional and legally enforceable
obligation for the payment of money. Within the meaning of that definition it is
apparent that a tax may be considered an indebtedness.
Under the law, for interest to be deductible, it must be shown that there be
an indebtedness, that there should be interest upon it, and that what is claimed as
an interest deduction should have been paid or accrued within the year. It is here
conceded that the interest paid by respondent was in consequence of the late
payment of her donor's tax, and the same was paid within the year it is sought to he
deducted.
Commissioner vs. Prieto, GR No. L-13912, September 30, 1960

For interest to be deductible, it must be shown that there is indebtedness,
that there should be interest upon it, and that what is claimed as an interest
deduction should have been paid or accrued within the year. It is here conceded
that the interest paid by respondent was in consequence of the late payment of her
donor's tax, and the same was paid within the year it is sought to be deducted.
The term "indebtedness" as used in our Tax Code has been defined as an
unconditional and legally enforceable obligation for the payment of money. Within
the meaning of that definition, it is apparent that a tax may be considered
indebtedness. A tax is a debt for which a creditor's bill may be brought in a proper
case. It follows that the interest paid by herein respondent for the late payment of
her donor's tax is deductible from her gross income.
Non-deductible Interest Expenses
PICOP vs. CA, 250 SCRA 434

Theoretical interest is that interest "calculated" or computed (and not
incurred or paid) for the purpose of determining the "opportunity cost" of investing
funds in a given business. Such "theorefical" or imputed interest does not arise from
a legally demandable interest-bearing obligation incurred by the taxpayer, who
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however wishes to find out e.g., whether he would have been better off by lending
out his funds and earning interest rather than investing such funds in his business.
One thing that Section 79 quoted above makes clear is that interest which does
constitute a charge arising under an interest-bearing obligation is an allowable
deduction from gross income.
LOSSES
Requisites for Deductibility of Losses:
1. Taxpayer must prove that the loss was suffered by
him.
Marcelo Stell Corp. vs. Collector, GR No L-12401, October 31,

1960 putol
Facts: The petitioner is a corporation duly organized under Phil. laws. It is engaged
in three (3) industrial activities, namely, (1) manufacture of wire fence, (2)
manufacture of nails, and (3) manufacture of steel bars, rods and other allied steel
products. enjoined the benefits of the tax exemption under Republic Act No.
35.Petitioner filed amended income tax returns for two taxable years, showing that
bit suffered a net loss for the said years. The said losses were arrived at by
consolidating the gross income and expenses and/or deductions of the petitioner in
all its business activities. Petitioner filed a claim for refund but no action was taken
by the respondent.
Q. May petitioner be allowed to deduct from the profits realized from its taxable
business activities, the losses sustained by its tax except industries?
A. No, the purpose of Republic Act No. 35 is to encourage the establishment or

exploitation of new and necessary industries to promote the economic growth of the
country. It is a form of subsidy granted by the Government to courageous
entrepreneurs staking their capital in an unknown venture. Usually loss is incurred
rather than profit made. However, the privilege of tax exemption is confined only to
new and necessary industries. It did not intend to grant the tax exemption benefit
to an entrepreneur engaged at the same time in a taxable or non-exempt industry
and a new and necessary industry, by allowing him to deduct his gains or profits
derived from the operation of the first from the losses incurred in the operation of
the second.
The fact that the petitioner is a corporation organized with a single capital
that answers for all its financial obligations including those incurred in the tax
exempt industries is of no moment. The intent of the law is to treat taxable or non-
exempt industries as separate and distinct from new and necessary industries
which are tax- exempt for purposes of taxation.
2. Loss must have been sustained during the taxable

year.
Commissioner vs. Asturias Sugar Central Inc., GR No. L-

15013, August 31, 1961
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Facts: Respondent is a corporation duly organized under the laws of the Phil. Since
its organization, respondent has been engaged in the manufacture of sugar from
sugar cane in its. On or about April 18, 1942, respondent was burned by the
retreating USAFFE under its scorch earth policy and/or to resist enemy attack. The
Central was totally destroyed and was reconstructed only on or about 1947 it then
filed on February 26, 1948, with the Philippine War Damage Commission a claim for
damages sustained on its properties during the war which was approved. Payment
was received in the year 1950. The petitioner in its income tax return for 1950, it
claimed a deduction as war losses. Upon proper verification petitioner disallowed all
deductions for war losses and consequently, notices of deficiency income tax
assessments were issued against the respondent. Respondent paid thereafter filed
a claim for refund.
Q. Were the war losses in question properly deductible in 1942, when the losses
were actually sustained, or in 1950 and 1951?
A. The war losses are properly deductible in 1950 and 1951 when the claim for
indemnity was properly determined. Section 30(d) (2) of the Revenue Code allows
the deduction from the gross income of a corporation of "all losses actually
sustained and charged off within the taxable year and not compensated for by
insurance or otherwise.' If property is not insured against loss, 'the amount of the
loss must be reduced by the amount of any insurance or other compensation
received, and by the salvaged value, if any, of the property'; and the amount not so
compensated for by insurance is deductible in the year the claim for indemnity is
finally determined, since it is required that losses, to be deductible, must be
evidenced by closed and completed transactions.
3. Loss evidenced by a closed and completed

transaction.
4. Loss not compensated by insurance or otherwise.
Commissioner vs. Asturias Sugar Central Inc., GR No. L-

15013, August 31, 1961
It is urged that "insurance" is a contract, which did not exist under the
aforementioned section 5g of the War Damage Corporation Act. Although
"insurance" is generally, a contract, nothing in its nature bars an insurance by
operation of law. Indeed, said section 5g particularly, subdivision (b) thereof,
providing for compensation "by the War Damage Corporation without requiring a
contract of insurance or the payment of premiums or other charge . . . as if a policy
. . . was in fact in force at the time of" the "loss or damage" in question-leaves no
room for doubt about the intent of Congress of the United States to establish,
between the War Damage Corporation and the owner of the property lost or
damaged, a relation identical to that existing between the insurer and the insured
under a contract of insurance. At any rate, the juridical relation thus created is such
as to clearly fall within the purview of the term "insurance or otherwise" used in
sections 30 and 94 of our Tax Code.
Cu Unjieng Sons Inc. vs. BTA, GR No. L-6296, September 29,

1956
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The announcement of the Federal Loan Agency of the United States with the
of the approval of the President of the US, of the creation of the War Insurance
Corporation (later War Damage Corporation) by the Rehabilitation Finance
Corporation to provide protection against losses resulting from enemy attack which
might be sustained by owners of property in continental US and consequently, the
approval of the Philippine Rehabilitation Act of 1946, did not constitute in 1945 a
compensation "otherwise" than by insurance, and did not authorize petitioner here
in to postpone, to another year, its claim for deduction arising from the war losses
in question.
The words or 'otherwise' in law, when used as a general phrase following an
enumeration of particulars, are commonly interpreted in a restricted sense, as
referring to such other matters as are kindred to the classes before mentioned,
receiving an ejusdem generis interpretation
At any rate, there has 'never been any case in which the words "or
otherwise", in the 'income tax law, have been held to include the hope, or even the
moral certainty, that a proposed legislation authorizing payment of an indemnity,
not due, either under the general Principles of law, or under any particular statute-
would eventually be approved.
The indemnity provided for in the Philippine Rehabilitation Act of 1946 was
purely an obligation voluntarily assumed solely for moral considerations, and did
not exist as a legal obligation prior to the approval of said Act. Consequently,
petitioner is now estopped from maintaining that said war losses were
"compensated for by insurance or otherwise".
BAD DEBTS
Debts must be charged off within the year of
worthlessness.
Collector vs. Goodrich International Rubber Co., 21 SCRA

1336, 1314
Facts: The Collector of Internal Revenue assessed Goodrich International Rubber
Co. the sums of P14,128.00 and P8,439.00 as deficiency income taxes for 1951 and
1952. Herein respondent Goodrich claimed deductions for said assessed taxes
consisting of bad debts and as representation expenses. The Collector disallowed
the deductions claimed by Goodrich, while on appeal, the Court of Tax Appeals
allowed said claims.
Q. May the deductions claimed by Goodrich for bad debts and as representation
expenses be allowed?
A. No, the claim for deduction of the debts should be rejected. Goodrich has not
established either that the debts are actually worthless or that it had reasonable
grounds to believe them to be so in 1951. Our statute permits the deduction of
debts "actually ascertained to be worthless within the taxable year," obviously to
prevent arbitrary action by the taxpayer, to unduly avoid tax liability.
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The requirement of ascertainment of worthlessness requires proof of two
facts: (1) that the taxpayer did in fact ascertain the debt to be worthless, in the year
for which the deduction is sought; and (2) that, in so doing, he acted in good faith.
Philippine Refining Co. vs. CA, 256 SCRA 667

Facts: PRC was assessed by the CIR to pay deficiency tax for 1985. The
assessment was protested by PRC on the basis of alleged erroneous disallowance of
bad debts. At the CTA, PRC presented only the testimony of its financial accountant
to explain and prove the worthlessness of the debts claimed as bad debts.
Q. Does PRC sufficiently proved its claim for deductions by reason of the alleged
bad debts?
A. No, for debts to be considered as worthless and thereby qualify as bad debts,
making them deductible, the taxpayer should show that:
1. There is a subsisting and valid debt;
2. The debt must be actually ascertained to be worthless and uncollectible
during the taxable year;
3. The debt must be charged off during the taxable year;
4. The debt must arise from the business or trade of the taxpayer.
Additionally, the taxpayer must also show that it is uncollectible even in the
future.
Furthermore, there are steps outlined to be undertaken by the taxpayer to
prove that he exerted diligent efforts to collect the debts, viz: (1) sending of
statement of accounts; (2) sending of collection letters; (3) giving the account to a
lawyer for collection; and (4) filing a collection case in court.
Said accounts have not satisfied the requirements of the 'worthlessness of a
debt.' Mere testimony of the Financial Accountant of the Petitioner explaining the
worthlessness of said debts is seen by this Court as nothing more than a selfserving
exercise which lacks probative value. There was no iota of documentary evidence to
give support to the testimony of an employee of the Petitioner. Mere allegations
cannot prove the worthlessness of such debts in 1985. The claim for deduction of
these thirteen (13) debts should be rejected.
DEPRECIATION
Definition
Basilan Estates Inc. vs. Commissioner, 21 SCRA 17,

September 5, 1967
Depreciation is the gradual diminution in the useful value of tangible property
resulting from wear and tear and normal obsolescense. The term is also applied to
amortization of the value of intangible assets, the use of which in the trade or
business is definitely limited in duration.
Depreciation commences with the acquisition of the property and its owner is
not bound to see his property gradually waste, without making provision out of
earnings for its replacement. It is entitled to see that from earnings the value of the
property invested is kept unimpaired, so that at the end of any given term of years,
the original investment remains as it was in the beginning. It is not only the right of
a company to make such a provision, but it is its duty to its bond and stockholders,
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and, in the case of a public service corporation, at least, its plain duty to the
public.3 Accordingly, the law permits the taxpayer to recover gradually his capital
investment in wasting assets free from income tax.
Necessity of Depreciation Allowance
Basilan Estates Inc. vs. Commissioner, 21 SCRA 17,

September 5, 1967
The income tax law does not authorize the depreciation of an asset beyond
its acquisition cost. Hence, a deduction over and above such cost cannot be claimed
and allowed. The reason is that deductions from gross income are privileges, not
matters of right. They are not created by implication but upon clear expression in
the law.
Moreover, the recovery, free of income tax, of an amount more than the
invested capital in an asset will transgress the underlying purpose of a depreciation
allowance. For then what the taxpayer would recover will be, not only the
acquisition cost, but also some profit. Recovery in due time thru depreciation of
investment made is the philosophy behind depreciation allowance; the idea of profit
on the investment made has never been the undertying reason for the allowance of
a deduction for depreciation. Accordingly, the claim for depreciation beyond
P36,842.04 or in the amount of P10,500.49 has no justification in the law.
TAX REMEDIES OF THE GOVERNMENT

A. ASSESSMENT AND COLLECTION
CIR vs PASCOR, 309 SCRA 402

Facts: Under authority by the CIR, revenue officers examined Pascor’s accounting
books and discovered deficiency taxes for two fiscal years. The CIR, based on the
reports made by the revenue officers, executed an affidavit and filed a criminal
complaint for tax evasion. Respondents Rogelio Dio and Virginia Dio, officers of the
corporation, assails the action of the CIR by stating that a deficiency tax assessment
should have been first filed by the CIR, rather than instituting a criminal complaint
at once.
Q. What is an assessment? Is it a condition precedent before the institution of a

criminal complaint?
A. An assessment contains not only a computation of tax liabilities but also a

demand for payment within a prescribed period. It also signals the time when
penalties and interests begin to accrue against the taxpayer. To enable the
taxpayer to determine his remedies thereon, due process requires that it must be
served on and received by taxpayers.
NO, an assessment is not necessary before a criminal complaint can be had.
The issuance of an assessment must be distinguished from the filing of a

complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the tax-payer. The taxpayer is then given a chance to submit
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position papers and documents to prove that the assessment is unwarranted. If the
CIR is unsatisfied, an assessment signed by him is then sent to the taxpayer
informing the latter specifically and clearly that an assessment has been made
against him or her.
In contrast, the criminal charge need not go through the long and winding
process described above. The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had been filed against him,
not that the CIR has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the NIRC.
Sec. 222 of the Tax Code specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Sec. 205 of the same Code clearly mandates that the civil and criminal aspects of
the case may be pursued simultaneously. The CIR has discretion on whether to
issue an assessment or to file a criminal case against the taxpayer or to do both.
To reiterate, said Sec. 222 states that an assessment is not necessary before
a criminal charge can be filed. This is the general rule. Private respondents failed
to show that they are entitled to an exception. Moreover, the criminal charge need
only be supported by a prima facie showing of failure to file a required return. This
fact need not be proven by an assessment.
Presumption of Regularity
CIR vs CA and Atlas Consolidated Mining and Dev’t Corp.,

GR No. 104151
Assessments are prima facie presumed correct and made in good faith. It is
the taxpayer and not the Bureau of Internal Revenue who has the duty of proving
otherwise. It is an elementary rule that in the absence of proof of any irregularities
in the performance of official duties, an assessment will not be disturbed. All
presumptions are in favor of tax assessments. Verily, failure to present proof of
error in the assessment will justify judicial affirmance of said assessment.
Follow-up Letter Reiterating Demand for Payment

Considered Notice of Assessment
Republic vs CA and Nielson and Company, GR No. L-38540,

April 30, 1987
Facts: In a demand letter dated July 16, 1955, CIR assessed Nielson & Co.
Deficiency taxes for the years 1949-1952 totalling P14, 449.00. Petitioner reiterated
its demand upon private respondent for payment of said amount, per letters dated
24 April 1956, 19 September 1956 and 9 February 1960. Private respondent did not
contest the assessment in the Court of Tax Appeals. On the theory that the
assessment had become final and executory, petitioner filed a complaint for
collection of the said amount against private respondent with the CFI which ruled
against the respondent. CA reversed the decision.
Q. Can the demand letter dated July 16 can be considered an assessment?
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A. Since petitioner has not adduced proof that private respondent had in fact
received the demand letter of 16 July 1955, it can not be assumed that private
respondent received said letter. Records, however, show that petitioner wrote
private respondent a follow-up letter dated 19 September 1956, reiterating its
demand for the payment of taxes as originally demanded in petitioner's letter dated
16 July 1955. This follow-up letter is considered a notice of assessment in itself
which was duly received by private respondent in accordance with its own
admission.
B. REMEDIES FOR COLLECTION OF DELIQUENT TAXES
1. Distraint of personal property and Levy upon real

property
2. Civil or criminal action
3. Compromise
4. Tax lien
5. Forfeiture
6. Civil penalties
DISTRAINT AND LEVY
Central Cement Corporation vs Commissioner, CTA Case No.

4312, December 21, 1988
Distraint is a remedy whereby the collection of the tax is enforced on the
goods, chattels, or effects of the taxpayer including other personal property of
whatever character as well as stocks & other securities, debts, credits, bank accts,
& interest in & rights to personal property.
On the other hand, Levy refers to the seizure of real properties and interest
in or rights to such properties for the satisfaction of taxes due from the delinquent
taxpayer. Levy can be made before, simultaneously, o after the distraint of
personal property.
Both remedies are summary in nature & either may be pursued in the
discretion of the authorities charged with the collection of tax independently, or
simultaneously with civil & criminal action once the assessment becomes final and
demandable.
CIR vs Vda. De Codinera, GR No. L-9675, September 28, 1957

Property levied upon by the order of a competent court may, with the
consent thereof, be subsequently distrained, subject to the prior lien of the
attachment creditor. The attachment merely deprives the Collector or his agents of
the power to divest the Court of its jurisdiction over said property. It does not impair
such rights as the Government may have for the collection of taxes. While the lien
for taxes must be recognized & enforced, the orderly administration of justice
requires this to be done by & under the sanction of the court.
Presbitero vs Fernandez, 7 SCRA 627
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Q. Are sugar quotas real (immovable) or personal properties? Should we adopt the
definition of personal and real properties under the Civil Code in order to determine
the requisites to be followed in levy or distraint proceedings?
A. As an improvement attached to the land, by express provision of law (Section 9,

Act 4166), though not physically so united, sugar quotas are inseparable therefrom,
just like servitudes and other real rights over an immovable, and should be
considered as immovable or real property under Article 416 (10) of the Civil Code.
The fact that the Philippine Trade Act of 1946 allows transfers of sugar quotas does
not militate against their immovability. There cannot be a sugar plantation owner
without land to which the quota is attached; and there can exist no quota without
there being first a corresponding plantation. Hence, a levy made by the sheriff upon
a sugar quota is null and void if not in compliance with the procedure prescribed in
Section 14, Rule 39, in relation with Section 7, Rule 59, of the Rules of Court,
requiring "the filing with the registered of deeds of a copy of the orders together
with a description of the property . . ." (By implication the procedure for levy, not
distraint, must be followed)
Marcos II vs Court of Appeals, GR No. 120880, June 5, 1997

Facts: After the death of Ferdinand Marcos, the BIR issued deficiency estate taxes.
Despite personal and constructive notice upon the estate, no protest was made by
the heirs. Hence, BIR caused the collection by resorting to summary remedy of levy
on real properties.
Q. Is notice of levy upon the estate enough?
A. Yes. In the case of notices of levy issued to satisfy the delinquent estate tax, the
delinquent taxpayer is the estate of the decedent, and not necessarily, and
exclusively, the heir of the decedent. Thus, it follows that the services of notices of
levy in satisfaction of the tax delinquencies upon the heir is not required by law.
Necessity for specifying exact date of sale.
Cabrera vs Provincial Treasurer of Tayabas, CA No. 502,

January 29, 1946
Facts: The provincial treasurer of Tayabas issued a notice for the sale at public
auction of real properties forfeited for tax delinquency “on December 15, 1940 at
9am and everyday thereafter, at the same place and hour until all the properties
have been sold to the highest bidder.”
Q. Was said notice sufficient to comply with jurisdictional requirements?
A. NO. Under the law (Commonwealth Act No. 470, section 35), the provincial
treasurer is enjoined to set forth in the notice, among other particulars, the date of
the tax sale. This mandatory requirement was not satisfied in the present case,
because the announcement that the sale would take place on December 15, 1940
and every day thereafter, is as general and indefinite as a notice for the sale "within
this or next year" or "some time within the month of December." In order to enable
a taxpayer to protect his rights, he should at least be apprised of the exact date of
the proceeding by which he is to lose his property. xxx Under section 35 of
Commonwealth Act No. 470, notice of the public sale must be given to the
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delinquent taxpayer. This has reference to the registered owner, liable to pay taxes,
although the delinquent property remains assessed in the name of a former owner.
Invalidity of tax sales by reason of defects in the

proceedings.
Valencia vs Jimenez, GR No. 4406. October 23, 1908

Facts: An action to set aside a sale of real estate to defendant Jimenez for unpaid
taxes and the transfer of ½ interest therein by him to Fuster was brought before teh
then CFI Mla on the ground theat the tax sale was invalid by reason of defects int eh
proceedings to impose the tax. The most serious of these irregularities are the ff: 1.
Error in the name of the owner in the assessment and 2. Defect in the description of
the property
Q. Is the assessment, consequently the sale of the property, valid?
A. NO. There is no presumption of the regularity of any administrative proceeding

which results in depriving a citizen or taxpayer of his property. Due process of law
must be shown, and the burden of proving the regularity of all proceedings leading
up to a tax sale is upon the purchaser at the sale. xxx In the levying of tax
assesments and the keeping of the tax; rolls, it is a vital requisite that the property
assessed be so clearly described that it may be easily identified by any person who
at the time, or subsequently, may have an interest therein, as in the case of a
purchaser at a tax sale. A mistake or confusion in the name of the owner of property
is also a substantial error and will make a tax sale voidable. When one tax sale
embraces two different taxes, a vital defect in either tax invalidates the sale, and a
proximately clear description of the property in a later tax roll will not cure an
erroneous description in an earlier one.
Effects of variance in the description of the property in the

notice of sale and title.
Velayo vs Ordoveza, et al.,102 Phil 395
Facts: After publication of the corresponding notice, the City Treasurer of Manila
sold, at public auction, to Ricardo Velayo for the sum of P185.95, representing the
amount due by way of unpaid real estate taxes, plus penalty and costs, on the
property owned by the Ordovezas. When Fernando Ordoveza tried to pay the real
estate tax thereon, he was advised of the sale. He was surprised to hear about it, for
he had not received any previous notice thereof or read in the newspapers about
the public auction to be held in connection therewith. It appears that the description
in said deed of sale is different from the description appearing in Transfer
Certificate of Title No. 79178, the property in question.
Q. Is the sale of such property valid?
A. NO. The owner of property registered under the Torrens System is justified in
relying upon the description given in his certificate of title as the one officially
identifying said property. The sale for non-payment of tax of the property with a
description distinct and different from that which appears in its certificate of title
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can not be sanctioned without impairing the full faith and credence which the title is
meant to command and, hence, affects the essence of the Torrens System.
CIVIL ACTION
Q. When is Civil Action resorted to?
A. This is resorted to when a tax liability becomes collectible, that is, the
assessment becomes final and unappealable, OR the decision of the Commissioner
has become final, executory, and demandable. This occurs when:
a. A tax is assessed and the taxpayer fails to file an administrative protest by
filing a request for reconsideration or reinvestigation within 30 days from
receipt of the assessment.
b. A protest against the assessment is filed by the taxpayer but the
Commissioner’s decision denying in whole or in part the said protest, was not
appealed to the CTA within 30 days from receipt of such decision.
Other instances when taxpayer must appeal to CA within

30 days:
Republic vs Lim Tian Teng sons, Inc., GR No. 21731, March

31, 1966
Facts: Lim Tian Teng Sons & Co., Inc., is a domestic corporation engaged in the
exportation of copra. CIR assessed a deficiency income tax of P10,074.00 and 50%
surcharge thereon amounting to P5,037.00 and demanded payment thereof. Lim
Tian Teng Sons & Co., Inc. requested reinvestigation of its 1952 income tax liability.
The Collector of Internal Revenue did not reply; instead, he referred the case to the
Solicitor General for collection by judicial action. As Lim Tian Teng Sons & Co., Inc.
failed to file a waiver of the statute of limitations, the CIR instituted an action in the
CFI of Cebu for the collection of deficiency income tax.
Q. Is the decision of denial appealable to the CTA?
A. YES. When the Commissioner did not reply to the taxpayer’s request for
reconsideration & instead referred the case to the SolGen for judicial collection, this
was indicative of his decision against reinvestigation. This is an instance where the
Commissioner’s action is in effect a decision of denial which is appealable to the
Court of Tax Appeals.
Yabes vs Flojo, 115 SCRA 278

Facts: Yabes received a demand letter from CIR which he protested and for which
he requested for a reinvestigation with the BIR coupled with a request to hold in
abeyance the appeal pending final decision. This request was denied. Consequently,
Yabes filed a tax waiver extending the period of prescription. Spouses Yabes died
pending said action.
Q. Can the CFI lawfully acquire jurisdiction over a contested assessment made by
the Commissioner of Internal Revenue against the deceased taxpayer Doroteo
Yabes, which has not yet become final, executory and incontestable, and which
assessment is being contested by petitioners in the Court of Tax Appeals, Case No.
2216, and still pending consideration?
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A. The filing of a civil action in court to collect a tax which was the subject of a
pending protest in the BIR was a justifiable basis for the taxpayer to appeal to the
Court of Tax Appeals & to move for the dismissal in the trial court of the
Government’s action to collect the tax under dispute. The respondent Court of First
Instance of Cagayan can only acquire jurisdiction over this case filed against the
heirs of the taxpayer if the assessment made by the Commissioner of Internal
Revenue had become final and incontestable. If the contrary is established, as this
Court holds it to be, considering the aforementioned conclusion of the Court of Tax
Appeals on the finality and incontestability of the assessment made by the
Commissioner is correct, then the Court of Tax Appeals has exclusive jurisdiction
over this case.
Commissioner vs Lilia Yusay Gonzales, GR No. L-19495,

November 24, 1966
Facts: Matias Yusay died intestate leaving two heirs. Intestate proceedings were
instituted in the CFI. Jose Yusay as administrator, filed with BIR an estate and
inheritance tax return. However, BIR found other properties not covered by said
return, thus, it assessed deficiency taxes. No payment having been made, CIR filed
a proof of claim for the estate and inheritance taxes due and a motion for its
allowance with the settlement court in voting priority of lien pursuant to Section 315
of the Tax Code. Lilia Yusay filed an answer to the proof of claim alleging non-
receipt of the assessment. Lilia Yusay disputed the legality of the assessment
claiming that the right to make the same had prescribed inasmuch as more than
five years had elapsed since the filing of the estate and inheritance tax return. She
therefore requested that the assessment be declared invalid and without force and
effect.
CIR requested the request for the reasons, namely, (1) that the right to
assess the taxes in question has not been lost by prescription since the return which
did not name the heirs cannot be considered a true and complete return sufficient
to start the running of the period of limitations of five years under Section 331 of
the Tax Code and pursuant to Section 332 of the same Code he has ten years within
which to make the assessment counted from the discovery on September 24, 1953
of the identity of the heirs; and (2) that the estate's administrator waived the
defense of prescription when he filed a surety bond to guarantee payment of the
taxes in question and when he requested postponement of the payment of the
taxes pending determination of who the heirs are by the settlement court.
Q. Could the CTA take cognizance of an appeal despite the pendency of the
"Proof of Claim" and "Motion for Allowance of Claim and for an Order of Payment of
Taxes" filed by the CIR in Special Proceedings before the CFI?
A. NO. Once an action for collection is filed with the regular court, the taxpayer can
no longer assail the legality or validity of the assessment. An action involving a
disputed assessment for internal revenue taxes falls within the exclusive appellate
jurisdiction of the Court of Tax Appeals (Sec. 7(1), Rep. Act 1125). It is in that forum
to the exclusion of the Court of First Instance where the taxpayer can ventilate his
or her defense against the assessment.
Basa vs Republic, GR No. 45277, August 5, 1985

Facts: CIR assessed Basa of deficiency tases. Basa did not contest the assessments,
thus, it became final and incontestable. CIR then sued Basa for the collection of the
assessed tax. The trial court affirmed the CIR. Basa tried to contest the assessment
before the CA.
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Q. Can a taxpayer contest an assessment before the CA without protesting before
the CTA?
A. NO. The prescription of the Government’s right to assess is no longer available as

a defense in a civil action for collection; the same should have been ventilated
before the CTA.
Republic vs Ker and Co., GR No. L-21609, September 29, 1966

Facts: Ker and Co was assessed by the CIR of deficiency income taxes for 1947-
1950. The CFI affirmed the assessment for 1948-1950 but dismissed the claim for
1947. RP filed an MR contending that the right of the CIR to collect the deficiency
assessment for 1947 has not prescribed by a lapse of merely five years and three
months, because the taxpayer's income tax return was fraudulent in which case
prescription sets in ten years from the date of discovery of the fraud. Ker & Co., Ltd.
also filed a motion for reconsideration maintaining that since the filing of its petition
for review in the Court of Tax Appeals did not stop the running of the period of
limitations, the right of the Commissioner of Internal Revenue to collect the tax in
question has prescribed.
It would be worth mentioning that since the assessment for deficiency income tax
for 1947 has become final and executory, Ker & Co., Ltd. may not anymore raise
defenses which go into the merits of the assessment, i.e., prescription of the
Commissioner's right to assess the tax. In this case however, Ker & Co., Ltd. raised
the defense of prescription in the proceedings below and the Republic of the
Philippines, instead of questioning the right of the defendant to raise such defense,
litigated on it and submitted the issue for resolution of the court. By its actuation,
the Republic of the Philippines should be considered to have waived its right to
object to the setting up of such defense.
Q. Did the pendency of the taxpayer's appeal in the Court of Tax Appeals and in the
Supreme Court have the effect of legally preventing the Commissioner of Internal
Revenue from instituting an action in the Court of First Instance for the collection of
the tax?
A. YES. When Ker & Co., Ltd. filed a petition for review in the Court of Tax Appeals
contesting the legality of the assessments in question, until the termination of its
appeal in the Supreme Court, the Commissioner of Internal Revenue was prevented,
as recognized in this Court's ruling in Ledesma, et al. v. Court of Tax Appeals, from
filing an ordinary action in the Court of First Instance to collect the tax. Besides, to
do so would be to violate the judicial policy of avoiding multiplicity of suits and the
rule on lis pendens. If We were to sustain the taxpayer's stand, We would be
encouraging taxpayers to delay the payment of taxes in the hope of ultimately
avoiding the same.
Under the circumstances, the CIR was in effect prohibited from collecting the
tax in question. This being so, the provisions of Section 333 of the Tax Code will
apply.
Arches vs Bellosillo, 20 SCRA 33

Facts: CIR assessed Arches of deficiency taxes. This not having been disputed, the
BIR filed suit for collection. Arches moved to dismiss the complaint on the ground
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that it did not expressly show the approval of the Revenue Commissioner, as
required by Section 308 of the Tax Code.
Q. Is the approval of the Revenue Commissioner jurisdictional?
A. NO. The question of whether a suit should bear the approval of the Revenue
Commissioner is not jurisdictional, but one relating to capacity to sue or affecting
the cause of action only.
CRIMINAL ACTION
Republic vs. Patanao, 20 SCRA 712

Facts: Patanao has been accused in two Criminal Cases for not filing his income tax
returns and for non-payment of income taxes for the. In both cases, he was
acquitted.
Q. Does acquital in a criminal case for non-filing of tax return or non-payment of

taxes operate as acquital of civil liability to pay taxes?
A. NO. Under the Penal Code the civil liability is incurred by reason of the offender's
criminal act. Stated differently, the criminal liability gives birth to the civil obligation
such that generally, if one is not criminally liable under the Penal Code, he cannot
become civilly liable thereunder. The situation under the income tax law is the
exact opposite.
Civil liability to pay taxes arises from the fact, for instance, that one has
engaged himself in business, and not because of any criminal act committed by
him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation. The incongruity of the factual premises and foundation principles of the
two cases is one of the reasons for not imposing civil indemnity on the criminal
infractor of the income tax law.
Another reason, of course, is found in the fact that while Section 73 of the
National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a
return thereof, it failed to provide the collection of said tax in criminal proceedings.
Since the civil liability is not deemed included in the criminal action, acquittal of the
taxpayer in the criminal proceeding does not necessarily entail exoneration from his
liability to pay the taxes. The acquittal in a criminal case cannot operate to
discharge defendant from the duty of paying the taxes which the law requires to be
paid, since that duty is imposed by statute prior to and independently of any
attempts by the taxpayer to evade payment. Said obligation is not a consequence
of the felonious acts charged in the criminal proceeding nor is it a mere civil liability
arising from a crime that could be wiped out by the judicial declaration of non-
existence of the criminal acts charged.
People vs Tierra, GR No. 17177-80, December 28, 1964

The subsequent satisfaction of a tax liability will not operate to extinguish the
criminal liability.
People vs Balagtas, L-10210, July 29, 1959
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Subsidiary imprisonment for failure to pay the tax in case of insolvency
cannot be imposed in criminal cases involving violations of the provisions of the Tax
Code.
Ungab vs Cusi, GR No. L-41919-24, May 30, 1980

Facts: Six informations were filed with the CFI against Ungab for violation of the
NIRC. Ungab filed a motion to quash on the ground that the trial court has no
jurisdiction to take cognizance of the cases in view of his pending protest against
the assessment made by the BIR examiner.
Q. Does the protest against the assessment filed by the taxpayer deprive the CFI of
jurisdiction to hear the case for violation of the NIRC?
A. NO. A criminal complaint is instituted not to demand payment but to penalize the
taxpayer for violation of the Tax Code. Ungab’s contention that the filing of the
informations were precipitate and premature since the Commissioner has not yet
resolved his protests against the assessment of the Revenue District Officer is
without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court
of Tax Appeals, but a criminal prosecution for violations of the NIRC which is within
the cognizance of the CFI.
While there can be no civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is no requirement for
the precise computation and assessment of the tax before there can be a criminal
prosecution under the Code. An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and evade the income tax.
Besides, it has been ruled that a petition for reconsideration of an assessment may
affect the suspension of the prescriptive period for the collection of taxes, but not
the prescriptive period of a criminal action for violation of law.
COMPROMISE
Chuy, et al vs Collector of Internal Revenue, CTA Case, July

16, 1958
A compromise is an agreement between 2 or more persons who amicably
settle their differences on such terms as they can agree on to avoid a lawsuit. It
very nature implies mutual agreement by the parties in regard to the thing to be
compromised. An offer to compromise does not assume the category of a
compromise until it is voluntarily accepted by the other party, and no obligation
arises or is created by a simple offer or suggestion coming from one of the parties
without the acceptance by the other.
Commissioner vs Abad, GR No. L-19627 June 27, 1968

Facts: Abad was found by the BIR guilty for violation of the NIRC provisions. CIR
offered a compromise to which Abad did not acceed.
Q. Can the BIR demand a compromise penalty from Abad in view of such refusal?
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A. NO, the BIR cannot. A compromise penalty is a certain amount of money which
the taxpayer pays to compromise a tax violation. It is paid in lieu of criminal
prosecution, and cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
The payment of a compromise penalty cannot be demanded inasmuch as it

was offered by the petitioner only by way of compromise and the compromise did
not go through. A compromise implies agreement. If an offer of compromise is
rejected by the taxpayer, as in this case, the Commissioner of Internal Revenue
should file a criminal action if he believes that the taxpayer is criminally liable for
violation of the tax law as the only way to enforce a penalty. A penalty can be
imposed only on a finding of criminal liability.
People vs Desiderio, GR No. L-20805, November 29, 1965

Facts: Ignacio Desiderio was charged with illegal importation of cigarettes.He
moved for the dismissal of the case alleging that his criminal liability had been
extinguished by a compromise agreement with the Collector of Customs, in
accordance with Section 2307 of the same Republic Act 1937.
Q. Does settlement of the case under Section 2307 extinguish the criminal liability
under Section 3601, both of Republic Act 1937, otherwise called the Tariff and
Customs Code?
A. NO. Section 2307 limits the effects of the aforesaid settlement to the liability that
attaches to the property, or to the bond that replaces the property. It does not
speak of the liability that falls on the person or offender. Clearly, therefore, the
interpretation of the accused is not supported by the law. Moreover, Section 2307
of Republic Act 1937 falls under part 2 of Title VI of said Act, which is entitled
"Administrative Proceedings". Settlement of the administrative proceedings does
not, in the absence of express provision to that effect, amount to settlement of the
criminal liability. Section 309 of said Code allows the Commissioner of Internal
Revenue to compromise the civil as well as criminal cases arising thereunder. No
similar provision exists, vis-a-vis the Collector or Commissioner of Customs, in
regard to violation of the Tariff and Customs Code.
People vs Magdaluyo, GR No. L- 16235, April 20, 1961

Facts: Magdaluyo was found in possession of assorted imported items and was
required to pay specific tax thereon. He refused arguing that he is the owner of
them. Pending criminal prosecution, the CIR agreed to compromise the case,
Magdaluyo agreeing to pay the tax and compromise penalty. The Pasay City Fiscal,
upon being advised thereof, expressed his conformity to the agreement and
considered the case as "closed and terminated”. Upon full payment, however, the
SolGen interposed an objection arguing that since the information charging
defendant with the offense in question was filed prior to his full payment of the tax
liability and compromise penalty, the CIR lost the authority to compromise the
criminal aspect of the tax case.
Q. Can the CIR compromise the criminal aspect of a tax case if the information was
filed before the full payment of liability and compromise penalty?
A. YES. The compromise agreement was complied with as it did not set date within
which Magdaluyo should complete the payment. A compromise validly entered into
between the Commissioner and the taxpayer prior to the institution of the
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corresponding criminal action arising out of a violation of the provisions of the Tax
Code is a bar to such criminal action.
When violations of tax laws/cases may be compromised.
Rovero vs Amparo, GR No. L-5482, May 5, 1952

Facts: Rovero was found guilty of illegal importation of jewelry. AFTER rendition of
judgment, Bureau of Customs (BOC) created a committee to reappraise the
confiscated jewelry and requested the modification of the judgment based on the
reappraisal.
Qs. Can the BOC reappraise confiscated items AFTER rendition of judgment? Can
the RP enter into a compromise after judgment?
A. NO for both queries.

On the first query: The Commissioner of Customs may supervise and control
the filing of pleadings, the conduct of the hearing, the presentation of evidence and
even the taking of an appeal from the decision of the Court of First Instance,
adverse to the Government, to the Supreme Court. But surely he cannot under the
guise of supervision and control of judicial proceedings, modify or alter a final
decision of a court, including an appellate court or stay execution of a final
judgment in favor of the Government by receiving of said Government anything less
than what the judgment calls for.
On the second query: The contention that the parties to a case may enter
into a compromise even a final judgment rendered by a court, may be correct as
regards private parties who are the owners of the property subject-matter of the
litigation. However, the Commissioner of Customs is not a private party and is not
the owner of the money involved in the fine based on the original appraisal. He is a
mere agent of the Government and acts as a trustee of the money or property in his
hands or coming thereto by virtue of a favorable judgment. Unless expressly
authorized by his principal or by law, he is not authorized to accept anything
different from or anything less than what is adjudicated in favor of the Government.
TAX LIENS
Hongkong and Shanghai Banking Corp. vs Rafferty, CIR 39

Phil. 145, November 15, 1918
Facts: Pujalte and Co. Was engaged in lumber business. In order to secure the
payment of forest charges due the government, it executed bonds. Thus, the CIR
permitted the company to remove the timber which was used to manufacture
railroad ties. These railroad ties were however rejected byt he Manila Railroad Co.
Meanwhile, Pujalte and Co. was not able to pay its debt to Hongkong and Shanghai
Banking Co. Thus, prompting Pujalte and Co. To assign to HK & S a large quantity of
railroad ties. The charges on the timber against Pujalte also not having been paid,
the CIR caused delinquency proceedings to be commenced and had issued a
distress warrant and later seized railroad ties including which had been assigned by
Pujalte & Co. to the Hongkong & Shanghai Banking Corporation, without the latter
receiving any notice of the tax.
Q. Does the lien follow the property subject to the tax into the hands of a third party
when at the time of transfer, no demand for payment had been made and when the
purchaser had no notice of the existence of the lien?
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A. NO.
A TAX LIEN in its modern acceptation is understood to denote a legal claim or
charge on property, either real or personal, as security for the payment of some
debt or obligation. Its meaning is more extensive than the jus retentionis (derecho
de retencion) of the civil law. The tax lien does not establish itself upon property
which has been transferred to innocent purchasers prior to demand. In order that
the lien may follow the property into the hands of a third party, it is further essential
that the latter should have notice, either actual or constructive. The reason is the
benevolence of our Constitution which prohibits the taking of property without due
process of law. In the case of real estate or special assessment taxation a man
cannot get rid of his liability to a tax by buying without notice. (City of Seattle vs.
Kelleher [1904], 195 U. S., 351.) The rule, however, is different where the vendee
has no knowledge of the taxes on personality existing at the time, or had no means
of knowing from the public records that such taxes had accrued.
Corazon Velos de Torres vs Collector, GR No. 48602, February

26, 1943; Republic vs Peralta, GR No. 56568, May 20, 1987
A tax lien created in favor of the government is superior to all other claims or
preferences.
CIR vs NLRC, GR No. 74965, November 9, 1994

Q. When does a tax lien attach?
A. The tax lien attaches not only from the service of the warrant of distraint of
personal property but from the time the tax income becomes due and payable.
FORFEITURE
MARIA B. CASTRO vs. COLLECTOR OF INTERNAL REVENUE

G.R. No. L-12174 April 26, 1962
Facts: Castro was assessed to be liable for war profits tax. There being no bidders,
the properties first sold at a public auction were forfeited in favor of the
Government. Consequently, another public auction of other properties was held in
order to raise the deficiency. Castro contends that the sale and forfeiture to the
government (due to lack of bidders) of her properties which had been levied upon
by the CIR and advertised for sale constitutes a full discharge of petitioner's tax
liabilities.
Q. Does forfeiture of the taxpayer's distrained or levied property in favor of the

Government, for lack of adequate bids, operate as full satisfaction of the total tax
claims even beyond the value of the property forfeited?
A. NO. The remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected.
BPI vs Trinidad, 42 Phil 220
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In a seizure to enforce a tax lien, the residue of such proceeds over and
above the tax sought to be realized, including expenses, is returned to the owner of
the property.
US vs Suria, 20 Phil 163]

In a seizure under forfeiture, all the proceeds of the sale of the thing
forfeited are turned over to the Collector of Internal Revenue.
STATUTE OF LIMITATIONS
Arches vs. Bellosillo, 20 SCRA 32

The defense of prescription is not jurisdictional and must be raised
seasonably, otherwise it is deemed waived.
A. Assessment of the Tax Liability

a.)3 years
Commissioner vs. Pheonix Assurance Co. Ltd., 14 SCRA 52)
Facts: Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on April 1,
1953. It amended said return on August 30, 1955 reporting a tax liability of P2,502
00. On July 24, 1958, after examination of the amended return, the Commissioner of
Internal Revenue assessed deficiency income tax in the sum of P5,667.00. The CTA
ruled that the right of the CIR was barred by prescription.
The CIR insists that his right to issue the assessment has not prescribed
inasmuch as the same was availed of before the 5-year period provided for in
Section 331 of the Tax Code expired, August 30, 1955, the date when the amended
return was filed.
Q. When is the reckoning date of the 5-year prescriptive period to issue an

assessment?
A. The changes and alterations embodied in the amended income tax return were
substantial. The period of limitation of the right to issue the same should be
counted from the filing of the amended income tax return.
b.) 10 years
Basilan Estates vs. Commissioner, 21 SCRA 17
Facts: Basilan Estates claims that it never received notice of assessment of the
deficiency or if it did, it received the notice beyond the five-year prescriptive period.
Q. When is assessment deemed made for the purpose of counting the 5year
presciptive period?
A. The assessment is deemed made when notice to this effect is released, mailed or
sent by the Collector to the taxpayer. As long as the notice is released within the
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prescriptive period, it is not required that the same be received by the taxpayer
within the prescriptive period.
Republic vs. Marsman Dev. Co., GRN L-18986, April 27, 1972
It was incumbent upon appellants to show that such a return had been
submitted. In order that the filing of a return may serve as the starting point of the
period for the making of an assessment, the return must be as substantially
complete as to include the needed details on which the full assessment may be
made.
Taligman Lumber Co. vs. Collector, 4 SCRA 842

Since prescription is one of the affirmative defenses set up by petitioner
herein, it was incumbent upon the latter to prove that it had submitted said returns,
and that, having failed to do so, the conclusion must be that no such returns had
been filed and that the Government had 10 years within which to make the
corresponding assessments, as it did in this case.
Butuan Sawmill, Inc. vs. CTA, 16 SCRA 277

The 10 year prescriptive period will still apply even if what was filed was a wrong
return. This is true even if the information embodied in the wrong return could
enable the BIR to assess the tax liability of the taxpayer.
Demand Letter issued by the Bureau of Forestry not an

assessment
Mambulao Lumber Co. vs. Republic of the Phil, GRN L-

37061, September 5, 1984
Facts: Mambulao Lumber Company paid the Government a total of P9,127.50 as
reforestation charges. Having found liable for an aggregate amount of P4,802.37 for
forest charges, it contended that since the Republic (Government) has not made
use of the reforestation charges for reforesting the denuded area of the land
covered by the company’s license, the Republic should refund said amount or, if it
cannot be refunded, at least the company should be compensated with what it
owed the Republic for reforestation charges.
Q. May taxes be subject of set-off or compensation?
A. NO. Internal revenue taxes, such as forest charges, cannot be the subject of set-
off or compensation. A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the remedy in an action
or any indebtedness of the State or municipality to one who is liable to the State or
municipality for taxes. Neither are they subject of recoupment since they do not
arise out of the contract or transaction sued on.
Taxes are not in the nature of contracts between the parties but grow out of
a duty to, and are the positive acts of the government, to the making and enforcing
of which, the personal consent of individual taxpayers is not required.
B. Collection of the Tax

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a.)5 years
b.) 10 years
Clara Diluangco vs. Commissioner, 4 SCRA 263

Q. When does the running of the period of limitation commence?
A. All that is required to start the running of the period of limitation therein
prescribed is to distraint or levy, or institute a proceeding in court, within 5 years
after the assessment of the tax. A judicial action for the collection of a tax is begun
by the filing of a complaint with the proper court, or where the assessment is
appealed to the CTA, by filing an answer to the taxpayer's petition for review
wherein payment of the tax is prayed for. The summary remedy of distraint and
levy is begun by the issuance of a warrant of distraint and levy. The right of the CIR
to collect by summary method has the effect of stopping the running of prescription
once a warrant of distraint and levy is issued.
Filing of answer to taxpayer’s petition for review

considered as institution of judicial action.
Fernandez Hermanos, Inc. vs. Commissioner, GRN L-21551,

L-21557, September 30, 1969
Facts: Upon verification of the taxpayer’s income tax returns, the CIR assessed the
taxpayer deficiency income taxes. Said assessment was assailed before the CTA
and was eventually elevated before the SC. The taxpayer contended that
prescription has set in for failure of the Commissioner to file a complaint for
collection against it in an appropriate civil action.
Q. Does the filing of an answer to taxpayer’s petition for review stay the prescriptive
period?
A. YES. A judicial action for the collection of a tax is begun by the filing of a
complaint with the proper court of first instance, OR where the assessment is
appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition
for review wherein payment of the tax is prayed for.
Where the tax obligation is secured by a bond, the

prescriptive period for the action for the forfeiture of the
bond is governed by the Civil Code
Guagua Electric Co., Inc. vs. Commissioner, 19 SCRA 790

Facts: Guagua Electric Light Plant Co. is a grantee of municipal franchises by the
municipal councils of Guagua and Sexmoan, Pampanga. It filed a claim for refund
for overpayment of franchise tax as provided by its franchises which was denied by
the Commissioner on the ground that the right to refund has prescribed.
Later however, due to the holding in Hoa Hin Co. vs. David, the Commissioner
assessed against the company deficiency franchise tax subject to a 25% surcharge,
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and thereby including the amount previously allowed by the Commissioner to be
refunded.
Q. Should tax “refunded erroneously” be imposed against the company, or has the
right to recover prescribed?
A. NO, it should not be imposed against the company. The demand on the taxpayer
to pay the sum of P16,593.87 is in effecct an assessment of deficiency franchise
tax. The right to assess, thus, and to collect is governed by Section 331 of the Tax
Code rather than by Article 1145 of the Civil Code, as a special law prevails over a
general law. Guagua Electric is absolved from the payment of the amount
erroneously refunded.
Fraudulent or False Return

Aznar vs. Commissioner, 58 SCRA 519
Our stand that the law should be interpreted to mean a separation of the three
different situations of false return, fraudulent return with intent to evade tax, and
failure to file a return is strengthened immeasurably by the last portion of the
provision which segregates the situations into three different classes, namely -
"falsity," "fraud" and "omission." That there is a difference between "false return"
and "fraudulent return" cannot be denied. A “false return” implies deviation from
the truth, whether intentional or not. A “fraudulent return” implies intentional or
deceitful entry with intent to evade the taxes due. The fraud contemplated by law
is actual and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce another to give up
some legal right. Negligence, whether slight or gross, is not equivalent to the fraud
with intent to evade the tax contemplated by law. It must amount to intentional
wrong-doing with the sole object of avoiding the tax.
What constitutes fraud

CIR vs. Ayala Securities Corporation, GRN L-29485, March 31,
1976
Q. What constitutes fraud?
A. Fraud is a question of fact and the circumstances constituting fraud must be

alleged and proved in the court below. The finding of the trial court as to its
existence and non-existence is final and cannot be reviewed here unless clearly
shown to be erroneous. Fraud is never lightly to be presumed because it is a serious
charge.
Gomez vs. Domingo, CTA case No. 1168, February 16, 1964
Mere understatement of the income in itself does not constitute fraud.
Tan Guan vs. CTA, GRN L-23676, April 27, 1967

Facts: Tan Guan and Sia Lin is a partnership. The BIR investigated the books and
papers of the said partnership posted fictitious expenses for the purpose of avoiding
taxes. The BIR investigators disallowed the deductions because there was
substantial and intentional overstatement of deductions. The expenses were
fictitious or non-existent. Said conclusion was prompted by the absence of
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supporting receipts in the voucher recovering the expenses and by the failure of the
recipients thereof to declare them in their income tax returns.
Q. Can the expenses be claimed as a deduction by the partnership considering such

findings?
A. NO. The Commissioner’s finding on the facts constituting fraud, proven, and
found established by the Court of Tax Appeals, was not rebutted by the taxpayer.
Tan Guan did not present any evidence to disprove the findings that the expenses
are fictitious; considering that the investigation on Tan Guan’s liability was made
prior to the expiration of the 5-year period to preserve and keep receipts as set
fgorth in Section 337 of the Tax Code. As the determination of the Commissioner is
presumed correct, it behooves the taxpayers to rebut such presumption. For failure
to overcome the burden, Tan Guan or the company cannot claim the expenses as
deduction from gross income.
C. Criminal Liability
SUSPENSION OF PRESCRIPTIVE PERIODS
Republic vs. Felix Acebedo, GRN L-204207, March 29, 1968

The delay in collection could not be attributed to the defendant at all. His
requests had been unheeded until then, and there was nothing to impede
enforcement of the tax liability by any of the means provided by law. More than 5
years had elapsed since the assessment in question was made, and hence,
prescription had already set in, making subsequent events in connection with the
said assessment entirely immaterial. The written waiver of the statute signed by the
defendant could no longer revive the 'right of action, for under the law such waiver
must be executed within the original 5-year period within which suit could be
commenced.
However:
Sinforoso Alca vs. CTA and Commissioner, GRN L-24624,

November 27, 1968
The right to avail of the defense of prescription is waivable. Alca's waiver was
of the period of prescription beginning January 20, 1956. It is not just an extension
of the period of limitation, but a renunciation of her right to invoke the defense of
prescription which was then already available to her. There is nothing unlawful nor
immoral about this kind of waiver. The defense of prescription is waivable.
Commissioner vs. Wyeth Suaco Laboratories, Inc., 202

SCRA 125
The prescriptive period provided by law to make a collection by distraint or
levy or by a proceeding in court is interrupted once a taxpayer requests for
reinvestigation or reconsideration of the assessment. The period starts to run again
when said request is denied.
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Prescription: Suspension of the Statutory Period for
Collection
Republic vs. Hizon, 320 SCRA 574

Section 229 (now 228) of the Tax Code mandates that a request for
reconsideration must be made within 30 days from the taxpayer’s receipt of the tax
deficiency assessment, otherwise the assessment becomes final, unappealable and
therefore demandable.
TAX REMEDIES OF THE TAXPAYER:
1. PROTEST AGAINST ASSESSMENT
St. Stephen’s Association vs Collector of Internal Revenue,

GR No. L-11238, August 21, 1958
Where a taxpayer questions an assessment and asks the Collector to
reconsider or cancel the same because he (the taxpayer) believes he is not liable
therefore, the assessment becomes a "disputed assessment" that the Collector
must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon
receipt of the decision of the Collector on the disputed assessment, in accordance
with par. (1) of section 7, Republic Act No. 1125, conferring appellate jurisdiction
upon the Court of Tax Appeals to review decisions of the Collector of Internal
Revenue in cases involving disputed assessment.
Dayrit vs Cruz, 165 SCRA 571

Facts: Petitioners are the heirs of the deceased spouses Marta and Toribio Teodoro
who died intestate. The heirs separately filed estate and inheritance tax returns for
the estates of the spouses with the BIR. The BIR issued deficiency estate and
inheritance tax assessments the Estates of Dona Marta and Don Toribio. The heirs
asked for reconsideration as the assessment was allegedly contrary to law and not
supported by sufficient evidence. In a tax return Dayrit declared an additional
amount of P3,655,595.78 as part of the estates of the Teodoro spouses. The BIR
issued tax payment acceptance orders, as the heirs and estate have paid a total of
P285,046.88. In 1974, the Commissioner filed a motion for allowance of claim
against the estates, and for an order of payment of taxes before the trial court,
praying that Dayrit be ordered to pay the BIR the sum of P6,470,391.91 plus
surcharges and interest. Dayrit filed oppositions contending that the taxes have
been settled according to the provisions of PD 23, as amended by PD 67.
Q. Was the assessment final, executory, and demandable?
A. YES. The act of the Commissioner, in filing an action for allowance of the claim for
estate and inheritance taxes, may be construed as a denial of the taxpayers’
request for reconsideration. From the date of receipt of the copy of the
Commissioner’s letter for collection of taxes, the taxpayers must contest and
dispute the same, and upon denial thereof, they have a period of 30 days to appeal
the case to the Court of Tax Appeals. Tax assessment made by tax examiners are
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presumed correct and made in good faith. A taxpayer has to prove otherwise.
Failure of the taxpayers to appeal to the Court of Tax Appeals in due time made the
assessments final, executory and demandable. Such failure to file a position paper
may be construed as abandonment of the petitioners' request for reconsideration.
The court notes that it took the respondent Commissioner a period of more than
one (1) year and five (5) months before finally instituting the action for collection.
Under the circumstances of the case, the act of the Commissioner in filing an action
for allowance of the claim for estate and inheritance taxes, may be considered as
an outright denial of petitioners' request for reconsideration. The taxpayer’s
remedy is to appeal to the CTA within 30 days from the date he is notified. The
petitioners, however failed to avail of this remedy.
CIR vs Algue, GR No. L-28896, February 17, 1988

Facts: Algue received a letter of assessment from CIR for delinquency income taxes.
Algue filed a letter protest which was stamp-received on the same day in the office
of the petitioner. Later, a warrant of distraint and levy was presented to Algue
through its counsel, who refused to accept because of a pending protest. Since the
said protest could not be found in the dockets, Algue’s counsel produced his copy
and furnished the agent with a photostatic copy. The warrant was deferred.
However, the protest was denied. Algue filed a petition for review of the decision of
the Commissioner with the CTA.
Q. Was the petition for review of the decision of the Commissioner seasonably filed
with the CTA?
A. YES. As a rule, the warrant of distraint and levy is "proof of the finality of the
assessment" and "renders hopeless a request for reconsideration," being
"tantamount to an outright denial thereof and makes the said request deemed
rejected."
Exception: If the protest filed was not pro forma and was based on strong
legal considerations. In this case, the proven fact is that four days after the private
respondent received the petitioner's notice of assessment, it filed its letter of
protest. This was apparently not taken into account before the warrant of distraint
and levy was issued. The protest was not pro forma and it thus had the effect of
suspending reglementary period which started on the date the assessment was
received. The period started running again only when the private respondent was
definitely informed of the implied rejection of the said protest and the warrant was
finally served on it.
Algue’s letter-protest of the assessment could not be found in the petitioner’s

office. Hence, the reglamentary period was suspended when Algue filed its protest
against the assessment and the period began to run again when Algue was
informed of the denial of its protest.
Advertising Associates, Inc. vs CA, 133 SCRA 766

Facts: Advertising Associates contends that it is a media company, not an
advertising company. It paid sales taxes, realty dealer's tax and 3% contractor's
tax for repairing electric signs. The billboards and electric signs manufactured by it
are either sold or leased. The CIR subjected to 3% contractor's tax its rental income
from billboards and electric signs. Advertising Associates contested the
assessments but the Commissioner reiterated the assessments.
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The taxpayer requested the cancellation of the assessments in its letters of
September 13 and November 21. 1974. In 1978, the Commissioner issued two
warrants of distraint, directing the collection enforcement division to levy on the
taxpayer's personal properties as would be sufficient to satisfy the deficiency taxes.
The Acting Commissioner wrote a letter dated May 23, 1979 in answer to the
requests of the taxpayer for the cancellation of the assessments and the withdrawal
of the warrants of distraint. He closed his demand letter with this paragraph:
"This constitutes our final decision on the matter. If you are not agreeable, you may
appeal to the Court of Tax Appeals within 30 days from receipt of this letter."
The reviewable decision of the BIR is the letter it issued. The said letter
embodies the Commissioner's final decision within the meaning of Section 7 of
Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to
appeal it to the Tax Court. The directive is in consonance with this Court's dictum
that the Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the disputed
assessment. That procedure is demanded by the pressing need for fair play,
regularity and orderliness in administrative action.
Collector of Internal Revenue vs Batangas Trans co., GR

No. L-9692, Jaunary 6, 1958
The CIR, after appeal from his decision to the CTA has been perfected, and
after the Tax Court has acquired jurisdiction over the appeal, but before the answer
is filed with the court, may still modify his assessment, subject of the appeal, by
increasing the same. If the Collector of internal Revenue is not allowed to amend his
assessment before the Court of Tax Appeals, and since he may make a subsequent
reassessment to collect additional sums within the same subject of his original
assessment, provided it is done within the prescriptive period, that would lead to
multiplicity of suit which the law does not encourage.
Meralco Securities Corporation vs Savellano, 117 SCRA 805

Facts: In 1967, the late Juan G. Maniago submitted to the Commissioner confidential
denunciation against the Meralco Securities Corp. for tax evasion for not having
paid income tax on 25% of the dividends it received from the Manila Electric Co. for
years 1962 to 1966. The Commissioner caused the investigation of the denunciation
and found that no deficiency corporate tax was due from Meralco Securities.
Maniago was informed of the findings. The Secretary of Finance sustained the
Commissioner’s action. Maniago filed a petition for mandamus against the
Commissioner so as to compel it to impose the alleged deficiency tax assessment
against Meralco Securities and to award him the corresponding informer’s award.
Q. Can the Commissioner be compelled to impose the alleged deficiency tax
assessment?
A. NO. Mandamus only lies to enforce the performance of a ministerial act or duty
and not to control the performance of discretionary power. Mandamus may not be
made against the Commissioner to compel him to impose a tax assessment not
found by him to be due or proper, for that would be tantamount to a usurpation of
executive functions. Purely administrative and discretionary functions may not be
interfered with by the Courts. The discretionary power vested in the proper
executive official, in the absence of arbitrariness or grave abuse so as to go beyonf
the statutory authority, is not subject tot he contrary judgment or control of others.
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The question of whether or not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words
"disputed assessments" or of "other matters arising under the National Internal
Revenue Code ", hence, falling within the jurisdiction of the Court of Tax Appeals
and not of the Court of First Instance. The Court of Tax Appeals has exclusive
appellate jurisdiction to review, on appeal, any decision of the Collector of Internal
Revenue in cases involving disputed assessments and other matters arising under
the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue.
Moreover, since the office of the Commissioner of Internal Revenue is
charged with the administration of revenue laws, which is the primary responsibility
of the executive branch of the government, mandamus may not lie against the
Commissioner to compel him to impose a tax assessment not found by him to be
due or proper for that would be tantamount to a usurpation of executive functions.
What may be the subject of a judicial review is the

decision of the Commissioner on the protest against
assessment, not the assessment itself.
Commissioner vs Villa, GR No. L-23998, January 2, 1968
Facts: Leonardo Villa and his wife were assessed deficiency taxes by the BIR.
However, without contesting the said assessment, Villa filed on May 4, 1961 a
petition for review with the CTA.
Q. Is an uncontested assessment a decision within the purview of RA 1125 thus

reviewable by the CTA?
A. NO. The term “decision” has been interpreted to mean the decisions of the CIR
on the protest of the taxpayer against the assessments and does not signify the
assessment itself. Thus, where a taxpayer questions an assessment and asks the
CIR to reconsider or cancel the same because he believes he is not liable therefore,
the CIR must decide and the taxpayer can appeal to the CTA only upon receipt of
the decision of the disputed assessment.
Since in the instant case the taxpayer appealed from the assessment of the
Commissioner of Internal Revenue without previously contesting the same, the
appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain
said appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal
decisions of the Commissioner of Internal Revenue on disputed assessments. The
Tax Court is a court of special jurisdiction. As such, it can take cognizance only of
such matters as are clearly within its jurisdiction.
Best-Obtainable Evidence Rule
Commissioner of Internal Revenue vs. Hantex Trading Co.,

Inc. (March 31, 2005)
FACTS: Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the

Economic Intelligence and Investigation Bureau, received confidential information
that the respondent had imported synthetic resin amounting to P115,599,018.00
but only declared P45,538,694.57. According to the informer, based on photocopies
of 77 Consumption Entries furnished by another informer, the 1987 importations of
the respondent were understated in its accounting records. An audit investigation
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was conducted and the respondent’s president refused to cooperate since he
contended that save for the current investigation, they have always cooperated in
the previous investigations before. Payment was demanded from the respondent
but it protested the assessment. The matter was elevated to the CTA and it ruled in
favor of the CIR, but was later on reversed by the CTA.
Q. Is an assessment based on the machine copies of the Consumption Entries

competent evidence?
A. NO, The photocopies of the consumption entries is incompetent. The “best

evidence” envisaged in Sec. 16 of the 1977 NIRC, as amended, includes the
corporate and accounting records of other taxpayers engaged in the same line of
business, including their gross profit and net profit sales. The general rule is that
administrative agencies such as the BIR are no bound by the technical rules of
evidence. The best evidence obtainable under Sec. 16 of the 1977 NIRC, as
amended, does not include mere photocopies of records/documents. The rule s that
in the absence of the accounting records of a taxpayer, his tax liability may be
determined by estimation; Rule does not apply where the estimation is arrived at
arbitrarily and capriciously.
2. CLAIM FOR REFUND

There must be a written claim for refund filed by the
taxpayer with the Commissioner.
Commissioner of Internal Revenue vs. Central Luzon Drug

Corporation (April 15, 2005)
FACTS: Respondent is engaged in retailing medicines and pharmaceutical products

and from January to December 1996, it granted 20% sales discount to qualified
senior citizens on their purchases of medicines pursuant to RA 7432, which totaled
to P904, 769. For the taxable year 1996, the corporation incurred a net loss. The
respondent then filed a claim for tax refund/credit from the petitioner but was
unable to get an affirmative response.
Q. Can a taxpayer validly claim a tax refund/credit despite a net loss?
A. YES. The tax credit allowed under RA 7432 to establishments as a result of

granting senior citizens 20% discount on their purchase of medicines from private
establishments may be claimed by such establishments even though they are
operating at a loss. Under RA 7432, Congress has granted without conditions a tax
credit benefit to all covered establishments. Although this tax credit benefit is
available, it need not be used by losing ventures, since there is no tax liability that
calls for its application – by its nature, the tax credit may still be deducted from a
future, not a present, tax liability, without which it does not have any use .Also, the
discount privilege to which our senior citizens are entitled is actually a benefit
enjoyed by the general public to which these citizens belong. As a result of the 20%
discount imposed by RA 7432, an establishment becomes entitled to a just
compensation, and this term refers not only to the issuance of a tax credit
certificate indicating the correct amount of the discounts given, but also to the
promptness of its release.
Atlas Consolidated Mining and Development Corp. vs.

Commissioner of Internal Revenue (March 16, 2007)
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FACTS: Petitioner presented to respondent Commissioner of Internal Revenue
applications for refund or tax credit of excess input taxes for the second, third and
fourth quarters of 1992 in the following amounts: P24,031,673 for the second
quarter, P16,597,709.17 for the third quarter and P29,839,894.82 for the last.
Petitioner attributed these claims to its sales of gold to the Central Bank, copper
concentrates to Philippine Associated Smelting and Refining Corporation (PASAR)
and pyrite to Philippine Phosphates, Inc. (Philphos) on the theory that these were
zero-rated transactions resulting in refundable or creditable input taxes under
Section 106(b) of the Tax Code of 1986. Due to the inaction of the CIR, the
petitioner brought its claim to the CTA but it was subsequently denied.
Q. Can the taxpayer validly claim tax refund/credit?
A. NO. It has always been the rule that those seeking tax refunds or credits bear the
burden of proving the factual bases of their claims and of showing, by words too
plain to be mistaken, that the legislature intended to entitle them to such claims.
The rule, in this case, required petitioner to (1) show that its sales qualified for zero-
rating under the laws then in force and (2) present sufficient evidence that those
sales resulted in excess input taxes. There is no dispute that respondent had
approved petitioner’s applications for the zero-rating of its sales to the Central
Bank, PASAR and Philphos prior to the transactions from which these claims arose.
However, it was also incumbent on petitioner to submit sufficient evidence to justify
the grant of refund or tax credit. It was here that petitioner fell short.
The CTA and the CA both found that petitioner failed to comply with the
evidentiary requirements for claims for tax credits or refunds set forth in Section
2(c) of Revenue Regulations 3-88 and in CTA Circular 1-95, as amended by CTA
Circular 10-97.
Cebu Portland Cement Co. vs Collector, 25 SCRA 789

Facts: By virtue of a decision of the Court of Tax Appeals, modified by the Supreme
Court, the Commissioner was ordered to refund overpayments of ad valorem taxes
on cement produced and sold by the company after October 1957. The company
moved for a writ of execution, which was opposed by the Commissioner on the
ground that the company had an outstanding sales tax liability to which the
judgment debt had already been credited. The Court of Tax Appeals held that the
alleged sales tax liability was still being questioned and therefore cannot be set-off
against the refund.
Q. May the assessment of sales tax liability may be enforced, i.e. to set off against
the refund, pending contest?
A. YES. The argument, that the assessment cannot as yet be enforced because it is
still being contested, lost sight of the urgency of the need to collect taxes as “the
life blood of the government.” If the payment of taxes could be postponed by
simply questioning their validity, the machinery of the state would grind to a halt
and all government functions would be paralyzed. To require the Commissioner to
actually refund to the company the amount of the judgment debt which he will later
have the right to distrait for payment of its sales tax liability, is an idle ritual.
Commissioner vs Wander Philippines, Inc., GR No. L-68375,

April 15, 1988
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Facts: Wander Inc. is a domestic corporation owned by Glaro S.A. Ltd., - a service
corporation not engaged in trade or business in the Philippines. Wander remits
dividends to its parent company out of which Wander withholds 35% and pays the
same to the BIR. Wander filed a claim for refund, contending that it is liable only for
15% withholding tax and not 35% as provided in the Tax Code.
Q. Is Wander entitled to the preferential rate of 15% withholding tax on the

dividends it remitted to Glaro?
A. YES. Under the Tax Code, dividends received from a domestic corporation liable
to tax, the tax rate shall be 15% of the dividends remitted, subject to the condition
that the country in which the non-resident corporation shall allow a credit against
the tax due from the non-resident corporation taxes deemed to be paid in the
Philippines equivalent to 20% which represents the difference between the regular
tax of 35% on corporations and 15% tax on dividends.
In the instant case, Switzerland did not impose any tax on dividends received
by Glaro. Such fact, however, should be considered as a full satisfaction of the
given conditions. To deny Wander to withhold the 15% tax would run counter to the
very spirit and intent of said law. The submission of petitioner that Wander is but a
withholding agent of the government and therefore cannot claim reimbursement of
the alleged overpaid taxes, is untenable. It will be recalled, that said corporation is
first and foremost a wholly owned subsidiary of Glaro. The fact that it became a
withholding agent of the government which was not by choice but by compulsion
under Tax Code, cannot by any stretch of the imagination be considered as an
abdication of its responsibility to its mother company. It is a device to insure the
collection by the Philippine Government of taxes on incomes, derived from sources
in the Philippines, by aliens who are outside the taxing jurisdiction of this Court. In
fact, Wander may be assessed for deficiency withholding tax at source, plus
penalties consisting of surcharge and interest. Therefore, as the Philippine
counterpart, Wander is the proper entity who should claim for the refund or credit of
overpaid withholding tax on dividends paid or remitted by Glaro.
The claim for refund must be filed within two (2) years
from date of payment of the tax or penalty regardless of
any supervening event.
Gibbs vs Collector of Internal Revenue, GR No. L-13453,

February 29, 1960
Facts: After the denial of their petition by the BIR, Petitioners paid the deficiency
income tax and demanded a refund therefrom. Petitioners filed a petition for review
of the refund which was denied by the respondent court holding that it had no
jurisdiction for being filed beyond the 30-day reglamentary period.
Q. Was the petition seasonably filed?
A. NO. A taxpayer who has paid the tax whether under protest or not, and who is
claiming a refund of the same, must comply with the requirements of both section
306 o0f the NIRC and section 11 of RA 1125; (1) that is, he must file a claim for
refund with the CIR within 2 years from the date of his payment of the tax as
required by Sec. 306 of the NIRC and (2) appeal to the CTA within 30 days from
receipt of the CIR’s ruling or decision denying his claim for refund, as required by
Sec. 11 of RA 1125. If however, the Collector takes time in deciding the claim and
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the period of 2 years is about to end, the suit or proceeding must be started with
the CTA before the end of the 2-year period without awaiting the Decision of the
Collector. This is so because the positive requirement of Sec. 306 and the doctrine
that delay of the Collector in rendering decision does not extend the peremptory
period fixed by the statute.
In the case of taxpayer who has not yet paid the tax and who is protesting
the assessment made by the CIR, he must file an appeal with the CTA within 30
days from his receipt of the Collector’s Assessment as required by Sec. 11 of RA
1125. Otherwise, his failure to comply with said statutory requirement would bar his
appeal and deprive the CTA of its jurisdiction to entertain or determine the same.
Sec. 7, in relation to Sec. 11 of RA 1125 gives the CTA exclusive appellate
jurisdiction to review by appeal decisions of the CIR involving disputed assessments
or refunds of internal revenue taxes, provided the case is filed within 30 days after
the receipt of such decision or ruling. Petitioners received the notice of denial on
November 14, 1956, they filed the petition more than 10 months thereafter on
September 27, 1957. The CTA will no longer entertain such petition for being filed
way beyond the 30-day reglamentary period.
Computation of two-year period.
Collector of Internal Revenue vs Prieto, GR No. L-11976,

August 29, 1961
Q. When the tax is paid in installments, when should the prescriptive period of two
years provided in section 306 of the Revenue Code be counted from?
A. The 2-yr period should be counted from the date of the final payment. This rule
proceeds from the theory that, in contemplation of tax laws, there is no payment
until the whole or entire tax liability is completely paid. Thus, a payment of a part or
portion thereof, can not operate to start the commencement of the statute of
limitations. In this regard the word "tax", or words "the tax" in statutory provions
comparable to section 306 of our Revenue Code have been uniformly held to refer
to the entire tax and not a portion thereof and the vocables "payment of tax" within
statutes requiring refund claim, refer to the date when all the tax was paid, not
when a portion was paid.
Gibbs vs Commissioner of Internal Revenue, GR No. L-

17406, November 29, 1965
Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it
means not only the delivery of money but also the performance, in any other
manner, of an obligation (Art. 1231). A taxpayer, resident or nonresident, does so
not really to deposit an amount to the Commissioner of Internal Revenue, but, in
truth, to perform and extinguish his tax obligation for the year concerned. In other
words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose
income is withheld at source will be deemed to have paid his tax liability when the
same falls due at the end of the tax year. It is from this latter date then, or when
the tax liability falls due, that the two-year prescriptive period under Section 306
(now part of Section 230) of the Revenue Code starts to run with respect to
payments effected through the withholding tax system.
ACCRA Investment Corporation vs CA, 204 SCRA 957
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Facts: On April 15, 1982, the petitioner corporation filed with the Bureau of Internal
Revenue its annual corporate income tax return for the calendar year ending
December 31, 1981 reporting a net loss. In the said return, the petitioner
corporation declared as creditable all taxes withheld at source by various
withholding agents which were paid and remitted by the latter to the Bureau of
Internal Revenue from February to December 1981. On December 29, 1983, the
petitioner corporation filed a claim for refund inasmuch as it had no tax liability
against which to credit the amounts withheld.
Pending action of respondent CIR on its claim for refund, Petitioner filed a petition
for review with the CTA asking for the refund of the amounts withheld as overpaid
income taxes. The CTA dismissed the action after finding that the two-year period
within which the petitioner’s claim for refund should have been filed had already
prescribed pursuant to the Tax Code.
Q. Is CTA correct?
A. NO, CTA is not correct.

There are two alternative reckoning dates: (1) the end of the tax year; and
(2) when the tax liability falls due.
The corporation's withholding agents had paid the corresponding taxes
withheld at source to the Bureau of Internal Revenue from February to December
1981. In having applied the first alternative date-"the end of the tax year" in order
to determine whether or not the petitioner corporation's claim for refund had been
seasonably filed, the respondent appellate court failed to appreciate properly the
attending circumstances of this case.
The petitioner corporation is not claiming a refund of overpaid withholding
taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the
refundable or creditable amount determined upon the petitioner corporation's filing
of the its final adjustment tax return on or before 15 April 1982 when its tax liability
for the year 1981 fell due. The petitioner corporation's taxable year is on a
calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had
until 15 April 1982 within which to file its final adjustment return. The petitioner
corporation duly complied with this requirement on the basis of the corporate
income tax return which ACCRAIN filed on 15 April 1982.
Clearly, there is the need to file a return first before a claim for refund can
prosper inasmuch as the respondent Commissioner by his own rules and regulations
mandates that the corporate taxpayer opting to ask for a refund must show in its
final adjustment return the income it received from all sources and the amount of
withholding taxes remitted by its withholding agents to the Bureau of Internal
Revenue.
The petitioner corporation filed its final adjustment return for its 1981 taxable
year on April 15,1982. The two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the adjusted
final tax return. Hence, the petitioner corporation had until April 15, 1984 within
which to file its claim for refund.
CIR vs TMX Sales Inc., GR No. 83736, January 15, 1992

Facts: TMX Sales, Inc filed its quarterly income tax return for the first quarter of
1981. However, during the subsequent quarters, TMX sales suffered losses so that
when it filed its income tax return, it declared a gross income of P 904,122.00 and
total deductions of P 7,060,647.00. Thereafter, TMX Sales filed a claim for refund
with the appellate division of the BIR. This claim was not acted upon by the CIR.
TMX Sales filed a petition for review with the CTA. The CIR, in his answer, alleged
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that the amount in question can no longer be refunded considering that more than
two years had already elapsed. The CTA ruled in favor of TMX Sales.
Q. When does the 2-year period to claim a refund of erroneously collected tax
provided for in Sec. 230 commence to run? Is it from the date the quarterly income
tax was paid or from the date of filing the adjusted return?
A. The most reasonable and logical application of the law would be to compute the
2-year prescriptive period at the time of filing the Final Adjustment Return or the
Annual Income Tax Return, when it can be finally ascertained if the taxpayer has
still to pay additional income tax or if he is entitled to a refund of overpaid income
tax.
It is the Final Adjustment Return where the figures of the gross receipts and
deductions have been audited and adjusted, that is truly reflective of the results of
the operations of a business enterprise. Thus, it is only when the Adjustments
Return covering the whole year is filed that the taxpayer would know whether a tax
is still due or a refund can be claimed based on the adjusted and audited figures.
Therefore, the filing of quarterly income tax returns required in sec.75, NIRC
and implemented per BIR Form 1702-Q and payment of quarterly income tax should
only be considered were installments of the annual tax due. These quarterly tax
payments which are computed on the cumulative figures of gross receipts and
deductions on order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year.
TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on
April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
BPI vs CIR, GR No. 144653, August 28, 2001

Facts: Family Bank and Trust Co had a refundable of P2,320,138.34, representing
that year's tax credit of P174,065.77 and the previous year's excess credit of
P2,146,072.57. FBTC's successor-in-interest, BPI, claimed this amount as tax refund,
but CIR refunded only the amount of P2,146,072.57, leaving a balance of
P174,065.77. Accordingly, BIR filed a petition for review in the CTA seeking the
refund of the aforesaid amount. However, CTA dismissed BIR's petition for review
and denied its claim for refund on the ground that the claim had already prescribed.
CA affirmed CTA decision.
Q. In case of dissolution of a corporation, when does the two-year period of

prescription under Sec. 292 of the Tax Code start to run?
A. In case of the dissolution of a corporation, the period of prescription should be

reckoned from the date of filing of the return required by §78 of the Tax Code which
state …”Every corporation shall, within thirty days after the adoption by the
corporation of a resolution or plan for the dissolution of the corporation x x x ,render
a correct return to the Commission of Internal Revenue, x x x .
After it ceased operations, the taxable year of FBTC was shortened to six
months. The situation of FBTC is precisely what was contemplated under §78 of the
Tax Code. It thus became necessary for FBTC to file its income tax return within 30
days after approval by the SEC of its plan or resolution of dissolution. Indeed, it
would be absurd for FBTC to wait until the fifteenth day of April, or almost 10
months after it ceased its operations, before filing its income tax return.
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Bank of the Philippines Islands vs. Commissioner of
Internal Revenue (Oct. 17, 2005)
FACTS: BPI, on two separate occasions, sold United States (US) $500,000.00 to the
Central Bank of the Philippines for the total sales amount of US$1,000,000.00. On
10 October 1989, the Bureau of Internal Revenue issued Assessment No. FAS-5-85-
89-002054, finding petitioner BPI liable for deficiency Documentary Stamp Tax on
its afore-mentioned sales of foreign bills of exchange to the Central Bank.
Petitioner BPI received the Assessment, together with the attached Assessment
Notice, on 20 October 1989 and protested such on Nov. 16, 1989. BPI did not
receive any immediate reply to its protest letter. However, on 15 October 1992, the
BIR issued a Warrant of Distraint and/or Levy, against petitioner BPI for the
assessed deficiency DST for taxable year 1985, in the amount of P27,720.00. It
served the Warrant on petitioner BPI only on 23 October 1992. Then again, BPI did
not hear from the BIR until 11 September 1997, when its counsel received a letter,
dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato,
denying its “request for reconsideration”. BPI then elevated the case to the CTA
which ruled that the BIR can still collect the said tax since its right to collect has not
yet prescribed, which was likewise affirmed by the Court of Appeals.
Q. Has the right of BIR to collect from BPI the alleged deficiency DST prescribed?
A. YES. The statute of limitations on collection may only be interrupted or

suspended by a valid waiver executed in accordance with paragraph (d) of Section
223 of the Tax Code of 1977, as amended, and the existence of the circumstances
enumerated in Section 224 of the same Code, which include a request for
reinvestigation granted by the BIR Commissioner. Even when the request for
reconsideration or reinvestigation is not accompanied by a valid waiver or there is
no request for reinvestigation that had been granted by the BIR Commissioner, the
taxpayer may still be held in estoppel and be prevented from setting up the defense
of prescription of the statute of limitations on collection when, by his own repeated
requests or positive acts, the Government had been, for good reasons, persuaded to
postpone collection to make the taxpayer feel that the demand is not unreasonable
or that no harassment or injustice is meant by the Government, as laid down by this
Court in the case of CIR vs. Suyoc Consolidated Mining Co. Applying the given rules
to the present Petition, this Court finds that: (a) The statute of limitations for
collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued
against petitioner BPI, had already expired; and (b) None of the conditions and
requirements for exception from the statute of limitations on collection exists
herein: Petitioner BPI did not execute any waiver of the prescriptive period on
collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as
amended; the protest filed by petitioner BPI was a request for reconsideration, not a
request for reinvestigation that was granted by respondent BIR Commissioner which
could have suspended the prescriptive period for collection under Section 224 of the
Tax Code of 1977, as amended; and, petitioner BPI, other than filing a request for
reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated
requests or performed positive acts that could have persuaded the respondent BIR
Commissioner to delay collection, and that would have prevented or estopped
petitioner BPI from setting up the defense of prescription against collection of the
tax assessed, as required in the Suyoc case.
VALUE-ADDED TAX
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Commissioner of Internal Revenue vs. Cebu Toyo
Corporation (Feb. 16, 2005)
FACTS: The respondent is an export enterprise and is a subsidiary of a foreign

corporation duly registered with the Philippine Economic Zone Authority pursuant to
PD 66 and is also registered with the BIR as a VAT taxpayer. Respondent sells 80%
of its products to its mother corporation, and the rest are sold to various enterprises
doing business in the Mactan Export Processing Zone. Inasmuch as both sales are
considered export sales subject to Value-Added Tax (VAT) at 0% rate under Section
106(A)(2)(a)of the National Internal Revenue Code, as amended, respondent filed its
quarterly VAT returns from April 1, 1996 to December 31, 1997 showing a total
input VAT of P4,462,412.63. Respondent filed an application for tax credit/refund of
VAT paid for the period April 1, 1996 to December 31, 1997 amounting to
P4,439,827.21 representing excess VAT input payments. The CIR belies the claim
for refund of the respondent.
Q. Is the grant of a refund in the amount of P2,158,714.46 representing unutilized

input VAT on goods and services for the period April 1, 1996 to December 31, 1997
to the respondent is proper?
A. YES, the respondent’s claim should be granted. Under the fiscal incentives
granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916, the
respondent had two options with respect to its tax burden. It could avail of an
income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from
income taxes for a number of years but not from other internal revenue taxes such
as VAT; or it could avail of the tax exemptions on all taxes, including VAT under P.D.
No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916.
Respondent availed of the income tax holiday for four (4) years starting from August
7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate Income Tax
Returns, where respondent specified that it was availing of the tax relief under E.O.
No. 226. Hence, respondent is not exempt from VAT and it correctly registered
itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. Taxable transactions are those transactions which are subject to
value-added tax either at the rate of ten percent (10%) or zero percent (0%). In
taxable transactions, the seller shall be entitled to tax credit for the value-added tax
paid on purchases and leases of goods, properties or services. An exemption means
that the sale of goods, properties or services and the use or lease of properties is
not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid. A VAT-registered purchaser of goods, properties or
services that are VAT exempt, is not entitled to any input tax on such purchases
despite the issuance of a VAT invoice or receipt. Under the system, a zero rated sale
by a VAT-registered person, which is a taxable transaction for VAT purposes, shall
not result in any output tax, but the input tax on his purchase of goods, properties
or services related to such zero-rated sale shall be available as tax credit or refund.
Commissioner of Internal Revenue vs. Toshiba Information

Equipment (Phils.), Inc. (Aug. 9, 2005)
FACTS: Respondent Toshiba is a domestic corporation duly registered with the

Philippine Economic Zone Authority as an ECOZONE Export Enterprise and is also
registered in the BIR as a VAT taxpayer. Respondent Toshiba filed its VAT returns for
the 1st and 2nd quarters of 1996, reporting input VAT in the amount of
P13,118,542.00 and P5,128,761.94, respectively, or a total of P18,247,303.94. It
alleged that the said input VAT was from its purchases of capital goods and services
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which remained unutilized since it had not yet engaged in any business activity or
transaction for which it may be liable for any output VAT. Consequently, Toshiba
filed applications for tax credit/refund of its unutilized input VAT for 01 January to 31
March 1996 in the amount of P14,176,601.28, and for 01 April to 30 June 1996 in
the amount of P5,161,820.79, for a total of P19,338,422.07.
Q. Is Toshiba entitled to the tax credit/refund of its input VAT on its purchases of
capital goods and services?
A. An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and

services by persons from the Customs Territory to ECOZONE enterprises shall be
subject to VAT at zero percent (0%). Presidential Decree No. 66, creating the Export
Processing Zone Authority (EPZA), is the precursor of Rep. Act No. 7916, as
amended, under which the EPZA evolved into the PEZA. Consequently, the
exception of Presidential Decree No. 66 from Section 103(q) of the Tax Code of
1977, as amended, extends likewise to Rep. Act No. 7916, as amended. This Court
agrees, however, that PEZA-registered enterprises, which would necessarily be
located within ECOZONES, are VAT-exempt entities, not because of Section 24 of
Rep. Act No. 7916, as amended, which imposes the five percent (5%) preferential
tax rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but,
rather, because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory. The Philippine VAT system adheres to the Cross
Border Doctrine, according to which, no VAT shall be imposed to form part of the
cost of goods destined for consumption outside of the territorial border of the taxing
authority. Sales of goods, properties and services by a VAT-registered supplier from
the Customs Territory to an ECOZONE enterprise shall be treated as export sales. If
such sales are made by a VAT-registered supplier, they shall be subject to VAT at
zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not
pass on any output VAT to the ECOZONE enterprise, and at the same time, shall be
entitled to claim tax credit/refund of its input VAT attributable to such sales. The
rule that any sale by a VAT-registered supplier from the Customs Territory to a
PEZA-registered enterprise shall be considered an export sale and subject to zero
percent (0%) VAT was clearly established only on 15 October 1999, upon the
issuance of RMC No. 74-99. Prior to the said date, however, whether or not a PEZA-
registered enterprise was VAT-exempt depended on the type of fiscal incentives
availed of by the said enterprise.
COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE

TECHNOLOGY (PHILIPPINES) [G.R. No. 153866, February
11, 2005]
Facts: SEAGATE is a resident foreign corporation duly registered with the SEC to do
business in the Philippines. It is also registered with the PEZA to engage in the
manufacture of recording components primarily used in computers for export.
SEAGATE is a VAT-registered entity. An administrative claim for refund of VAT input
taxes in the amount of P28,369,226.38 with supporting documents was filed with
Revenue District Office in Cebu. The administrative claim for refund was not acted
upon by the petitioner prompting the respondent to elevate the case to the CTA.
The CIR contended that since ‘taxes are presumed to have been collected in
accordance with laws and regulations,’ the respondent has the burden of proof that
the taxes sought to be refunded were erroneously or illegally collected.
Unfortunately, the respondent failed to do so.
Q. Is respondent entitled to the refund or issuance of Tax Credit Certificate

representing alleged unutilized input VAT paid on capital goods purchased?
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A. Yes. No doubt, as a PEZA-registered enterprise within a special economic zone,
respondent is entitled to the fiscal incentives and benefits provided for in either PD
66 or EO 226 which would not subject respondent to internal revenue laws and
regulations for raw materials, supplies, articles, etc or would be entitled to income
tax holiday; additional deduction for labor expense, etc. It shall, moreover, enjoy all
privileges, benefits, advantages or exemptions under both Republic Act Nos. 7227
(Duty-free importation) and 7844 (Tax Credits). Thus, respondent enjoys
preferential tax treatment. The VAT on capital goods is an internal revenue tax from
which petitioner as an entity is exempt. Although the transactions involving such
tax are not exempt, petitioner as a VAT-registered person, however, is entitled to
their credits.
Zero-rated transactions differ from effectively zero-rated transactions as to their

source. Zero-rated transactions generally refer to the export sale of goods and
supply of services. Effectively zero-rated transactions, however, refer to the sale of
goods or supply of services to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory. In both
instances, the transactions are not exempt transactions and the seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers. In both instances of zero
rating, there is total relief for the purchaser from the burden of the tax. But in an
exemption there is only partial relief, because the purchaser is not allowed any tax
refund of or credit for input taxes paid.
VAT is a tax on consumption, the amount of which may be shifted or passed on by

the seller to the purchaser of the goods, properties or services. If a special law
merely exempts a party as a seller from its direct liability for payment of the VAT,
but does not relieve the same party as a purchaser from its indirect burden of the
VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not
exempt. Applying this principle to the case at bar, the purchase transactions
entered into by respondent are not VAT-exempt.
Since the purchases of respondent are not exempt from the VAT, the rate to be
applied is zero. Its exemption under both PD 66 and RA 7916 effectively subjects
such transactions to a zero rate, because the ecozone within which it is registered is
managed and operated by the PEZA as a separate customs territory. This means
that in such zone is created the legal fiction of foreign territory. Under the cross-
border principle of the VAT system being enforced by the BIR, no VAT shall be
imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. If exports of goods and services from the
Philippines to a foreign country are free of the VAT, then the same rule holds for
such exports from the national territory -- except specifically declared areas -- to an
ecozone.
CONTEX CORPORATION vs. HON. COMMISSIONER OF

INTERNAL REVENUE [G.R. No. 151135, July 2, 2004]
Facts: Petitioner is a domestic corporation engaged in the business of
manufacturing hospital textiles and garments and other hospital supplies for export.
It is duly registered with the Subic Bay Metropolitan Authority (SBMA) As an SBMA-
registered firm, petitioner is exempt from all local and national internal revenue
taxes except for the preferential tax provided for in Section 12 (c) of Rep. Act No.
7227. Petitioner also registered with the BIR as a non-VAT taxpayer. Petitioner
purchased various supplies and materials necessary in the conduct of its
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manufacturing business. The suppliers of these goods shifted unto petitioner the
10% VAT on the purchased items, which led the petitioner to pay input taxes in the
total amount of P1,108,307.72. Petitioner then filed two applications for tax refund
or tax credit of the VAT it paid. When no response was forthcoming, petitioner then
elevated the matter to the CTA. The BIR contended that since petitioner failed to
establish both its right to a tax refund or tax credit and its compliance with the rules
on tax refund as provided for in Sections 204 and 229 of the Tax Code, its claim
should be denied.
Q. Does the VAT exemption embodied in Rep. Act No. 7227 apply to petitioner as a
purchaser. Is Petitioner entitled to the tax refund on its purchases of supplies and
raw materials?
A. No. A VAT exemption means that the sale of goods or properties and/or services
and the use or lease of properties is not subject to VAT (output tax) and the seller is
not allowed any tax credit on VAT (input tax) previously paid. This is a case wherein
the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or
exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill
any output tax to his customers because the said transaction is not subject to VAT.
On the other hand, a VAT-registered purchaser of VAT-exempt goods/properties or
services which are exempt from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or receipt.
On the other hand, Zero-rated Sales are sales by VAT-registered persons which are
subject to 0% rate, meaning the tax burden is not passed on to the purchaser. A
zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT
purposes, shall not result in any output tax. However, the input tax on his purchases
of goods, properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.
The petitioner’s claim to VAT exemption in the instant case for its purchases of
supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act
No. 7227, which basically exempts them from all national and local internal revenue
taxes, including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.
Petitioner rightly claims that it is indeed VAT-Exempt and this fact is not
controverted by the respondent. In fact, petitioner is registered as a NON-VAT
taxpayer per Certificate of Registration issued by the BIR. As such, it is exempt
from VAT on all its sales and importations of goods and services.
Petitioner’s claim, however, for exemption from VAT for its purchases of supplies
and raw materials is incongruous with its claim that it is VAT-Exempt, for only VAT-
Registered entities can claim Input VAT Credit/Refund. While it is true that the
petitioner should not have been liable for the VAT inadvertently passed on to it by
its supplier since such is a zero-rated sale on the part of the supplier, the petitioner
is not the proper party to claim such VAT refund. Since the transaction is deemed a
zero-rated sale because the sale was in favor of an ecozone firm, petitioner’s
supplier may claim an Input VAT credit with no corresponding Output VAT liability.
Congruently, no Output VAT may be passed on to the petitioner.
2. No. The petitioner is registered as a NON-VAT taxpayer and thus, is exempt from
VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax)
previously paid. In fine, even if we are to assume that exemption from the burden
of VAT on petitioner’s purchases did exist, petitioner is still not entitled to any tax
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credit or refund on the input tax previously paid as petitioner is an exempt VAT
taxpayer.
TARIFF AND CUSTOMS CODE
Maribel B. Jardeleza vs. People of the Philippines (Feb. 6,

2006)
FACTS: The Information charging Jardeleza with violating the TCC was filed before
the RTC of Pasay City on October 23, 1997 averred that on February 28, 1997 the
accused brought 20.1 kilograms of assorted gold jewelry with an estimated value of
P7,562,231.50. Such was effected by hiding said jewelry inside a hanger bag and,
by not declaring it in the Customs Declaration form and, by verbally denying that
she is carrying said items by answering no when asked by Bureau of Customs if she
has anything to declare prior to the actual inspection of her luggage. The accused
denied the allegations against her.
Q. Is the accused guilty of smuggling the jewelries?
A. YES. A person arriving in the Philippines with baggages containing dutiable

articles is bound to declare the same in all respects. Adequate reporting of dutiable
merchandise being brought into the country is absolutely necessary to the
enforcement of customs laws, and failure to comply with those requisites is as
condemnable as failure to pay customs fees. Any administrative penalty imposed on
the person arriving in the Philippines with undeclared dutiable articles is separate
from and independent of criminal liability for smuggling under Sec. 3601 of the
Tariffs and Customs Code and for violation of other provisions in the TCC. Section
3601 of the TCC was designed to supplement the existing provisions of the TCC
against the means leading up to smuggling, which might render it beneficial by a
substantive and criminal statement separately providing for the punishment of
smuggling. Smuggling is committed by any person who: (1) fraudulently imports or
brings into the Philippines any article contrary to law; (2) assists in so doing any
article contrary to law; or (3) receives, conceals, buys, sells or in any manner
facilitate the transportation, concealment or sale of such goods after importation,
knowing the same to have been imported contrary to law. The phrase “contrary to
law” in Sec. 3601 qualifies the phrases “imports or brings into the Philippines” and
“assists in so doing,” and not the word “article”. The word “law” includes
regulations having the force and effect of law, meaning substantive or legislative
type rules as opposed to general statements of policy or rules of agency,
organization, procedures or positions.
Southern Cross Cement Corporation vs. Cement

Manufacturers Association of the Philippines (465 SCRA
532)
FACTS: On May 22, 2001, DTI accepted an application from Philcemcor, alleging that
the importation of gray Portland cement in increased quantities has caused declines
in domestic production, capacity utilization, market share, sales and employment,
as well as caused depressed local prices. Philcemcor sought the imposition at first of
provisional, then later, definitive safeguard measures on the import of cement
pursuant to the SMA. After investigation, it was determined that critical
circumstances existed justifying the imposition of provisional measures.
Subsequently, the Tariff Commission received a request from the DTI for a formal
investigation to determine whether to impose a definitive safeguard measure and it
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found that there is no need to establish definitive safeguard measure since the
elements of serious injury and imminent threat of serious injury has not been
established. The DTI Secretary disagreed with the findings of the Commission and
requested for an opinion from the DOJ. But the DOJ Secretary opined that Sec. 13 of
the SMA precluded a review by the DTI Secretary of the Tariff Commission’s
negative finding, or finding that a definitive safeguard measure should not be
imposed. Philcemcor then sought to set aside the finding of the DTI in the CA
which was opposed by Southern Cross, alleging that it was the CTA which has
jurisdiction over the case. The appellate court ruled that it had jurisdiction over the
petition for certiorari since it alleged grave abuse of discretion. It also refused to
annul the findings of the Tariff Commission. Lastly, it held that the DTI Secretary is
not bound by the findings of the Tariff Commission since such findings are merely
recommendatory and they fall within the ambit of the Secretary’s discretionary
review. Before the finality of the decision of the CA, the DTI Secretary issued a new
decision , ruling this time that since there was no longer any legal impediment to
his deciding Philcemcor’s application, he imposed a definitive safeguard measure on
the importation of gray Portland cement.
Q. Did the CA acquire jurisdiction over Philcemcor’s petition? Are the factual
findings of the Tariff Commission on the existence or non existence conditions
warranting the imposition of general safeguard measures binding upon the DTI
Secretary?
A. The Court does not doubt that the Court of Appeals’ certiorari powers extend to
correcting grave abuse of discretion on the part of an officer exercising judicial or
quasi-judicial functions. However, the special civil action for certiorari is available
only when there is no plain, speedy and adequate remedy in the ordinary course of
law. Southern Cross relies on this limitation, stressing that Sec. 29 of the SMA, is a
plain, speedy and adequate remedy in the ordinary course of law which Philcemcor
did not avail of. Under Sec. 29, to wit: “Any interested party who is adversely
affected by the ruling of the Secretary in connection with the imposition of a
safeguard measure may file with the CTA, a petition for review of such ruling within
30 days from receipt thereof. Sec. 29 of the SMA is worded in such a way that it
places under the CTA’s judicial review of all rulings of the DTI Secretary, which are
connected with the imposition of safeguard measure. This is sound and proper in
light of the specialized jurisdiction of the CTA in tax matters.
Considering that the Tariff Commission is an instrumentality of the

government, its actions are not beyond the pale of certiorari jurisdiction. Both the
Tariff Commission and the DTI Secretary may be regarded as agents of Congress
within their limited respective spheres, as ordained in the Safeguard Measures Act,
in the implementation of the said law which significantly draws its strength from the
plenary legislative power of taxation- indeed, even the president may be considered
as an agent of Congress for the purpose of imposing safeguard measures. When
Congress tasks the President or his/her alter egos to impose safeguard measures
under the delineated conditions, the President or the alter egos may be properly
deemed as agents of Congress to perform an act that inherently belongs as a
matter of right to the legislature. The positive final determination by the Tariff
Commission operates as an indispensable requisite to the imposition of the
safeguard measure. Congress in enacting the SMA and prescribing the roles to be
played therein by the Tariff Commission and the DTI Secretary did not envision that
the President, or his/her alter ego, could exercise supervisory powers over the Tariff
Commission- the Tariff Commission does not fall under the administrative
supervision of the DTI.
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COMMISSIONER OF CUSTOMS vs. PHILIPPINE PHOSPHATE
FERTILIZER CORPORATION [G.R. No. 144440, September 1,
2004]
Facts: Respondent Philippine Phosphate Fertilizer Corporation (Philphos) is a
domestic corporation engaged in the manufacture and production of fertilizers for
domestic and international distribution. It is registered with the Export Processing
Zone Authority (EPZA), now known as the Philippine Export Zone Authority (PEZA).
The manufacture of fertilizers required Philphos to purchase fuel and petroleum

products for its machineries. These fuel supplies are considered indispensable by
Philphos, as they are used to run the machines and equipment and in the
transformation of raw materials into fertilizer. The Petron Corporation (Petron) was
Philphos’ supplier, which imports the same and pays the corresponding customs
duties to the Bureau of Customs; and, the ad valorem and specific taxes to the BIR.
When the fuel and petroleum products are delivered at Philphos’s manufacturing
plant, Philphos is billed by Petron the corresponding customs duties imposed on
these products. Effectively thus, Philphos reimburses Petron for the customs duties
on the purchased fuels and petroleum products which are passed on by the Petron
as part of the selling price. Under this arrangement, Philphos indirectly paid as
customs duties, the amount of P20,149,473.77. Philphos sought the refund of
customs duties it had paid on the ground that Philphos is entitled to tax incentives
under Presidential Decree No. 66 (EPZA Law). The Bureau of Customs denied the
claim for refund.
Qs. Is Philphos entitled to refund? Has the claim for refund prescribed?
A. 1. Yes. The enunciated policy of the EPZA Law is to encourage and promote
foreign commerce as a means of making the Philippines a center of international
trade; strengthening our export trade and foreign exchange position; hastening
industrialization; reducing domestic unemployment; and accelerating the
development of the country, by establishing export processing zones in strategic
locations in the Philippines.
The incentives offered to enterprises duly registered with the PEZA consist, among
others, of tax exemptions. These benefits may, at first blush, place the government
at a disadvantage as they preclude the collection of revenue. Still, the expectation
is that the tax breaks ultimately redound to the benefit of the national economy,
enticing as they do more enterprises to invest and do business within the zones;
thus creating more employment opportunities and infusing more dynamism to the
vibrant interplay of market forces.
It is clear that Section 17(1) of EPZA Law considers such supplies exempt even if
they are used indirectly, as they had been in this case. Since Section 17(1) treats
these supplies for tax purposes as beyond the ambit of customs laws and
regulations, the arguments of the Commissioner invoking the provisions of the Tariff
and Customs Code must fail.
Moreover, reading Sec. 18 with Sec. 17 of the EPZA Law would mean that the
“additional incentives” under Section 18 which include allowance of net-operating
loss carry-over, accelerated depreciation, exemption from export tax, foreign
exchange assistance, financial assistance, exemptions for local taxes and licenses,
deductions for labor training services, and deductions for organizational and pre-
operating expenses are to be enjoyed in conjunction with the incentives under
Section 17. Section 17(1) is determinative of the fundamental question whether
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there is legal basis for the claim of exemption. On the other hand, Section 18(i)
does not impose limitations on the exemptions granted in the preceding provisions,
but would only affect, if at all, the modality by which the exemption takes form.
The Tax Reform Act of 1997 authorizes either a refund or credit as a means of
recovery of tax erroneously or illegally collected. Formally, a tax refund requires a
physical return of the sum erroneously paid by the taxpayer, while a tax credit
involves the application of the reimbursable amount against any sum that may be
due and collectible from the taxpayer. On the practical side, the taxpayer to whom
the tax is refunded would have the option, among others, to invest for profit the
returned sum, an option not proximately available if the taxpayer chooses instead
to receive a tax credit.
2. No. The EPZA Law itself is silent on the matter, and the prescriptive periods under
the Tariff and Customs Code and other revenue laws are inapplicable, by specific
mandate of Section 17(1) of the EPZA Law. Thus, the Civil Code provisions on solutio
indebiti may find application. The Court has in the past sanctioned the application of
the provisions on solutio indebiti in cases when taxes were collected thru error or
mistake. Thus, the claim for refund must be commenced within six (6) years from
date of payment pursuant to Article 1145(2) of the New Civil Code.
LOCAL TAXATION
Radio Communications of the Philippines, Inc. vs.

Provincial Assessor of South Cotabato (April 13, 2005)
FACTS: in 1957, RA 2036 granted RCPI a 50 year franchise and Sec. 14 of such
mandate it to pay the taxes required by law on real estate, buildings and other
personal property except radio equipment, machinery and spare parts needed in
connection with its business. In consideration of the franchise, a tax equal to one
and one-half per centum of all gross receipts from the business transacted under
this franchise by the grantee shall be paid and such shall be in lieu of any tax
collected by any authority. The municipal treasurer of Tupi, South Cotabato
subsequently assessed RCPI real property tax on its radio station building,
machinery shed, radio station tower and its accessories and generating sheds. RCPI
protested such assessment.
Q. Is RCPI liable to pay real property tax on the said properties?
A. YES. RCPI’s radio relay station tower, radio station building, and machinery shed
are real properties and are thus subject to real property tax. The “in lieu of all
taxes” clause in Section 14 of RA 2036, as amended by RA 4054, cannot exempt
RCPI from the real estate tax because the same Section 14 expressly states that
RCPI “shall pay the same taxes x x x on real estate, buildings x x x.” Subsequent
legislations have radically amended the “in lieu of all taxes” clause in franchises of
public utilities. The Local Government Code of 1991 “withdrew all the tax
exemptions existing at the time of its passage — including that of RCPI’s” with
respect to local taxes like the real property tax. Also, Republic Act No. 7716 (“RA
7716”) abolished the franchise tax on telecommunications companies effective 1
January 1996. To replace the franchise tax, RA 7716 imposed a 10 percent value-
added-tax on telecommunications companies under Section 102 of the National
Internal Revenue Code. Lastly, it is an elementary rule in taxation that exemptions
are strictly construed against the taxpayer and liberally in favor of the taxing
authority. It is the taxpayer’s duty to justify the exemption by words too plain to be
mistaken and too categorical to be misinterpreted.
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City of Davao vs. RTC, Branch XII, Davao City (Aug. 18,
2005)
FACTS: The GSIS Davao City Branch received a Notice of Public Auction scheduling
the public bidding of GSIS properties located in Matina and Ulas, Davao City for non
payment of realty taxes for the years 1992-1994 totalling P295,721.61. GSIS filed a
Petition for Cetiorari, Prohibition, Mandamus and/or Declaratory Relief and further
sought to enjoin the auction sale by praying for a restraining order in the RTC of
Davao City. The said petition sought to determine whether the exemption of the
GSIS from paying realty axes has been withdrawn by the Local Government Code.
The said court subsequently ruled that notwithstanding, the enactment of the Local
Government Code, the GSIS retained its exemption.
Q. Is GSIS still exempt from paying real property tax?

A.NO. The Court in ruling in the case of Mactan-Cebu International Airport Authority
non-exempt from realty taxes, considered that Sec. 133 of the Local Government
Code qualified the exemption of the National Government, its agencies and
instrumentalities from local taxation with the phrase “unless otherwise provided
herein”. Sec. 133 was not intended to be so absolute a prohibition on the power of
LGUs to tax the National Government, its agencies and instrumentalities. The
exemptions from real property taxes are enumerated in Sec. 234, which specifically
states that only real properties owned “by the Republic of the Philippines or any of
its political subdivisions” is exempted from payment of the tax. Clearly,
instrumentalities or GOCCs do not fall within the exceptions under Sec. 234. The
express withdrawal of all tax exemptions accorded to all persons natural or juridical,
as stated in Sec. 133 of the Local Government Code applies, without impediment to
the present case. The state is mandated to ensure local autonomy of local
governments, and local governments are empowered to levy taxes, fees, charges
that accrue exclusively to them, subject to congressional guidelines and limitations.
City Government of Quezon City vs. Bayan

Telecommunications Inc. (March 6, 2006)
FACTS: Bayantel was assessed real property taxes for its properties located in the
territorial jurisdiction of Quezon City. It opposed such claiming that its properties
were exempted by virtue of Sec. 11 of its franchise which exempts it from paying
such taxes. On the other hand, the said city anchors its actions on the provisions of
the LGC which allows local governments to collect real property tax.
Q. Is Bayantel liable to pay real property tax?
A. While Sec. 14 of RA 3259, the original franchise of Bayantel, may be validly

viewed as an implied delegation of power to tax, the delegation under that
provision, as couched, is limited to impositions over properties of the franchisee
which are not actually, directly and exclusively used in the pursuit of its franchise.
The realty tax exemption enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by Sec. 234 of the Local Government Code, has been
restored by Sec. 11 of RA 7633. The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be exercised by the local legislative
bodies, no longer merely by virtue of a valid delegation as before, but pursuant to
direct authority conferred by Sec. 5 Art. X of the Constitution. The Supreme Court
has upheld the power of Congress to grant exemptions over the power of local
government units to impose taxes.
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REAL PROPERTY TAXATION
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT
OF APPEALS, CITY OF PARAÑAQUE, et al. [G.R. No. 155650,
July 20, 2006]
Facts: Petitioner Manila International Airport Authority (MIAA) operates the

Ninoy Aquino International Airport (NAIA) Complex in Parañaque City under
Executive Order No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority (Charter). MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA Charter
further provides that no portion of the land transferred to MIAA shall be
disposed of through sale or any other mode unless specifically approved by
the President of the Philippines.
In 1997, the Office of the Government Corporate Counsel (OGCC)

issued an opinion stating that the Local Government Code of 1991 withdrew
the exemption from real estate tax granted to MIAA under Section 21 of the
MIAA Charter. MIAA received Final Notices of Real Estate Tax Delinquency
from the City of Parañaque for the taxable years 1992 to 2001. MIAA failed to
pay these taxes since they allege that they are still exempt from taxes under
Sec. 21 of its Charter. The City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands and
Buildings. MIAA filed with the Court of Appeals an original petition for
prohibition and injunction to restrain the City of Parañaque from imposing
real estate tax on, levying against, and auctioning for public sale the Airport
Lands and Buildings.
Respondents invoke Section 193 of the Local Government Code, which

expressly withdrew the tax exemption privileges of “government-owned and-
controlled corporations” upon the effectivity of the Local Government Code.
Also, it cited the ruling of the Court in Mactan International Airport v. Marcos
(216 SCRA 667) where the Court held that the Local Government Code has
withdrawn the exemption from real estate tax granted to international
airports.
Q. Are the Airport Lands and Buildings of MIAA exempt from real estate tax
under existing laws?
A. YES. First, MIAA is not a government-owned or controlled corporation but

an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of
the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation

Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a government-owned or controlled corporation as any agency
organized as a stock or non-stock corporation, vested with functions relating
to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or,
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where applicable as in the case of stock corporations, to the extent of at
least 51% of its capital stock.
MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock

corporation because it has no capital stock divided into shares. MIAA has no
stockholders or voting shares. MIAA is also not a non-stock corporation
because it has no members. Also, non-stock corporations cannot distribute
any part of their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to the
National Treasury. This prevents MIAA from qualifying as a non-stock
corporation.
MIAA is a government instrumentality vested with corporate powers to

perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested with
corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government “instrumentality” as any agency
of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with
some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. A government
instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which recognizes the basic principle that local governments cannot tax
the national government.
Many government instrumentalities are vested with corporate powers but

they do not become stock or non-stock corporations. These government
instrumentalities are sometimes loosely called government corporate
entities. However, they are not government-owned or controlled corporations
in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government
entities.
Section 133 of the Local Government Code starts with the saving clause
“unless otherwise provided in this Code.” This means that unless the Local
Government Code grants an express authorization, local governments have
no power to tax the national government, its agencies and instrumentalities.
Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule,
local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in
Section 234(a) of the Code, which makes the national government subject to
real estate tax when it gives the beneficial use of its real properties to a
taxable entity.
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
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Properties of public dominion mentioned in Article 420 of the Civil Code, like
“roads, canals, rivers, torrents, ports and bridges constructed by the State,”
are owned by the State. The term “ports” includes seaports and airports.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the Republic of
the Philippines. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport Lands
and Buildings as properties for public use. The operation by the government
of a tollway does not change the character of the road as one for public use.
Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among
the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads. Such fees
are often termed user’s tax.
b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus
are properties of public dominion. As properties of public dominion, the
Airport Lands and Buildings are outside the commerce of man. Also, property
of public dominion, being outside the commerce of man, cannot be the
subject of an auction sale. Any encumbrance, levy on execution or auction
sale of any property of public dominion is void for being contrary to public
policy. Before MIAA can encumber the Airport Lands and Buildings, the
President must first withdraw from public use the Airport Lands and
Buildings. Thus, unless the Airport Lands and Buildings are withdrawn by law
or presidential proclamation from public use, they are properties of public
dominion, owned by the Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic. Section 48, Chapter 12, Book I of the Administrative Code allows
instrumentalities like MIAA to hold title to real properties owned by the
Republic. Its status as a mere trustee of the Airport Lands and Buildings is
clearer because even its executive head cannot sign the deed of conveyance
on behalf of the Republic. Only the President of the Republic can sign such
deed of conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport
Lands and Buildings from the Bureau of Air Transportation of the Department
of Transportation and Communications without the Republic receiving cash,
promissory notes or even stock since MIAA is not a stock corporation. Such
transfer was not meant to transfer beneficial ownership of these assets from
the Republic to MIAA. The purpose was merely to reorganize a division in the
Bureau of Air Transportation into a separate and autonomous body. The
Republic remains the beneficial owner of the Airport Lands and Buildings.
MIAA itself is owned solely by the Republic. No party claims any ownership
rights over MIAA’s assets adverse to the Republic.
e. Real Property Owned by the Republic is Not Taxable

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Section 234(a) of the Local Government Code exempts from real estate tax
any “real property owned by the Republic of the Philippines.” This exemption
should be read in relation with Section 133(o) of the same Code, which
prohibits local governments from imposing “taxes, fees or charges of any
kind on the National Government, its agencies and instrumentalities.”
While Section 234(a) of the Local Government Code states that real property
owned by the Republic loses its tax exemption only if the “beneficial use
thereof has been granted, for consideration or otherwise, to a taxable
person,” MIAA, as a government instrumentality, is not a taxable person
under Section 133(o) of the Local Government Code. Thus, even assuming
that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real
estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to
private entities are not exempt from real estate tax. For example, the land
area occupied by hangars that MIAA leases to private corporations is subject
to real estate tax. In such a case, MIAA has granted the beneficial use of
such land area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. This was the ruling enunciated in the
case of Lung Center of the Philippines vs. Quezon City (G.R. No. 144104.
June 29, 2004)
LUNG CENTER OF THE PHILIPPINES vs. QUEZON CITY and

CONSTANTINO P. ROSAS [G.R. No. 144104. June 29, 2004]
Facts: The petitioner Lung Center of the Philippines is a non-stock and non-
profit entity. It is the registered owner of a 121,463 square meter parcel of
land located at Quezon City. Erected in the middle of the aforesaid lot is a
hospital known as the Lung Center of the Philippines. A big space at the
ground floor is being leased to private parties, for canteen and small store
spaces, and to medical or professional practitioners who use the same as
their private clinics for their patients whom they charge for their professional
services. Almost one-half of the entire area on the left side of the building
along Quezon Avenue is vacant and idle, while a big portion on the right side
is being leased for commercial purposes to a private enterprise known as the
Elliptical Orchids and Garden Center. Petitioner accepts paying and non-
paying patients. It also renders medical services to out-patients, both paying
and non-paying. Aside from its income from paying patients, the petitioner
receives annual subsidies from the government. Both the land and the
hospital building of the petitioner were assessed for real property taxes
(P4,554,860) by the City Assessor of Quezon City. Petitioner avers that it is a
charitable institution within the context of Section 28(3), Article VI of the
1987 Constitution.
Q. Is petitioner a charitable institution within the context of PD1823 and the

1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160?
Are the real properties of the petitioner exempt from real property taxes?
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A. 1.) YES, petitioner is a charitable institution within the context of PD 1823
and RA 7160.
To determine whether an enterprise is a charitable institution/entity or
not, the elements which should be considered include the statute creating
the enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.
The petitioner is a non-profit and non-stock corporation organized for the

welfare and benefit of the Filipino people principally to help combat the high
incidence of lung and pulmonary diseases. The medical services of the
petitioner are to be rendered to the public in general in any and all walks of
life including those who are poor and the needy without discrimination. After
all, any person, the rich as well as the poor, may fall sick or be injured or
wounded and become a subject of charity.
As a general principle, a charitable institution does not lose its character as

such and its exemption from taxes simply because it derives income from
paying patients, whether out-patient, or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted or
used altogether to the charitable object which it is intended to achieve; and
no money inures to the private benefit of the persons managing or operating
the institution. Exemptions in favor of charitable institutions are based on the
benefit conferred upon the public by them, and a consequent relief, to some
extent, of the burden upon the state to care for and advance the interests of
its citizens. The fact that paying patients are taken, the profits derived from
attendance upon these patients being exclusively devoted to the
maintenance of the charity, seems rather to enhance the usefulness of the
institution to the poor.
2.) NO, those portions of its real property that are leased to private entities
are not exempt from real property taxes as these are not actually, directly
and exclusively used for charitable purposes. The Lung Center of the
Philippines shall be exempt from the payment of taxes, charges and fees
imposed by the Government or any political subdivision or instrumentality
thereof with respect to equipment purchases made by, or for the Lung
Center. It is plain as day that under the decree, the petitioner does not enjoy
any property tax exemption privileges for its real properties as well as the
building constructed thereon.
The tax exemption under Section 28(3), Article VI covers property taxes only.
What is exempted is not the institution itself but lands, buildings and
improvements actually, directly and exclusively used for religious, charitable
or educational purposes. Under the 1973 and 1987 Constitutions and Rep.
Act No. 7160 in order to be entitled to the exemption, the petitioner is
burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes. What is meant by actual, direct
and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for
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which the charitable institution is organized. It is not the use of the income
from the real property that is determinative of whether the property is used
for tax-exempt purposes.
MANILA ELECTRIC COMPANY vs. NELIA A. BARLIS, in her

capacity as Officer-in-Charge/Acting Municipal Treasurer
of Muntinlupa
[G.R. No. 114231, May 18, 2001]
Facts: From 1968 to 1972 the Manila Electric Company (MERALCO) erected 4
power generating plants in Sucat, Muntinlupa. From 1975 to 1978 MERALCO
paid the real property taxes on the said properties on the basis of their
assessed value as stated in the tax declarations. In 1978, MERALCO sold all
the power-generating plants including the landsite to the NAPOCOR. In 1985,
the Offices of the Municipal Assessor and Municipal Treasurer of Muntinlupa
discovered that MERALCO misdeclared and/or failed to declare for taxation
purposes a number of real properties, consisting of several equipment and
machineries, found in the said power plants. In 1986, the Municipal Treasurer
of Muntinlupa issued several collection notices to MERALCO, ordering it to
pay the deficiency in the real property taxes in the amount of
P36,000,000.00 covering the machineries and equipment in the said power
plants. MERALCO did not pay the tax assessed. Accordingly, after issuing the
requisite certification of non-payment of real property taxes and complying
with the additional requirement of public posting of the notice of
delinquency, the Municipal Treasurer issued warrants of garnishment
ordering the attachment of the bank deposits of MERALCO with the PCIB,
METROBANK and the BPI to the extent of its unpaid real property taxes.
MERALCO filed before the RTC of Makati a Petition for Prohibition. The
Municipal Treasurer filed a Motion to Dismiss on the grounds of: (1) lack of
jurisdiction since, under Sec. 64 of the Real Property Tax Code, courts are
prohibited from entertaining any suit assailing the validity of a tax assessed
until the taxpayer shall have paid, under protest, the tax; and (2) lack of
cause of action by reason of MERALCO’s failure to question the notice of
assessment before the Local Board of Assessment Appeals.
Qs. Does the trial court has jurisdiction over the questioned petition for
prohibition? Is petitioner a taxpayer contemplated under Sec. 64 of the Real
Property Tax Code? Were the 1986 notices equivalent to an assessment,
thus subject to protest to the LBAA? Should payment of real property tax be
made by proceeding against the real property itself or any personal property
located therein, and not the separate personal property of petitioner,
specifically its bank deposits?
A. 1. None. The trial court has no jurisdiction to entertain a Petition for

Prohibition absent petitioner’s payment, under protest, of the tax assessed
as required by Sec. 64 of the RPTC. Payment of the tax assessed under
protest, is a condition sine qua non before the trial court could assume
jurisdiction over the petition. This rule is consistent with the doctrine that
taxes are the lifeblood of the government.
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2. Yes. It is an accepted principle in taxation that taxes are paid by the
person obliged to declare the same for taxation purposes. Under the Real
Property Tax Code, the duty to declare the true value of real property for
taxation purposes is imposed upon the owner, or administrator, or their duly
authorized representatives. When these persons fail or refuse to make a
declaration of the true value of their real property within the prescribed
period, the provincial or city assessor shall declare the property in the name
of the defaulting owner and assess the property for taxation. The notice of
assessment and collection was directed to petitioner, not because it is still
the present owner of the subject real property but because it is the
defaulting owner thereof who has failed to make proper tax declaration and
the proper tax payment thereon.
3. Yes. A notice of assessment should effectively inform the taxpayer of the

value of a specific property, or proportion thereof subject to tax, including
the discovery, listing, classification, and appraisal of properties. From the
tone and content of the notices, the 3 September 1986 notices sent by the
Municipal Treasurer to MERALCO are the notices of assessment required by
the law as it merely informed the petitioner that it has yet to pay the taxes in
accordance with the reassessed values of the real property mentioned
therein. However, the trial court is without authority to address the alleged
irregularity in the issuance of the notices of assessment without prior tax
payment, under protest, by petitioner. Thus, petitioner must have questioned
the correctness of the assessments before the Local Board of Assessment
Appeals (LBAA), and later, in the Central Board of Assessment Appeals
(CBAA).
4. No. While real property tax constitutes a lien on the property subject to
tax, the RPTC affords local government units three (3) concurrent and
simultaneous remedies to enforce the Code’s provisions, namely: (a)
distraint of personal property, (b) sale of delinquent real property, and (c)
collection of real property tax through ordinary court action. The remedy of
levy can be pursued by putting up for sale the real property subject of tax,
i.e., the delinquent property upon which the tax lien attaches, regardless of
the present owner or possessor thereof. The remedy of distraint and levy of
personal property meanwhile allows the taxing authority to subject any
personal property of the taxpayer to execution, save certain exceptions as
enumerated under Sec. 69 of the RPTC. Bank deposits are not among those
exceptions.
MANILA ELECTRIC COMPANY vs. NELIA A. BARLIS, in her

capacity as Officer-in-Charge/ Acting Municipal Treasurer
of Muntinlupa[G.R. No. 114231, Jun 29, 2004]
Facts: A Motion for Reconsideration was filed by petitioner on the decision of

the Court dated May 18, 2001. The petitioner argued that the notices issued
by the Municipal Treasurer of Muntinlupa were not notices of assessment
envisaged in Section 3 of P.D. No. 464 (RPTC). The petitioner pointed out that
the said notices did not contain the assessor’s findings regarding the kind of
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real estate, area, unit value, market value, actual use and assessment level;
and, in the case of the machinery attached to the land, the description of the
machinery, date of operation, original cost, depreciation, market value and
assessment level. Hence, the said notices could not be used as bases for
filing an appeal to the Local Board of Assessment Appeals under Section 30
of the Real Property Tax Code, which clearly adverts to a written notice of
assessment. Thus, the petitioner contended, it could not be required to avail
of the prescribed administrative remedies in protesting an erroneous tax
assessment under the said Code.
The Court issued a Resolution denying with finality the petitioner’s motion for
reconsideration. The Court, however, reversed its ruling that the notices sent
by the respondent to the petitioner were notices of assessment. It
categorically stated that the notices were, in fact, notices of collection. The
foregoing notwithstanding, the Court ruled against a remand of the case to
the trial court since the issue in the main case was one of jurisdiction and as
such the Court ruled that the RTC has none.
The petitioner then filed a Second Motion for Reconsideration. It contended

that after the Court held in its February 1, 2002 Resolution that the
September 3, 1986 and October 31, 1989 notices sent by the respondent to
the petitioner were notices of collection, thus, justifying its conclusion that
Section 614 of P.D. No. 464 was not applicable, the Court should have
ordered the case remanded to the trial court for further proceedings
considering that while the material findings in the instant case were
reversed, the petitioner’s motion for reconsideration was altogether denied.
The petitioner avers that it should not be prevented from moving for a
rectification of this Court’s inconsistent stance.
Q. Should the Decision be set aside and the case remanded to the trial court
for further proceedings, in view of the factual findings contained in the
Court’s February 1, 2002 Resolution?
A. Yes. An assessment fixes and determines the tax liability of a taxpayer. It

is a notice to the effect that the amount therein stated is due as tax and a
demand for payment thereof. The assessor is mandated under Section 27 of
the law to give written notice within thirty days of such assessment, to the
person in whose name the property is declared. The notice should indicate
the kind of property being assessed, its actual use and market value, the
assessment level and the assessed value.
In the Court’s February 1, 2002 Resolution, it said that it is apparent why the
foregoing cannot qualify as a notice of tax assessment. A notice of
assessment as provided for in the RPTC should effectively inform the
taxpayer of the value of a specific property, or proportion thereof subject to
tax, including the discovery, listing, classification, and appraisal of
properties. The September 3, 1986 and October 31, 1989 notices do not
contain the essential information that a notice of assessment must specify,
namely, the value of a specific property or proportion thereof which is being
taxed, nor does it state the discovery, listing, classification and appraisal of
the property subject to taxation. In fact, the tenor of the notices bespeaks an
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intention to collect unpaid taxes, thus the reminder to the taxpayer that the
failure to pay the taxes shall authorize the government to auction off the
properties subject to taxes or, in the words of the notice. Furthermore, even
the Bureau of Local Government Finance (BLGF), upon whose
recommendation former Municipal Treasurer Alon relied in the collection of
back taxes against petitioner, deemed the September 3, 1986 notice as a
"collection letter."
Indeed, even the respondent admitted in his comment on the petition that
respondent did not issue any notice of assessment because statutorily, he is
not the proper officer obliged to do so. Under Chapter VIII, Sections 90 and
90-A of the RPTC, the functions related to the appraisal and assessment for
tax purposes of real properties situated within a municipality pertains to the
Municipal Deputy Assessor and for the municipalities within Metropolitan
Manila, the same is lodged on the Municipal Assessor.
The petitioner denied receiving copies of the Tax Declarations prepared by

the respondent Municipal Assessor in 1985. In the face of the petitioner’s
denial, the respondent was burdened to prove the service of the tax
declarations on the petitioner. The record is bereft of evidence regarding this
matter. The respondent even failed to append a copy of the said receipt in its
motion to dismiss in the trial court.
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GENERAL PRINCIPLES

CIR vs. Pineda, September 15, 1967, 21 SCRA 105

CIR vs. CTA, July 21, 1994, 234 SCRA 348

Q. Is the neglect, omission, error or mistake committed by the officers or agents of

YMCA vs. CIR, 298 SCRA 83

Facts: YMCA, a “welfare, educational, and charitable non-profit corporation, leased

Q. Is the contention of YMCA tenable?

Philippine Guaranty Co., Inc. vs. CIR, 13 SCRA 780, (1965)

Q. Is the contention of petitioner correct?

A. No, considering that the reinsurance premiums in question were afforded

Benefits-Protection Theory or Doctrine of Symbiotic

CIR vs. Algue, L-28896, February 17, 1988

Taxes are personal to the taxpayer.

Sunio vs. NLRC, L-57767, January 31, 1984

Q. Can a corporation’s tax delinquency be enforced against its stockholders?

When stockholders may be held liable for unpaid taxes of

Tan vs. Commissioner, L-15778, April 23, 1962

Republic vs. Patanao, L-22356, July 21, 1967

Q. Is the contention of the defendant tenable?

ASPECTS, PROCESSES, PHASES OF TAXATION

Tolentino, et al. vs Secretary of Finance, August 25,

Q. Is contention of the petitioners correct?

A. The power of the Senate to propose amendments must be understood to be full,

SCOPE OF THE LEGISLATIVE POWER TO TAX

Discretion as to purposes for which taxes shall be levied.

Walter Lutz vs J. Antonio Araneta, L-7859, December 22,

Discretion as to subjects of taxation.

Gomez vs. Palomar, L-23645, October 29, 1968, 25 SCRA

Q. Does RA 1635 violates the equal protection clause and therefore

The eradication of a dreaded disease is a public purpose, but if by public

Punsalan vs. The Municipal Board of the City of Manila, 95

Q. Is it within the jurisdiction of the courts to determine what entities should be

Judicial Review of Taxation

Q. Who among the contenders is correct?

A. Finding in favor of the respondent’s contention, the SC held that, being an

City of Baguio vs. De Leon, 25 SCRA 938

Bagatsing, et al. vs Ramirez, 74 SCRA 306

Q. Is the contention of the petitioners correct?

SECONDARY OR NON-REVENUE PURPOSES

Commissioner vs. Central Luzon Drug, 456 SCRA 414

Tio vs Videogram Regulatory Board, 151 SCRA 208

Q. Is the decree unconstitutional?

Manila Race Horse Trainers Association vs De La Fuente,

Q. Is there an arbitrary classification?

Walter Lutz vs J. Antonio Araneta, L-7859, December 22,

Roxas, et al. vs CTA, L-25043, April 26, 1968, 23 SCRA 276

The power of taxation is sometimes called also the power to destroy.

EXTENT OF THE TAXING POWER

Q. Is the decree unconstitutional?

PRINCIPLES OF SOUND TAX SYSTEM:

Chavez vs. Ongpin, 186 SCRA 331

Q. Is the contention of the petitioner and intervenor correct?

A. No, to continue collecting real property taxes based on valuations arrived at

Taxes are not subject to set-off.

Francia vs. IAC, June 28 1988, 62 SCRA 753

Q. Can taxes be set-off?

A claim for taxes is not such debt, demand, contract or judgment as is

Republic vs. Ericta, 172 SCRA 623, 1989

Q. Can there be a legal compensation in this case?

CIR vs. Esso Standard, 172 SCRA 364, 1989

INHERENT LIMITATIONS ON THE POWER TO TAX

Walter Lutz vs. J. Antonio Araneta, L-7859, December 22,

Tio vs. Videogram Regulatory Board, 151 SCRA 208

Q. Is the decree unconstitutional?